Lecture 4

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Lecture 4

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

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