Strategic
Management
By: Dr. Vivek Singh Tomar
vstomar@imtcdl.ac.in
To understand the meaning, scope and nature of
Strategy and Strategic Management
To understand the concept of planning and strategic
management process
Unit I
(Objectives)
To understand how Strategic Management has
evolved over years to its current state today
To get familiar with major milestones and contributors
to the discipline of Strategic Management
To understand the hierarchy and pattern of strategy
development
Managerial Challenges
Start up Challenges
Progress Challenges
•Think Big
•Forget
•Start Small
•Borrow
•Scale up
•Learn
Understanding Strategy
“Strategy, the art of war, is especially the planning of
movement of troops and ships, into favorable
positions; plan of action or policy in business or
policies”
Oxford Pocket Dictionary
“Strategy is determination of long term goals and
objectives of an enterprise and the adoption of
courses of action and the allocation of resources
necessary for carrying out these goals”
Alfred Chandler
‘Strategy & Structure’
“Strategy is a set of managerial decisions and
actions involved in making a major market-creating
business offering”
W. Chan Kim
‘INSEAD Faculty’
“What Business Strategy is all about is, in one word –
Competitive Advantage. The sole objective of
Strategic Planning is to enable a company to gain, as
efficiently as possible, a sustainable edge over its
competitors. Corporate Strategy thus implies an
attempt to alter a company’s strength relative to that
of its competitors in the most efficient way”
Kenichi Ohmae
‘The Mind of the Strategist’
STRATEGY IS DEFINED AS THOSE ACTIONS THAT A
COMPANY PLANS, IN RESPONSE TO, OR IN ANTICIPATION
OF, CHANGES IN ITS EXTERNAL ENVIRONMENT, ITS
CUSTOMERS AND ITS COMPETITORS.
STRATEGY IS A WAY COMPANY AIMS TO IMPROVE ITS
POSITION VIS-À-VIS COMPETITION.
Strategy narrowly defined as “ the art of general” (Greek StratAgos).
It defines “what we want to achieve” & chart out course of action, to
survive & sustain growth in changing environments.
Strategy is a set of Key decisions made to meet Objectives.
Domain of
Strategy
strategic competitiveness and above normal
returns
concerns managerial decisions and actions
which materially affect the success and
survival of business enterprises
involves the judgment necessary to
strategically position a business and its
resources so as to maximize long-term
profits in the face of irreducible uncertainty
and aggressive competition
strategy is the linkage between a business
and its current and future environment
Common Elements in Successful Strategy
Source: Adapted from Robert S. Grant, 1991
Successful
Strategy
EFFECTIVE IMPLEMENTATION
Long-term, simple
and agreed upon
objectives
Profound
understanding of
the competitive
environment
Objective
appraisal of
resources
$
Answers to the following define an overall
direction for the organization's grand strategy
Where is the organization now?
Thinking
Strategically
Where does the organization want to be?
What changes are among competitors?
What courses of action will help us achieve
our goals?
Understanding Strategic Management
+Strategic or institutional management is the
conduct of drafting, implementing and evaluating
cross-functional decisions that will enable an
organization to achieve its long-term objectives
+It is the process of specifying the organization's
mission, vision and objectives, developing policies and
plans, often in terms of projects and programs, which
are designed to achieve these objectives, and then
allocating resources to implement the policies and
plans, projects and programs.
+Strategic management is a level of managerial activity under
setting goals and over Tactics.
+Strategic management provides overall direction to the
enterprise and is closely related to the field of Organization
Studies
+According to Arieu (2007), "there is strategic consistency when
the actions of an organization are consistent with the
expectations of management, and these in turn are with the
market and the context."
+“Strategic management is an ongoing process that evaluates
and controls the business and the industries in which the
company is involved; assesses its competitors and sets goals
and strategies to meet all existing and potential competitors; and
then reassesses each strategy annually or quarterly [i.e.
regularly] to determine how it has been implemented and
whether it has succeeded or needs replacement by a new
strategy to meet changed circumstances, new technology, new
competitors, a new economic environment., or a new social,
financial, or political environment.” (Lamb, 1984:ix)
Strategic
Management
Managers ask such questions
as...
What changes and trends are
occurring?
Who are our customers?
What products or services
should we offer?
How can we offer these
products or services most
efficiently?
Concept of Planning
+Concept 1: Organisations need a planning architecture.
A planning architecture is an overview of how different planning
processes fit together.
It identifies:
+different types of plan
+the time horizon of each
+when they have to be completed
+time allowed for preparing the plan
+the frequency of updating
+who is responsible
+how the different plans fit together.
A Planning Architecture
Concept 2: Planning is an intellectual process.
Concept 3: Planning is a social process.
The Strategic Management Process
Strategic Management Process
Scan External
Environment –
National, Global
Evaluate Current
Mission, objectives,
Strategies
Scan Internal Environment
– Core Competence,
Synergy, Value Creation
Identify Strategic Factors –
Opportunities, Threats
SWOT
Define new
Mission objectives,
Grand Strategy
Identify Strategic
Factors – Strengths,
Weaknesses
Formulate
Strategy –
Corporate,
Business,
Functional
Implement
Strategy via
Changes in:
Leadership
culture, Structure,
HR, Information &
control systems
4 Phases of Strategic Management in a Company
+ Basic Financial Planning
-(Meeting annual budgets)
+ Forecasting-based Planning
-(Incorporating predictions beyond next
year)
+ Externally Oriented Planning
-(Thinking strategically, Strategic
Planning)
+ Strategic Management
+ -(Considering also the implementation &
control aspects when formulating
strategies)
Strategic Management
The Evolution
Some Questions
+How has the strategy field developed?
+How has the thinking in strategy evolved?
+How is the thinking in strategy moving towards?
+What are the questions in strategy that are not answered?
+What are the dilemmas and confusions in the field of strategy
+What have been the loop holes in strategy making?
+What are the potential models of sustainable strategy?
Major Timeline
DOMINANT
THEME
MAIN
ISSUES
KEY
CONCEPTS&
TOOLS
MANAGE-MENT
IMPLICATIONS
1950s
1960s-early 70s
Mid-70s-mid-80s
Late 80s –1990s
Budgetary
planning &
control
Corporate
planning
Positioning
Competitive
advantage
2000s
Strategic
innovation
Financial Planning
Selecting
Focusing on
Reconciling
control
growth &sectors/markets. sources of
size with
diversification
Positioning for
competitive
flexibility &
leadership
advantage
agility
Capital
budgeting.
Financial
planning
Forecasting.
Corporate
planning.
Synergy
Industry analysis
Segmentation
Experience curve
Portfolio analysis
Resources &
Cooperative
capabilities.
strategy.
Shareholder
Complexity.
value.
Owning
E-commerce.
standards.
— Knowledge Management—
Coordination
& control by
Budgeting
systems
Corporate
planning depts.
created. Rise of
corporate
planning
Diversification.
Restructuring.
Global strategies. Reengineering.
Matrix structures Refocusing.
Outsourcing.
Alliances &
networks
Self-organiz
ation & virtual
organization
Major Thought Schools
Alfred Chandler – Corporate Strategy
John Dunning – IB Strategy
C K Prahalad – Inclusive Strategy
Sumantra Ghoshal – Problems in T.C.E.
Historical development of Strategic Management
Birth of strategic management
originated in the 1950s and 60s
Alfred D. Chandler, Jr.,
Philip Selznick,
Igor Ansoff,
Peter F. Drucker
Alfred Chandler
Strategy and Structure
“structure follows strategy”
Philip Selznick
Organization's internal factors with external environmental
circumstances
SWOT analysis
Igor Ansoff
market penetration strategies
product development strategies
market development strategies
horizontal and vertical integration
diversification strategies
Corporate strategy
Peter Drucker
stressed the importance of objectives
management by objectives (MBO)
Growth and portfolio theory
Profit Impact of Marketing Strategies (PIMS)
effect of market share
Started at General Electric, moved to Harvard in the early 1970s, and then
moved to the Strategic Planning Institute in the late 1970s, it now contains
decades of information on the relationship between profitability and strategy
"PIMS provides compelling quantitative evidence as to which business
strategies work and don't work" - Tom Peters.
The Japanese challenge:
+ Higher employee morale, dedication, and loyalty;
+ Lower cost structure, including wages;
+ Effective government industrial policy;
+ Modernization after WWII leading to high capital intensity and productivity;
+ Economies of scale associated with increased exporting;
+ Relatively low value of the Yen leading to low interest rates and capital costs, low dividend expectations, and
inexpensive exports;
+ Superior quality control techniques such as Total Quality Management and other systems introduced by W.
Edwards Deming in the 1950s and 60s.
McKinsey 7S Framework
Strategy, Structure, Systems, Skills, Staff, Style, and Supraordinate goals
The Mind of the Strategist was released in America by Kenichi
Ohmae
Tom Peters -In Search of Excellence
Gaining competitive advantage
Gary Hamel and C. K. Prahalad
Strategic intent and strategic architecture
Dave Packard and Bill Hewlett devised an active management
style that they called Management By Walking Around
(MBWA).
Michael Porter
cost minimization strategies, product differentiation
strategies, and market focus strategies
The Military Theorists
+Business War Games by Barrie James, 1984
+Marketing Warfare by Al Ries and Jack Trout, 1986
+Leadership Secrets of Attila the Hun by Wess Roberts , 1987
Philip Kotler was a well-known proponent of marketing warfare strategy
+Offensive marketing warfare strategies
+Defensive marketing warfare strategies
+Flanking marketing warfare strategies
+Guerrilla marketing warfare strategies
Strategic change
In 1968, Peter Drucker (1969) coined the phrase Age of
Discontinuity
In 2000, Gary Hamel discussed strategic decay
In 1978, Abell, D. described strategic windows and stressed the
importance of the timing (both entrance and exit) of any given
strategy
Clayton Christensen (1997)
1-disruptive technology
2-agnostic marketing (no one knows how in what quantities a
disruptive product will be used before experiencing the product)
Henry Mintzberg (1988) – Strategy was much more fluid and
unpredictable than people had thought
+Strategy as plan - a direction, guide, course of action - intention rather than
actual
+Strategy as ploy - a maneuver intended to outwit a competitor
+Strategy as pattern - a consistent pattern of past behaviour - realized rather
than intended
+Strategy as position - locating of brands, products, or companies within the
conceptual framework of consumers or other stakeholders - strategy
determined primarily by factors outside the firm
+Strategy as perspective - strategy determined primarily by a master
strategist
Information and technology driven strategy
+ Peter Drucker had theorized the rise of the “knowledge worker” back in the 1950s
+ In 1990, Peter Senge, who had collaborated with Arie de Geus at Dutch Shell,
borrowed de Geus' notion of the learning organization
+ People can continuously expand their capacity to learn and be productive
+ New patterns of thinking are nurtured
+ Collective aspirations are encouraged, and
+ People are encouraged to see the “whole picture” together.
Senge identified five components of a learning organization. They are:
+Personal responsibility
+Self reliance
+Mastery of Mental models
+Team learning -“a spirit of advocacy to a spirit of enquiry”
+Systems thinking
The psychology of strategic management
informal, intuitive, non-routinised, and involving primarily oral, 2way communications
“feeling”, “judgement”, “sense”, “proportion”, “balance”,
“appropriateness”.
Criticisms of strategic management
 marketing myopia
 In 2000, Gary Hamel coined the term strategic convergence
 Ram Charan, aligning with a popular marketing tagline, believes
that strategic planning must not dominate action. "Just do it!",
Journals/Magazines devoted primarily to Strategic
Management
+Strategic Management Journal
+Harvard Business Review
+Long Range Planning
+The Economist
+MIT Sloan Management Review
+Academy of Management Journal
Module Content
+ Mission
+ Vision
+ Business Definition
+ Environmental Threat and Opportunity Profile (ETOP)
+ Industry Analysis
+ Strategic Advantage Profile (SAP)
+ Competitor Analysis
+ Market Analysis
+ Environmental Analysis and Dealing with Uncertainty
+ Scenario Analysis
+ SWOT Analysis
Vision, Mission and Business Definition
Whether you are starting a new company or
improving an existing one, you should define its
purpose for existence. Then it is important to
have a mission, plans and a vision for your
company or business enterprise.
Questions you may have include:
+What factors are in the purpose of a business?
+How do you define a mission?
+What about a business concept?
Vision/Mission Statements
+Statements that explain who we are
o Type of organization
o Products/services
o Needs we fill
+Statements that explain our direction, our
purpose, our reason for being
o What difference do we make?
+Statements that explain what makes us
unique
o Values
o People
o Combination of products and services
Major Components of the
Strategic Plan / Down to Action
Strategic Plan
Mission
Vision
Initiatives
Measures
Targets
AI1
M1 M2
T1
T1
Evaluate Progress
What we want to be
Goals
Objectives
Action Plans
Why we exist
What we must achieve to be successful
O1
AI2
M3
T1
O2
AI3
Specific outcomes expressed in
measurable terms (NOT activities)
Planned Actions to
Achieve Objectives
Indicators and
Monitors of success
Desired level of
performance and
timelines
VISION
: Desired future state; the
aspiration of the Organization
 What are our Dreams and Aspirations?
Where do we want to go?
 What do we want to look like in 5, 10,
15 years?
• How the organization wants to be perceived in the
future – what success looks like
• An expression of the desired end state
• Challenges everyone to reach for something significant
– inspires a compelling future
• Provides a long-term focus for the entire
organization
• A guiding philosophy
• Consistent with organizational value
• Influenced by the strengths and weaknesses of the
business
Components of a Vision Statement
+Core ideology
o Core Values - timeless guiding principles
o Core Purpose - reason for being
+Envisioned future
o Big Hairy Audacious Goals (BHAG) - clearly articulated goals
o Vivid description - a graphic description of what success and the future
will be like
+Recognition of service to stakeholders
o Owners/creditors
o Employees
o Customers
Essentials of good Business Vision
Statement
o Should significantly stretch the resources and
capabilities of the firm
o Should inspire people in the organization to achieve
things they never thought possible
o Should unite people in the organization toward the
pursuit of one common goal
VISION STATEMENTS
+McDonald’s
+To give each customer, every time, an experience
that sets new standards in value, service,
friendliness, and quality.
+NASDAQ
+To build the world’s first truly global securities market
. . . A worldwide market of markets built on a
worldwide network of networks . . . linking pools of
liquidity and connecting investors from all over the
world . . . assuring the best possible price for
securities at the lowest possible cost.
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+Petsmart
+To be the premier organization in nurturing and
enriching the bond between people and animals.
+Wachovia
+Wachovia’s vision is to be the best, most trusted
and admired financial services company.
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MISSION :It is the unique purpose or reason
for organization’s existence.
Overriding purpose in line with the values or
expectations of
the stakeholders
 Who are we?
 What business are we in?
eBay
We help people trade anything on earth.
We will continue to enhance the online
trading experiences of all – collectors,
dealers, small businesses, unique item
seekers, bargain hunters, opportunity
sellers, and browsers.”
+The mission statement of an organization is
normally short, to the point, and contains the
following elements:
o Provides a concise statement of why the organization
exists, and what it is to achieve;
o States the purpose and identity of the organization;
o Defines the institution's values and philosophy; and
o Describes how the organization will serve those
affected by its work.
Good Mission Statements
Focus on limited number of goals
Stress major policies and values
Define major competitive spheres within which the
company will operate by defining the:
Industry.
Products and applications.
Competence.
Market-segment
Geographical
Vertical limit
Examples – Good and Bad
Mission Statements
NASA
To Explore the
Universe and Search
for Life and to
Inspire the Next
Generation of
Explorers
Does a good job of expressing the core
values of the organization. Also conveys
unique qualities about the organization.
Walt Disney
To Make People Happy
Too vague and and unclear. Need more
descriptive information about what makes
the organization special.
+MISSION STATEMENTS
+Bristol-Myers Squibb
+Our mission is to extend and enhance human life
by providing the highest-quality pharmaceuticals
and health care products.
+GlaxoSmithKline
+GSK’s mission is to improve the quality of human
life by enabling people to do more, feel better
and live longer.
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+Merck
+The mission of Merck is to provide society with
superior products and services by developing
innovations and solutions that improve the quality
of life and satisfy customer needs, and to provide
employees with meaningful work and
advancement opportunities, and investors with a
superior rate of return.
+Wipro
+The mission is to be a full-service, global
outsourcing company.
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Customers
Products
Services
Markets
Technology
Employees
Mission
Elements
Survival
Growth
Profit
Public
Image
Self-Concept
Philosophy
Importance of Mission
Benefits from a strong mission
Unanimity of Purpose
Resource Allocation
Mission
Organizational Climate
Focal point for work
structure
Mission Statement Evaluation Matrix
Organization
Name
Organization 1
Organization 2
Customers
Products
Services
Markets
Concern for
Survival,
Growth,
Profitability
Technology
Mission Statement Evaluation Matrix
Organization
Name
Organization 1
Organization 2
Philosophy
SelfConcept
Concern for
Public Image
Concern for
Employees
Vision vs. Mission
+The vision is more broad and future
oriented – the goal on the horizon
+The mission is more focused – how you will
get to the horizon
GOAL: General statement of Aim or Purpose.
It is an open ended statement of what one
wishes to accomplish with no quantification
and no time frame for completion.
• Describes a future end-state – desired outcome
that is supportive of the mission and vision.
• Shapes the way ahead in actionable terms.
• Best applied where there are clear choices about
the future.
• Puts strategic focus into the organization –
specific ownership of the goal should be
assigned to someone within the organization.
• May not work well where things are changing
fast
– goals tend to be long-term for environments
that have limited choices about the future.
Developing Goals
• Cascade from the top of the Strategic Plan –
Mission, Vision, Guiding Principles.
• Look at your strategic analysis – SWOT,
Environmental Scan, Past Performance, Gaps . .
• Limit to a critical few – such as five to eight
goals.
• Broad participation in the development of goals:
Consensus from above – buy-in at the execution
level.
• Should drive higher levels of performance and
close a critical performance gap.
Reorganize the entire organization for better responsiveness to customers
We will partner with other businesses, industry leaders, and government agencies in
order to better meet the needs of stakeholders across the entire value stream.
Manage our resources with fiscal responsibility and efficiency through a single
comprehensive process that is aligned to our strategic plan.
Improve the quality and accuracy of service support information provided to our
internal customers.
Establish a means by which our decision making process is market and customer
focus.
Maintain and enhance the physical conditions of our public facilities.
OBJECTIVE
: Quantification or more precise
statement of objective
Definable: It should defined to compare the performance
Quantifiable: It should be expressed in terms of “Value Or Market
share”
( Avoid Vague terms such as “increase, improve or maximize”)
Achievable:
e.g.
To increase sales of product globally by 30% in real terms within 5yrs.
To increase market share for the product in the India from 10%-15%
over 2yrs
+Relevant - directly supports the goal
+Compels the organization into action
+Specific enough so we can quantify and
measure the results
+Simple and easy to understand
+Realistic and attainable
+Conveys responsibility and ownership
+Acceptable to those who must execute
+May need several objectives to meet a goal
GOALS
Very short statement,
few words
Broad in scope
Directly relates to the
Mission Statement
Covers long time period
(such as 10 years)
OBJECTIVES
Longer statement, more
descriptive
Narrow in scope
Indirectly relates to the
Mission Statement
Covers short time period
(such 1 year budget cycle)
GOAL
To be
No. 1
in the
market
OBJECTIVE
Increase
market
share by
15% in
three years
STRATEGY
i)
Increase product
promotion
ii) Design product
pricing
iii) Penetration
iv) New market
development
v) Product-Service mix
vi) Quality improvement
Business Definition
+A Business Definition is a clear statement of
the business the firm is engaged in or is
planning to enter.
What is our Business in precise way:
+“We are in the beauty enriching Business”
(Helen and Curtis)
+“ We are in the Business of Computing
Technology” (Intel)
+“We are Watch makers of the nation” (HMT)
+“We are in the transportation business”
(TELCO)
Business Definition
Abell’s Framework
http://www.12manage.com/methods_abell_three_dimensional_business_definition.html
+Business Definition Statements
+Define the ‘space’ that the business wants to
create for itself in competitive terrain
+Broadly specifies the opportunities that the
business may exploit within the space and the
threats it may encounter from rival firms in course
of time
+Must be defined in broad ways, keeping
changing customer tastes and aspirations in
mind
Product Oriented V/S market Oriented
Company
Product Definition
Market Definition
Railways
We run railways
We are a people and
Goods mover
Oil Company
We Sell Gasoline
We supply energy
Film Producing
Company
We make movies
We make
entertainment
Air conditioning
company
We make air
conditioners
We provide climate
control in the home
Publishing Company
We produce and sell
books
We distribute
information
Copying Company
We make copying
equipments
We help improve office
productivity
+
Questions to be examined before defining
nature and scope of operations
1) Who is the customer? Where is the customer
located, how to reach the customer, how does
the customer buy etc.
2) What does the customer buy?
3) What does the customer consider value?
CORE
COMPETENCE
: Resources, Processes, Skills
and Experience, which
provide superior
Competitive Advantage
STRATEGY
: Long Term Direction
STRATEGIC
: Combination of Resources,
ARCHITECTURE Processes and Competencies
to put strategy in action
CONTROL
: Monitoring of Action Steps
to :
(a) Assess effectiveness of
Strategies & Action
(b) Modify Strategies &
Action as necessary
VALUES
 What do we prize?
 What drives our business?
 What are our criteria for making ethical
decisions?
Guiding Principles and Values
• Every organization should be guided by a set of
values and beliefs
• Provides an underlying framework for making
decisions – part of the organization’s culture
• Values are often rooted in ethical themes, such as
honesty, trust, integrity, respect, fairness, . . . .
• Values should be applicable across the entire
organization
• Values may be appropriate for certain best
management practices – best in terms of quality,
exceptional customer service, etc.
Examples of
Guiding Principles and Values
We obey the law and do not compromise moral or ethical principles – ever!
We expect to be measured by what we do, as well as what we say.
We treat everyone with respect and appreciate individual differences.
We carefully consider the impact of business decisions on our people and we
recognize exceptional contributions.
We are strategically entrepreneurial in the pursuit of excellence, encouraging original
thought and its application, and willing to take risks based on sound business
judgment.
We are committed to forging public and private partnerships that combine diverse
strengths, skills and resources.
MARKETS
 Which markets should we be in?
 Which markets do we need to create?
 What should be our basic Customer
Orientation?
CORE COMPETENCIES
 What are we good at?
 What do we need to be good at?
 How can we leverage our competencies
into products and services for market
we serve?
PRODUCTS & SERVICES
 What kinds of products and services
should we provide for the markets we
serve?
 How do we use these products to carve
out a market niche?
BUSINESS ENVIRONMENT
 What Threats and Opportunities do we
face from Environmental Factors?
 How do we track Key Environmental
Activities and Trends?
STAKEHOLDERS
 Which group of individuals are affected
by the way we do business?
 How do we establish win-win
relationship with our stakeholders?
Stakeholders
+individuals and groups who have an interest in a
firm’s performance and an ability to influence its
actions
+Interest in performance coupled with ability to
influence the firm through their decision to
support the firm or not – companies have
important relationships with their stakeholders.
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Strategic Leaders
+Individuals who practice strategic leadership –
making sure that decisions are made that will
ensure their firm’s success.
o Example: Steve Jobs & Apple
o The CEO
o The Board of Directors
o Both are responsible for setting the organizational
culture.
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Strategic Leaders
though many different people may be involved, the final
responsibility for effective use of the strategic
management process rests with the firm’s top-level
strategic leaders (i.e., the chief executive officer and the
top management team). In addition, it is important to note
that the best strategic leaders as well as all others
throughout the firm also act ethically.
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CRITICAL RESOURCES
 Which are the Critical Resources do we
need to do business?
 What should we do to ensure a steady
supply of these Resources?
ENVIRONMENTAL
THREAT
AND
OPPORTUNITY PROFILE
ETOP ANALYSIS
PEST ANALYSIS
SWOT ANALYSIS
WHY ETOP??
o Helps organization to identify O-T
o To consolidate and strengthen organization’s position
o Provides the strategists of which sectors have a favourable
impact on the organization.
o Organization knows where its stands with respect to its
environment.
o Helps in formulating appropriate strategy
ETOP ANALYSIS
Economic factors:
+ General economic
condition.
+ Rate of inflation.
+ Interest rate/Exchange rate.
Technological factors:
+ Source of technology.
+ Technological development.
+ Impact of technology.
ETOP ANALYSIS
Socio cultural factors :
Environmental factors:
o Demographic characteristics.
o Weather change
o Social attitudes.
o Climatic change.
o Education level , awareness, and
consciousness of rights.
o Demand related factors.
o Suppliers related factors.
ETOP ANALYSIS
Political factors :
o Political system.
o Political structure , its goals
and stability.
o Government policies , degree
of intervention
Legal factors :
o Policies related to licensing ,
monopolies.
o Policies related to export and
import.
o Policies related to distribution and
pricing.
FACTORS
COULD INCLUDE
Political
international trade, taxation policy
Economic
interest rates, exchange rates, national
income, inflation, unemployment,
Stock Market
Social
ageing population, attitudes to work,
income distribution
Technological
innovation, new product development,
rate of technological obsolescence
Environmental
global warming, environmental issues
Legal
competition law, health and safety,
employment law
THREAT MATRIX
HIGH
ATTRACTIVENESS
LOW
HIGH
LOW
PROBABILITY OF OCCURENCE
OPPURINITY MATRIX
HIGH
ATTRACTIVENESS
LOW
HIGH
LOW
PROBABILITY OF OCCURENCE
PREPARING ETOP
o Dividing the environment in
different sector.
o Analyzing the impact of each
sector on the organization.
o Subdividing each environmental
sector into sub factor.
o Impact of each sub sector on
organization in form of a
statement.
ETOP: Pros and Cons
Pros
Cons
o Help to determine the key factor of
threats and opportunities.
o It doesn’t show the interaction between
the factors.
o Good tool to qualify the factors related
to company’s strategy.
o It can’t reflect the dynamic
environment.
o Can consider many factors for each
special case.
o It’s a subjective analysis tool.
Case study : MILLIPORE
About Millipore
Millipore is a multinational, high technology bioscience company that
provides technologies, tools and services for the development and
production of new therapeutic drugs. The company, headquartered in
Bedford, Mass., serves the worldwide life science research, biotechnology
and pharmaceutical industries.
Mission and Vision
Millipore exists to provide technology, tools and services for the
development and production of new therapies and drugs that will enable
people to live longer, healthier lives. Our vision is to become the partner of
choice for critical tools, technology and services used in the discovery,
development and manufacture of new therapeutic compounds.
MILLIPORE PRODUCT LINE
1. Life science.
2. Drug discovery.
3. Sample preparations.
4. Lab water.
5. Process development.
6. Bio production.
7. Process monitoring.
Factors
Impact of each Sector
Economic
•Fluctuation in exchange rate
•Increasing rate of inflation
•Worsening economic conditions
Technological
Strong R&D program
•Market Leaders
•Better solution providers
•New “ Intergral”-2008
Political
No significant change.
Legal
Following FCPA (Foreign corrupt
practices act).
•Strict IPR laws - No poaching
Socio cultural
•No significance change.
E
T
O
P
O
F
M
I
L
L
I
P
O
R
E
Factors
Competitive
Demand related
Governmental policies
Impact of each sector
 Competition particularly from
low priced products .
Downfall in demand due to low
priced products .
 Containment of rising healthcare cost.
No excise duty only vat for
product manufactured in India.
E
T
O
P
O
F
M
I
L
L
I
P
O
R
E
OPPORTUNITY MATRIX
• EB and CB
• Provide customized protocol support.
•Market leaders – brand value and brand
• Dedicated service team.(Toll Free numbers).
awareness.
•Special offers with OEM’s.(Agilent).
•
Large installation base.
• Saturation point of market is far away
•
New low budget product lines.
• New markets are opening
THREAT MATRIX
• Competition particularly from low priced
• IPR laws are not so strong in INDIA.
products.
• Switching over form process patent to product
•Concentration majorly on big Fishes.
patent
• Patent law not well defined
• Expensive products.
• Lack of geographical division (remote areas).
• Bad rapport with customers (unsatisfied
• Poor dealer network.
customer).
• Low investment in marketing.
Industry Analysis: The Fundamentals
+The objectives of industry analysis
+From environmental analysis to industry analysis
+Porter’s Five Forces Framework
+Applying industry analysis
+Industry & market boundaries
+Identifying Key Success Factors
Objectives of Industry Analysis
+ To understand how industry structure drives competition,
which determines the level of industry profitability.
+ To assess industry attractiveness
+ To use evidence on changes in industry structure to
forecast future profitability
+ To formulate strategies to change industry structure to
improve industry profitability
+ To identify Key Success Factors
From Environmental Analysis
to Industry Analysis
The national/
international
economy
Technology
Government
& Politics
The natural
environment
THE INDUSTRY
ENVIRONMENT
• Suppliers
• Competitors
• Customers
Demographic
structure
Social structure
•The Industry Environment lies at the core of the Macro Environment.
•The Macro Environment impacts the firm through its effect on the Industry
Environment.
Profitability of US Industries
Median return on equity (%), 1999-2002
Pharmaceuticals
Tobacco
Household & Personal Products
Food Consumer Products
Medical Products & Equipment
Beverages
Scientific & Photographic Equipt.
Commercial Banks
Publishing, Printing
Petroleum Refining
Apparel
Computer Software
Electronics, Electrical Equipment
Furniture
Chemicals
Computers, Office Equipment
Health Care
26.8
22.0
20.5
20.3
18.8
18.8
16.5
16.0
14.3
14.3
14. 3
13.5
13.3
13.3
12.8
11.8
11.5
Gas & Electric Utilities
10.5
Food and Drug Stores
10.3
Motor Vehicles & Parts
9.8
Home Equipment
9.5
Railroads
9.0
Hotels, Casinos, Resorts
8.0
Insurance: Life and Health
7.6
Building Materials, Glass
7.0
Metals
6.0
Semiconductors &
Electronic Components
5.8
Insurance: Property & Casualty 5.3
Food Production
5.3
Telecommunications
3.5
Forest and Paper Products
3.5
Communications Equipment
(4.0)
Airlines
(34.8)
The Determinants of Industry
Profitability
3 key influences:
+The value of the product to customers
+The intensity of competition
+Relative bargaining power at different levels
within the value chain.
The Spectrum of Industry Structures
Perfect
Competition
Oligopoly
Duopoly
Monopoly
Concentration
Many firms
A few firms
Two firms
One firm
Entry and Exit
Barriers
No barriers
Product
Differentiation
Homogeneous
Product
Potential for product differentiation
Perfect
Information flow
Imperfect availability of information
Information
Significant barriers
High barriers
Porter’s Five Forces of
Competition Framework
SUPPLIERS
Bargaining power of suppliers
INDUSTRY
COMPETITORS
POTENTIAL Threat of
ENTRANTS
new
entrants
Threat of
Rivalry among
existing firms
SUBSTITUTES
substitutes
Bargaining power of buyers
BUYERS
The Structural Determinants of Competition
BUYER POWER
• Buyers’ price sensitivity
• Relative bargaining
power
THREAT OF ENTRY
•Capital requirements
•Economies of scale
•Absolute cost advantage
•Product differentiation
•Access to distribution
channels
•Legal/ regulatory barriers
•Retaliation
INDUSTRY RIVALRY
•Concentration
•Diversity of
competitors
•Product differentiation
•Excess capacity &
exit barriers
•Cost conditions
BUYER POWER
• Buyers’ price sensitivity
• Relative bargaining
power
SUBSTITUTE
COMPETITION
• Buyers’ propensity
to substitute
• Relative prices &
performance of
substitutes
Threat of Substitutes
Extent of competitive pressure from producers of
substitutes depends upon:
+ Buyers’ propensity to substitute
+ The price-performance characteristics of substitutes.
The Threat of Entry
Entrants’ threat to industry profitability depends
upon the height of barriers to entry. The principal
sources of barriers to entry are:
+ Capital requirements
+ Economies of scale
+ Absolute cost advantage
+ Product differentiation
+ Access to channels of distribution
+ Legal and regulatory barriers
+ Retaliation
Bargaining Power of Buyers
Buyer’s price sensitivity
Relative bargaining power
• Cost of purchases as %
of buyer’s total costs.
• How differentiated is the
purchased item?
• How intense is
competition between
buyers?
• How important is the
item to quality of the
buyers’ own output?
• Size and concentration of
buyers relative to
sellers.
• Buyer’s information .
• Ability to backward
integrate.
Note: analysis of supplier
power is symmetric
Rivalry Between Established
Competitors
The extent to which industry profitability is depressed by
aggressive price competition depends upon:
+ Concentration (number and size distribution of firms)
+ Diversity of competitors (differences in goals, cost
structure, etc.)
+ Product differentiation
+ Excess capacity and exit barriers
+ Cost conditions
o Extent of scale economies
o Ratio of fixed to variable costs
Profitability and Market Growth
ROI (%)
30
25
20
15
10
5
0
Return
sales
Return
onon
sales
Return
investment
Return
onon
investment
Cash
flow/Investment
Cash
flow/
Investment
-5
0 to 5%
5% to
Less than -5% < -5%
-5% to 0-5% to 00 to 5%
5%
to10%
10%> 10% Over 10%
ANNUAL RATE OF GROWTH OF MARKET DEMAND
The Impact of Unionization on Profitability
None
Percentage of employees unionized
1%-35%
35%-60% 60-75% >75%
ROI (%)
25
24
23
18
19
ROS (%)
10.8
9.0
9.0
7.9
7.9
ROI = Return on Investment
ROS = Return on Sales
Applying Five - Forces Analysis
Forecasting Industry Profitability
+ Past profitability a poor indicator of future
profitability.
+ If we can forecast changes in industry structure
we can predict likely impact on competition
and profitability.
Strategies to Improve Industry Profitability
• What structural variables are depressing
profitability
• Which can be changed by individual or
collective strategies?
Drawing Industry Boundaries : Identifying
the Relevant Market
+ What industry is BMW in:
o World Auto industry
o European Auto industry
o World luxury car industry?
+ Key criterion: SUBSTITUTABILITY
o On the demand side : are buyers willing to substitute between
types of cars and across countries
o On the supply side : are manufacturers able to switch
production between types of cars and across countries
+ May need to analyze industry at different levels for different
types of decision
Identifying Key Success Factors
Pre-requisites
forsuccess
success
Pre-requisites for
What do
customers want?
How does the firm
survive competition
Analysis of competition
Analysis of demand
• Who are our
customers?
• What do they want?
• What drives competition?
What are
drives
•• What
the competition?
main
• What are the
dimensions
of main
competition?
dimensions of competition?
•How
• Howintense
intenseis
iscompetition?
competition?
• Howcan
canwe
weobtain
obtainaasuperior
•How
superior competitive
competitive
position? position?
KEY SUCCESS FACTORS
Identifying Key Success Factors
Through Modeling Profitability: The
Airline Industry
Profitability
Income
ASMs
=
Yield
=
x Load factor - Unit Cost
Revenue
RPMs
• Strength of
competition on routes.
• Responsiveness to chaanging market conditions
• % business travelers.
• Achieving differentiation advantage
x
RPMs
ASMs
-
• Price
competitiveness.
• Efficiency of route
planning.
• Flexibility and
responsiveness.
• Customer loyalty.
• Meeting customer
requirements.
ASM = Available Seat Miles
Expenses
ASMs
• Wage rates.
• Fuel
efficiency of
planes.
• Employee
productivity.
• Load factors.
• Administrative
overhead.
RPM = Revenue Passenger Miles
Identifying Key Success Factors
by Analyzing Profit Drivers: Retailing
Sales mix of products
Return on Sales
Avoiding markdowns through
tight inventory control
Max. buying power to minimize
cost of goods purchased
ROCE
Max. sales/sq. foot through:
*location
*product mix
*customer service *quality control
Sales/Capital
Employed
Max. inventory turnover through
electronic data interchange, close
vendor relationships, fast delivery
Minimize capital deployment
through outsourcing & leasing
SUMMARY: What Have We Learned?
Forecasting Industry Profitability
+ Past profitability a poor indicator of future profitability.
+ If we can forecast changes in industry structure we can predict likely
impact on competition and profitability.
Strategies to Improve Industry Profitability
•
•
What structural variables are depressing profitability?
Which can be changed by individual or collective strategies?
Defining Industry Boundaries
•
•
Key criterion: substitution
The need to analyze market competition at different levels of aggregation
(depending on the issues being considered)
Key Success Factors
•
Starting point for the analysis of competitive advantage
Strategic Advantage Profile
(SAP)
OCP
VRIO FRAMEWORK
+Resource-asset, competency, skill,knowledge
e.g. patents, brand name,
+Value: Does it provide competitive advantage?
+Rarity: Do other competitors possess it?
+Imitability: Is it costly for others to imitate?
+Organisation: Is the firm organised to exploit the
resource?
VRIO Steps
+Identify firms resources-S&W
+Combine firms strength into specific capabilities
+Appraise-profit potential, sustainable competitive
advantage, ability to convert it to a profitable
proposition
+Select strategy -firm’s resources& capability
relative to external opportunity
+Identify resource gaps and invest in upgrading
weaknesses
Strategic Advantage Profile (SAP) - Steps
1)
2)
3)
The organization should identify the factors which are relevant for
determining success in the industry concerned.
At the next level, the organization should measure its
performance on these factors in comparison to its competitors.
Based on the comparison, the organization can find out whether it
has advantage or disadvantage in terms of various factors. An
advantage is the situation which helps the organization to do
better than its competitors. A disadvantage is the situation which
affects the competitive position of the organization adversely.
Further, advantages/disadvantages should be measured in terms
of degree because all advantages/disadvantages may not be
equal.
After identifying advantages, the next step is to measure their
sustainability because any advantage may turn into disadvantage
due to change in environmental factors. For example, many
companies had competitive advantage in pre-liberalized era which
turned into disadvantage because of entry of new competitors in
post-liberalized era.
Strategic Advantage Profile (SAP)
SAP is a summary statement, which provides an overview of the advantages and
disadvantages in key areas likely to affect future operations of the firm. It is a tool for
making a systematic evaluation of the strategic advantage factors, which are
significant for the company in its environment. The following is an example of the SAP
analysis of a hypothetical company
Capability Factor
Competitive strengths / Weakness
•Finance
High cost of capital, reserves & surplus
•Marketing
Fierce competition, company position secure
•Operational
Excellent -parts & components available
•Personnel
Quality of management & personnel par with competition
•General
High Quality experienced top management -take proactive stance
Competitor Analysis
Concerns of an Org.’s competitive analysis
1.
Who are our competitors?
2.
How can our competitors be grouped meaningfully?
3.
What are our competitors’ strengths and weaknesses?
4.
What are our competitors’ objectives and strategies?
5.
How are our competitors likely to react to changes in the marketing
environment?
Concerns of an Org.’s competitive analysis (1)
Competitor identification
1.
Who are our competitors?
Similar specific-same product, technology and target market
Similar general-same product area, but different segments
e.g. Haagen daze vs. Wall’s
Different specific-same need satisfied by different means
e.g. Eurostar vs. British airway
Different general-competing for discretionary spend
e.g. holiday vs. new car
Concerns of an Org.’s competitive analysis (2)
2. How can our competitors be grouped meaningfully?
Different characteristics for identifying Strategic groupings
Source: Adapted from Wilson et al. (1992).
Concerns of an Org.’s competitive analysis (3)
3. What are competitive strengths and weaknesses
•
Requires use of various information sources.
•
Consider in terms of critical success factors:
e.g. manufacturing, technical and financial strength, relationships with
supplier and customer, its market and segment, product range, its volume,
cash and profits etc.
•
Information can be used to plan and launch attack.
Concerns of an Org.’s competitive analysis (4)
4. What are our competitors’ objectives and strategies?
Objectives – related to cash generation, market share,
technological leadership, quality recognition
Find clues in product portfolio.
Strategy - related to its positioning, marketing mix etc.
etc.
Concerns of an Org.’s competitive analysis (5)
5. How are our competitors likely to react to changes in the marketing
environment?
Learn by experience
Not easy to predict its reaction due to: its cost structures,
positions, product life cycle, industrial
position etc.
relative market
Useful information about competitors
Source: Wilson et al. (1992).
Competitor Analysis
Future Objectives
How do our goals compare
to our competitors’ goals?
Where will emphasis be
placed in the future?
What is the attitude toward
risk?
What drives the competitor?
Competitor Analysis
Future Objectives
How do our goals compare
to our competitors’ goals?
Where Current
will emphasis
be
Strategy
placed inHow
the future?
are they currently
What is the
attitude
competing?
toward risk?
Does this strategy
support changes in the
competitive structure?
What is the competitor doing?
What can the competitor do?
Competitor Analysis
Future Objectives
What does the competitor believe about
itself and the industry?
How do our goals compare
to our competitors’ goals?
Where Current
will emphasis
be
Strategy
placed in the future?
How are we currently
What is the
attitude
competing?
Assumptions
toward risk?
Does thisDo
strategy
we assume the future
support changes
in the
will be volatile?
competition
structure?
What
assumptions do our
competitors hold about the
industry and themselves?
Are we assuming stable
competitive conditions?
Competitor Analysis
Future Objectives
What are the competitor’s
capabilities?
How do our goals compare
to our competitors’ goals?
Where Current
will emphasis
be
Strategy
placed in the future?
How are we currently
What is the
attitude
competing?
Assumptions
toward risk?
Does this
Dostrategy
we assume the future
supportwill
changes
in the
be volatile?
competition
Whatstructure?
assumptions do our
competitors
hold about the
Capabilities
industry and themselves?
What are my competitors’
Are we operating under
strengths and weaknesses?
a status quo?
How do our capabilities
compare to our
competitors?
Dynamic Head-to-Head Rivalry
Future Objectives
How do our goals compare
to our competitors’ goals?
Where Current
will emphasis
be
Strategy
placed in the future?
How are we currently
What is the
attitude
competing?
Assumptions
toward risk?
Does this
Dostrategy
we assume the future
supportwill
changes
in the
be volatile?
competition
Whatstructure?
assumptions do our
Capabilities
competitors
hold about the
industry and themselves?
What are my competitors’
Are we operating
strengths under
and weaknesses?
a status quo?
How do our capabilities
compare to our
competitors?
Response
What will our competitors
do in the future?
Where do we have a
competitive advantage?
How will this change our
relationship with our
competition?
Market Analysis
The role of market analysis is to determine
the attractiveness of market and to
understand its evolving opportunities and
threats as they relate to internal strength
and weakness of the firm
Dimensions of Market Analysis (David A. Aaker)
+Market size (current and future)
+Market growth rate
+Market profitability
+Industry cost structure
+Distribution channel
+Market trends
+Key success factors
Market Size
The size of the market can be evaluated based
on:
+ Present sales
+ Potential sales (if expanded)
Some information sources for determining market
size:
+ Government data
+ Trade associations
+ Financial data from major players
+ Customer survey
Market Growth Rate
A simple means of forecasting the market
growth rate is to extrapolate (infer or estimate)
historical data into the future. While this method
may provide a first-order estimate, it does not
predict important turning points. A better
method is to study growth drivers such as
demographic information and sales growth in
complementary products.
Ultimately, the maturity and decline stages of the
product life cycle will be reached. Some leading
indicators of the decline phase include:
+ Price pressure caused by competition
+ Decrease in brand loyalty
+ Emergence of substitute products
+ Market saturation
+ Lack of growth drivers
Market Profitability
While different firms in the market will have
different levels of profitability, the average profit
potential for a market can be used as a
guideline for knowing how difficult it is to make
money in the market.
Industry Cost Structure
The cost structure is important for identifying key
factors for success. To this end, Porter’s value
chain model is useful for determining where
value is added and for isolating the costs.
The cost structure also is helpful for formulating
strategies to develop a competitive advantage.
For example, in some environments the
experience curve effect can be used to develop
a cost advantage over competitors.
Experience Curve Diagram
Distribution Channel
The following aspects of the distribution system
are useful in a market analysis:
+ Existing distribution channel
o can be described by how direct they are to the customer.
+ Trends and emerging channels
o new channels can offer the opportunity to develop a competitive
advantage.
+ Channel power structure
o for example, in the case of a product having little brand equity,
retailers have negotiating power over manufacturers and can
capture more margin.
Market Trends
Changes in the market are important because
they often are the source of new opportunities
and threats. The relevant trends are industrydependent, but some examples include changes
in price sensitivity, demand for variety, and level
of emphasis on service and support. Regional
trends also may be relevant.
Key Success Factors
o Elements that are necessary in order for the firm to
achieve its marketing objectives.
few examples are:
o Access to essential unique resources
o Ability to achieve economies of scale
o Access to distribution channels
o Technological progress
It is important to consider that key success factors may
change over time, especially as the product progresses
through its life cycle.
Analysis of the
External
Environment
The External Environment
General Environment
+Dimensions in the broader society that influence
an industry and the firms within it:
o Demographic
o Economic
o Political/legal
o Sociocultural
o Technological
o Global
The General Environment: Segments and Elements
Analysis of the External Environments
+General environment
o Focused on the future
+Industry environment
o Focused on factors and conditions influencing a firm’s
profitability within an industry
+Competitor environment
o Focused on predicting the dynamics of competitors’
actions, responses and intentions
Analysis of the
Internal
Environment
Competitive Advantage
+Firms achieve strategic competitiveness and
earn above-average returns when their core
competencies are effectively:
o Acquired.
o Bundled.
o Leveraged.
+Over time, the benefits of any value-creating
strategy can be duplicated by competitors.
Competitive Advantage (cont’d)
+Sustainability of a competitive advantage is a
function of:
o The rate of core competence obsolescence due to
environmental changes.
o The availability of substitutes for the core competence.
o The difficulty competitors have in duplicating or
imitating the core competence.
Internal Analyses’ Outcomes
Unique resources,
capabilities, and
competencies
(required for sustainable
competitive advantage)
By studying the internal environment,
firms identify what they can do
The Context of Internal Analysis
+Global Economy
o Traditional sources of advantages can be overcome
by competitors’ international strategies and by the flow
of resources throughout the global economy.
+Global Mind-Set
o The ability to study an internal environment in ways
that are not dependent on the assumptions of a single
country, culture, or context.
+Analysis Outcome
o Understanding how to leverage the firm’s bundle of
heterogeneous resources and capabilities.
Components of Internal Analysis Leading to
Competitive Advantage and Strategic
Competitiveness
Creating Value
+By exploiting their core competencies or competitive
advantages, firms create value.
+Value is measured by:
o Product performance characteristics
o Product attributes for which customers are willing to pay
+Firms create value by innovatively bundling and
leveraging their resources and capabilities.
+Superior value  Above-average returns
Creating Competitive Advantage
+Core competencies, in combination with productmarket positions, are the firm’s most important
sources of competitive advantage.
+Core competencies of a firm, in addition to its
analysis of its general, industry, and competitor
environments, should drive its selection of
strategies.
The Challenge of Internal Analysis
+Strategic decisions in terms of the firm’s
resources, capabilities, and core competencies:
o Are non-routine.
o Have ethical implications.
o Significantly influence the firm’s ability to earn aboveaverage returns.
The Challenge of Internal Analysis
(cont’d)
+To develop and use core competencies,
managers must have:
o Courage
o Self-confidence
o Integrity
o The capacity to deal with uncertainty and complexity
o A willingness to hold people (and themselves)
accountable for their work
Conditions Affecting Managerial Decisions about Resources,
Capabilities, and Core Competencies
Source: Adapted from R. Amit & P. J. H. Schoemaker, 1993, Strategic
assets and organizational rent, Strategic Management Journal, 14: 33.
Resources, Capabilities and Core Competencies
Discovering Core
Competencies
Core
Competencies
Capabilities
Resources
•Tangible
•Intangible
+ Resources
o Are the source of a firm’s
capabilities.
o Are broad in scope.
o Cover a spectrum of individual,
social and organizational
phenomena.
o Alone, do not yield a competitive
advantage.
Resources
+Resources
o Are a firm’s assets,
including people and the
value of its brand name.
o Represent inputs into a
firm’s production process,
such as:
+
+
+
+
+
Capital equipment
Skills of employees
Brand names
Financial resources
Talented managers
+Types of Resources
o Tangible resources
+
+
+
+
Financial resources
Physical resources
Technological resources
Organizational resources
o Intangible resources
+ Human resources
+ Innovation resources
+ Reputation resources
Tangible Resources
• The firm’s borrowing capacity
• The firm’s ability to generate internal
funds
Organizational Resources • The firm’s formal reporting structure
and its formal planning, controlling, and
coordinating systems
Physical Resources
• Sophistication and location of a firm’s
plant and equipment
• Access to raw materials
Technological Resources • Stock of technology, such as patents,
trademarks, copyrights, and trade
secrets
Financial Resources
Sources: Adapted from J. B. Barney, 1991, Firm resources and sustained competitive advantage, Journal of Management,
17: 101; R. M. Grant, 1991, Contemporary Strategy Analysis, Cambridge, U.K.: Blackwell Business, 100–102.
Intangible Resources
Human Resources
Innovation Resources
Reputational Resources
•
•
•
•
•
•
•
•
•
•
Knowledge
Trust
Managerial capabilities
Organizational routines
Ideas
Scientific capabilities
Capacity to innovate
Reputation with customers
Brand name
Perceptions of product quality, durability,
and reliability
• Reputation with suppliers
• For efficient, effective, supportive, and
mutually beneficial interactions and
relationships
Sources: Adapted from R. Hall, 1992, The strategic analysis of intangible resources, Strategic Management Journal,
13: 136–139; R. M. Grant, 1991, Contemporary Strategy Analysis, Cambridge, U.K.: Blackwell Business, 101–104.
Resources, Capabilities and Core Competencies
Discovering Core
Competencies
Core
Competencies
Capabilities
Resources
•Tangible
•Intangible
+Capabilities
o Represent the capacity to deploy
resources that have been purposely
integrated to achieve a desired end
state
o Emerge over time through complex
interactions among tangible and
intangible resources
o Often are based on developing, carrying
and exchanging information and
knowledge through the firm’s human
capital
Resources, Capabilities and Core Competencies
Discovering Core
Competencies
+ Capabilities (cont’d)
o The foundation of many capabilities
lies in:
Core
Competencies
Capabilities
Resources
•Tangible
•Intangible
+ The unique skills and knowledge of a
firm’s employees
+ The functional expertise of those
employees
o Capabilities are often developed in
specific functional areas or as part of
a functional area.
Examples of Firms’ Capabilities
Functional Areas
Distribution
Human resources
Management
information systems
Marketing
Management
Manufacturing
Research &
development
Capabilities
Effective use of logistics management techniques
Motivating, empowering, and retaining employees
Effective and efficient control of inventories through
point-of-purchase data collection methods
Effective promotion of brand-name products
Effective customer service
Innovative merchandising
Ability to envision the future of clothing
Effective organizational structure
Design and production skills yielding reliable products
Product and design quality
Miniaturization of components and products
Innovative technology
Development of sophisticated elevator control solutions
Rapid transformation of technology into new products and
processes
Digital technology
Resources, Capabilities and Core
Competencies
Discovering Core
Competencies
+Four criteria for determining
strategic capabilities:
o Value
Core
Competencies
Capabilities
Resources
•Tangible
•Intangible
o Rarity
o Costly-to-imitate
o Nonsubstitutability
Resources, Capabilities and Core Competencies
Discovering Core
Competencies
+ Core Competencies
o Resources and capabilities that are the
sources of a firm’s competitive advantage:
+ Distinguish a company competitively and
reflect its personality.
Core
Competencies
Capabilities
Resources
•Tangible
•Intangible
+ Emerge over time through an
organizational process of accumulating
and learning how to deploy different
resources and capabilities.
Resources, Capabilities and Core Competencies
Discovering Core
Competencies
+ Core Competencies
o Activities that a firm performs especially
well compared to competitors.
Core
Competencies
Capabilities
Resources
•Tangible
•Intangible
o Activities through which the firm adds
unique value to its goods or services over
a long period of time.
Building Core Competencies
Discovering Core
Competencies
Four Criteria of
Sustainable
Advantages
+Four Criteria of Sustainable
Competitive Advantage
o Valuable capabilities
o Rare capabilities
o Costly to imitate
o Nonsubstituable
•
•
•
•
Valuable
Rare
Costly to imitate
Nonsubstitutable
The Four Criteria of Sustainable Competitive Advantage
Valuable Capabilities
• Help a firm neutralize threats or
exploit opportunities
Rare Capabilities
• Are not possessed by many others
Costly-to-Imitate Capabilities
• Historical: A unique and a valuable
organizational culture or brand
name
• Ambiguous cause: The causes and
uses of a competence are unclear
• Social complexity: Interpersonal
relationships, trust, and friendship
among managers, suppliers, and
customers
Nonsubstitutable Capabilities • No strategic equivalent
Building Sustainable Competitive Advantage
Discovering Core
Competencies
+ Valuable capabilities
o Help a firm neutralize threats or
exploit opportunities.
+ Rare capabilities
Four Criteria of
Sustainable
Advantages
•
•
•
•
Valuable
Rare
Costly to imitate
Nonsubstitutable
o Are not possessed by many
others.
Building Sustainable Competitive Advantage
Discovering Core
Competencies
Four Criteria of
Sustainable
Advantages
+ Costly-to-Imitate Capabilities
o Historical
+ A unique and a valuable
organizational culture or brand name
o Ambiguous cause
+ The causes and uses of a
competence are unclear
o Social complexity
•
•
•
•
Valuable
Rare
Costly to Imitate
Nonsubstitutable
+ Interpersonal relationships, trust, and
friendship among managers,
suppliers, and customers
Building Sustainable Competitive Advantage
Discovering Core
Competencies
+ Nonsubstitutable Capabilities
o No strategic equivalent
+ Firm-specific knowledge
+ Organizational culture
Four Criteria of
Sustainable
Advantages
•
•
•
•
Valuable
Rare
Costly to imitate
Nonsubstitutable
+ Superior execution of the chosen
business model
Outcomes from Combinations of the Criteria for
Sustainable Competitive
Advantage
Scenario Analysis
What is Scenario?
Introduction
+For Many years, it was believed obtaining accurate
forecasts lay in the development of complex, quantitative
models.
+With just a little more time, a few more equations and a
lot more dollars, these models would be able to provide
forecast.
+Many users have become disillusioned with forecasting
models, attempt to predict the future from fancy
mathematical manipulations of historical data.
Feedback and feed-forward
Scenario planning is the combination of scenario
analysis for strategic purposes and strategic planning
based on the outcome of the scenario phase
The relations between possible, probable
and desired future
What is not Scenario?
+Scenario is not a forecast, neither a vision
+It does not seek numerical precision.
It usually provides a more qualitative and
contextual description of how the present will
evolve in to the future.
+It is not assured.
Scenario analysis usually tries to identify a set of
possible future, each of whose occurrence is
plausible
Definition of Scenario
+Vocabulary:
Scenario is an outline of a natural or expected course of events.
+Kahn and Weiner:
A hypothetical sequence of events constructed for the purpose of
focusing attention.
+Porter
An internally consistent view of what the future might turn out to be
+Ringland:
That part of strategic planning which relates to the tools and
technologies for managing the uncertainties of the future
+Schnaars:
Identify plausible future environments that the firm might face.
Forecasting and Uncertainty
Crude Oil Rigs in US, (Prediction)
Crude Oil Rigs in US, (Reality)
Future is not continuation of the past necessarily
Scenario in Business
+22% of “Fortune 1000”, were using scenario
analysis in the 1970s
+75% of these firms adopted the approach after
the oil embargo in 1973
+It is essential to keep the number of factors that
are considered to a minimum.
Time Horizon
+Scenario analysis has been used primarily in
long-term forecasting.
+Most firms that used scenario analysis employed
5-year horizon.
+But in Xerox 15-year
Shell, 15-year at least.
+The content of scenario becomes progressively
more vague as the time horizon lengthens.
+The ideal time horizon of scenario analysis is
specific to the industry, product or market under
consideration.
Historical Background
+Herman Kahn: was writing scenarios as far back
as the 1950s.
+“Thinking the Unthinkable”
+Shell in 1970s.
+SRI (Stanford Research Institute): Future of American Society
until 2000.
SRi
History
The Number of Scenarios to Generate
+Consensus is that three scenario are best.
Although two tend to classified as “good-andbad”, while more than three become
unmanageable in the hands of users.
Arraying Scenarios
+ Scenarios are inevitably arrayed over some back-ground themes.
+ Four background themes:
1-Favorability to the Sponsor:
Selecting an optimistic and then an pessimistic.
“Surprise-free” or ‘baseline” scenario
2-Probability of Occurrence
One of the scenarios is labeled as “most likely”.
Scenarios are possibilities, not probabilities.
3-Single, Dominant Issue
Sometimes there is a single dominant factor whose outcome is
central to the item being forecast. Like economy, government
policy.
4-Themes
In most business applications there is more than a single unknown. There
are many issues which compete, combine and interact with one another to
characterize the future. Three scenarios as: Economic expansion,
Environmental concern, and Technological domination.
Scenario projects could be used for different
purposes and with different focuses
Characteristic of traditional planning compared
with the scenario planning approach
Scenario planning is well suited to the task of
dealing with paradigmatic, non-linear change
Methods of Constructing Scenarios
1-Highly Qualitative Procedures
2-Practical Procedures
3-Cross-Impact Analysis
1-Highly Qualitative Procedures
+Kahn: -A simplistic intuition or an expression of
bias rather than a careful synthesis and
balancing of the analysis with more
subtle qualitative considerations.
-“Surprise-free” scenario
+Godet: -”Exploratory Prospective Analysis”
-Holistic and integrative analysis
+Durand: -Intuitive analysis
Critic: They rely so heavily on intuitive and subjective
analysis that they are difficult to implement.
2-Practical Procedures
+More practical means of generating scenarios
in business environment:
-Identifying factors are expected to affect forecasting
situation at hand.
-Postulating a set of plausible future values for each
of these factors.
-Selecting a few plausible scenarios from a large
number of possible combinations of the values of
these factors.
+Two Approaches on selecting strategies:
-Deductive
-Inductive
3-Cross-Impact Analysis
+Emerged from early work on the Delphi Technique
+It’s Basic philosophy of Cross-Impact is that no
development occurs in isolation. Rather, it is rendered
more or likely by the occurrence of other events.
+Cross-Impact attempts to capture these ‘crossimpacts’ from the judgmental estimates of experts.
+Data from experts are then input into a computer
simulation or mathematical program.
Critic: Judgmental estimates are surely not amenable to
any mathematical machinations.
Few Comments on Scenarios
1.
2.
3.
The most important part of scenario analysis is to think
about the problem.
The most difficult in scenario analysis is how to reduce a
large number of potential future outcomes to a few
plausible scenarios. The number of possible scenarios
grows quickly as the number of factors increases.
Two methods:
-Inductive: If the number of factors is small (<5),
examine every possible scenarios from this set.
-Deductive: When many factors are considered, rather
than examining every possible combination, set the tone
of scenarios. It means to decide whether the scenarios
will represent an optimistic and pessimistic views of the
future, or characterize some dominant themes.
Advantages of Scenario
+Scenario writing is a planning instrument.
+It is also an effective learning tool.
Thinking in scenarios helps us understand the logic
of developments, clarify driving forces, key factors,
key players and our potential to exert an influence.
+It proceeds more from the gut than from the
computer. Although it may incorporate the
results of quantitative models.
+It shows a slight accuracy comparing with
other models of forecasting. Specially when
uncertainty is high.
Scenario as powerful instrument
+Brain-compatible format: Scenario thinking matches
the way the brain function. Narrative format (images and
stories) makes them easily memorable.
+Opening-up of divergent thinking: By forcing your
mind to think about qualitatively different directions, you
train your capability to think the unthinkable.
+Complexity-reducing format: Complex business or
general environments can be reduced to a manageable
amount of uncertainty.
+Communicative format: Scenarios are easy to
communicate and to discuss.
Weaknesses of Scenario
If scenarios are powerful, why haven’t they been
more widely used?
+Uncertainty in conclusions: It does not give one single answer
about the future. Therefore it does not provide the security that is often
required in decision making.
+Counterintuitive to managerial simplicity:
It does not
accord with the managerial simplicity that says that there is one right
answer to every question. Scenario planning is a more holistic or
systemic approach to planning than traditional methods.
+Soft methods and soft answers: Scenario techniques are
usually qualitative, the results are often presented in qualitative terms
that fir poorly with traditional numbers-oriented cultures.
+Time consuming: Workshop-based methods are time consuming
in terms of the number of hours and days the participants need to spend
to get thorough results.
+Secrecy: Most of Scenarios adopted in the companies are arcane
and impractical
Scenario Analysis at Shell
Strategy
• Shell makes use of a strategic planning process in which a series of
“what if “ scenarios are created
• The management at all levels is made to think strategically about the
company’s business environment
Shell’s scenario analysis
Identify trends and their drivers
Develop the what, why and how of different scenarios
Identify parameters to monitor the environment
Testimonial
In early 1986, the price of oil fell to USD
10 per barrel and Shell’s scenario
analysis proved successful as it was in a
better position than its competitors to
face the situation
Develop contingent strategies to tackle each scenario
• Shell has deployed processes and systems to anticipate future scenarios by analyzing the interplay of
environmental factors and its impact on Shell’s business
• Scenario analysis presents complex interactions of future in a simplified, easy to understandable form
• By picking the more probable scenarios, the company can brace or prepare itself for exploiting future
opportunities and challenges
• It helps the company in formulating strategy and decide the trade-offs required
SWOT Analysis
SWOT Analysis
Identifying
internal strengths (S)
and weaknesses (W)
and also examining
external opportunities (O) and
threats (T)
S
W
O
T
Things the company does well.
Internal
Things the company does not do well.
Conditions in the external environment that favor
strengths.
External
Conditions in the external environment that do not
relate to existing strengths or favor areas of current
weakness.
©South-Western College Publishing
Strengths and Weaknesses
INTERNAL






Production Costs
Marketing Skills
Employee Capabilities
Financial Resources
Available Technology
Company/Brand Image
Wal- Mart SWOT Analysis
Strengths
+ Wal-Mart is powerful retail brand.
+ Wal-Mart has grown substantially over recent years and has experienced global
expansion.
+ Wal-Mart has a core competence involving its use of IT to support its international
logistics system.
+ A focused strategy is in place for HRM and development.
Wal- Mart SWOT Analysis
Weaknesses
+ Wal- Mart is the World’s largest grocery retailer and control of its empire,
despite its IT advantages, could leave it week in some areas due to the huge
span of control
+ Since Wal-Mart sell products across many sectors, it may not have the
flexibility of some of its more focused competitors.
+ The company is global, but has a presence in relatively few countries
Worldwide.
Opportunities and Threats
EXTERNAL
Social
Technological
Demographic
Political/Legal
Economic
Competitive
Wal- Mart SWOT Analysis
Opportunities
+ To take over, merge with, or form strategic alliances with other global retailers.
+ There are tremendous opportunities for future business expansion.
+ New locations and store types offer Wal-Mart opportunities.
+ Opportunities exist for Wal-Mart to continue with its current strategy of large,
super centres.
Wal- Mart SWOT Analysis
Threats
+ Being number one means that Wal-Mart is the target of competition, locally and
globally.
+ Being a global retailer means that Wal-Mart is exposed to political problems in
the countries where it has operations.
+ Intense price competition.
TOWS Matrix
Four Types of Strategies
Threats
Opportunities
Weaknesses
Strengths
(TOWS)
SO
Strategies
WO
Strategies
ST
Strategies
WT
Strategies
SO Strategies
Threats
Opportunities
Weaknesses
Strengths
(TOWS)
SO
Strategies
Use a firm’s
internal
strengths to
take advantage
of external
opportunities
WO Strategies
Threats
Opportunities
Weaknesses
Strengths
(TOWS)
WO
Strategies
Improving
internal
weaknesses by
taking
advantage of
external
opportunities
ST Strategies
Threats
Opportunities
Weaknesses
Strengths
(TOWS)
ST
Strategies
Using firm’s
strengths to
avoid or reduce
the impact of
external threats.
WT Strategies
Threats
Opportunities
Weaknesses
Strengths
(TOWS)
WT
Strategies
Defensive tactics
aimed at
reducing
internal
weaknesses and
avoiding
environmental
threats.
Strategy Analysis & Choice
The TOWS Matrix
+
+
+
+
List the firm’s key external opportunities
List the firm’s key external threats
List the firm’s key internal strengths
List the firm’s key internal weaknesses
Strategy Analysis & Choice
The TOWS Matrix
+
Match internal strengths with external opportunities
and record the resultant SO Strategies
+
Match internal weaknesses with external
opportunities and record the resultant WO Strategies
Match internal strengths with external threats and
record the resultant ST Strategies
Match internal weaknesses with external threats and
record the resultant WT Strategies
+
+
TOWS Matrix
Leave Blank
Strengths-S
Weaknesses-W
List Strengths
List Weaknesses
Opportunities-O
SO Strategies
WO Strategies
List Opportunities
Use strengths to take
advantage of
opportunities
Overcome weaknesses
by taking advantage of
opportunities
Threats-T
ST Strategies
WT Strategies
List Threats
Use strengths to avoid
threats
Minimize weaknesses
and avoid threats