2/28/2021

Strategic Management Course

Lecturers: Nguyen Anh Duy, PhD.

Contact: Duyna@uef.edu.vn

AD @ UEF 2021

Day 3: Key concepts about Strategic

Management
Environmental Scanning and
Industry Analysis

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Learning Objectives (1 of 2)

4-1 List the aspects of an organization’s environment that can influence its
long-term decisions
4-2 Identify the aspects of an organization’s environment that are most
strategically important
4-3 Conduct an industry analysis to explain the competitive forces that
influence the intensity of rivalry within an industry
4-4 Discuss how industry maturity affects industry competitive forces
4-5 Categorize international industries based on their pressures for
coordination and local responsiveness

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Learning Objectives (2 of 2)
4-6 Identify key success factors and develop an industry matrix
4-7 Construct strategic group maps to assess the competitive positions
of firms in an industry
4-8 Develop an industry scenario as a forecasting technique
4-9 Use publicly available information to conduct competitive
intelligence
4-10 Be able to construct an EFAS Table that summarizes external
environmental factors

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 External analysis allows firm to

 To discover threats and opportunities
 To see if above normal profits are likely in the industry
 To better understand the nature of competition in an industry
 To make more informed strategic choices

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Internal Environment External Environment

• Product Micro Macro

• Price
 Customers  Political
• Place
• Promotion  Competitors  Legal
• People  Stakeholders  Economic
• Processes  Social /cultural
• Physical Evidence  Technological
• Buildings
• Equipment

controllable uncontrollable

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Relationships Between Key External Forces

and an Organization

3-7

General
Environment
 The PESTELAnalysis: Analysis

political
economic
social
technical
ecological
legal

Industry
Analysis

PESTEL provides a comprehensive list of influences on the

possible success or failure of particular strategies.

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Components of the Macro-Environment

The size, growth rate, and age distribution of different sectors of the
Demographics population. It includes the geographic distribution of the population, the
distribution of income across the population, and trends in these factors.

Societal values, attitudes, cultural factors, and lifestyles that impact

Social forces
businesses. Social forces vary by locale and change over time.
Political policies and processes, as well as the regulations and laws with
Political, legal, which companies must comply—labor laws, antitrust laws, tax policy,
and regulatory regulatory policies, the political climate, and the strength of institutions such
factors as the court system.
Ecological and environmental forces such as weather, climate, climate
Natural change, and associated factors like water shortages.
environment
The pace of technological change and technical developments that have
Technological the potential for wide-ranging effects on society, such as genetic
factors engineering, the rise of the Internet, changes in communication
technologies, and knowledge and controlling the use of technology,
Conditions and changes in global markets, including political events and
Global forces policies toward international trade, sociocultural practices and the
institutional environment in which global markets operate.
Rates of economic growth, unemployment, inflation, interest, trade deficits
General or surpluses, savings, per capita domestic product, and conditions in the
economic markets for stocks and bonds affecting consumer confidence and
discretionary income.
conditions

Apply selectively –identify specific factors which

impacton the industry, market and organisation in
question.
Identify factors which are important currently but
also consider which will become more important in
the next few years.
Use data to support the points and analyse trends
using up to date information
Identify opportunities and threats – the main point
of the exercise!

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Strategic Analysis

4-11

Strategic Analysis

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Strategic Analysis

4-13

Strategic Analysis

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Environmental Scanning
• Environmental scanning
– the monitoring, evaluation, and
dissemination of information relevant to
the organizational development of
strategy

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Identifying External
Environmental Variables (1 of 4)
• Natural environment
– includes physical resources, wildlife, and climate
that are an inherent part of existence on Earth
– form an ecological system of interrelated life

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Identifying External
Environmental Variables (2 of 4)

• Societal environment
– humankind’s social system that includes general
forces that do not directly touch on the short-run
activities of the organization, but that can
influence its long-term decisions
– factors: economic, technological, political-legal,
sociocultural 4-17

Identifying External
Environmental Variables (3 of 4)
• Task environment
– those elements or groups that directly affect a
corporation and, in turn, are affected by it
– government, local communities, suppliers,
competitors, customers, creditors,
employees/labor unions, special-interest groups,
and trade associations 4-18

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Identifying External
Environmental Variables (4 of 4)

• Industry analysis
– an in-depth examination of key factors within a
corporation’s task environment

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Key External Forces

External forces can be divided into five
broad categories:
1. economic forces
2. social, cultural, demographic, and natural
environment forces
3. political, governmental, and legal forces
4. technological forces
5. competitive forces
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Relationships Between Key External Forces

and an Organization

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The Process of Performing an

External Audit
• First, gather competitive intelligence and
information about economic, social, cultural,
demographic, environmental, political,
governmental, legal, and technological trends.
• Information should be assimilated and evaluated
• A final list of the most important key external
factors should be communicated
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The Industrial Organization

(I/O) View
• The Industrial Organization (I/O) approach
to competitive advantage advocates that
external (industry) factors are more
important than internal factors in a firm for
gaining and sustaining competitive
advantage.
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Economic Forces
• Shift to service economy
• Availability of credit • Income differences by region and
• Level of disposable income consumer group
• Propensity of people to spend • Price fluctuations
• Interest rates • Foreign countries’ economic conditions
• Inflation rates • Monetary and Fiscal policy
• GDP trends • Stock market trends
• Consumption patterns • Tax rate variation by country and state
• Unemployment trends • European Economic Community (EEC)
• Value of the dollar policies
• Import/Export factors • Organization of Petroleum Exporting
Countries (OPEC) policies
• Demand shifts for different goods and
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Advantages of a Strong Dollar

1. Leads to lower exports
2. Leads to higher imports
3. Makes U.S. goods expensive for foreign consumers
4. Helps keep inflation low
5. Allows U.S. firms to purchase raw materials cheaply from
other countries
6. Allows U.S. to service its debt better
7. Spurs foreign investment
8. Encourages Americans to travel abroad
9. Leads to lower oil prices because oil globally is priced in U.S.
dollars
10. Encourages Americans to spend money because they can
buy more for their money
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Social, Cultural, Demographic, and

Natural Environmental Forces
• U.S. Facts
– Aging population
– Less white
– 2050 = 20% population > 65 years
– 2075 = no ethnic or racial majority

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Key Social, Cultural, Demographic, and Natural

Environmental Variables
• Population changes by race, age, and
geographic area • Attitudes toward retirement
• Regional changes in tastes and • Energy conservation
preferences • Attitudes toward product quality
• Number of marriages • Attitudes toward customer service
• Number of divorces • Pollution control
• Number of births • Attitudes toward foreign peoples
• Number of deaths • Energy conservation
• Immigration and emigration rates • Social programs
• Social Security programs • Number of churches
• Life expectancy rates • Number of church members
• Per capita income • Social responsibility issues
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• Social media pervasiveness

Political, Governmental, and

Legal Forces
• The increasing global interdependence
among economies, markets, governments,
and organizations makes it imperative that
firms consider the possible impact of
political variables on the formulation and
implementation of competitive strategies.

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Political, Government, and

Legal Variables

• Environmental regulations • USA vs. other country

relationships
• Number of patents • Political conditions in foreign
• Changes in patent laws countries
• Equal employment laws • Global price of oil changes
• Local, state, and federal laws
• Level of defense expenditures • Import–export regulations
• Unionization trends • Tariffs
• Antitrust legislation • Local, state, and national elections

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Technological Forces
New technologies such as:
• the Internet of Things
• 3D printing
• the cloud
• mobile devices
• biotech
• analytics
• autotech
• robotics and
• artificial intelligence
are fueling innovation in many industries, and impacting strategic-planning decisions.

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Scanning the Societal Environment: STEEP

Analysis

• STEEP analysis
– monitoring trends in the societal and natural
environments
– sociocultural, technological, economic, ecological,
and political-legal forces

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Table 4-1: STEEP Analysis: Monitoring Trends in

the Societal and Natural Environments

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Table 4-2: Demographic trends are part of the sociocultural

aspect of the societal environment.

SOURCES: Developed from Pew Research Center analysis of census bureau population projections (September 3, 2015),
(http://www.people-press.org/2015/09/03/the-whys-and-hows-of-generations-research/generations_2/).

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Current Sociocultural Trends

• Increasing environmental awareness
• Growing health consciousness
• Expanding seniors market
• Impact of millennials
• Declining mass market
• Changing pace and location of life
• Changing household composition
• Increasing diversity of workforce and markets

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Technological Breakthroughs

• Portable information devices and electronic

networking
• Alternative energy sources
• Precision farming
• Virtual personal assistants
• Genetically altered organisms
• Smart, mobile robots

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Categories of Risk: Climate Change

• Regulatory
• Supply chain
• Product and technology
• Litigation
• Reputational
• Physical

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Table 4-3: Some Important Variables in

International Societal Environments

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Figure 4-1: Scanning the External Task

Environment

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Figure 4-2: Forces Driving Industry Competition

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http://www.youtube.com/watch?feature=endscreen&NR=1&v=mYF2_FBCvXw

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The Five-Forces Model of Competition

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The Five-Forces Model of Competition

1. Identify key aspects or elements of each
competitive force that impact the firm.
2. Evaluate how strong and important each
element is for the firm.
3. Decide whether the collective strength of the
elements is worth the firm entering or
staying in the industry.
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Threat of New Entrants

• Threat of new entrants
– new entrants to an industry bring new
capacity, a desire to gain market share
and substantial resources
• Entry barrier
– an obstruction that makes it difficult
for a company to enter an industry

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Barriers to Entry
Some of the possible barriers to entry are:
• Economies of scale
• Product differentiation
• Capital requirements
• Switching costs
• Access to distribution channels
• Cost disadvantages independent of size
• Government policies

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Rivalry Among Existing Firms (1 of 2)

• In most industries, corporations are mutually
dependent.
• A competitive move by one firm can be expected to
have a noticeable effect on its competitors and thus
may cause retaliation.

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Rivalry Among Existing Firms (2 of 2)

According to Porter, intense rivalry is related to
the presence of several factors, including:
• Number of competitors
• Rate of industry growth
• Product or service characteristics
• Amount of fixed costs
• Capacity
• Height of exit barriers
• Diversity of rivals
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Threat of Substitute Products or Services

• Substitute product
– a product that appears to be different but can
satisfy the same need as another product
• The identification of possible substitute products means searching for
products that can perform the same function, even though they have a
different appearance.

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The Bargaining Power of Buyers (1 of 2)

• Buyers affect an industry through their ability

to force down prices, bargain for higher
quality or more services, and play competitors
against each other.

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The Bargaining Power of Buyers (2 of 2)

• Bargaining power of buyers:

– Large purchases
– Backward integration
– Alternative suppliers
– Low cost to change suppliers
– Product represents a high percentage of
buyer’s cost: Incented to shop around
– Buyer earns low profits: Cost/service sensitive
– Product is unimportant to buyer
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The Bargaining Power of Suppliers (1 of 2)

• Suppliers can affect an industry through their

ability to raise prices or reduce the quality of
purchased goods and services.

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The Bargaining Power of Suppliers (2 of 2)

A buyer or a group of buyers is powerful if some of the following factors
hold true:
• Industry is dominated by a few companies
• Unique product or service
• Substitutes are not readily available
• Ability to forward integrate
• Unimportance of product or service to the industry

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Relative Power of Other Stakeholders

• Government
• Local communities
• Creditors
• Trade associations
• Special-interest groups
• Unions
• Shareholders
• Complementors
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Low entry barriers

Suppliers and buyers have

considerable bargaining
power
Unattractive
Industry Strong competition from
substitute products

Low profit potential Intense rivalry among

competitors

High entry barriers and

no firm is likely to enter

Suppliers and buyers are in

Attractive weak bargaining positions

Industry
Few threats from
substitute products
High profit potential

Moderate rivalry
among competitors

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Rivalry
Low

Time 0
New Entrants
Substitute
Low Low
High High

High High
Time + 5
High

Low Low

Supplier Power
Buyer Power

Source: Johnson, Scholes and Whittington (2008):72

Benefitstoindustry(+) Disadvantagestoindustry(-)

Threatofnewentrants •Lowentrybarriersresultinmanynew
entrants
•Internetanddigital-based
capabilitiescanbeeasilycopied
Bargainingpowerof •Reducesthepowerof •Lowswitchingcosts
buyers buyerintermediaries •Informationreadilyavailabletoend-
usersandbuyergroups
Bargainingpowerof •Onlinepurchasing •Internetprovidesaneasilymeansfor
suppliers methodscanincrease supplierstoreachtheend-usersdirectly
bargainingpowerover •Onlineprocurementpracticesdeter
suppliers competitionandreducedifferentiating
features
Threatofsubstitutes •Internet-basedincreases •Moreopportunitiesforsubstitution
inoverallefficiencycan
expandindustrysales
Intensityofrivalry •Differencesamongcompetitorsare
hardertoperceiveonline
•Rivalrytendstofocusonpriceinstead
offeatures

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 Who are the powerful buyers?

 What are the substitutes?
 Are there powerful suppliers?
 How hard is it to enter the industry today?
 Is music publishing an attractive industry?
 Are there specific market segments?
 Are there identifiable strategic groups?

 What key drivers can you identify that will change

the future structure of the music industry?

 What do you think are the implications of digital

access to music & what are the future revenue
streams?

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Artists

Retail Outlets

Record Labels

Digital distributors

Competitive Forces
• An important part of an external audit is
identifying rival firms and determining their
strengths, weaknesses, capabilities,
opportunities, threats, objectives, and
strategies

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Competitive Forces
Characteristics of the most competitive
companies:
1. Strive to continually increase market share
2. Use the vision/mission as a guide for all decisions
3. Whether it's broke or not, fix it–make it better
4. Continually adapt, innovate, improve
5. Acquisition is essential to growth
6. Hire and retain the best employees and managers possible
7. Strive to stay cost-competitive on a global basis

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Key Questions About Competitors

1. What are the strengths of our major competitors?
2. What are the weaknesses of our major competitors?
3. What are the objectives and strategies of our major competitors?
4. How will our major competitors most likely respond to current economic, social, cultural,
demographic, environmental, political, governmental, legal, technological, and
competitive trends affecting our industry?
5. How vulnerable are the major competitors to our alternative company strategies?
6. How vulnerable are our alternative strategies to successful counterattack by our major
competitors?
7. How are our products or services positioned relative to major competitors?
8. To what extent are new firms entering and old firms leaving this industry?
9. What key factors have resulted in our present competitive position in this industry?
10.How have the sales and profit rankings of our major competitors in the industry
changed over recent years? Why have these rankings changed that way?
11.What is the nature of supplier and distributor relationships in this industry?
12.To what extent could substitute products or services be a threat to our competitors?

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COMPETITOR ANALYSIS
COMPETITOR INTELLIGENCE
■ Set of data and information the firm gathers to better
understand and anticipate competitors' objectives,
strategies, assumptions, and capabilities
■ The ethical and legal gathering of needed information
and data that provides insight into:
● What drives competitors
■ Shown by organization's future objectives
● What the competitor is doing and can do
■ Revealed in organization's current strategy
● What the competitor believes about the industry
■ Shown in organization's assumptions
● What the competitor’s capabilities are
■ Shown by organization's strengths and weaknesses

COMPETITOR ANALYSIS COMPONENTS

FIGURE 2.3
Competitor
Analysis
Components

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Discussion time

Discussion time

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Discussion time

Discussion time

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Industry Evolution
• Fragmented industry
– no firm has a large market share and
each firm only serves a small piece of
the total market in competition with
other firms
• Consolidated industry
– domination by a few large firms, each
struggles to differentiate products
from its competition

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Figure 4-4: Mapping Strategic Groups in the U.S. Restaurant

Chain Industry

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Strategic Types
• Defenders
– focus on improving efficiency
• Prospectors
– focus on product innovation and market opportunities
• Analyzers
– focus on at least two different product market areas
• Reactors
– lack a consistent strategy-structure-culture relationship

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Hypercompetition
Market stability is threatened by:
• short product life cycles
• short product design cycles
• new technologies
• frequent entry by unexpected outsiders
• repositioning by incumbents
• tactical redefinitions of market boundaries as
diverse industries merge

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Using Key Success Factors to Create

an Industry Matrix
• Key success factors
– Variables that can significantly affect the overall
competitive positions of companies within any
particular industry

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Table 4-4: Industry Matrix

• Industry matrix
– summarizes the key success factors
within a particular industry

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Competitive Intelligence
• Competitive intelligence
– a formal program of gathering information on a
company’s competitors
– also called business intelligence
• Sources of competitive intelligence:
– information brokers
– Internet
– industrial espionage
– investigatory services

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Useful Forecasting Techniques

Some useful forecasting techniques are:
• Extrapolation
• Brainstorming
• Expert opinion
• Delphi technique
• Statistical modeling
• Prediction markets
• Cross-impact analysis (CIA)

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Industry Analysis:
The External Factor Evaluation (EFE) Matrix
Summarize and evaluate these
factors: • Political
• Economic • Governmental
• Social
• Legal
• Cultural
• Technological
• Demographic
• Environmental • Competitive
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EFE Matrix Steps

1. List 20 key external factors
2. Weight from 0.0 to 1.0
3. Rate the effectiveness of current strategies from 1-
4
4. Multiply weight * rating
5. Sum weighted scores

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EFE Matrix for a Local Ten-Theater

Cinema Complex

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Industry Analysis: Competitive

Profile Matrix (CPM)
• Identifies firm's major competitors and their
strengths & weaknesses in relation to a sample
firm's strategic positions

• Critical success factors include internal and

external issues

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An Example Competitive
Profile Matrix
TABLE 3-12 An Example Competitive Profile Matrix
▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬
Company 1 Company 2 Company 3____________
Critical Success
Factors_ ___ _ Weight Rating Score Rating Score Rating Score____ ____
Advertising 0.20 1 0.20 4 0.80 3 0.60
Product Quality 0.10 4 0.40 3 0.30 2 0.20
Price Competitiveness 0.10 3 0.30 2 0.20 1 0.10
Management 0.10 4 0.40 3 0.20 1 0.10
Financial Position 0.15 4 0.60 2 0.30 3 0.45
Customer Loyalty 0.10 4 0.40 3 0.30 2 0.20
Global Expansion 0.20 4 0.80 1 0.20 2 0.40
Market Share 0.05 1 0.05 4 0.20 3 0.15
Total 1.00 3.15 2.50 2.20

Note: The ratings values are as follows: 1 = major weakness, 2 = minor weakness, 3 = minor strength, 4 =
major strength. As indicated by the total weighted score of 2.50, Competitor 2 is weakest. Only eight
critical success factors are included for simplicity; this is too few in actuality.

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Table 4-5: Synthesis of External Factors—EFAS

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