This document discusses key concepts in strategic management including industries and sectors, sources of competition, interpreting industry analyses, competitors and markets, critical success factors, and the external factor evaluation matrix. It defines industries as groups of firms producing similar products and notes how industry boundaries can change over time through convergence. The five forces framework is introduced as a way to identify sources of competition within an industry by examining the threat of new entrants, substitute products, buyer power, supplier power, and competitive rivalry. Interpreting industry analyses involves assessing how attractive an industry is based on these competitive forces. The document also discusses strategic groups within industries and market segmentation. It concludes by explaining the external factor evaluation matrix as a tool for evaluating and summarizing key external factors

1. Strategic ManagementBHRM 31124R.A.IshankaChathuraniLecturer (prob)Department of Human Resource ManagementFaculty of Commerce & Management StudiesUniversity of Kelaniya

2. Environment Scanning - I(External Environment) 2. Industries and Sectors Industry is a group of firms producing the same principle of product or more broadly a group of firms producing products that are close substitutes for each otherEg: It is useful for managers in any organization to understand the competitive forces acting on and between organizations in the same industry or sector since this determine the attractiveness of that industry Cont…Industries and SectorsBoundaries of an industry may be changing by convergenceConvergence is where previously separate industries being to overlap in terms of activities, technologies, products and customsConvergence are two typeSupply ledDemand side

3. Cont…Industries and SectorsSupply led – where organizations start to behave as though there are linkages between the separate industries or sectors Eg:Demand side – where consumers start to behave as though industries have convergedEg:

4. Sources of competition Five forces framework helps identify the sources of competition in an industry or sectorIt must be used at the level of strategic business units level of the whole organizationUnderstand the connections between competitive forced and the key drivers in the macro environment is essentialThe five forces are not independent of each other

5. Five forcesThreat of entry – forces that need to be overcome by new entrants if they are to compete successfully Economic of scaleThe capital requirement of entryAccess to supply or distribution channelsCustomer or supplier loyaltyExperienceExpected retaliationLegislation or government actionsDifferentiation

6. Cont… Five forcesThreat of substitute – Substitutes reduce demand for a particular “class” of products as customers switch to the alterations. Different forms of substitutionsProduct –for product substitutionsSubstitution of needGeneric substitution

7. Cont… Five forcesPower of buyersConcentration of buyersCost of switchingSupplier being acquired by buyers (Backward integration)

8. Cont… Five forcesPower of suppliersConcentration of suppliersSwitching costSuppliers competing directly with the buyers (Forward integration)

9. Cont… Five forces Competitive rivalry – Competitive rivals are organizations with similar products and services aimed at the same customer groupFactor affect the degree of competitive rivalry in an industry or sectorThe extent to which competitors are in balanceIndustry growth rateHigh fixed costs in an industryHigh exit barrier to an industryDifferentiation

10. Interpreting Industry AnalysesUnattractiveIndustrySuppliers and buyers have strong positions Low entry barriers Strong threats from substitute products Intense rivalry among competitors Low profit potential

11. Interpreting Industry AnalysesHigh entry barriersSuppliers and buyers have weak positions Few threats from substitute productsModerate rivalry among competitorsHigh profit potentialAttractiveIndustry

12. 3. Competitors and marketsAn industry or sector may be a too general level to provide for a detailed understanding of competition Strategic groups – Organizations within an industry with similar strategic characteristics, following similar strategies or competing on similar base Market segmentation – group of customers who have similar need that are different from customer needs in other parts of the market

13. Cont… Competitors and marketsStrategic customers – the person/s at which the strategy is primarily addressed because they have the most influence over which goods or services are purchased

14. Critical Success FactorsCritical success factors are those product features that are particularly valued by a group of customers and therefore where the organization must excel to outperform competition Examples for CSFThreshold product features Reputation of a productAfter sales serviceDelivery reliabilityTechnical quality

15. External Factor Evaluation Matrix (EFM)EFM allows strategies to summarized and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, technological and competitive information.List key external; factors as identified in the external –audit processAssign to each factor a weight that ranges from 0.0 to 1.0Assign a 1 to 4 rating to each key external factor to indicate how effectively the firm’s current strategies respond to the factor,

16. Cont… External Factor Evaluation Matrix 4 = the response is superior3 = the response is above average2 = the response is average1 = the response is poor4. Multiply each factor’s weight by its rating to determine a weighted score5.Sum the weighted scores for each variable to determine the total weighted score for the organization The average total weighted score is 2.5

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