Strategic Management Strategic Management ProcessProcess
Develop Develop VisionVision
MissionMission#1#1
Develop Develop VisionVision
MissionMission#1#1
Perform Perform ExternalExternal
AuditAudit#2#2
Perform Perform ExternalExternal
AuditAudit#2#2
PerformPerformInternal Internal
AuditAudit#3#3
PerformPerformInternal Internal
AuditAudit#3#3
Implement Implement Strategies-Strategies-Marketing,Marketing,Finance,Finance,
Accounting,Accounting,CIS Issues
ImplementImplementStrategies –Strategies –ManagementManagement
IssuesIssues#6#6
Generate,Generate,EvaluateEvaluate
SelectSelectStrategiesStrategies
#5#5
EstablishEstablishLong-TermLong-Term
GoalsGoals#4#4
EstablishEstablishLong-TermLong-Term
GoalsGoals#4#4
Measure andMeasure andEvaluateEvaluate
PerformancePerformance#7#7
StrategyStrategyFormulationFormulation
StrategyStrategyImplementationImplementation
StrategyStrategyEvaluationEvaluation
Feedback
Identifies & evaluates events beyond control of firm, Identifies & evaluates events beyond control of firm, likelike::
External External AssessmentAssessment
Increased foreign Increased foreign competitioncompetition Population shiftsPopulation shifts DemographicsDemographics TechnologyTechnology
Examine immediate environment; Examine immediate environment; IndustryIndustry
External AssessmentExternal Assessment
Examine ‘stakeholder’ Examine ‘stakeholder’
Groups --- how firmGroups --- how firm
relatesrelates
Then broader, Then broader, General (macro)General (macro)
External AuditExternal AuditReveals:Reveals:
• Key Key OpportunitiesOpportunities• Key Key ThreatsThreats
Managers formulate Managers formulate strategies:strategies:• Take advantage of Take advantage of
opportunitiesopportunities• Avoid/reduce threatsAvoid/reduce threats
Categories to Categories to ConsiderConsider
Price competitivenessPrice competitiveness TechnologyTechnology
World economiesWorld economies Proprietary & key Proprietary & key
account advantagesaccount advantages
General, Industry & General, Industry & Competitive Competitive
environmentsenvironmentsFirms must understand present to Firms must understand present to predict the future. Company’s predict the future. Company’s
external environment is divided external environment is divided into 3 main areas:into 3 main areas: General (Macro)General (Macro)
IndustryIndustry Competitive (Micro)Competitive (Micro)
Let’s review each….Let’s review each….
PESTELPESTEL Framework Framework PPoliticalolitical
EEconomicconomic
TTechnological echnological
EEnvironmentalnvironmental
LLegalegal
SSocialocial
PPoliticalolitical• TariffsTariffs• SubsidiesSubsidies• Import/export lawsImport/export laws
• QuotasQuotas• Political variables impact:Political variables impact:
““Formulation” of strategiesFormulation” of strategies““Implementation” of strategiesImplementation” of strategies
EEconomicconomicCredit AvailabilityCredit AvailabilityDisposable incomeDisposable income Interest ratesInterest rates Inflation rates, Money market ratesInflation rates, Money market ratesFederal government budget deficitsFederal government budget deficitsGDP trends, Consumption patternsGDP trends, Consumption patterns
EEconomic cont’dconomic cont’d Unemployment trendsUnemployment trends Worker productivity Worker productivity Value of $$ Value of $$ Stock market trendsStock market trends
Foreign countries’ economic conditionsForeign countries’ economic conditions Demand shifts for goods / servicesDemand shifts for goods / services Income differences by region/customerIncome differences by region/customer
SSocialocial• Social, cultural, Social, cultural,
demographic, demographic, environmental changesenvironmental changes
Impacts:Impacts: ProductsProducts ServicesServices MarketsMarkets CustomersCustomers
SSocial Key Factorsocial Key Factors Marriages, divorces, Marriages, divorces,
births, deathsbirths, deaths Immigration & Immigration &
emigration ratesemigration rates Life expectancy rateLife expectancy rate
Per capita incomePer capita income Attitudes toward businessAttitudes toward business Average disposable incomeAverage disposable income
Key Factors, Key Factors, cont’dcont’d Buying behaviorBuying behavior Ethical concernsEthical concerns Attitude toward savingAttitude toward saving Education level Education level Govt regulationsGovt regulations Attitude toward Attitude toward
customer service, customer service, product qualityproduct quality
TTechnological echnological – Gov’t spending on Gov’t spending on
R&DR&D
– Information & Information &
communicationcommunication
– InfrastructuresInfrastructures
– New technologies & productsNew technologies & products
– Availability of technologyAvailability of technology
InternetInternetOpportunities & threatsOpportunities & threats
Information toolInformation toolTransactions onlineTransactions onlineAccelerates communicationAccelerates communication
Alters product life cyclesAlters product life cyclesSpeeds distributionSpeeds distributionCreates new products / Creates new products /
servicesservicesEliminates geographical Eliminates geographical
boundariesboundaries
EEnvironmentalnvironmental• Environmental Environmental
protectionprotection
• Pollution lawsPollution laws
• Waste disposalWaste disposal
• EnergyEnergy
LLegalegal– Corporate / Contract law / TaxCorporate / Contract law / Tax– Employment / trade unions lawEmployment / trade unions law– Health & Safety lawsHealth & Safety laws– Monopoly & restrictive Monopoly & restrictive practices legislationpractices legislation– Consumer protectionConsumer protection– Anti-corruption lawAnti-corruption law– Intl laws affecting Intl laws affecting
businessbusiness
Steps:Steps: List external factors List external factors Assign weight fromAssign weight from 0.00.0 ‘not ‘not important’ to important’ to 1.01.0 ‘very important’. ‘very important’. Assign Assign 1- 41- 4 rating to each rating to each indicating ‘current response’indicating ‘current response’ MultiplyMultiply weight by rating weight by rating TotalTotal scores scores
External Factor External Factor Evaluation (EFE) Matrix – Evaluation (EFE) Matrix – Stage 1Stage 1
Google to learn moreGoogle to learn more
Highest score Highest score 4.04.0, lowest , lowest 1.01.0 Average score is Average score is 2.52.5 4.04.0 firm is effective handling firm is effective handling
threats / opportunitiesthreats / opportunities
EFE MatrixEFE Matrix
EFE MATRIXEFE MATRIX KEY EXTERNAL FACTORS Wt Rating ScoreKEY EXTERNAL FACTORS Wt Rating Score
OpportunitiesOpportunities
1. China market favors smoking1. China market favors smoking .15.15 11 .15.15
2. Increasing demand caused by habit2. Increasing demand caused by habit .05.05 33 .15.15
3. Internet advertising accelerating growth3. Internet advertising accelerating growth .05.05 11 .05.05
4. Company is leader in tobacco industry4. Company is leader in tobacco industry .15.15 44 .60.60
5. China fastest growing population5. China fastest growing population .10.10 33 .30.30
ThreatsThreats 1. Legislation against industry or foreign companies1. Legislation against industry or foreign companies .10.10 22 .20.202. Production limits --- increases competition2. Production limits --- increases competition .05.05 33 .15.153. Market concentrated only in China3. Market concentrated only in China .10.10 22 .20.204. Bad media exposure from US Govt, NGOs4. Bad media exposure from US Govt, NGOs .20.20 11 .20.20
TOTALTOTAL 1.001.00 2.102.10
(US (US Tobacco Tobacco
enter enter China)China)
Industry Industry EnvironmentEnvironment Factors influencing competitive Factors influencing competitive
actionsactions Interactions determine profit Interactions determine profit
potential.potential.Goal: Goal: influence or defend against influence or defend against forcesforces
Influence = above average Influence = above average returns:returns:
Threat of new entrantsThreat of new entrants Power of suppliersPower of suppliers Power of buyersPower of buyers Product substitutesProduct substitutes Intensity of rivalry Intensity of rivalry
5 Forces 5 Forces ModelModel
Barg
ainin
g
Barg
ainin
g
Po
wer o
f
Po
wer o
f
Su
pp
liersS
up
pliers B
arg
ain
ing
P
ow
er o
f B
uye
rs
Threat of New
Entrants
Threat ofSubstitute Products
Rivalry A
mong
Competing Firm
s
Five ForcesFive Forces
Product DifferentiationProduct Differentiation** Capital RequirementsCapital Requirements**
Switching CostsSwitching Costs**Access to Distribution ChannelsAccess to Distribution Channels**
Government PolicyGovernment Policy**Expected RetaliationExpected Retaliation**
Economies of ScaleEconomies of Scale**
Barriers Barriers to Entryto Entry
Threat of New Threat of New EntrantsEntrants
Bargaining Power Bargaining Power SuppliersSuppliers
BargaininBargaining Power g Power
of of SuppliersSuppliers
*
Barg
ainin
g
Barg
ainin
g
Po
wer o
f
Po
wer o
f
Su
pp
liersS
up
pliers B
arg
ain
ing
P
ow
er o
f B
uye
rs
Threat of
New Entrants
Threat ofSubstitute Products
Rivalry A
mong
Competing
Firms
Five Five ForcesForces
Threat of New
Entrants
Supplier Power
depends on a number of factors…
**Dominated by few suppliers.Dominated by few suppliers.
**Buyer not important Buyer not important
** Suppliers’ important to Suppliers’ important to buyers’.buyers’.
**Products are differentiatedProducts are differentiated.
**High switching costs.High switching costs.
Suppliers Suppliers exert power exert power
by:by:** Threatening to raise Threatening to raise prices or to reduce prices or to reduce
qualityquality
Supplier Powerful if…Supplier Powerful if…
*
Bargaining Power Bargaining Power Buyers Buyers (B2B: Distributors)(B2B: Distributors)
BargaininBargaining Power g Power
of Buyersof Buyers
Bargaining Power of Suppliers
Threat of New
Entrants
Bar
gai
nin
g
Bar
gai
nin
g
Po
wer
of
Po
wer
of
Bu
yers
Bu
yers
Threat of
New Entrants
Threat ofSubstitute Products
Rivalry
Among
Competing
Firms
Five Five ForcesForces
Bargaining Bargaining Power of Power of buyers buyers
depends on a depends on a number of number of factors…factors…
Barg
ainin
g
Po
wer o
f
Su
pp
liers
Playing firms off Playing firms off of each otherof each other
Buyers compete Buyers compete with supplying with supplying
industry by:industry by:
** Bargaining down pricesBargaining down prices
** Forcing higher Forcing higher qualityquality
** Large purchases Large purchases
**Suppliers are similarSuppliers are similar
** Easy switch other suppliersEasy switch other suppliers
**Industry earns low profitsIndustry earns low profits
**Product unimportant to qualityProduct unimportant to quality
Buyers Powerful if…Buyers Powerful if…
Threat of Threat of Substitute Substitute ProductsProducts
*
Bargaining Power of Buyers
Bargaining Power of Suppliers
Threat of New
Entrants
Threat ofThreat ofSubstitute Substitute ProductsProducts
Bar
gain
ing
Bar
gain
ing
Pow
er o
f P
ower
of
Buy
ers
Buy
ers
Threat of
Threat of
New Entrants
New Entrants
Bargaining
Bargaining
Pow
er of P
ower of
Suppliers
Suppliers
Rivalry
Among
Rivalry
Among
Competing
Competing
Firms
Firms
Five Five Forces Forces
Substitutes areSubstitutes are NOT NOT always direct always direct competitorscompetitors
Threat of Threat of SubstitutesSubstitutes
Products Products with similar with similar
FunctionFunction limit prices limit prices
firms firms chargecharge
Example:Example:Electronic security Electronic security
systems systems instead of security instead of security
guardsguardsFax machines or Fax machines or e-mailed e-mailed
attachments in place attachments in place of FEDEXof FEDEX
Threat of SubstitutesThreat of Substitutes
RivalryRivalry
RivalryRivalry
*
Threat of Threat of New New
EntrantsEntrants
Bargaining Bargaining Power of Power of BuyersBuyers
Bargaining Bargaining Power of Power of SuppliersSuppliers
Threat of Threat of Substitute Substitute ProductsProducts
Rivalry
Rivalry
Among
Among
Competing
Competing
Firms
Firms
Bar
gai
nin
g
Po
wer
of
Bu
yers
Threat of
New Entrants
Threat ofSubstitute Products
Barg
ainin
g
Po
wer o
f
Su
pp
liers
Five Five ForcesForces
Reduced rivalry means greater
profitability
Occurs if pressured or sees opportunity
Price competition Price competition leaves entire leaves entire
industry worse industry worse offoff
Price Price competitioncompetition
AdvertisinAdvertising battlesg battles
Increasing Increasing consumer consumer
warranties or warranties or serviceservice
Making new Making new product product
introductionsintroductions
Advertising battles Advertising battles increase demand, increase demand,
but costly to but costly to smaller competitorssmaller competitors
RivalryRivalryStrategic Strategic
positioningpositioning
Intense rivalry is:Intense rivalry is:
Slow growth Slow growth industryindustry
High fixed High fixed costscosts
CompaniesCompaniessimilarsimilar
High High storage storage costscosts
High High strategic strategic stakesstakes
Diverse Diverse competitorcompetitor
ss
Rivalry - Existing Rivalry - Existing CompetitorsCompetitors
Equally balanced Equally balanced competitorscompetitors
Intense competitionIntense competition is is more more
likely to occur whenlikely to occur when
High exit High exit barriersbarriers
Low entry Low entry barriersbarriers
Interpreting Interpreting industry analysesindustry analyses
UnattractiveUnattractiveindustryindustry
Suppliers-buyers Suppliers-buyers strong positionsstrong positions
Threats from Threats from substitutessubstitutes
Intense rivalryIntense rivalry Low profit Low profit potentialpotential
AttractiveAttractiveindustryindustry
High profit High profit potentialpotential
High entry High entry barriersbarriers
Suppliers-buyers Suppliers-buyers weak positionsweak positions
Few Few substitutessubstitutes
Low to Moderate Low to Moderate RivalryRivalry
Interpreting Interpreting industry analysesindustry analyses
Competitor Competitor EnvironmentEnvironmentAll companies All companies
compete against:compete against:
CompetitorCompetitors s
EnvironmenEnvironmentt
Identifying RivalsIdentifying RivalsStrengthsStrengthsWeaknessesWeaknessesCapabilitiesCapabilitiesOpportunitiesOpportunitiesThreatsThreatsObjectivesObjectivesStrategiesStrategies
Competitor Competitor EnvironmentEnvironment
Competitor AnalysisCompetitor AnalysisFuture Objectives:Future Objectives:
• Compare goals to Compare goals to competitors’competitors’
• What emphasis?What emphasis?
• Attitude toward risk?Attitude toward risk?
Future objectivesFuture objectives
Competitor AnalysisCompetitor Analysis
Current StrategyCurrent Strategy
Current Strategy:Current Strategy:Future objectives
• How are we How are we currently currently
competing?competing?
• Does strategy adapt Does strategy adapt to market changes ?to market changes ?
Competitor AnalysisCompetitor Analysis
AssumptionsAssumptions
Current strategy
Assumptions:Assumptions:
• Future turbulentFuture turbulent
• Are we adapting?Are we adapting?
• Assumptions Assumptions competitors have competitors have about industry --- about industry ---
themselves?themselves?
Future objectives
Competitor AnalysisCompetitor Analysis
CapabilitiesCapabilities
Capabilities:Capabilities:
• Our strengths / Our strengths / weaknesses?weaknesses?
• Compared to Compared to competitorscompetitors?
Current strategy
Future objectives
Assumptions
Competitor AnalysisCompetitor Analysis
ResponseResponse
• What are competitors What are competitors future strategies? future strategies?
• What advantages What advantages do we have? do we have?
• How will this How will this strengthen our strengthen our competitiveness?competitiveness?
Future ObjectivesFuture Objectives
Current StrategyCurrent Strategy
AssumptionsAssumptions
CapabilitiesCapabilities
Compares Competitors to YouCompares Competitors to You Strengths / WeaknessesStrengths / Weaknesses
Weights: Weights: 0 – 1 0 – 1 level of importancelevel of importance
Rating:Rating: 44=major strength =major strength 33=minor strength,=minor strength, 22=minor=minor weakness weakness 11=major weakness.=major weakness.
Competitive Profile Competitive Profile Matrix (CPM)Matrix (CPM)
AdvertisingAdvertising 0.20 1 0.20 4 0.80 3 0.60
Product QualityProduct Quality 0.10 4 0.40 4 0.40 3 0.30
Price Price CompetitivenessCompetitiveness
0.10 3 0.30 3 0.30 4 0.40
ManagementManagement 0.10 4 0.40 3 0.30 3 0.30
Financial PositionFinancial Position 0.15 4 0.60 3 0.45 3 0.45
Customer LoyaltyCustomer Loyalty 0.10 4 0.40 4 0.40 2 0.20
Global ExpansionGlobal Expansion 0.20 4 0.80 2 0.40 2 0.40
Market ShareMarket Share 0.05 1 0.05 4 0.20 3 0.15
TOTALTOTAL 1.00 3.15 3.25 2.8
Wt Rating Score Rating Score Rating Score Wt Rating Score Rating Score Rating Score
IPhoneIPhone NokiaNokia Sony-EricssonSony-Ericsson
Competitive Profile Competitive Profile MatrixMatrixCritical Success Critical Success
Factors (CSF)Factors (CSF)