3. Opportunities & Threats (External)
Key Terms
Analysis of Trends:
• Economic
• Social
• Cultural
• Demographic/Environmental
• Political, Legal, Governmental
• Technological
• Competitors
4. Strengths & Weaknesses (Internal)
Key Terms
Typically located in functional areas of the firm
• Management
• Marketing
• Finance/Accounting
• Production/Operations
• Research & Development
• Computer Information Systems
5. STRATEGIC MANAGEMENT PROCESS
Step 1: Identifying the organization’s current
mission, goals, and strategies
Mission: the firm’s reason for being
The scope of its products and services
Goals: the foundation for further planning
Measurable performance targets
Step 2: Doing an external analysis
The environmental scanning of specific and general
environments
Focuses on identifying opportunities and threats
6. STRATEGIC MANAGEMENT PROCESS
(CONT’D)
Step 3: Doing an internal analysis
Assessing organizational resources, capabilities, and
activities:
Strengths create value for the customer and strengthen the
competitive position of the firm.
Weaknesses can place the firm at a competitive disadvantage.
Analyzing financial and physical assets is fairly easy, but
assessing intangible assets (employee’s skills, culture,
corporate reputation, and so forth) isn’t as easy.
Steps 2 and 3 combined are called a SWOT analysis.
(Strengths, Weaknesses, Opportunities, and Threats)
7. STRATEGIC MANAGEMENT PROCESS
(CONT’D)
Step 4: Formulating strategies
Develop and evaluate strategic alternatives
Select appropriate strategies for all levels in the
organization that provide relative advantage over
competitors
Match organizational strengths to environmental
opportunities
Correct weaknesses and guard against threats
8. STRATEGIC MANAGEMENT PROCESS
(CONT’D)
Step 5: Implementing strategies
Implementation: effectively fitting organizational
structure and activities to the environment.
The environment dictates the chosen strategy;
effective strategy implementation requires an
organizational structure matched to its
requirements.
Step 6: Evaluating results
How effective have strategies been?
What adjustments, if any, are necessary?
9. TOOLS FOR MANAGING STRATEGY
TOWS Matrix
BCG Matrix
Ansoff’s Growth Matrix
Industry Attractiveness Business Strength Matrix
Porter’s Five Forces Model
Porter’s Generic Strategies
Core Competence
12. CONTD…
It is a comparative analysis of business potential and the evaluation of
environment. The dimension of business strength, relative market share,
will measure comparative advantage indicated by market dominance
Star: Units having large market share. generate cash but require huge
investments. If successful, a star become a cash cow. Eg ipod
Cash Cows: large market share, slow growing industry. Little investment &
generate cash utilized for investment in other BU. Cash cows loose, move
towards deterioration. Eg:Colgate
Question mark: low market share, located in a high growth industry,
require huge amount of cash. Start as question mark, invest and lead
maturity. If ignored may become dogs.
Dogs: weak market shares in low-growth markets. neither generate cash
nor require huge amount of cash. Firms have weak market share because
of high costs, poor quality, ineffective marketing.
13. EXAMPLES:
Product lifecycle analysis.
Categories based on combinations of market growth and
market share relative to the largest competitor.
Use the link to generate BCG Matrix
http://www.marketingobjects.com/products/bcg_matrix/index.cfm
17. EXAMPLE
Similar to PEST analysis, but tends to focus on the
single, stand alone, business or SBU (Strategic
Business Unit) rather than a single product or range
of products.
For example, Dell would analyse the market for
Business Computers i.e. one of its SBUs.
18. THE THREAT OF ENTRY
Economies of scale e.g. the benefits associated with bulk purchasing.
The high or low cost of entry e.g. how much will it cost for the latest
technology?
Ease of access to distribution channels e.g. Do our competitors have the
distribution channels sewn up?
Cost advantages not related to the size of the company e.g. personal
contacts or knowledge that larger companies do not own or learning
curve effects.
Will competitors retaliate?
Government action e.g. will new laws be introduced that will weaken our
competitive position?
How important is differentiation? e.g. The Champagne brand cannot be
copied. This desensitises the influence of the environment.
This is high where there a few, large players in a market e.g. the large
grocery chains.
If there are a large number of undifferentiated, small suppliers e.g. small
farming businesses supplying the large grocery chains.
The cost of switching between suppliers is low e.g. from one fleet
supplier of trucks to another.
19. THE POWER OF SUPPLIERS.
The power of suppliers tends to be a reversal of the
power of buyers.
Where the switching costs are high e.g. Switching
from one software supplier to another.
Power is high where the brand is powerful e.g.
Cadillac, Pizza Hut, Microsoft.
There is a possibility of the supplier integrating
forward e.g. Brewers buying bars.
Customers are fragmented (not in clusters) so that
they have little bargaining power e.g. Gas/Petrol
stations in remote places.
20. THE THREAT OF SUBSTITUTES
Where there is product-for-product substitution e.g.
email for fax Where there is substitution of need
e.g. better toothpaste reduces the need for dentists.
Where there is generic substitution (competing for
the currency in your pocket) e.g. Video suppliers
compete with travel companies.
We could always do without e.g. cigarettes.
21. COMPETITIVE RIVALRY
This is most likely to be high where entry is likely;
there is the threat of substitute products, and
suppliers and buyers in the market attempt to
control.
This is why it is always seen in the center of the
diagram.
24. RESOURCE BASED VIEW
Strategy
Competitive
advantage
Capabilities
Resources
Step 1: identify and classify firm’s
resources. Assess strengths and
weaknesses of these relative to
competitors. Identify opportunities
Step 2: identify capabilities
which are its strengths.
Identify resource inputs for it
Step 3: appraise rent gathering
potential in terms their potential
for sustained competitive
advantage and appropriability
Step 4: select a strategy which
matches. These steps Step 5: identify
resource gaps.
Invest in
replenishing,
upgrading and
augmenting
resource base.
Grant 1991
