UNIVERSITY OF THE CORDILLERAS

COLLEGE OF HOSPITALITY & TOURISM MANAGEMENT

MIDTERM HANDOUT

Department: CHTM
Subject/Descriptive title: THM 117 – Strategic Management with Total Quality Management
Term: 1st Trimester, AY 2023-2024

THE STRATEGY PROCESS

Why do we often refer to strategy as a process? The answer is that it is never a once-and-for-all event – it goes on
and on.
There is a need to continually review strategic objectives because the environment within which organizations
operate is continually changing. The purpose of strategy is to make an organization fit into its environment. By
achieving this, the probabilities that it will survive and prosper are enhanced.

Strategy and Strategic Objectives for Tourism, Hospitality and Event Organizations
Historically the term strategy has military roots with commanders employing strategy in dealing with their
opponents. Indeed dictionaries often continue the military theme defining strategy as ‘the art of war’. In viewing
strategy in such a way the fundamental underlying premise of strategy becomes the notion that an adversary can
defeat a rival (even a larger more powerful one) if it can out maneuver the rival.
As in the military arena, so in business: organizations attempt to outmaneuver rivals. In so doing strategies have to
be developed that rely on various disciplines such as marketing, finance and human resource management.

WHAT IS STRATEGY?
Strategy is the determination of the basic long-term goals and objectives of an enterprise, and the adoption of
courses of action and the allocation of resources necessary for carrying out these goals.
(Chandler, 1962)

THE ELEMENTS OF STRATEGY

The determination of the basic long-term goals and objectives concerns the conceptualization of coherent and
attainable strategic objectives. Without objectives, nothing else can happen. If you do not know where you want
to go, how can you act in such a way as to get there?

The adoption of courses of action refers to the actions taken to arrive at the objectives that have been previously
set.
The allocation of resources refers to the fact that there is likely to be a cost associated with the actions required
in order to achieve the objectives. If the course of action is not supported with adequate levels of resource, then
the objective will not be accomplished

When we consider organizations we often talk about resources

Resource inputs (sometimes called factors of production) are those inputs that are essential to the normal
functioning of the organizational process.
An organization’s resource inputs fall into four key categories:

Financial resources– Money for capital investment and working capital. Sources include shareholders, banks,
bondholders, etc

Physical (tangible) resources– Land, buildings (offices, accommodation, warehouses, etc.), plant, equipment, stock
for production, transport equipment, etc
Human resources– Appropriately skilled employees to add value in operations and to support those that add value
(e.g. supporting employees in marketing, accounting, personnel, etc.). Sources include the labor markets for the
appropriate skill levels required by the organization
Intellectual (intangible) resources– Inputs that cannot be seen or felt but which are essential for continuing
business success, for example ‘know-how’, legally defensible patents and licenses, brand names, registered
designs, logos, ‘secret’ formulations and recipes, business contact networks, databases, etc

Mintzberg’s Five Ps

Mintzberg suggested that nobody can claim to own the word ‘strategy’ and that the term can legitimately be used
in several ways.

Plan Strategies
▸ A plan is probably the way in which most people use the word strategy. It tends to imply something that is
intentionally put in place and its progress is monitored from the start to a predetermined finish. Some business
strategies follow this model. ‘Planners’ tend to produce internal documents that detail what the company will do
for a period of time in the future (say five years). It might include a statement on the overall direction that the
organization will take in seeking new business opportunities as well as a schedule for new product launches,
acquisitions, financing (i.e. raising money), human resource changes, marketing, etc

Pattern Strategies
▸ A ‘pattern of behavior’ strategy is one in which progress is made by adopting a consistent form of behavior.
Unlike plans and ploys, patterns ‘just happen’ as a result of the consistent behavior.
▸ Such patterns of behavior are sometimes unconscious, meaning that they do not even realize that they are
following a consistent pattern. Nevertheless, if it proves successful, it is said that the consistent behavior has
emerged into a success. This is in direct contrast to planning behavior.

There is a key difference between two of Mintzberg’s Ps of strategy – plan and pattern. The difference is to do
with the source of the strategy. He drew attention to the fact that some strategies are deliberate whilst others
are emergent

Deliberate strategy
(sometimes called planned or prescriptive strategy) is meant to happen. It is preconceived, premeditated and
usually monitored and controlled from start to finish. It has a specific objective

Emergent strategy
has no specific objective. It does not have a preconceived route to success but
it may be just as effective as a deliberate strategy. By following a consistent pattern of behavior
an organization may arrive at the same position as if it had planned everything in detail

Ploy Strategies
▸ A ploy is generally taken to mean a short-term strategy, and is concerned with the detailed tactical actions that
will be taken. It tends to have very limited objectives and it may be subject to change at very short notice. Mintzberg
describes a ploy as ‘a maneuver intended to outwit an opponent or competitor’ (Mintzberg et al., 2002: 3). He
points out that some companies may use ploy strategies as threats. They may threaten to, say, decrease the price
of their products simply to destabilize competitors.

Position Strategies
▸ A position strategy is appropriate when the most important issue to an organization is perceived to be how it
relates or is positioned in respect to its competitors or its markets (i.e. its customers). In other words, the
organization wishes to achieve or defend a certain position.
▸ In business, companies tend to seek objectives such as market share, profitability, superior research, reputation,
etc. It is plainly obvious that not all companies are equal when such criteria are considered.

Perspective Strategies
▸ Perspective strategies are about changing the culture (the beliefs and the ‘feel’; the way of looking at the world)
of a certain group of people – usually the members of the organization itself. Some companies want to make their
employees think in a certain way, believing this to be an important way of achieving success.
▸ They may, for example, try to get all employees to think and act courteously, professionally or helpfully.

Levels of Strategic Decisions

Different ‘levels’
It is useful at this stage to gain an understanding of what characterizes strategic decisions. Management decisions
in an organization can be classified in three broad and sometimes overlapping categories: strategic, tactical and
operational. These can be illustrated as a hierarchy in which higher level decisions tend to shape those at lower
levels of the organization
 Levels of Strategic Decision-Making
Strategic, tactical and operational
decisions within an organization differ
Strategic Level
from each other in terms of their:
● focus;
● level in the organization at which they Tactical Level
are made;
● scope; Operational
● time horizon; Level
● degree of certainty or uncertainty;
● complexity.

21

Comparison of strategic operational and tactical decisions

Strategic Level Decisions

Strategic decisions (which are our primary focus) are concerned with:
● the acquisition of sustainable competitive advantage (in a commercial organization);
● the setting of long-term objectives;
● the formulation, evaluation, selection and monitoring of strategies to achieve these objectives.
Strategic decisions normally have a number of characteristic features in that they:
● are made by senior managers (usually directors);
● affect the whole organization (or a substantial discrete part of the whole organization); ● are medium to long-
term in nature;
● are complex and often based upon uncertain or incomplete information.
Managers at the strategic level require multi-conceptual skills – the ability to consider the effects of multiple
internal and external influences on the business and the possible ways in which strategy can be adjusted to account
for such influences

Tactical Level Decisions

Tactical decisions are concerned with how strategic level objectives are to be met and how strategies are
implemented. They are dependent upon overall strategy and involve fine tuning and adjustment. They
are usually made at the head of business unit, department or functional area level and they have an effect only in
parts of the organization. They are normally medium-term in timescale, semi-complex and usually involve some
uncertainty but not as much as at the strategic level.

Operational Level Decisions

Operational decisions are concerned with the shorter-term objectives of the business and with its day-to-day
management. They are dependent upon strategy and tactics. These decisions are made at junior managerial or
supervisory level, are based on a high degree of certainty, and are not complex

Congruency and ‘Fit’

The success of strategy rests upon a very important, but rather obvious principle. Once the strategic level objectives
have been set, the tactical and operational objectives must be set in such a way that they contribute to the
achievement of the strategic objectives. In other words, the tactical and operational decisions must ‘fit’ the
strategic objectives. This introduces the concept of hierarchical congruence, i.e. that objectives set at various levels
must be aligned with each other in such a way that each level of organizational decision making contributes to the
organization’s overall strategic objectives.

The decision-making framework can be visualized as a pyramid-shaped hierarchy. The top, where the strategic
decisions are made, is thin whilst the bottom (operational decisions) is fatter. This representation is meant to show
that strategic decisions are taken infrequently, whilst tactical and operational decisions are taken more often.
Strategic decisions are few and far between, tactical decisions are taken with increasing frequency, whilst
operational decisions are taken weekly, daily or even hourly. For every one strategic decision, there may be
hundreds of individual operational decisions.

Time and Planning Horizons

One of the key differences between the levels of decision making in organizations is the timescale with which they
are concerned. It is usually considered that the higher up the organization, the longer the timescale with which
management is concerned. Certainly this is true in most manufacturing companies. However, in service
organizations, such as those we are concerned with THE organizations, the situation is often somewhat different.
Service delivery is of prime importance to service-based companies, and consequently relatively senior staff can
often be involved to some degree in operational decision making. In the delivery of services it is vital that managers
ensure that the service provided is:
● delivered to specified quality standards;
● capable of being replicated;
● resilient (i.e. service standards can resist unexpected changes).
Strategic management involves taking account of a large number of environmental variables. The longer ahead
that a manager seeks to plan for, the more uncertainty is introduced into the analysis.

SERVICE PRODUCT CHARACTERISTICS

GOODS AND SERVICES
It is appropriate to consider the nature of the products that comprise the central themes that we will be studying.
If you have studied business or economics before, you will recall that there are two basic types of product: goods
and services:
● goods are tangible– things you can own;
● services are intangible– things done on your behalf or for your benefit. You do not own service products, but
instead you have use of them.

SERVICE PRODUCT CHARACTERISTICS

intangibility

ownership inseparability

heterogeneity perishability

INTANGIBILITY
Services cannot normally be seen, touched, smelt, tasted, tried on for size or stored on a shelf prior to purchase.
Their intangibility makes them harder to buy, since you cannot test them, but easier to distribute, since there is no
physical product to distribute.
For example – a buyer working for a tour operator, event manager or travel intermediary might be able to sample
the food and accommodation prior to contracting the supplier. However, the exact quality of the accommodation
and meals that the customer will receive is still intangible. This is because the quality of the accommodation or the
meals that the customer receives (or their perception of them) may be different from those sampled prior to
contracting.

INSEPARABILITY
The production and consumption of services, including those in THE sectors, are inseparable.
For example – to take advantage of a festival music event you have to be at the event at the time it is taking place.
In other words, the event is being delivered (produced) at the same time as you are listening to it (consuming).
Similarly, for you to make use of an air flight or a bus service, both you and the means of transport must make the
journey at the same time, i.e. the service is provided and consumed simultaneously

PERISHABILITY
Since production and consumption are simultaneous, THE services are instantly perishable; if the services are not
sold at the time they are offered, then they perish and no income is received
For example– an event which takes place and is not full to capacity; an empty train seat; an unoccupied hotel
bedroom; or, an unsold holiday, all represent lost opportunities. They are sales that have not taken place and that
can never be recovered because they are services offered on a certain date and cannot be ‘stored’ for when
demand increases. The income foregone cannot be recovered

HETEROGENEITY
Services, unlike mass-produced manufactured goods, are never identical. One hotel in a chain of hotels, one
person’s holiday or one person’s experience of an event will never be identical to another. The human element and
other factors in delivering services, ensures that services will be heterogeneous, i.e. varied.
 THE products are human resource intensive i.e. ‘people oriented’, and the human factor plays a key role.
For example– the enjoyment gained from a foreign holiday cannot be separated from the personalities who go to
make up that holiday: the personnel employed in the travel agency; the airline crew; the hotel staff; the tour
operator’s representative; employees at destination attractions; and, of course, the other holidaymakers. All of
these have a role to play in ensuring that the holiday lives up to the customer’s expectations.
Similarly, the experiences in all hotels and hospitality outlets and events are closely linked to the attitude,
competence and personality of those charged with delivering the particular service.

OWNERSHIP
When a customer buys a manufactured product there will usually be a document, such as a receipt, which transfers
ownership from seller to buyer. When a consumer buys a service he or she does not usually receive ownership of
anything tangible.
For example– a car is hired, but ownership is not transferred; a hotel room is reserved for a period of time but
nothing in it is ever owned by the customer; a concert ticket provides access to the concert venue only for the time
that the concert is taking place. Even a credit card actually remains the property of the issuing company.
Service buyers are therefore buying only access to or use of something, which has important management
implications. Since transfer of ownership is not involved, the task of building a relationship with customers, of
retaining their custom, and building brand loyalty becomes more difficult.

THE SPECIFIC SERVICE CHARACTERISTICS

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Six And Events
Tourism, Hospitality Characteristics
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The five characteristics of services cited in the preceding sections change the emphasis of a manager’s task when
compared to dealing with physical products. The characteristics apply to all service products to some degree –
which includes banking, insurance and professional services (legal accounting, etc.). Thus the characteristics
considered previously, whilst certainly applicable to THE sectors are not unique to these sectors, but applicable
across all service sectors.
Six further characteristics can be identified, which are particularly applicable to these sectors (though to varying
degrees in the three sectors). Consequently these characteristics have a particular influence on decision making for
managers operating in these three sectors.

HIGH COST
THE products often represent a relatively high-cost purchase for the consumer. The high cost of many THE products
has important managerial implications when formulating strategy, especially with regard to marketing aspects.
Potential customers will want reassurance about the reliability of the product, the value for money the purchase
represents, and the quality and value provided.
For example –with regard to some events, demand far exceeds supply. In such cases there is little chance for
reflection and comparison and a speedy impulse decision is necessary. Where a popular band announces they are
to give a series of concerts or a popular sporting event is scheduled, often potential buyers have to react quickly to
ensure success in purchasing tickets. There is thus little chance for reflection, comparison or negotiation in such
cases.

SEASONALITY
THE products often have some of the most seasonal patterns of demand for any category of product or service.
This seasonality has important managerial implications in terms of aspects of management such as: managing cash
flow; product pricing; managing the quantity of products supplied; and dealing with labor (and wider societal)
issues relating to the need to employ, motivate and retain seasonal employees.
For example –the seasonality of demand often leads to a highly seasonal pattern of cash flows for organizations in
these sectors which has to be carefully managed if staff and suppliers are to be paid promptly at low points in the
cycle. Consequently, at some times of the year, companies in these sectors may have relatively large surplus cash
balances to invest whilst, at other times, only small amounts of cash may be available or it may even be necessary
to borrow to meet cash requirements (Evans, 2002:358)

EASE OF ENTRY/EXIT
In many areas of THE it is relatively easy to set up in business or indeed to exit from the industry, i.e. entry and exit
costs are relatively low (compared to some other industries). To establish an oil refinery or a vehicle manufacturing
plant would require a large initial capital outlay (i.e. they are capital intensive industries), but this is not the case in
many parts of THE.
For example –the capital outlay to set up a tour operator, or an event organizer, is generally quite low (when
compared to other industrial sectors). Many of the services included in the product are leased, or are purchased as
and when required. The greatest (up-front) cost involved is often in producing brochures and other promotional
materials and marketing the products to agents and the public. Similarly, travel agents do not generally purchase
products from tour operators until the customer pays for them, and so do not incur the risk of unsold stock or
stock- holding costs.

INTERDEPENDENCE
THE, can be viewed as comprising six component sectors:
● hospitality
● events management
● attractions
● transport
● travel organizers
● destination organizations.
The important point to note in this context, however, is that the sectors are all linked and depend upon one
another; there is interdependence between them.
For example –the hospitality sector relies upon the transport sector to transport guests to and from the
accommodation. Similarly, the transport and hospitality sectors both rely upon the travel organizers and event
managers to provide them with customers

IMPACT OF TOURISM
The focus of attention is usually upon the impact tourism has upon host destinations. The impacts can be classified
as economic, social and environmental and classified into positive and negative impacts. However, it is important
to point out that the issues involved are often complex, interrelated and involve tourism together with other
industrial sectors including hospitality and events
For example –if a piece of land is cleared to make way for a new hotel development next to a beach, the overall
economic effect may be highly positive for the region in which it is built. However, those residents who have been
displaced may not feel so positively disposed towards the development.

THE EFFECT OF EXTERNAL SHOCKS

The external shocks such as wars, hurricanes, terrorist attacks, pollution, adverse publicity or accidents can have a
dramatic and speedy effect upon levels of business and disruption to planned activities and events. The external
shocks can quickly develop into crises and indeed can, and should be, viewed as a central concern of competent
managers in the industry
For example – COVID19 Pandemic
The terrorist attacks in New York and Washington on September 11 2001 had an immediate effect upon the
industry
The Gulf War led to a severe downturn in travel and tourism in the early 1990s
SARS (Severe Acute Respiratory Syndrome)

THE BUSINESS VISION AND MISSION

Vision
Nature and importance of a clear vision
- A vision statement is a vivid idealized description of a desired outcome that inspires, energizes, and helps
firms create a mental picture of their target.
- Vision is what keeps the organization moving forward. It is the motivator in an organization
- An organization’s vision statement answers the question: “What do we want to become?” or “What can
we become?”

The Importance of a Vision Statement

- A vision statement should have the ability to inspire and motivate others.
- It can establish a benchmark, provide a line of sight, direction, and where the organization wants to be in
a set of period of years.
- The purpose of a vision statement is to create a long- term strategy for where the company is going.
- It is meant to align everyone around the company’s direction.

How To Write a Vision Statement?

- Be aspirational: The vision statement should paint a picture of what the organization wants to achieve in
the future and inspire actions toward that future.
- Involve others: A vision statement should reflect the collective values of the organization. It should reflect
the dedication to inclusivity with input from all members of the community.
- Make it achievable: It should be realistic and achievable. It should provide a roadmap for the future and be
actionable.
- Align with values and mission: It should align with the organization’s mission and values, and serve as a
long-term extension of them.
Mission
Nature and importance of a clear mission

What is a Mission Statement?

- A mission statement is used by a company to explain, in simple and concise terms, its purpose(s) for being.
- The mission statement reveals what the company does, how it does it, and why it does it.
- It defines the company’s culture, values, ethics, fundamental goals, and agenda.
- A company’s mission statement defines how each of these applies to the company’s stakeholders- its
employees, distributors, suppliers, shareholders, and the community as a whole.

Mission
Nature and importance of a clear mission
- A company’s mission statement outlines the core purpose of the organization.
- It answers the question: “Why does the company exist?”

How a Mission Statement Works:

Mission statements serve a dual purpose by helping employees remain focused on the tasks at hand, and
encouraging them to find innovative ways of moving toward increasing their productivity with the eye to achieving
company goals.

How to Create a Mission Statement?

- Keep it short and simple: A mission statement should be short, clear, and to the point. It should be easy for
everyone in the organization to remember or recite.
- Focus on what you do best: The mission statement should focus on your company’s strengths and what
makes it unique. It should be specific enough to guide the decision-making but not so specific that it limits
the options in the future.
- Think about your customers: The mission statement should focus on how to serve the customers and what
you can do for them.
- Realistic: It should be achievable and realistic.
- Involve your employees: Get input from the employees when creating the mission statement.

Key Points to Remember:

Vision Statement
- The Vision is the What, Where, or Who you want the company to become.
- The vision is the company’s journey to accomplishing its mission.
Mission Statement
- The Mission is the WHY the company exists, it the purpose, passion, or the cause.
- A company’s mission is its identity.

What are Business Goals?

What are business goals?
- A business goal is a broad and overarching target or outcome that a business wants to achieve in the short
term or long term.
- These typically represent a company’s larger purpose and work to establish an end goal for employees to
work toward.
Setting business goals is important for several reasons, including that they can:
- Provide a way to measure success
- Keep all employees on the same page as to what the goals of the company are
- Ensure the company is headed in the right direction
What is a business philosophy and Why is it important?
- A business philosophy is a set of principles and beliefs that a company uses to decide how to handle
different areas of operations.
- It outlines the business’s purpose and its goals.
Importance of a business philosophy:
- It can serve as a roadmap for organizations, helping the executives and employees understand the goals
and values they are continually working towards.
- A business philosophy helps employees work as effectively as possible.

The Internal and External Assessment with Quality

Environmental Analysis
 The monitoring of events and evaluating trends in the external environment, to identify both present and
future opportunities and threats that may influence an organization’s ability to reach its goals.
 It involves studying and interpreting social, political, ecological, and technological events in an effort to
spot trends and conditions that could affect the industry.

3 Segments of the External Environment

Components of Macro Environment

Political, governmental, and legal factors

 The form of government, political stability, the party in power, attitude towards foreign companies, laws
on various matters.
Economic factors
 GDP, interest rates, exchange rates, unemployment rates, net disposable income, and money supply.
Socio-Cultural factors
 Buying and consumption patterns of the people, their beliefs and values, customs and traditions, tastes
and preferences, social taboos, and societal expectations of the business.

Components of Operating Environment:

 It is also called as task environment or relevant environment of an organization.

 It consists of “those which affect an organization’s success in acquiring needed resources or profitably
marketing its goods and services”.
a. Suppliers
 b. Customers
c. Competitors
d. Creditors
e. Labor Market
f. Distributors and Retailers
g. Regulatory environment

Components of Internal Environment:

 An organization’s internal environment is composed of the elements within the organization, including
current employees, management, and especially corporate culture, which defines employee behavior.
 A manager’s leadership style directly impacts employees.
 Traditional managers give explicit instructions to employees, while progressive managers empower
employees to make many of their own decisions.

Key Success Factors

Understanding the types of key success factors with examples for the hospitality industry
 Key success factors are aspects of an organization’s processes that are critical to determining its success
in its industry.
 Effectively using key success factors is essential for an organization’s success and can help in being more
effective.
 These factors are a combination of areas organizations improve to meet client needs and stay ahead of
their competition.

5 Major Key Success Factors

1. Strategic focus
 It involves how organizations align their actions, corporate brand, and leadership structure to suit their
corporate goals.
 Strategic focus involves evaluating customer needs, market situation, and other external factors to set and
achieve corporate goals.
2. People
 This refers to the human resources in an organization.
 An organization’s employees are an essential part of the organization and determine its overall success.
 People as a key success factor involves how organizations help their employees develop and the rate of
employee satisfaction with the organization.
3. Operations
 An organization’s operations refer to the normal functioning of its business processes.
 The nature of an organization’s processes depends on its industry.
 By monitoring metrics like revenue, customer satisfaction ratings, and production speed, organizations
can improve their operations and achieve better results.
4. Marketing
 Marketing is the process of promoting an organization’s brand, products, and services to improve its
profitability.
 The role of marketing is to build a positive relationship between an organization and its customers or
potential customers.
5. Finances
 An organization’s finances comprise its inventory, income, accounts receivable, accounts payable, and
debts.
 Monitoring its financial activities is essential for organizations to remain profitable.

Examples of key success factors in the restaurant industry

1. Strategic focus: A restaurant needs a knowledgeable and strategic manager to achieve high sales. Key
success factors include hiring a new head chef and setting capacity goals.
2. People: Chefs, kitchen assistants, servers, and receptionists are examples of employees who work in a
restaurant.
 3. Operations: A restaurant’s operations include the processes involved in sourcing ingredients, preparing
meals, and serving customers.
4. Marketing: This includes offering discounts, exploring marketing channels, and incentivizing higher
purchases.
5. Finances: This includes pricing meals competitively, obtaining cheaper ingredients, and processing
customer payments properly.

Examples of key success factors in the manufacturing industry

1. Strategic focus: This includes setting leadership goals, organizing manager training, and requiring managers
to provide frequent reports.
2. People: Key success factors include maintaining workplace safety and offering employee benefits.
3. Operations: This includes adopting new technology and implementing better quality inspection standards.
4. Marketing: This includes exploring multiple marketing channels and conducting market research.
5. Finance: This includes sourcing cheaper resources, purchasing raw materials in bulk, and having
competitive product prices.

Competitive Advantage and Industry Analysis

What is Competitive Advantage?
 Competitive advantage is something that places a company or a person above the competition.
 It is the possession of various assets and attributes (including natural resources, location, and skilled
workforce) which gives a competitive edge over rival organizations.

Companies could have a variety of competitive advantages, including:

 Cost structure
 Product quality
 Branding
 Customer service
 Intellectual property
 Distribution network

6 Types of Competitive Advantage:

 Brand: This advantage encourages brand loyalty by offering a unique or superior brand with image,
positioning, and strategies, or by continuously updating features.
 Network: This advantage refers to subscription services using member benefits or bonus incentives.
 Resource: This advantage refers to a company’s edge because of limited access to resources or materials
for production.

How does competitive advantage work?

1. Analyze the market

 To develop a good competitive advantage, it is important to know the target market and how it might
affect the general growth of the business.
2. Implement strategies
 A business can develop and implement strategies that could help position its products and services ahead
of the competition.
 Identify the target audience and implement a strategy that would be most appropriate.
3. Monitor performance
 Monitor the strategy that is currently being implemented to adjust areas that are not as effective and place
more focus on ones that are successful.

What is industry analysis?

 Industry analysis is a market evaluation tool companies use to assess the level and intensity of competition
in a specific industry.
 It is used to understand their market position and evaluate how internal and external factors such as
technological changes, demand and supply dynamics can affect their competitive advantage.
Aspects of analyzing an industry:

Rivalry with competitors

 Understanding an industry requires a business to know its position relative to competitors in the same
industry.
 The level of competition a company faces depends on the number of companies selling the same product
or service and the market share of each competitor.

Threat of potential entrants

 If it is more difficult for new companies to enter the industry, existing companies are likely to face less
competition and enjoy longer periods of profitability.
 Conversely, lower entry barriers can indicate more competition in the future and less revenue as rivals
compete for market share.
Threat of substitutes
 Substitutes are products or services that serve the same function.
 An industry where companies sell substitutes is likely going to have a high level of competition because an
increase in the price of one product causes buyers to switch to an alternative.
Buyers’ bargaining power
 Buyer power refers to the consumer’s ability to impact profitability in a particular industry.
 Consumers exert buyer power by demanding higher-quality products and services for lower prices, which
increases competition within the industry.
 Lower buyer bargaining power means that consumers can’t force sellers to provide high-quality products
and services at lower prices.
 If the number of suppliers is more than the demand, buyers have more bargaining power.
Bargaining power of suppliers

 The number of suppliers available in an industry can give those suppliers leverage over businesses.
 If a business has few suppliers for the materials required to produce its products, the suppliers can raise
prices.
 In industries with a larger number of suppliers, businesses typically have more bargaining power since they
can source their materials from different vendors.

External Evaluation Matrix (EFE), Internal Factor Evaluation Matrix (IFE), Competitive Profile Matrix (CPM), and
SPACE Matrix

External Factor Evaluation (EFE) Matrix

 It is a strategy tool used to examine a company’s external environment and to identify the available
opportunities and threats.
 When using the EFE Matrix, we identify the key external opportunities and threats that are affecting or
might affect a company.
 The general rule is to identify 10-20 key external factors.

Internal Factor Evaluation Matrix (IFE)

 It is a strategy tool used to evaluate the firm’s internal environment and to reveal its strengths as well as
its weaknesses.
 When looking for the strengths, ask what do you do better or have more valuable than what your
competitors have?
 In case of the weaknesses, ask which areas of your company you could improve and at least catch up with
your competitors?
 The ratings in an internal matrix refers to how strong or weak each factor is in an organization.

Competitive Profile Matrix (CPM):

 A Competitive Profile Matrix (CPM) is an analytical tool that provides necessary information on competitive
advantage based on critical success factors and serves as the basis for an organization’s strategy.
  It shows a clear picture to the organization about their strong points and weak points relative to their
competitors.
 Weight- assign a weight ranging from 0.0 (low importance) to 1.0 (high importance) to each critical success
factor.

Strategic Position and Action Evaluation (SPACE) Matrix:

 SPACE Matrix is a management tool used to analyze a company or an organization. It is used to determine
what type of strategy a company should undertake.
 The SPACE Matrix is broken down into four quadrants where each quadrant suggests a different type or
nature of a strategy:
a. Aggressive
b. Conservative
c. Defensive
d. Competitive

Prepared by:
Ruel F Ramirez, MHRD, Faculty