for aiub summar , for semister break preparation

1. STRATEGIC MANAGEMENT
Fred R. David

2. EXTERNAL AUDIT
 External Audit refers to a list of opportunities that could
benefit a firm and threats that should be avoided.
 External Audit is aimed at identifying key variables that
offer actionable response , where firms should be able to
response offensively or defensively
 Firms aim to formulate strategies that take advantage of
external opportunities or minimize the impact of potential
threats

3. KEY EXTERNAL FORCES
 Economic forces
 Social, cultural, demographic and Environmental
forces
 Political, Governmental and Legal Forces
 Technological forces
 Competitive forces

5. WHAT DOES EXTERNAL CHANGES
ENTAIL?
 Changes in external forces means
 changes in consumer demands for both industrial
and consumer product and services.
 External forces affect:
 the types of product developed,
 nature of positioning,
 market segmentation strategies,
 type of services offered and the choices of business to
acquire or sell
 External forces directly affect both suppliers and
distributors, customers, stockholders,
governments

6. THE INDUSTRIAL ORGANIZATION
VIEW
 The Industrial Organization (I/O)approach dictates
 External industries factors are more important than internal
factors for a firm to achieve competitive advantage
 Ex. Porter’s 5 Forces
 Maintaining Competitive Position within industry
 I/O approach was predominant between 1960 -1980s
 I/O perspective entails that firms competes in
attractive industries and avoids faltering or weak industries
 I/O theorist believes that a firm’s choice of industry has a stronger
influence on a firm’s performance than internal functional decision
(marketing, finance etc)
 Firms’ performance is based on:
 Economies of scales,
 Barriers to market entry,
 Product differentiation,
 Level of competitiveness (Unilever, GP, Apple, Nokia)

7. ECONOMIC FORCES
 Economic Forces play a key role for a firm’s success or failure
and have a direct impact on potential attractiveness of a firms
product or services
 In times of recession, consumer confidence and disposable income
are very low, while debt and unemployment are high
 During these times firms must differentiate themselves and play
their part and focus on aspects such as
 customer service
 immediate availability
 trouble free operation of product
 dependable maintenance and repair service.
 This is important as brand loyalty will fall due to budget
crunch and brand switching becomes a high possibility among
consumers

8. ECONOMIC FORCES (CONT’D)
 When the market climbs, consumer and business
wealth expands which generates various
opportunities and threats for various
organizations
 i.e. pharmaceuticals companies, tourism,
entertainment, car industry etc.
Potential markets
 Latent market—an undiscovered market; demand would be
there if product was there
 Incipient market—market will emerge as macro
environmental trends continue
 Economical, Technological, Socio-culture trends

9. SOCIAL, CULTURAL, DEMOGRAPHIC & ENVIRONMENTAL FORCES
 Social, Cultural, demographic and Environmental changes have a
major impact on all product, services, markets and customers as a
whole.
 These factors shape the way people live, work, produce and
consumer
 New trends are creating different types of consumers, thus the
need for different products, different services and different
strategies. i.e. Nivea for Men, Alcohol, Mobile, Family units
(Nuclear family vs single)
 Demand Patter Analysis
 Consumption patterns helps assessing market opportunities
 Income Elasticity Measurement
 Relationship between demand for a good and changes in income

10. THE DETERMINANTS OF CULTURE

11. 7-11
DEMOGRAPHIC SEGMENTATION
 Income
 Population
 Age distribution
 Gender
 Education
 Occupation
What are the trends?

12. SOCIAL, CULTURAL, DEMOGRAPHIC & ENVIRONMENTAL FORCES
 Baby Boomers
 Examples
 restaurants
 Hotels
 airlines
 cruise lines
 tours
 resorts
 theme parks
 luxury product
 recreational vehicles
 home builders
 furniture producers
 travel services
 pharmaceutical firm
 Automakers
 funeral homes

13. POLITICAL, GOVERNMENTAL AND LEGAL
FORCES
 Political, Governmental and legal factors represent opportunities and
threats for both small and large firms alike.
 Firms that rely on government contracts, subsidies, political forecasts
becomes an important part of external audit as it affects
 Patent laws
 Antitrust legislation
 Tax rates
 Lobbying activities
 The increasing interdependence among economies, market,
government and organizations makes it imperative that firms
consider the possible impact of political variables on formulation and
implementation of competitive strategies.
i.e Autocratic VS. Democratic , Bribes vs. gifts
US Steel Mills  Japanese Manufacturer
Chinese Manufacturer  worldwide distribution

14. POLITICAL, GOVERNMENTAL AND LEGAL
FORCES
 In Europe, John Deere, Gillette, Ralph Lauren Polo, Cargill, General
Mills are moving their head quarters from France, Netherlands and
Germany to Switzerland and Ireland to avoid costs associated with
tax harmonization (an effort to end competitive tax breaks among
member countries).
 Political forecasting is critical for MNC’s that depend on foreign
countries for
 Natural resources
 Facilities
 Distribution
 Special assistance
 consumers
 Strategists must be able to deal with it from a legislatively and
politically
 These individuals meet government officials, attend hearing and
government sponsored conferences, giving public speeches, meeting
trade groups, industry association and government agency directors

15. POLITICAL, GOVERNMENTAL AND LEGAL
FORCES
This allows them leverage for entering or expanding international
operations
Interest groups also play a role on strategies for small and large
business alike as they can bring about political or governmental
actions such as:
 Governmental Regulations
 Changes in Tax Laws
 Special Tariffs
 Number of Patents
 Change in Patent laws
 Level of government Subsidies
 Import-Export regulations
 Lobbying Activities

16. TECHNOLOGICAL FORCES
 Internet – is acting as a global economic engine which boosts
productivity
 Firms use internet as it saves them billions of dollars in distribution
and transaction cost from direct sales and self service system
 Most firms are aware of this and have tried to capitalize on e-commerce
and have incorporated CIO & CTO
 CIO – responsible for managing external audit process such as
developing, maintaining and updating database
 CTO focus on technical issues such as data processing & data
acquisition, software and hardware acquisition
 CIO & CTO work together to ensure that information needed to
formulate, implement and evaluate strategies are available
when needed

17. TECHNOLOGICAL FORCES
 Technological forces act as a major opportunities and
threats to various firms
 Technological advancement can dramatically affect
organizations’
 product, service, market share, suppliers, distribution,
competitors, customers, manufacturing process and competitive
position (JIT, TQM, CAD, CAM)
 Technological advancement can create new market
 Ex. SATNAV, APPLE)
 Technological changes :
 can lower cost barriers between firms (emails)
 create short production runs
 create shortage in technical skills (CAD, CAM)
 Technological Advancement can create new advantages

18. TECHNOLOGICAL FORCES
 Technology is often delegated to lower organizational level without
an understanding of their strategic implications
 Less precedence than positioning product
 Forecasting sales
 Monitoring distributors
 Knowledge and Technologically Driven firms are most affected by
technological changes
 i.e. Communications, electronics, aeronautics, pharmaceutical industries
 Identifying opportunity for tech change can attribute opportunity
 Shopping online is becoming more predominant in Europe and in
the western world due to convenience i.e. Staples, Asda, Walmart

19. COMPETITIVE FORCES
 Gathering and evaluating competators is essential for the success of a business which
are always intense and often cut throat (Fiat 2003)
 7 characteristics of Competitive companies
1. Market share matters
2. Understand and remember what business you are in
3. Whether it’s broke or not, fix it, make it better (from product to company)
4. Innovate or evaporate – especially for Technological firms
5. Acquisition is essential to growth – successful purchases are in niche that add value
6. People make a difference
7. There’s no substitute for quality and no greater threat tan failing be cost competitive on
a global basis

20. CUT THROAT COMPETITION
 Competitive Intelligence in business is similar to military and is the
key to success
 Mission of a CI program:
 Obtaining competitors information of industry and competitors
 Identify areas in which competitors are vulnerable
 Identify potential moves by competitor which can endangers firms' positions
Usage
 Formulate and implement effective strategies
 Competitors' weakness can become an external opportunities
 Assess situation and initiate strategic actions
 Firms spend millions of dollars tracking their competitors which
ultimately benefit their company in the form of increased revenues,
lower cost and better decision making
 However there are a great number of corporate spies and espionage
that takes place in America
 Though this violates antitrust statues, it is still exercised. Internet
has became the ultimate tool to gather competitors information
 (employees, managers, suppliers, distributors, customers,
consultants)

21. COMPETITION CONT’D
 Other source of competition includes – trade journals, want
ads, newspaper articles, suppliers, competitors themselves
 Unethical tactics include – bribes, wiretapping, computer
break-ins
 Uniliver sued Proctor and Gamble over corporate
espionage activities to obtain the secret of Unilever hair
care business.
 P & G allegedly took about 80 documents from Unilevers
Chicago office (Pantene, Head & Shoulder Vs. Sunsilk,
Finess)
 Twitter vs. Facebook

22. COOPERATION AMONG
COMPETITION
 There are multiple cases where competition comes together for a
short project each bringing their own set of expertise and strength
 Both firms must contribute something distinctive such as technology,
distribution, basic research or manufacturing capacity
 Lockheed & British Aerospace PLC teamed up to compete against
U.S. fighter Jet
 BA – offered it’s expertise in short take off, vertical landing
technologies and low cost design and manufacturing
 Lockheed offered - large data and technology infrastructures,
integrate complex IT systems, and offer the skill and talent of 12
software maturity
 AOL, Yahoo, Micorsoft 2003 teamed up against SPAM

23. COMPETITION CONT’D
 Americans are very sceptical and suspicious about working
with competitors. Joint venture and cooperative
arrangements brings about paranoia.
 They believe information not covered in formal agreements
often gets traded day to day dealing with engineers,
marketers and product developers
 Domestic companies are joining forces to beat competitive
foreign firms to reap mutual benefits
 Asian and European firms enter into cooperative
agreements due to the ‘learning from the partner’ concept
 American technological know-how can be easily mimicked

24. PORTER’S 5 FORCES
 Michael Porter shares the I/O perspective and
believes that organizational performance will be
primarily determined by industry forces
1. Rivalry among Competing firms
2. Potential entry of New competitors
3. Potential development of substitute products
4. Bargaining power of supplier
5. Bargaining power of consumers

25. PORTER’S 5 FORCESMichael Porter shares the I/O perspective
and believes that organizational
performance will be primarily determined
by industry forces

26. Ch 3 -26
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall
The Five-Forces Model
 Most powerful of the five forces
 Focus on competitive advantage of
strategies
Rivalry Among Competing Firms

27. Ch 3 -27
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall
The Five-Forces Model
 Barriers to entry are important
 Quality, pricing, and marketing can
overcome barriers
Potential Entry of New Competitors

28. Ch 3 -28
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall
The Five-Forces Model
 Pressures increase when consumers’
switching costs decrease
 Firm’s plans for increased capacity &
market penetration
Potential Development of Substitute
Products

29. Ch 3 -29
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall
The Five-Forces Model
 Large number of suppliers & few
substitutes affects intensity of competition
 Backward integration can gain control or
ownership of suppliers
Bargaining Power of Suppliers

30. Ch 3 -30
Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall
The Five-Forces Model
 Customers concentrated or buying in
volume affects intensity of competition
 Consumer power is higher where products
are standard or undifferentiated
Bargaining Power of Consumers