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Lesson 4
Environments and
Strategic
Management
Learning Outcomes
Explain the components and considerations of
strategic management
1: Explain the role of strategy in management
2: Describe common frameworks used to evaluate the
business environment
3: Describe common frameworks used for situational
analysis
4: Explain the stages of strategy, and describe the
common types of business strategies
5: Explain the key aspects of the environment that can
affect strategy
The Role of Strategy in
Management
Learning Outcomes: The Role of Strategy
in Management
1: Explain the role of strategy in management
1.1: Explain the concept of competitive
advantage
1.2: Explain the concept of value proposition
1.3: Explain how strategy relates to the overall
management of a business
Understanding The Role of Strategy
in Management
A company strategy
 is a comprehensive plan to achieve a goal
 keeps company aligned with customer’s
needs
 involves a significant commitment of
resources
Competitors are firms that provide similar products or
services.
Companies must “beat” competitors by striving to
improve offerings to customers and be better than
alternatives.
Competitive
Advantage
When customers perceive the distinction as being
valuable, they will prefer to purchase the business’s
product over a competitor’s.
Companies strive to provide a product or service that is
distinct, or differentiated, in some way from their
competitors.
The best businesses provide a combination of unique
attributes that competitors cannot match.
Creating Competitive Advantage
It may seem that the best way to create competitive
advantage is to do everything well. Unfortunately, this is
not possible.
Businesses create competitive advantage by doing some
things better than their competitors.
Businesses that try to do too many things well often don’t
succeed at doing anything extremely well and don’t
produce distinction. This is referred to as being “stuck in
the middle.”
The goal of companies is to create competitive advantage
in ways that are difficult or costly for competitors to copy.
This is called a Sustainable Competitive Advantage.
The Value Proposition
• Statement a company uses to convince
customers that its product or service provides
more value than a competitor’s
• Communicates to customer main reason a
product/service is the best
• Communicated through webpage, advertising,
or social media- must grab attention
Strategic Management
• Process of integrating all functions in an
organization into a whole
• Allows organization to develop synergy
• Has Two main functions:
Determine how company will create competitive
advantage
Make sure people in organization support the
strategy
• Instils a culture of excellence
Industry Analysis
 a method for a company to assess its market
position relative to its competitors.
 helps a company review various market and
financial factors in its industry that affect the
business, including evaluating the competition.
 helps managers understand the important
factors of the marketplace and how these
factors may be used to gain a competitive
advantage.
 are an important tool for companies to assess
their strategy in a shorter time frame.
Class Discussions: Car Company
Differentiation
Consider the following car companies. Is there a
particular characteristic or quality that you
associate with each of them?
• Porsche
• Volvo
• Hyundai
• Toyota
• Ford
What is their competitive advantage? Summarize
in your own words for they differentiate from
their competitors.
Common Frameworks for
Evaluating the Business
Environment
Learning Outcomes: Environments and Strategic
Management
2: Describe common frameworks used to
evaluate the business environment
2.1: Explain environmental scanning and the PESTEL
checklist for a company's general environment
2.2: Explain the impact of Porter's "five forces" on
industry profits
2.3: Explain competitor analysis
Common Frameworks for
Evaluating the Business Environment
• Environmental scanning
• high-level, broad-based process of gathering, analyzing, and
dispensing information for new strategies
• helps managers avoid being taken by surprise
• Entails getting both factual data and qualitative opinions
• PESTEL
• organizing framework that allows decision makers to
understand and make connections with a mass of information
• key macro-environmental factors in order to understand
interactions
PESTEL Factors
• Political: function of how much government intrudes or is
involved in organization’s operations- taxation/tariffs, regulations,
elections, etc.
• Economic: growth, employment, inflation, and interest rates-
foreign operations will worry about exchange rates
• Social: demographics such as population growth, age distribution,
and attitudes toward safety and health- rising rates of obesity as
example
• Technological: research and development, automation, and
incentives
• Environmental: weather, climate change, air quality, natural
disasters- risks with manufacturing, agriculture, tourism, and
sports entertainment
• Legal: discrimination laws, consumer protection laws, and
employment health and safety policies- antitrust, piracy, and
copyright laws affect how organizations operate
Porter’s Five Forces
Michael Porter, a well-known business consultant and
professor at Harvard University, identified five critical
external factors that affect strategies being developed by
organizations in any industry.
This system, known as Porter’s Five Forces, has
become an important management strategy tool.
It measures the competitiveness of an industry and thus
its attractiveness or potential profitability.
An unattractive industry is one in which the combination
of these five forces acts to drive down overall profitability.
Porter’s Five Forces
Five critical external factors that affect strategies being developed
by organizations in any industry
• Threat of new entrants:
• threat that new competitors pose to existing business in industry
• Threat of substitute products or services:
• different product or service but performs the same purpose in the mind of
the consumer
• Competitive rivalry within industry:
• intensity of competition is main force to determine profitability
• Bargaining power of buyers:
• amount of pressure customers can put on a seller
• Bargaining power of suppliers:
• limits ability of the seller to make a profit- can pressure buyers by raising
prices, lowering quality
Competitor Analysis
• A robust competitive analysis will allow you to
focus on those companies that will compete for
customers in your target market.
• A company’s analysis looks at a competitor and
inquires about:
• General Background information
• Financial inquiries
• Products that they sell
• Customers that they serve
• Advertising and Sales distribution channels
• Personnel and their plans for hiring
Common Frameworks for
Situational Analysis
Learning Outcomes: Common Frameworks for
Situational Analysis
3: Describe common frameworks
used for situational analysis
3.1: Differentiate among five
components of industry environment:
customers, competitors, suppliers,
regulations, and advocacy groups
3.2: Explain SWOT
3.3: Explain the resource-based view of
strategy
Understanding Common Frameworks
for Situational Analysis
Situational Analysis
• Looks more closely at external and internal conditions that
affect particular organization
• Considers what impact these factors may have on a specific
organization
Five Key Components for Situational Analysis
• Customers
• Competitors
• Suppliers
• Government
• Legal issues (regulations and advocacy)
Situational Analysis Components
• Customers: identify target customer, understand specific
customer needs, show how product or service meets
those needs
• Competitors: must be able to identify specific
competitors and assess potential for taking market share
• Suppliers: supply chain is a system comprised of
organizations, information, resources, etc. that brings
products to consumer
• Regulations: affects investment and spending, corporate
image, and risk management- greater burden on small
companies unless exempted due to size
• Advocacy Groups: aim is to influence public opinion,
public policy, and company behavior- represent political,
economic, and social interests
What Does a Situational Analysis Provide?
A Customer Analysis :
• Identifies the target customer.
• Is this customer base growing or is it decreasing?
• What are your customer demographics (age, income, location,
gender, politics, etc.)? What is the revenue of these
customers?
• How much discretionary income do they have?
• Builds understanding of the specific customer needs
• Why do they buy certain brands?
• How do make their purchasing decisions?
• Do they purchase in person or online?
• Shows if and how your product or service meets those
needs.
Competitors, Suppliers, and Regulations
• identify an organization’s specific competitors and assess their
potential for taking market share.
• be aware of future initiatives of the competition (as much as is possible)
• examine the competitors’ financial and marketing performances.
• The supply chain is a system comprised of organizations,
information, resources, people, technology, and activities that
bring products or services from a supplier to a consumer.
• Complying with regulations often involves a trade-off between
short-term profits and long-term public relations and social
responsibility.
• Advocacy groups are also known as special interest groups,
public interest groups, environmental groups, or political
support groups.
• influence public opinion, public policy, and company behavior.
SWOT: A Situational Analysis Summary
• Method that examines internal
strengths and weaknesses of an
organization and external
opportunities/threats
• SWOT
• Strengths- particular skills and
resources to pursue goals effectively
• Weaknesses- where it is lacking
resources and prevented from
pursing goals
• Opportunities- conditions
favorable to organization
• Threats- conditions that prevent
organization from achieving its goals
Practice Question 2
To which quadrant of a SWOT analysis would this example belong?
“-Vertical Integration: competitors have control of supply and
distribution channels to control the market.
-Price fluctuations: prices of ingredients are elastic and fluctuate
without warning.
-Marketing costs: competitive marketing campaigns need to be
extensive and are quite expensive.”
1.Strengths
2.Weaknesses
3.Opportunities
4.Threats
Resource-based View Strategic Approach (RBV)
The Resource-Based View (RBV) argues that focusing on an
organization’s strengths is essential to achieve a sustained
competitive advantage.
• Tangible assets are physical things such as land, equipment and
machines, and real estate. Although they are necessary, they
aren’t unique and competitors can fairly easily acquire these
kinds of assets.
• Intangible assets are anything an organization can own that is
not physical. Examples include brand names, intellectual
property, and the organization’s reputation and goodwill. These
kinds of assets are not easily acquired and usually contribute
heavily toward a sustained competitive advantage.
VRIO Framework
VRIO stands for the four key characteristics that a resource
must have if it is to produce sustained competitive
advantage.
• Valuable. A resource is valuable if it enables the company
to take advantage of opportunities or defend against
threats.
• Rare. If only one or two companies can acquire a
resource it is considered rare.
• Inimitable. If another organization can’t copy, buy, or find
a replacement for the resource, it is inimitable.
• Organized to capture value. The three characteristics
listed earlier are “necessary but not sufficient conditions”
to achieve a sustained competitive advantage.
Stages and Types of
Strategy
Learning Outcomes: Stages and Types of
Strategy
4: Explain the stages of strategy, and
describe the common types of
business strategies
4.1: Explain the stages of strategy
4.2: Explain Porter's general types of
competitive strategies
4.3: Explain e-commerce strategy
Strategic Management Process
• Strategic Objectives and Analysis:
• defines vision, mission, and values combined
with PESTEL and SWOT
• Strategic Formulation:
• PESTEL
• SWOT
• Strategic Implementation
• Sometimes referred to as strategic execution
• Strategic Evaluation and Control
Porter’s Competitive Strategies
• Low Price Leadership
• Reduces buyer bargaining, forces out
less efficient rivals, makes it hard for
new entrants to compete
• Differentiation Leadership
Strategy
• Buyers are less price-sensitive, rivalry is
reduced, difficult for new entrants to
copy product/service, uniqueness
makes it hard to substitute
• Integrated
• Provides values to two types of
customers, forces out less
efficient rivals
E-Business and E-Commerce
E-Business is business that takes place over digital
processes using computer network rather than in physical
location
• Relates to decreasing production costs and increasing efficiency
• Creates a customer focus
• Addresses internal management
E-Commerce refers to exchanges or transactions that
occur electronically.
• Many organizations have sales and marketing teams
dedicated to devising strategies for capturing their share
of the growing online market.
Class Discussion: Differentiation
A strategy based on differentiation
(distinction) calls for goods and services that
offer unique features and that have high
value for the target customer. The features
must be perceived by the customer to be so
much better than what the competition
offers that they are worth an additional cost.
What are some of the advantages and
disadvantages of a differentiation strategy?
How Environment
Affects Strategy
Learning Outcomes: How Environment Affects
Strategy
5 Explain the key aspects of the
environment that can affect strategy
5.1 Explain the key aspects of the
environment that can affect strategy
(e.g. stability, complexity, resource
scarcity, and uncertainty)
Understanding How Environment Affects
Strategy
• Stability
• The rate at which change occurs- in a stable environment,
change is slow
• A dynamic environment is rapidly changing
• Complexity
• Number of elements in organization’s environment and their
connections—variables hard to identify and measure and often
to understand
• Resource scarcity
• Availability of critical resources or those in high command
• Uncertainty
• How predictable environmental conditions are
Class Activity: Strategy and the Business
Environment
Conditions of instability, complexity, resource
scarcity, and uncertainty make it impossible for
managers to anticipate change and make rational
decisions. Instead, they must operate with
incomplete data and base decisions on assumptions
and best guesses.
Choose a product that you use in everyday life to
discuss in small groups. Using the four factors that
influence the business environment, discuss ways in
which you would need to consider each in your
management role.
Present: Strategy and the
Business Environment
Quick Review
• Explain the concept of competitive advantage and
value proposition and how they relate to the overall
business management
• Explain environment scanning and the PESTEL checklist
for a company’s general environment
• Describe the impact of Porter’s “five forces” on
industry profits and explain competitor analysis
• Differentiate among five components of industry
environment and explain SWOT/resource-based view of
strategy
• Explain the stages of strategy, Porter’s types of
strategies, and e-commerce strategy
• Explain the key aspects of the environment that can
affect strategy

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Lesson 4 OMTE 001 Environments And Strategic Management.pptx

  • 2. Learning Outcomes Explain the components and considerations of strategic management 1: Explain the role of strategy in management 2: Describe common frameworks used to evaluate the business environment 3: Describe common frameworks used for situational analysis 4: Explain the stages of strategy, and describe the common types of business strategies 5: Explain the key aspects of the environment that can affect strategy
  • 3. The Role of Strategy in Management
  • 4. Learning Outcomes: The Role of Strategy in Management 1: Explain the role of strategy in management 1.1: Explain the concept of competitive advantage 1.2: Explain the concept of value proposition 1.3: Explain how strategy relates to the overall management of a business
  • 5. Understanding The Role of Strategy in Management A company strategy  is a comprehensive plan to achieve a goal  keeps company aligned with customer’s needs  involves a significant commitment of resources Competitors are firms that provide similar products or services. Companies must “beat” competitors by striving to improve offerings to customers and be better than alternatives.
  • 6. Competitive Advantage When customers perceive the distinction as being valuable, they will prefer to purchase the business’s product over a competitor’s. Companies strive to provide a product or service that is distinct, or differentiated, in some way from their competitors. The best businesses provide a combination of unique attributes that competitors cannot match.
  • 7. Creating Competitive Advantage It may seem that the best way to create competitive advantage is to do everything well. Unfortunately, this is not possible. Businesses create competitive advantage by doing some things better than their competitors. Businesses that try to do too many things well often don’t succeed at doing anything extremely well and don’t produce distinction. This is referred to as being “stuck in the middle.” The goal of companies is to create competitive advantage in ways that are difficult or costly for competitors to copy. This is called a Sustainable Competitive Advantage.
  • 8. The Value Proposition • Statement a company uses to convince customers that its product or service provides more value than a competitor’s • Communicates to customer main reason a product/service is the best • Communicated through webpage, advertising, or social media- must grab attention
  • 9. Strategic Management • Process of integrating all functions in an organization into a whole • Allows organization to develop synergy • Has Two main functions: Determine how company will create competitive advantage Make sure people in organization support the strategy • Instils a culture of excellence
  • 10. Industry Analysis  a method for a company to assess its market position relative to its competitors.  helps a company review various market and financial factors in its industry that affect the business, including evaluating the competition.  helps managers understand the important factors of the marketplace and how these factors may be used to gain a competitive advantage.  are an important tool for companies to assess their strategy in a shorter time frame.
  • 11. Class Discussions: Car Company Differentiation Consider the following car companies. Is there a particular characteristic or quality that you associate with each of them? • Porsche • Volvo • Hyundai • Toyota • Ford What is their competitive advantage? Summarize in your own words for they differentiate from their competitors.
  • 12. Common Frameworks for Evaluating the Business Environment
  • 13. Learning Outcomes: Environments and Strategic Management 2: Describe common frameworks used to evaluate the business environment 2.1: Explain environmental scanning and the PESTEL checklist for a company's general environment 2.2: Explain the impact of Porter's "five forces" on industry profits 2.3: Explain competitor analysis
  • 14. Common Frameworks for Evaluating the Business Environment • Environmental scanning • high-level, broad-based process of gathering, analyzing, and dispensing information for new strategies • helps managers avoid being taken by surprise • Entails getting both factual data and qualitative opinions • PESTEL • organizing framework that allows decision makers to understand and make connections with a mass of information • key macro-environmental factors in order to understand interactions
  • 15. PESTEL Factors • Political: function of how much government intrudes or is involved in organization’s operations- taxation/tariffs, regulations, elections, etc. • Economic: growth, employment, inflation, and interest rates- foreign operations will worry about exchange rates • Social: demographics such as population growth, age distribution, and attitudes toward safety and health- rising rates of obesity as example • Technological: research and development, automation, and incentives • Environmental: weather, climate change, air quality, natural disasters- risks with manufacturing, agriculture, tourism, and sports entertainment • Legal: discrimination laws, consumer protection laws, and employment health and safety policies- antitrust, piracy, and copyright laws affect how organizations operate
  • 16. Porter’s Five Forces Michael Porter, a well-known business consultant and professor at Harvard University, identified five critical external factors that affect strategies being developed by organizations in any industry. This system, known as Porter’s Five Forces, has become an important management strategy tool. It measures the competitiveness of an industry and thus its attractiveness or potential profitability. An unattractive industry is one in which the combination of these five forces acts to drive down overall profitability.
  • 17. Porter’s Five Forces Five critical external factors that affect strategies being developed by organizations in any industry • Threat of new entrants: • threat that new competitors pose to existing business in industry • Threat of substitute products or services: • different product or service but performs the same purpose in the mind of the consumer • Competitive rivalry within industry: • intensity of competition is main force to determine profitability • Bargaining power of buyers: • amount of pressure customers can put on a seller • Bargaining power of suppliers: • limits ability of the seller to make a profit- can pressure buyers by raising prices, lowering quality
  • 18. Competitor Analysis • A robust competitive analysis will allow you to focus on those companies that will compete for customers in your target market. • A company’s analysis looks at a competitor and inquires about: • General Background information • Financial inquiries • Products that they sell • Customers that they serve • Advertising and Sales distribution channels • Personnel and their plans for hiring
  • 20. Learning Outcomes: Common Frameworks for Situational Analysis 3: Describe common frameworks used for situational analysis 3.1: Differentiate among five components of industry environment: customers, competitors, suppliers, regulations, and advocacy groups 3.2: Explain SWOT 3.3: Explain the resource-based view of strategy
  • 21. Understanding Common Frameworks for Situational Analysis Situational Analysis • Looks more closely at external and internal conditions that affect particular organization • Considers what impact these factors may have on a specific organization Five Key Components for Situational Analysis • Customers • Competitors • Suppliers • Government • Legal issues (regulations and advocacy)
  • 22. Situational Analysis Components • Customers: identify target customer, understand specific customer needs, show how product or service meets those needs • Competitors: must be able to identify specific competitors and assess potential for taking market share • Suppliers: supply chain is a system comprised of organizations, information, resources, etc. that brings products to consumer • Regulations: affects investment and spending, corporate image, and risk management- greater burden on small companies unless exempted due to size • Advocacy Groups: aim is to influence public opinion, public policy, and company behavior- represent political, economic, and social interests
  • 23. What Does a Situational Analysis Provide? A Customer Analysis : • Identifies the target customer. • Is this customer base growing or is it decreasing? • What are your customer demographics (age, income, location, gender, politics, etc.)? What is the revenue of these customers? • How much discretionary income do they have? • Builds understanding of the specific customer needs • Why do they buy certain brands? • How do make their purchasing decisions? • Do they purchase in person or online? • Shows if and how your product or service meets those needs.
  • 24. Competitors, Suppliers, and Regulations • identify an organization’s specific competitors and assess their potential for taking market share. • be aware of future initiatives of the competition (as much as is possible) • examine the competitors’ financial and marketing performances. • The supply chain is a system comprised of organizations, information, resources, people, technology, and activities that bring products or services from a supplier to a consumer. • Complying with regulations often involves a trade-off between short-term profits and long-term public relations and social responsibility. • Advocacy groups are also known as special interest groups, public interest groups, environmental groups, or political support groups. • influence public opinion, public policy, and company behavior.
  • 25. SWOT: A Situational Analysis Summary • Method that examines internal strengths and weaknesses of an organization and external opportunities/threats • SWOT • Strengths- particular skills and resources to pursue goals effectively • Weaknesses- where it is lacking resources and prevented from pursing goals • Opportunities- conditions favorable to organization • Threats- conditions that prevent organization from achieving its goals
  • 26. Practice Question 2 To which quadrant of a SWOT analysis would this example belong? “-Vertical Integration: competitors have control of supply and distribution channels to control the market. -Price fluctuations: prices of ingredients are elastic and fluctuate without warning. -Marketing costs: competitive marketing campaigns need to be extensive and are quite expensive.” 1.Strengths 2.Weaknesses 3.Opportunities 4.Threats
  • 27. Resource-based View Strategic Approach (RBV) The Resource-Based View (RBV) argues that focusing on an organization’s strengths is essential to achieve a sustained competitive advantage. • Tangible assets are physical things such as land, equipment and machines, and real estate. Although they are necessary, they aren’t unique and competitors can fairly easily acquire these kinds of assets. • Intangible assets are anything an organization can own that is not physical. Examples include brand names, intellectual property, and the organization’s reputation and goodwill. These kinds of assets are not easily acquired and usually contribute heavily toward a sustained competitive advantage.
  • 28. VRIO Framework VRIO stands for the four key characteristics that a resource must have if it is to produce sustained competitive advantage. • Valuable. A resource is valuable if it enables the company to take advantage of opportunities or defend against threats. • Rare. If only one or two companies can acquire a resource it is considered rare. • Inimitable. If another organization can’t copy, buy, or find a replacement for the resource, it is inimitable. • Organized to capture value. The three characteristics listed earlier are “necessary but not sufficient conditions” to achieve a sustained competitive advantage.
  • 29. Stages and Types of Strategy
  • 30. Learning Outcomes: Stages and Types of Strategy 4: Explain the stages of strategy, and describe the common types of business strategies 4.1: Explain the stages of strategy 4.2: Explain Porter's general types of competitive strategies 4.3: Explain e-commerce strategy
  • 31. Strategic Management Process • Strategic Objectives and Analysis: • defines vision, mission, and values combined with PESTEL and SWOT • Strategic Formulation: • PESTEL • SWOT • Strategic Implementation • Sometimes referred to as strategic execution • Strategic Evaluation and Control
  • 32. Porter’s Competitive Strategies • Low Price Leadership • Reduces buyer bargaining, forces out less efficient rivals, makes it hard for new entrants to compete • Differentiation Leadership Strategy • Buyers are less price-sensitive, rivalry is reduced, difficult for new entrants to copy product/service, uniqueness makes it hard to substitute • Integrated • Provides values to two types of customers, forces out less efficient rivals
  • 33. E-Business and E-Commerce E-Business is business that takes place over digital processes using computer network rather than in physical location • Relates to decreasing production costs and increasing efficiency • Creates a customer focus • Addresses internal management E-Commerce refers to exchanges or transactions that occur electronically. • Many organizations have sales and marketing teams dedicated to devising strategies for capturing their share of the growing online market.
  • 34. Class Discussion: Differentiation A strategy based on differentiation (distinction) calls for goods and services that offer unique features and that have high value for the target customer. The features must be perceived by the customer to be so much better than what the competition offers that they are worth an additional cost. What are some of the advantages and disadvantages of a differentiation strategy?
  • 36. Learning Outcomes: How Environment Affects Strategy 5 Explain the key aspects of the environment that can affect strategy 5.1 Explain the key aspects of the environment that can affect strategy (e.g. stability, complexity, resource scarcity, and uncertainty)
  • 37. Understanding How Environment Affects Strategy • Stability • The rate at which change occurs- in a stable environment, change is slow • A dynamic environment is rapidly changing • Complexity • Number of elements in organization’s environment and their connections—variables hard to identify and measure and often to understand • Resource scarcity • Availability of critical resources or those in high command • Uncertainty • How predictable environmental conditions are
  • 38. Class Activity: Strategy and the Business Environment Conditions of instability, complexity, resource scarcity, and uncertainty make it impossible for managers to anticipate change and make rational decisions. Instead, they must operate with incomplete data and base decisions on assumptions and best guesses. Choose a product that you use in everyday life to discuss in small groups. Using the four factors that influence the business environment, discuss ways in which you would need to consider each in your management role.
  • 39. Present: Strategy and the Business Environment
  • 40. Quick Review • Explain the concept of competitive advantage and value proposition and how they relate to the overall business management • Explain environment scanning and the PESTEL checklist for a company’s general environment • Describe the impact of Porter’s “five forces” on industry profits and explain competitor analysis • Differentiate among five components of industry environment and explain SWOT/resource-based view of strategy • Explain the stages of strategy, Porter’s types of strategies, and e-commerce strategy • Explain the key aspects of the environment that can affect strategy