MGO 403 – Fundamentals of
Strategic Management
Tuesday, February 02, 2016
Class 3 – Chapter 2
Instructor: Supradeep Dutta
Outline for Today
 Administrative Announcements
 Organization Culture
 External Environment Analysis
 Set-up for next class (February 04, 2016)
Administrative Announcements
 Attendance policy: as per syllabus
 Seating plan from today is fixed
 Group formation finalized
 Slots open for being a class reporter
Organizational Culture
 The complex set of
- Ideologies
- Symbols
- Core values
that are shared throughout the firm, that influence how the
firm conducts business
How can strategic leaders affect
organizational culture?
http://www.youtube.com/watch?v=5RSrzgav61Y&feature=related
1–4
Best Place to Work for
Source: Fortune Magazine 2015
1–5
Organization Culture
How can strategic leaders affect
organizational culture?
 Expectation of high performance from an average employee
– ability to do a job that generally requires 3-4 people
 Extremely attractive compensation package
 Hires the most talented
 Worldwide contests to capitalize on intellectual resources $1 mn prize money
http://www.youtube.com/watch?v=WU54pv3cUjY
Last Week – Punch Line?
•What is strategy?
•Key components of strategy
•Today’s environment for strategy
•Organization Stakeholder
The Strategic
Management
Process
Copyright © 2015 Cengage. All rights reserved.
Opportunities and Threats
Opportunity
A condition in the
general environment
that if exploited,
helps a company
achieve strategic
competitiveness
Threat
A condition in the
general environment
that may hinder a
company’s efforts to
achieve strategic
competitiveness
Analysis of the External Environment
MACRO  General environment
–Focused on the broader society (broad context)
–Dimensions in the broader society that influences an
industry and firms within it
 Industry environment
–Focused on factors and conditions directly
MICRO
influencing a firm’s profitability within an industry
 Competitor environment
–Focused on predicting the dynamics of competitors’
actions, responses and intentions
The External Environment
Firms cannot directly CONTROL the general
environment’s segments.
However, these segments influence the actions that
firms take.
Successful firms learn how to gather the information
needed to understand all segments and their
implications for selecting and implementing the firm’s
strategies.
The External Environment
Definition of 7 Segments
Demographic:
- Is concerned with a population’s size, age, structure,
geographic distribution, ethnic mix, and income
distribution
Economic:
- Refers to the nature and direction of the economy in
which the firm operates
Political/Legal:
- Is the formal rules and expected patterns of behavior of
the authorities with respect to business, as well as
degree of risk/security emanating from extant political
situation
- Example: Swiss army knife sales drop 30% post 9/11
Definition of 7 Segments
Socio-cultural:
- Is composed of society’s attitudes and cultural values
Technological:
- Is institutions and activities involved in creation of knowledge
and its transfer into products and servicers
Global:
- Includes important international political, cultural,
demographic, and market events and trends
Physical:
- Refers to changes in the physical environment and business
practices required to adapt to the changes
External Environment Example: Philip
Morris International (PMI)
 Largest international market share and leading company in 11 of
top 30 cigarette markets
 Implementing strategies in anticipation of future external
environmental conditions
- Working with foreign governments on regulatory framework
- Opportunities in emerging markets
- Smokeless tobacco in anticipation of fewer smokers
- Support of sustainable farming
- Waste reduction in manufacturing
4 Ways to Identify Opportunities and Threats
 Scanning
Identifying early signals
 Monitoring
Ongoing observation of certain events
 Forecasting
Predicting events in the future
 Assessing
Evaluating timing and importance of future events
The General Environment: Segments and Elements
Segment
Element
Demographic
•Population Size
•Age Structure
•Geographic Distribution
•Ethnic Mix
•Income Distribution
Economic
•Inflation Rates
•Interest Rates
•Trade Deficits or Surplus
•Budget Deficits or Surplus
•Personal Savings Rate
•Business Savings rate
•Gross Domestic Product
Political / Legal
•Antitrust Laws
•Taxation Laws
•Deregulation Philosophies
•Labor training laws
•Educational Philosophies and
Policies
Sociocultural
•Women in the Workforce
•Workforce Diversity
•Work Life Attitudes
•Work/Career Preference Changes
•Product/Service Preference
Changes
Technological
•Product Innovations
•Applications of Knowledge
•Focus of Private and Govt.
Supported R&D Expenditures
•New Communication Technologies
Global
•Political Events
•Critical Global Markets
•Newly Industrialized Countries
•Different Cultural and Institutional
Attributes
Physical
•Energy Consumption
•Energy Sources
•Environmental Footprint
•Availability of Water
•Environmental Friendliness
•Climate Changes
What Happens around Airline Business
Willie Walsh
ex-CEO, British
Airways
- Weak economic environment
- Weak consumer confidence
- High oil prices
- Further airline failures
- In short term, things will not get better
http://link.brightcove.com/services/player/bcpid25337998001?bclid=25478179001&bctid=25657398001
18
Application of Demographic Segment Info
 As of 31 January 2015, the United States has 4.45% of the world's population
 U.S. population to 439 mn by 2050 (currently 325 mn)
 The rate of population growth has declined from 33% per decade in 1800 to
10% per decade nowadays
 World population is aging due to a decline in fertility and an increase in the
average life span
 California and Texas are the most populated states
 Population density is highest in D.C., New Jersey, and Rhode Island and lowest
in Montana, Wyoming, and Alaska
 Ethnic projections for 2010-2050:
- Non-Hispanic Whites 66% → 46%
- Hispanics 15% → 30%
- African Americans 14% →15%
- Asian Americans 5% →9%
Application of Economic Segment Info
 The largest national economy in nominal value and by purchasing
power parity (nearly twice the second largest China)
 Inflation has averaged 3.41% since 1913, December 2014: 1.32%
p.a.
 EUR/USD changed from 1.3 to 1.45 in 2010
 Median household income dropped from $50,303 in 2008 to
$47,800 (5%)
 Personal savings dropped from 11% in 1980 to 1% in 2005 and
recovered to 5% in 2009
 Real GDP growth in 2012 is 2.4% p.a. compared to -5.4 in the end
of 2008
 Aviation portion of U.S. GDP increased from 4.6% in early 2000s
to 5.4% in 2012
 4% drop of passenger traffic and 14% decline in cargo in 2010
Economic Segment Info as Seen by Business
New York Mercantile Exchange Prices for West Texas Intermediate 1996 – 2010 in USD
Political/Legal Segment Info as Seen by Business
 1978 U.S. Airline Deregulation Act removes government control over fares, routes,
and market entry by new airlines
 Safety issues remain regulated by the Federal Aviation Admin.
 U.S. Dpt. of Transportation maintains control over international M&A and distributes
subsidies to carriers serving small domestic locations
 Some of the other countries with less regulated Airline business are Australia, Brazil,
Mexico, Japan, and U.K.
 International standards for safety, environment, noise (International Civil Aviation
Organization, Bermuda Agmt. between U.S. and U.K.)
 Increased regulation and security tax fee following 9/11
 Taxes associated with climate legislation
 Heavy overall tax burden - $52 deduced from a standard $200 round-trip airline ticket
Application of Sociocultural Segment Info
How Did People Travel in 2009-2010: Personal Vehicle and Air at Various Trip Lengths
Source: "Long Distance Transportation Patterns: Mode Choice,
Research and Innovative Technology Administration"
100
90
80
70
Percent
60
50
Personal
Vehicle
40
30
20
10
0
50-499 miles
500-749 miles
750-999 miles
1000-1499 miles
One-Way Trip Length
1500+ miles
Air
Application of Sociocultural Segment Info
How Did People Travel in 2009-2010: Mode Share by Trip Purpose
Source: "Long Distance Transportation Patterns: Mode Choice,
Research and Innovative Technology Administration"
100
90
80
70
Percent
60
Air
Bus
Train
Other
50
40
30
20
10
0
Business
Commute
Pleasure
Personal business
Mode
Other
Total
Application of Sociocultural Segment Info
How Did People Travel in 2010: Percent of Long Distance Trips by Mode for
Household Income Groups
Less than
$25K
Mode
Personal vehicle
Air
Bus
Train
Other
Total
92.2
3.0
3.8
0.7
0.3
100.0
$25K-$49K
93.3
3.8
2.1
0.6
0.1
100.0
$50-$74K
91.7
5.3
2.0
0.8
0.3
100.0
$75K+
83.9
13.7
1.5
0.8
0.2
100.0
SOURCE: U.S. Department of Transportation, Research and Innovative Technology Administration, Bureau of
Transportation Statistics, Federal Highway Administration, National Household Travel Survey, long-distance file, 2010
(Washington, DC)
Application of Sociocultural Segment Info
How Did People Travel in 2010: Percent of Long Distance Trips by Mode for Age
Groups
Age group
18-24
25-39
40-54
55-64
years old years old years old years old
Mode
Personal vehicle
Air
Bus
Train
Others
Total
92.0
5.2
2.1
0.6
0.1
100.0
88.9
8.9
0.8
1.0
0.5
100.0
89.1
8.8
1.1
0.8
0.1
100.0
90.4
7.1
1.6
0.7
0.2
100.0
65+ years old
89.4
5.3
4.3
0.7
0.3
100.0
SOURCE: U.S. Department of Transportation, Research and Innovative Technology Administration, Bureau of
Transportation Statistics, Federal Highway Administration, National Household Travel Survey, long-distance file, 2010
(Washington, DC)
Technological Segment
 Continuous innovation by aircraft manufacturers (Airbus,
Boeing). Some recent innovations by Airbus:
-
Navigation procedures that will save fuel, lower noise and emissions,
and help reduce the impact of inclement weather on flight operations
-
The new Airbus-led CFMS Core Program aims to develop innovative
computer-based simulation systems to streamline and enhance the
future design process for aircraft and other applications
-
Airbus-patented technology for engine acoustic treatment has
contributed to the low noise levels of its A380 21st century flagship
 Computer reservation system
-
Help airlines and travel agents keep track of fare and service in
condition of permanent changes
 Navigation systems
-
The Lufthansa Technik Niceview moving map provides worldwide, high
resolution 3-D maps
 Design of passenger cabins to provide exclusive VIP
services
Physical Segment – Environmental Concerns
 Calls for smaller environmental imprint by
becoming carbon neutral, air travel climate
calculators and offsetting options
 Silverjet (created in 2004, suspended
operations in 2008) – flights from London to
Dubai and New Jersey for a standard fare of
£999, private passenger terminals
 Carbon emission policy of Delta Air Lines:
Protecting the environment is a high priority;
Delta conserve resources by reducing the fuel
needs of its fleet; it rationalize its flying
schedules (83% of seats full); Delta donates
Global Airline Industry (Global segment)
Region
Profit(+)/Loss(-) in 2009,
$bln
Forecast of
Profit(+)/Loss(-) in 2010,
$bln
North America
-2.9
-2.0
Latin America
+0.1
+0.1
Africa
-0.1
-0.1
Europe
-3.5
-2.5
Middle East
-1.2
-0.3
Asia Pacific
-3.4
-0.7
Source: Airline Business | January 2010
U.S. Airline Business: The General Environment
(Threats & Opportunities)
Environment
Economic
Demographic
Political / Legal
Technological
Sociocultural
Global
Physical
Threat (& why?)
Opportunity (& why?)
Columbia
Sportswear
Homework - 1
HW: Using the General Environment template (given
on the next slide)…
• Which of the general environment segments are
most relevant to Columbia?
• What are the main opportunities and threats that
may affect the industry?
Name: __________________________________
MGO-403 Time: ____________
The General Environment (Threats & Opportunities)
Environment
Threat (& why?)
Opportunity (& why?)
Economic
Demographic
Political / Legal
Technological
Sociocultural
Global
Physical
33
Homework Approach
 Do the analysis at the industry level; NOT at the company level.
 Identify which segment is most relevant for the external factor.
 Justify why you think a particular external factor is an opportunity or
threat for the industry.
- You may answer in bullet points / short sentences.
- Go beyond stating facts, always ask yourself WHY it is a threat or
opportunity
 Not all segments will have relevant external factors mentioned in the case.
- Stick to the content given in the case.
 Use template to structure your thoughts and analysis; gives you the ability to
apply frameworks.
 Homework due by 02/09/2016.
Knowledge Objectives – what we covered …
-
Explain the importance of analyzing and understanding
the firm’s external environment.
-
Discuss the four components of the external
environmental analysis process.
-
Name & describe the general environment’s seven
segments. (G.D. PEST)
Next Class
 Read Chapter 2
- Industry environment analysis (Porters 5 forces)
 Re Read case “Netflix”
- look for discussions of the 1) external environment, and 2)
industry environment
- HW 1 (due on 09th February, 2016)
- External environment analysis - Netflix
 HW 2 (will be assigned on Thursday 04th February and is due on
11th February, 2016)
- Industry level analysis - Netflix
–
Assess the Five Forces for the industry.
–
Is this an attractive industry in which to compete? Why or why
not?