welcome to class 5 part two chapter 2 external environment general environment competitive...
TRANSCRIPT
Business Environments:
External and Internal
Welcome to Class 5Part Two
Chapter 2
ExternalEnvironment
General Environme
nt
Competitive
Environment
The Competitive Environment (Cont from Class 4)
Rivalry among
Competing Firms
Bargaining power ofBuyers
Bargaining power ofSuppliers
Threats of Substitutes
Threat ofNew
EntrantsPorter's
Five Forces
We ended our last class by discussing Porter’s Five Forces
Competitive Environment
Michael Porter's Five Forces offer an informative portrait of the competitive environment.
The “Forces” become even more acute within …
Strategic Groups and
These can play a major role in a firm’s degree ofsuccess or failure
Competitive Environment&
Strategic Groups
Strategic Groups are clusters of firms that share similar:
1. Customers2. Distribution systems3. Vertical integration4. Breadth and depth of product/service lines5. Pricing for these products/services, 6. Quality of products/services7. Geographic territories8. Strategies for competingCompetition within strategic groups is
generally more intense than between strategic
groups because of the similaritiesPrice wars and other forms of extremely
hostile competitive behavior frequently occur.
Companies within strategic groups will change over time thus sustained vigilance is essential.
When competitors within strategic groups change the rules of engagement change.
Companies can enter a particular strategic group, leave, and reenter.
The reentry players can be particularly dangerous:1. They understand the group2. May have new or reinforced distinctive
competencies
3. May have new competitive strategies.
Strategic Groups (Cont)
Strategic
GroupCustomers
Distribution
Systems
VerticalIntegratio
n
Breadth &Depth ofProducts
Pricing
Quality
Geographic
Strategies
Strategic Groups and Points of Similarity
Competitive Environment&
Strategic Alliances
Are formal relationships between two or more corporations with a mutual set of goals.
They offer Competing companies unique opportunities to prosper through collaborative efforts rather than competing activities.
Strategic Alliances
Three most common Strategic Alliances are:(1) Licensing arrangements(2) Joint ventures(3) Cross-holding arrangements (CHAs)
[with CHAs, each company takes equity stakes]
(1) Licensing agreementsLicensing agreements = greatest individuality or distance between the strategic alliance firms
Parties do not combine their management team, value chains, primary technologies, or other unique skills sets.
They often involve cross-marketing agreements, sharing outsourcing activities, and some form of mutual customer supply agreements.
(2) Joint venturesRequire more confidence and trust than
licensing agreements.
Generally involve sharing technologies, processes, various value-adding assets, and products that more closely align the two firms.
Usually designate the financial and technical commitment of each party.
Other cooperative agreements include co-production agreements, research and development or technology development arrangements. The are not joint ventures but are similar.
(3) Cross-holding arrangementsCross-holding arrangements are near-
merger like.
They are the most complex of the strategic alliances and require the most care.
Partners take a significant equity-stake in each other
Competitive Environment&
Globalization
Globalization means nations are becoming more interdependent.
The global economy is: 1. Characterized by the quick and easy
movement of people, knowledge, and ideas from country to country.
2. The world-wide economic activity between various countries that are considered intertwined
3. Capable of having both negative and positive effects on various countries.
Globalization
Globalization (Cont)
Market opportunities not even imaginable a decade ago are now realities.
The global economy is also able to deliver new and more complex commercial threats to every business competing in this domain.
Companies cannot compete in the 21st Century with 20th Century ideas or technology.
Methods of communicating, managing, and competing are changing rapidly.
Globalization (Cont)
Disruptive technologies = “cutting edge to obsolete”
These can emerge with little or no warning and push an industry from "cutting edge" to one that is "irrelevant and obsolete." e.g. 8-track tapes to cassettes to CDs to MP3 and beyond
Alertness is an essential skill for competent TMTs
The Internal Environment
BusinessEnvironments
External Environme
nt
Internal Environment
The Internal EnvironmentThe internal environment is comprised of an
organization's:(a) value-producing resources and (b) leadership capabilities
These combine to determine the competitive strength of Strategic Competencies.
Strategic competencies have three levels: (1) Basic Competencies (what a firm can do), (2) Core Competencies (what a firm can do really well), and (3) Distinctive competencies (what a firm can do really well AND distinguishes it from competitors)
Value-Producing Resources
Value-Producing Resources – (What a firm has)
Tangible resources: 1. Land2. Facilities3. Equipment4. Financial capital5. Inventories, etc.
Intangible resources: 1. Knowledge capital2. Creative and innovative
workers3. Social relationships4. Organizational culture5. Beneficial locations6. Patents, copyrights,
Trademarks7. Reputation.
Resources are both tangible and intangible.
Value-Producing Resources
TangibleResourc
es
Intangible
Resources
Value-Producin
gResourc
es
Leadership
LeadershipQuality Leadership – 1. The ability to craft dynamic strategic plans 2. The skill to implement, direct & control those plans.
A firm with strong resources and dynamic leadership will nurture its basic and core competencies into distinctive competencies.
Leadership CapabilitiesLeadership is art of motivating a group of people to
act as a team striving to achieve a common goal. Leaders should be
1. Knowledgeable, 2. Ethical, 3. Talented,4. Courageous,5. Tenacious,6. Inspiring
The quality of leadership is measured by BOTH their achievements and their methods.
Excellence in leadership = achieving performance objectives in a legal, fair, ethical, and moral manner.
Capable Leaders are able to: Think critically Develop plausible scenario models Craft viable strategic plans Implement and manage strategic plans Maintain an open mindset Communicate thoroughly Motivate employees Make decisions harmonious with the firm's vision and
mission Balance the interest of all stakeholders Promote ethical decisions and behaviors Demonstrate courage by always doing the right thing Accept responsibility for the consequence of all decisions
and actions
Capable Leaders have knowledge of: Human resources Corporate cultures and National cultures Industry-specific customs, practices, and
procedures Accounting and finance Techniques for the effective utilization of
corporate resources Systems for monitoring and assessing
progress Analysis methods Tactical and strategic planning process
Strategic Competencies
Strategic Competencies – (What a firm can do)
Strategic Competencies evolve from Value-Producing Resources that are united,
leveraged, & applied
Many resources + POOR leadership = weak competencies
Strong leadership + FEW value producing resources =
weak competencies
Capable leadership + MANY value-producing resources = strong competencies
Strategic Competencies
Value-ProducingResources
CapableLeadership
StrategicCompetenci
es
Levels of Strategic Competencies
DistinctiveCompetencies
Core Competencies
Basic Competencies
Levels of Strategic Competencies1. Basic competencies are what a firm has
demonstrated that it "can do" profitably.
2. Core competencies are what a firm "can do extremely well" while enhancing its
profitability.
3. Distinctive competencies represent not only what the company can do extremely well but also "what distinguishes the firm" from competitors.
Distinctive competencies enable a firm to move closer to a prime objective of achieving and sustaining
above average returns.
When products or services offered by a firm possess Distinctive Competencies –
they exhibit the following qualities:
(1) Valuable (The products or services are profitable.)
(2) Rare (The products or service are extremely uncommon.)
(3) Difficult to Substitute (They cannot easily be produced, copied, or substituted by competitors.)
(4) Growth Potential (They are likely to be increasinglybeneficial to the company in the
future.)
Value-Producing Resources
Capable Leadership
(Good Governance)
Distinctive Competencies
Distinctive Competencies
Strategic Competitivene
ss
Above AverageReturns
GoodGovernan
ce
Value-Producing Resources
Distinctive Competencies
Strategic Competitivene
ss&
Sustainable Competitive Advantage
Above Averag
e Retur
ns
Distinctive Competencies
Environments
External
General Competitive
Internal
Resources Leadership
Summary
End of Part Two: Business Environments
Read Chapter Three: Creating Value
Smile!