Strategic management module 2
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Transcript of Strategic management module 2
1
The External Assessment
Overview of Strategic Management
� What is SM?
� Different Stages of SM
� Integrating Intuition and Analysis
� Adapting to Change
� Key Terms in SM
� Competitive Advantage
� Strategists
� Vision and Mission statements
� External Threats and Opportunities
� Internal Strengths and Weaknesses
� Long Term Objectives
� Strategies
� Annual Objectives
� Policies
� SM Model
� Benefits of SM
� Business Ethics and SM
� Importance of Vision and Mission statements
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ExternalAudit
InternalAudit
Long-TermObjectives
Generate,Evaluate,
SelectStrategies
ImplementStrategies:
Mgmt Issues
ImplementStrategies:Marketing,Fin/Acct,R&D, CIS
Measure &Evaluate
PerformanceVision
&Mission
Comprehensive strategic management model
Agenda
� Nature of an external audit
� Key external Forces
� Process of performing an external audit
� The industrial organization view
� Economic Forces
� Russia’s economy
� Social, Cultural, Demographic and environmental Forces
� Political, Governmental and Legal Forces
� Technological Forces
� Competitive Forces
� Competitive Intelligence
� Cooperation among competitors
� Market Commonality and Resource Similarity
� Competitive Analysis: Porter’s Five Forces Model
� Sources of External Information
� Forecasting Tools and Techniques
� Industry Analysis – External Factor Evaluation (EFE Matrix)
� The Competitive Profile Matrix (CPM)
3
Module Outline
The Nature of the External Audit
The Industrial Organization (I/O) View
Social, Cultural, Demographic &
Environmental Forces
Module Outline (cont’d)
Political, Governmental, and Legal Forces
Technological Forces
Competitive Forces
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Module Outline (cont’d)
Porter’s Five-Forces Model
Sources of External Information
Forecasting Tools & Techniques
Module Outline (cont’d)
Global Challenge
The External Factor Evaluation (EFE) Matrix
Competitive Profile Matrix (CPM)
5
It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change. –Charles Darwin
External Assessment
Nothing focuses the mind better than the constant sight of a competitor who wants to wipe you off the map. –Wayne Calloway, Former CEO, PepsiCo
External Strategic Management Audit
-- Environmental Scanning
-- Industry Analysis
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Identify & Evaluate factors beyond the control of a single firm
� Increased foreign competition
� Population shifts
� Aging society
� Fear of traveling
� Stock market volatility
External Strategic Management Audit
Purpose of External Audit
� Identify
� Opportunities
� Threats
External Strategic Management Audit
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Purpose of External audit
� To develop a finite list of opportunities that could benefit a firm
� Threats that could be avoided
� External audit is aimed at identifying key variables that offer actionable responses
� Firms should be able to respond offensively or defensively to the factors by formulating strategies that take advantage of external opportunities or minimize threats
Key External Forces
•Economic forces
•Social, cultural, demographic & environmental forces
•Political, governmental & legal forces
•Technological forces
•Competitive forces
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CompetitorsSuppliers
DistributorsCreditors
CustomersEmployees
CommunitiesManagers
StockholdersLabor Unions
Special Interest GroupsProductsServicesMarkets
Natural Environment
KeyExternalForces
Opportunities&
Threats
Key External Forces & the Organization
Gather competitive intelligence –
� Social
� Cultural
� Demographic
� Environmental
� Governmental
� Legal
� Technological
External Audit
9
External Audit – Sources of Information
•Internet
•Libraries
•Suppliers
•Distributors
•Salespersons
•Customers
•Competition
Performing External Audit
-- Key Factors� Vary over time
� Vary by industry
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Performing External Audit --Variables
•Market share
•Breadth of competing products
•World economies
•Foreign affiliates
•Proprietary account advantages
Performing External Audit --Variables
•Price competitiveness
•Technological advancements
•Interest rates
•Pollution abatement
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Performing External Audit
External
Factors
Measurable
Long-term orientation
Applicable to competing firms
Hierarchical
Industrial Organization (I/O) View
-- Industry factors more important than internal factors
� Performance determined by industry forces
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Economies of Scale
Industry Properties
Barriers to market entry
Product differentiation
Level of competitiveness
I/O Perspective Firm Performance
Research Findings
“Approximately 20% of a firm’s profitability can
be explained by the industry, whereas 36% of
the variance in profitability is attributed to the
firm’s internal factors”
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Economic Forces
Economic Forces
� Trends in the dollar’s value
� European Union
� Layoffs
� Economic standard of living
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Economic Standard of Living
Russia’s Economy
� Political bureaucracy
� Illegal actions by officialsand policemen
� State-run gas; monopolypurchase of newspaper
� Foreign direct investment
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Economic Forces
•Availability of credit
•Level of disposable income
•Interest rates
•Inflation rates
Social, Cultural, Demographic & Environmental Forces
Major Impact –
•Products
•Services
•Markets
•Customers
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Social, Cultural, Demographic & Environmental Forces
U.S. Facts
•Aging population
•Less Caucasian
•Widening gap between rich & poor
•2025 = 18.5% population >65 years
•2075 = no ethnic or racial majority
Social, Cultural, Demographic & Environmental Forces
Facts
•World population approaching 7
billion
•World population = 8 billion by 2028
•World population = 9 billion by 2054
•U.S. population < 300 million
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� Trends
� More American households with people living
alone
� By 2021 Hispanics will be largest minority group
� Aging Americans – affects all organizations
� Population shift to the south and west
� Less interested in fitness and exercise
� Decimation and degradation of the natural
environment
Social, Cultural, Demographic &
Environmental Forces
U.S. – Mexico Border
� North America’s fastestgrowing region
� 1,500 maquiladoras
� No longer largestexporter to U.S.
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Social, Cultural, Demographic & Environmental Forces
Global trends
•2003 – China largest exporter to U.S.
•2003 –– Asia receives highest foreign
direct investment
•Cheaper labor and utilities than Mexico
•China joined WTO
Global trends
•China’s labor rates less than Mexico
•China provides more site location
incentives than Mexico
Social, Cultural, Demographic & Environmental Forces
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Social, Cultural, Demographic & Environmental Forces
•More educated consumers
•Aging population
•Minorities more influential
•Local rather than federal solutions
21st Century Trends
Social, Cultural, Demographic & Environmental Forces (cont’d)
•Fixation with youth decreasing
•Hispanics increase to 15% by 2021
•African American increase to 14% by 2021
21st Century Trends
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Key Social, Cultural, Demographic &
Environmental Variables
Number of marriages & divorces
Number of special interest groups
Number of births & deaths
Immigration & emigration rates
Childbearing rates
Actuarial rates
Monitor Key
Variables
Per capita income
Attitudes toward business
Avg. disposable income
Social, Cultural, Demographic & Environmental Forces
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Consumer behavior
Monitor Key
Variables
Ethical concerns
Attitudes toward saving
Racial equality
Social, Cultural, Demographic & Environmental Forces
Avg. educational level
Monitor Key
Variables
Governmental regulation
Attitudes toward customer service
Attitudes toward quality
Social, Cultural, Demographic & Environmental Forces
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Energy conservation
Monitor Key
Variables
Social responsibility
Leisure time values
Recycling
Social, Cultural, Demographic & Environmental Forces
Waste management
Monitor Key
Variables
Air & water pollution
Ozone depletion
Endangered species
Social, Cultural, Demographic & Environmental Forces
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Political, Government & Legal Forces
Key opportunities & threats� Antitrust legislation
� Tax rates
� Lobbying efforts
� Patent laws
Government Regulation
Political, Government & Legal Forces
Political variables impact –
� Formulation of strategies
� Implementation of strategies
Increasing Global Interdependence
24
Political, Government & Legal Forces
Strategists in a global economy –
� Forecast political climates
� Legalistic skills
� Diverse world cultures
Increasing Global Interdependence
Political, Government & Legal Forces
� Worldwide trend toward similar
consumption patterns
� Global buyers and sellers
� E-commerce
� Technology for instant currency transfers
Globalization of Industry
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Key Political, Governmental, & Legal Variables
Special tariffs
Tax law changes
PAC’s
Voter participation rates
Regulation/deregulation
Key Political, Governmental, & Legal Variables (cont’d)
Environmental protection laws
Changes in patent laws
Equal employment legislation
Government subsidies
Number of patents
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Key Political, Governmental, & Legal Variables
(cont’d)
Import/export regulations
Global relationships
Political conditions
Location and severity of terrorist activity
Anti-trust enforcement
Technological Forces
Major Impact –
•Internet
•Communications
•Semiconductors
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Technological Forces
Significance of IT
•Chief Information Officer (CIO)
•Chief Technology Officer (CTO)
Technological Forces
Essential for nearly every strategic decision
Technology-based issues
28
Competitive Forces
Collection & evaluation of data on
competitors is essential for successful
strategy formulation
Competitive Forces
Competition on virtually all industries can be
described as intense.
29
Competitive Forces
Strengths
•Weaknesses
•Capabilities
•Opportunities
•Threats
•Objectives
•Strategies
Identifying Rival Firms
Key Questions Concerning Competitors
Their objectives and strategies
Their weaknesses
Their responses to external variables
Their vulnerability to our alternative strategies
Their strengths
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Key Questions Concerning Competitors (cont’d)
Entry and exit of firms in the industry
Our product/service positioning
Key factors for our current position in industry
Sales/profit rankings of competitors over time
Our vulnerability to strategic counterattack
Key Questions Concerning Competitors (cont’d)
The threat of substitute products/services
Nature of supplier & distributor relationships
Should we keep our strategies secret from
employees and stakeholders?
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Competitive Forces
•Moody’s Manuals
•Standard Corporation Descriptions
•Value Line Investment Surveys
•Dun’s Business Rankings
•Standard & Poor’s Industry Surveys
•Industry Week
•Forbes, Fortune, Business Week
Sources of Corporate Information
Competitive Forces
1. Market share matters
2. Understand what business you are in
3. Broke or not, fix it
4. Innovate or evaporate
7 Characteristics of most
Competitive U.S. Firms:
32
Competitive Forces
5. Acquisition is essential to growth
6. People make a difference
7. No substitute for quality
7 Characteristics of most
Competitive U.S. Firms:
The Five-Forces Model of Competition
Potential development of substitute products
Rivalry among competing firms
Bargaining power of suppliers
Potential entry of new competitors
Bargaining power of consumers
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Steps to Determine if an Acceptable Profit Can be Earned
1. Identify key aspects or elements of each competitive force
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
The Five-Forces Model
� Most powerful of the five forces
� Focus on competitive advantage of strategies
Rivalry Among Competing Firms
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The Five-Forces Model
� Barriers to entry are important
� Quality, pricing, and marketing can overcome barriers
Potential Entry of New Competitors
The Five-Forces Model
� Pressures increase when consumer’s switching costs decrease
� Firm’s plans for increased capacity & market penetration
Potential Development of Substitute Products
35
The Five-Forces Model
� Large number of suppliers & few substitutes affects intensity of competition
� Backward integration can gain control or ownership of suppliers
Bargaining Power of Suppliers
The Five-Forces Model
� Customers concentrated or buying in volume affects intensity of competition
� Consumer power is higher where products are standard or undifferentiated
Bargaining Power of Consumers
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Conditions where Consumers GainBargaining Power
� If they can inexpensively switch
� If they are particularly important
� If sellers are struggling in the face of falling consumer demand
� If they are informed about seller’s products, prices and costs.
� If they have discretion in whether and when they purchase the product.
Forecasting Tools and Techniques
� Forecasts are educated assumptions about future trends and events
� Quantitative techniques – Most appropriate when
historical data is available and there is a constant
relationship
� Qualitative techniques
37
The Global Challenge
Faced by U.S. Firms --
•Gain & maintain exports to other
nations
•Defend domestic markets against
imported goods
The Global Challenge
Simultaneously globally competitive & nationally responsive
Multinational Corporations (MNC’s)
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The Global Challenge
Worldwide integration of:
�Strategy formulation
�Strategy implementation
�Strategy evaluation
Globalization
The Global Challenge
�Similar consumption patterns
�Global buyers and sellers
�E-commerce
�Instant transmission of money & information
Globalization of Industries
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Industry Analysis: The External Factor Evaluation (EFE) Matrix
CompetitivePoliticalCultural
TechnologicalEnvironmentalSocial
GovernmentalDemographicEconomic
Summarize & Evaluate
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Total weighted score of 4.0� Organization response is outstanding to threats
and weaknesses
Industry Analysis EFE
Total weighted score of 1.0� Firm’s strategies not capitalizing on opportunities
or avoiding threats
41
Industry Analysis EFE
Understanding the factors used in the EFE Matrix is more important than the actual weights and ratings assigned.
Important --
Industry Analysis: Competitive Profile Matrix (CPM)
Identifies firm’s major competitors and their strengths & weaknesses in relation to a sample firm’s strategic positions
42
Gateway Apple Dell
CSF’s Wt Rating Wt’d
Score
Rating Wt’d
Score
Rating Wt’d
Score
Market share 0.15 3 0.45 2 0.30 4 0.60
Inventory sys 0.08 2 0.16 2 0.16 4 0.32
Fin position 0.10 2 0.20 3 0.30 3 0.30
Prod. Quality 0.08 3 0.24 4 0.32 3 0.24
Cons. Loyalty 0.02 3 0.06 3 0.06 4 0.08
Sales Distr 0.10 3 0.30 2 0.20 3 0.30
Global Exp. 0.15 3 0.45 2 0.30 4 0.60
Org. Structure 0.05 3 0.15 3 0.15 3 0.15
Gateway Apple Dell
CSF’s (cont’d) Wt Rating Wt’d
Score
Rating Wt’d
Score
Rating Wt’d
Score
Prod. Capacity 0.04 3 0.12 3 0.12 3 0.12
E-commerce 0.10 3 0.30 3 0.30 3 0.30
Customer Serv 0.10 3 0.30 2 0.20 4 0.40
Price competitive
0.02 4 0.08 1 0.02 3 0.06
Mgt. experience 0.01 2 0.02 4 0.04 2 0.02
Total 1.00 2.83 2.47 3.49
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Industry Analysis CPM
Just because one firm receives a 3.2 rating and another receives a 2.8 rating, it does not follow that the first firm is 20 percent better than the second.
Important --
To Summarize
� Nature of an external audit
� Key external Forces
� Process of performing an external audit
� The industrial organization view
� Economic Forces
� Russia’s economy
� Social, Cultural, Demographic and environmental Forces
� Political, Governmental and Legal Forces
� Technological Forces
� Competitive Forces
� Competitive Intelligence
� Cooperation among competitors
� Market Commonality and Resource Similarity
� Competitive Analysis: Porter’s Five Forces Model
� Sources of External Information
� Forecasting Tools and Techniques
� Industry Analysis – External Factor Evaluation (EFE Matrix)
� The Competitive Profile Matrix (CPM)