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Lecture 4

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  • 1. Concepts Of Strategic Management The study of strategic management
  • 2. Strategic management Definition
    • Strategic management is that set of managerial decisions and actions that determines the long-run performance of a corporation.
    • Strategic management includes:
    • Environmental scanning (both external and internal).
    • Strategy implementation.
    • Evaluation and control.
  • 3. How has strategic management evolved
    • Strategic management within a firm generally evolves through four sequential phases:
    • Basic financial planning.
    • Forecast-based planning.
    • Externally oriented planning (strategic planning).
    • Strategic management.
  • 4. Initiation of strategy: Triggering events
    • A triggering event is something that stimulates a change in strategy. Some of the possible triggering events are:
    • New CEO.
    • Intervention by an external institution.
    • Threat of a changing in ownership.
    • Management’s recognition of a performance gap.
  • 5. External Assessment
    • “ If you're not faster than your competitor, you’re in a tenuous position, and if you’re only half as fast, you’re terminal.”
    • — George Salk—
  • 6. External Assessment (Cont’d)
    • “ The idea is to concentrate our strength against our competitor’s relative weakness.”
    • — Bruce Henderson—
  • 7. External Assessment (Cont’d)
    • External Strategic-Management Audit
      • Industry analysis
      • Environmental scanning
  • 8. External Assessment (Cont’d)
    • External audit:
    • Focuses on identifying & evaluating events beyond the immediate control of the firm
  • 9. External Assessment (Cont’d)
    • External audit focuses on :
      • Increased foreign competition
      • Population shifts
      • Demographics (e.g., aging population)
      • Information technology
  • 10. External Assessment (Cont’d)
    • External audit reveals :
      • Key opportunities
      • Key threats
    • Managers then formulate strategies:
      • Take advantage of opportunities
      • Avoid/reduce impact of threats
  • 11. External Assessment (Cont’d)
    • External Audit
    • Aimed at identifying key variables that offer actionable responses
  • 12. External Assessment (Cont’d)
    • Key External Forces
    • Five (5) broad categories:
    • Economic forces
    • Social, cultural, demographic, & environmental forces
  • 13. External Assessment (Cont’d)
    • Key External Forces (Cont’d)
    • Five (5) broad categories:
    • Political, governmental, & legal forces
    • Technological forces
    • Competitive forces
  • 14. External Assessment (Cont’d)
    • Competitors
    • Suppliers
    • Distributors
    • Creditors
    • Customers
    • Employees
    • Communities
    • Managers
    • Stockholders
    • Labor Unions
    • Special Interest Groups
    • Products
    • Services
    OPURTUNITIES &threats Key external forces Competitors Suppliers Distributors Creditors Customers Employees Communities Managers Stockholders Labor Unions Special Interest Groups Products
  • 15. External Assessment (Cont’d)
    • Process of External Audit :
    • Involve as many managers & employees as possible
    • Gather competitive intelligence
    • Information about social, demographic, cultural, environmental, etc.
    • Monitor sources of information (key magazines, articles, etc.)
    • Utilization of Internet
    • Suppliers, distributors, customers as sources of information
  • 16. External Assessment (Cont’d)
    • Process of External Audit :
    • Involve as many managers & employees as possible
    • Gather competitive intelligence
    • Information about social, demographic, cultural, environmental, etc.
    • Monitor sources of information (key magazines, articles, etc.)
    • Utilization of Internet
    • Suppliers, distributors, customers as sources of information
    Key External Factors : Vary over time & Vary by industry
  • 17. External Assessment (Cont’d)
    • Process of External Audit :
    • Involve as many managers & employees as possible
    • Gather competitive intelligence
    • Information about social, demographic, cultural, environmental, etc.
    • Monitor sources of information (key magazines, articles, etc.)
    • Utilization of Internet
    • Suppliers, distributors, customers as sources of information
    • Key External Factors :
    • Important to achieving long-term objectives
    • Measurable
    • Applicable to all competing firms
    • Hierarchical
  • 18. External Assessment (Cont’d)
    • Examples of Key External Factors :
    • Market share
    • Breadth of competing products
    • World economies
    • Proprietary & key account advantages
    • Price competitiveness
    • Technological advancements
    • Interest rates
  • 19. Economic Forces
    • Monitor Key Economic Variables :
    • Availability of credit
    • Level of disposable income
    • Interest rates
    • Inflation rates
    • Money market rates
    • Government budget deficits
    • Gross domestic product trend
    • Consumption patterns
  • 20. Economic Forces (Cont’d)
    • Monitor Key Economic Variables : (Cont’d)
    • Unemployment trends
    • Worker productivity levels
    • Value of the dollar in world markets
    • Stock market trends
    • Foreign countries’ economic conditions
    • Import/export factors
    • Demand shifts for goods/services
    • Income differences by region/customer
  • 21. Economic Forces (Cont’d)
    • Monitor Key Economic Variables : (Cont’d)
    • Price fluctuations
    • Exportation of labor & capital
    • Monetary policies
    • Fiscal policies
    • Tax rates
    • ECC policies
    • OPEC policies
    • LDC policies
  • 22. Social & Environmental Forces
    • Social, cultural, demographic, and environmental changes:
    • Major impact on:
        • Products
        • Services
        • Markets
        • Customers
  • 23. Social & Environmental Forces
    • World population > 6 billion
    • U.K. population < 60 million
        • Great potential for domestic production expansion to other markets
    • Domestic only is a risky strategy
  • 24. Social & Environmental Forces 53.33 46 m 30 m Oceania 28.52 392 m 305 m North America 16.08 729 m 628 m Europe 60.52 809 m 504 m Latin America 140.32 1.8 b 749 m Africa 47.22 5.3 b 3.6 b Asia % Increase 2050 1998 Country
  • 25. Social & Environmental Forces
    • E-commerce Perspective
    • Question:
    • “ Is the Internet Revolution Bypassing Poor, Minorities?”
    • Answer:
    • Yes!
  • 26. Social & Environmental Forces
    • Internet revolution is widening the gap between rich & poor
    • 42% U.S. households have personal computers
    • 80% of them are in households w/family income > $75,000
  • 27. Social & Environmental Forces
    • Internet usage lowest (3%) among Americans earning $10K or less
    • 26.7% of White Americans use Internet at home compared to 9.2% Blacks & 8.8% of Hispanics
    • 90% shares of common stock of American companies held by the wealthiest 10% of Americans
  • 28. Social & Environmental Forces
    • Key social, cultural, demographic, & environmental variables:
    • Childbearing rates
    • Number of special-interest groups
    • Number of marriages
    • Number of divorces
    • Number of births
    • Number of deaths
    • Immigration & emigration rates
  • 29. Social & Environmental Forces
    • Key social, cultural, demographic, & environmental variables: (Cont’d)
    • Life expectancy rates
    • Per capita income
    • Attitudes toward business
    • Average disposable income
    • Buying habits
    • Ethical concerns
    • Attitudes toward saving
  • 30. Social & Environmental Forces
    • Key social, cultural, demographic, & environmental variables: (Cont’d)
    • Racial equality
    • Average level of education
    • Government regulation
    • Attitudes toward customer service
    • Attitudes toward product quality
    • Energy conservation
    • Social responsibility
  • 31. Social & Environmental Forces
    • Key social, cultural, demographic, & environmental variables: (Cont’d)
    • Value placed on leisure time
    • Recycling
    • Waste management
    • Air & water pollution
    • Ozone depletion
    • Endangered species
  • 32. Political, Govt., & Legal Forces
    • Government Regulation
    • Key opportunities & key threats
        • Antitrust legislation (Microsoft)
        • Tax rates
        • Lobbying efforts
        • Patent laws
  • 33. Political, Govt., & Legal Forces
    • Increasing Global Interdependence
    • Impact of political variables
        • Formulation of strategies
        • Implementation of strategies
  • 34. Political, Govt., & Legal Forces
    • Increasing Global Interdependence
    • Strategists in a global economy
        • Forecast political climates
        • Legalistic skills
        • Diverse world cultures
  • 35. Political, Govt., & Legal Forces
    • Globalization of Industry
      • Worldwide trend toward similar consumption patterns
      • Global buyers & sellers
      • E-commerce
      • Instant transmission of money & information across continents
  • 36. Political, Govt., & Legal Forces
    • Key Political, govt., & legal variables:
      • Government regulation/deregulation
      • Tax law changes
      • Special tariffs
      • Political Action Committees (PACs)
      • Voter participation rates
      • Number of patents
      • Changes in patent laws
  • 37. Political, Govt., & Legal Forces
    • Key Political, govt., & legal variables: (Cont’d)
      • Environmental protection laws
      • Equal employment legislation
      • Level of government subsidies
      • Antitrust legislation/enforcement
      • Sino-American relationships
      • Russian-American relationships
      • European-American relationships
  • 38. Political, Govt., & Legal Forces
    • Key Political, govt., & legal variables:(Cont’d)
      • Ethnic minorities relationships
      • Import-export regulations
      • Monetary policy
      • Political conditions in other countries
      • Government budgets
      • World oil, currency, & labor markets
      • Location and severity of terrorist activities
  • 39. Technological Forces
    • Technological Change
    • Dramatic effect on business
        • Fiber optics
        • Biometrics
        • EFT
        • Computer engineering
        • Superconductivity advancements
  • 40. Technological Forces (Cont’d)
    • Internet impact on opportunities & threats:
    • Altering life cycles of products
    • Increasing speed of distribution
    • Creating new products & services
    • Erasing limitations of traditional geographic markets
  • 41. Technological Forces (Cont’d)
    • Internet impact on opportunities & threats: (Cont’d)
    • Altering economies of scale
    • Changing entry barriers
    • Redefining relationships
      • Industries & suppliers, creditors, customers, and competitors
  • 42. Technological Forces (Cont’d)
    • Capitalizing on Information Technology (IT)
    • Chief Information Officer (CIO)
    • Chief Technology Officer (CTO)
  • 43. Competitive Forces
    • External Audit & Competing Firms
    • Identifying rival firms
      • Strengths
      • Weaknesses
      • Capabilities
      • Opportunities
      • Threats
      • Objectives
      • Strategies
  • 44. Competitive Forces
    • Competitor Information
    • Sources:
      • 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
  • 45. Competitive Forces
    • Most competitive firms in America
    • Seven Characteristics
      • Market share matters
      • Understand what business you are in
      • Broke or not, fix it
      • Innovate or evaporate
  • 46. Competitive Analysis: Porter’s Five-Forces Model Potential development of substitute products Rivalry among competing firms Bargaining power of suppliers Potential entry of new competitors Bargaining power of consumers
  • 47. Global Challenge
    • Differences U.S. and MNCs
    • Affect strategic management:
      • Language
      • Culture
      • Politics
      • Economy
      • Government interference
      • Labor relations
      • Trade barriers
  • 48. Reference
    • For more details about this lecture see Chapter 3 in:
    • Strategic Management: Concepts and Cases, 9/e Fred David   

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