Strategic

Management
Module in CBME 2
 MODULE I
PRELIM

Chapter I
Basic Concepts in Business Policy and Strategy

Learning Objectives:
After you have studied this chapter, you should be able to:
1. Describe the steps in the strategic management process;
2. Discuss the strategic planning phases;
3. Define globalization
4. Discuss and understand the electronic age; and
5. Enumerate and discuss the theories in organizational adaptation.

From Strategy to Strategic Management

Strategy A carefully devised plan of action to achieve a goal, or the art of developing or
carrying out such a plan. (Encarta Dictionary)
It is a firm’s theory about how it can gain competitive advantages (Barney & Hesterly,
2012)
It involves the crafting of some premeditated maneuvers.
It is something that seems to happen ahead of the actual implementation. It implies
a semblance of premeditation or of planning.
It refers to a broad palette of actions that are typically used as a means of competing
effectively versus a hostile environment.
In lay terms, strategy is a way to get from Point A to Point B. Choosing the way to get
there is what strategy is all about, and your choice will likely be dictated by what you
prioritize most in life.
Strategic Management
This pertains to a process that a firm’s management can undertake to formulate and
eventually implement strategies.
This includes all the decisions and actions set by the managers and provides a gauge
on the performance of a particular organization.
Business Policy is also strategic management in context.

Strategic Management Process

1. Situation Analysis. This includes environmental scanning (internal & external). It
provides the information necessary to formulate the company’s vision/mission
statement. The environment is observed internally on the organizational culture –
employee interactions, and how relationships are formed & enhanced (observation,
interview and discussion). In the external environment, customers, suppliers,
competitors, among others are observed.
2. Strategy Formulation. This involves the development of company strategies in three
organizational levels: operational, competitive and corporate. Operational strategies
are short-term and are associated with the various operational departments of the
company such as human resources, finance, marketing and production. Competitive
strategies are those related to the techniques in competing in a certain industry. The
company must identify the strengths and weaknesses of its competitors then
formulate strategies to gain competitive advantage. The essence of corporate
strategies is to be able to improve both operational and competitive strategies. There
CBME 2/gtam/2020 Page 1 of 18
 should be a synergy between the operating units and thus, competitive strategies
should support overall corporate strategies. These strategies actually solidify all the
other strategies that will result to overall organizational performance. Corporate
strategies are long-term and are involved in providing direction for the organization.
Competitive advantage refers to any edge that a firm has over its competition. It
is an edge that ideally will be felt by consumers, and it answers the question “why
would I buy from this firm rather than from the other firms?” (Ehmke, 2008)
3. Strategy Implementation. This involves the development of procedures, programs
and activities to put the strategies into practice. It is also the time to determine
which strategies should be implemented first. Strategies should be communicated to
be implemented. Failure to communicate means failure of the organization in the
implementation of the strategies.
4. Strategy Evaluation. This includes appraising the company’s performance. All
employees are involved. There is always a need to modify strategies because the
environment is constantly changing.

Planning Phases
Phase 1: Planning Financial Aspects. The phase when financial data such as next year’s
budget is planned. Data/information comes from within the company. Only managers are
involved in this phase.
Phase 2: Forecasting. This involves more thorough analysis, data/information may come
from internal & external environment. Only managers are involved in this one-month
planning phase for a three to five years plan.
Phase 3: External Planning. This is usually the task of top management; they gather and
formulate strategies for the company on a five-year period.
Phase 4: Strategic Management. In this phase, the strategies formulated will be worthless
without the commitment of all employees. Aside from detailing the implementation and
evaluation of strategic plans, it also provides possible scenarios and the accompanying
contingent measure.

Globalization
Globalization is the internalization of markets and corporations. This has changed
the way people do business.
Globalization is the process of interaction and integration between people, companies,
and governments worldwide. Globalization has grown due to advances in transportation and
communication technology. With increased global interactions comes the growth of
international trade, ideas, and culture. Globalization is primarily an economic process of
interaction and integration that's associated with social and cultural aspects. However,
conflicts and diplomacy are also large parts of the history of globalization, and modern
globalization (Wikipedia, 08212018).

The Electronic Age

Electronic transactions refer to the various uses of the internet in conducting
business transactions.
1. Customers, suppliers, and partners can transact, communicate, and do business
through the internet.
2. Companies can now go to customers directly even without the distributors or
intermediaries; this led to reduction of costs, improved customer service, and better
relationships with customers.
CBME 2/gtam/2020 Page 2 of 18
 3. Customers have more power than ever because they now have unlimited access to
information through the internet.
4. Firms are now exploring endless possibilities to innovate using the internet.
5. Business pacing is increasing. The environment becomes increasingly turbulent.
6. The internet is putting corporations out of their traditional boundaries. Customers,
suppliers, and manufacturers are becoming more adjacent to each other that there
are no separations. There is now more transparency in doing business.
7. Knowledge is a very important asset. Companies have a competitive advantage if
they are well informed.
Organizational Adaptation
Aside from globalization and electronic commerce, a company should always be
updated on what is in store in all facets of the business environment.
Population Ecology explains that when a company is able to take hold of a formidable
position in the industry, the tendency is for that company not to adapt to changing
conditions.
Institution Theory focuses on the more obvious and important aspects of the social
structure which includes norms, rules and policies which form the basis for social
behaviour. It assumes that the institutional environment where the firm operates
influences the organization’s policies, rules, norms, among others. The implementation of
any business strategy will also depend on the environment.
Strategic Choice Perspective theorizes that an organization not only adapts to a
changing environment but also tries to reshape its environment. The company develops
ways on how to face environmental pressures.
Organizational Learning Theory has two views: the technical view focuses on the
processing and preparation and interpretation of these processes to respond to both
external and internal forces in the organization. The social view includes the experiences of
people at work and their relevance to organizational performance.

End of Chapter Questions:

1. Discuss strategic management and business policy.
2. Explain the strategic management process.
3. How should you view global brands on the basis of their contribution to global
business? Which among the global brands do not actually contribute to human
welfare? Discuss your points of view.
4. What is organizational adaptation?
5. How does strategic choice fit organizational learning theory? Make some researches
on organizational learning theory.
6. How does the electronic age change the way people do business?
7. Discuss the staying power of global brands. What is the relevance of the surveys in
choosing global brands? Defend your answer.
8. Evaluate the countries where these global brands come from. Make a research on
each country and analyze their success in having a global brand.
9. What is globalization? Research the characteristics, strengths, and weaknesses of
globalization.
10.How can one country adapt to globalization trends?

CBME 2/gtam/2020 Page 3 of 18

Chapter 2
History of Strategic Management

Learning objectives:
After you have studied this chapter, you should be able to:
1. Relate the evolution of strategic management;
2. Review the development of management within the strategic framework; and
3. Know the important people who helped in the development of strategic
management.

Alfred Chandler. One of the most influential pioneers. He recognized the importance of
coordinating the various aspects of management under one umbrella strategy, which is
strategic management. In 1962, he made Strategy and Structure which showed that a long-
term properly coordinated strategy is important to give a company the needed structure,
direction, and focus.

Philip Selznick. In 1957, he introduced the matching of the organization’s internal factors
and the external environmental circumstances. This is the prelude to what is now called
the SWOT analysis by Learned, Andrews, et al. from Harvard Business School.

Igor Ansoff. He came up with a new vocabulary pertaining to strategic management. In hi

book Corporate Strategy (1965) he developed the concept of gap analysis which is now
translated into mission/vision statements. It explained the current situation of a company
and where I would like to be in the future. He also conceptualized a strategy grid which
illustrated market penetration strategies, product development strategies, market
development strategies, and diversification strategies.

Peter Drucker. A management guru, he is the author of several management books in a

span of five decades. His various contributions to the field of strategic management are
classics but there are two most important concepts. First, he emphasized the importance of
objectives. He believed in clear-cut objectives that would set the direction for a particular
organization. This was developed in 1954 and has evolved in a well-known theory of
Management by Objectives (MoB). This theory allows the organization to monitor its
progress from top to bottom. The other important theory is intellectual capital. He foresaw
the advent of the knowledge worker and explained the impact on management. The task is
assigned in teams and a leader heads the group.

Ellen-Earle Chaffe. She stressed the Strategic Management should be aligned with the
business environment. She also believed that it is complex, thereby should allow an
organization to adopt to change. Strategic management also affects the organization in
providing direction, where the company wants to be. It involves a process of strategy
formulation and implementation. She also believed that it is both planned and unplanned.
An organization should be ready for both situations. Strategic management is also done in
an overall corporate strategy as well as specific units. Lastly, strategic management is both
conceptual and analytical thought processes.

Growth and Portfolio Theory

CBME 2/gtam/2020 Page 4 of 18

 The Profit Impact of Marketing Strategies (PIMS) was a continuing study on strategies
that started in 1960. It spanned 19 years of learning the effects of market share. This
attempt started with General Electric then moved to Harvard in the early 1970s. Then, it
moved to Strategic Planning Institute in the late 1970s. By that time, companies had now
developed a link between profitability and strategy.
The growing interest on profitability, market share and strategy led to the awareness
on growth strategies. There discussions on horizontal and vertical integration,
diversification, franchises, mergers and acquisitions, joint venture, and organic growth.
Another study led to the competition and the environment through market dominance
strategies.
While bigger market share led to higher profits, Schumacher (1973), Woo and Cooper
(1982) and Levenson (1984) proved otherwise, and later Traverso (2002) with what is now
called niche marketing. Creating a niche can result in very hight returns.
In the early 1980s, there were also paradoxical conclusions that high market share
and low marked share were often very profitable but house in between were not. This
seeming irony was explained by Michael Porter in the 1980s.
More and more diversified companies required new techniques in management. One
of the CEOs to address this problem is Alfred Sloan of General Motors. GM was
decentralized into strategic business units, all semi-autonomous but with centralized
support functions.
Another valuable concept in strategic management is the portfolio theory. This
theory was developed by Harry Markowitz. This propagated the concept that a brand
portfolio of financial assets could reduce risk exposure of companies. In the 70s, other
theorists extended it to operating division portfolios. An operating division is also called
strategic business unit. Each has its own revenue, cost, objectives, and strategies.
Another strategy is the Boston Consulting Group (BCG) in the early 1970s. BCG
examines how a business unit performs and what it contributes to the organization in
terms of revenues. General Electric retaliated with the GE multifactorial model. This
expanded the BCG model.

The Rise of Marketing Management

The 1970s saw the rise of marketing orientation. Tracing its beginnings, production
orientation started at the height of capitalism. The key requirement is a product of high
quality. A product is produced then sold to consumers. In the 1950s and 1960s, sales
orientation was conceptualized. The concentration was the art of selling. After a product is
produced, a high-caliber sales force can sell it.
In the 1970s, Theodore Levitt theorized that business should start with the
customers instead of producing the product first before selling it. A company should find
out what they want and produce it for them. This is now called marketing orientation.
Several terms were used to reflect a market-oriented concept. They were customer
intimacy, customer orientation, marketing philosophy, customer focus, customer driven
among others.

The Rise of Japanese-Oriented Management Style

During the 1970s, they saw the rise of the Japanese industry as well. Japanese
firms surpassed American and European companies including steel, watches, cameras,
automobiles, and electronics.
The success of the Japanese was explained in these practices:
CBME 2/gtam/2020 Page 5 of 18
 1.There was high employee morale, dedication and loyalty;
2.Costs were lower including labor costs;
3.Government policies favor businesses;
4.After the second world war, Japan became a highly productive and capital
intensive organization;
5. Exports prevailed; and
6. There was superior quality control.
These successful strategies were further honed by the theory of W. Edwards Deming.

In 1981, Richard Pascale and Anthony Athos proved that despite the success of the
Japanese, there was still something missing. In addition, further analysis showed that the
cost structure was actually higher. In the book by Pascale and Athos, The Art of
Management, they claimed that the reason for the success of the Japanese was their
superior management techniques.
This theory is better known as the 7S. These are: Strategy, Structure, Systems,
Skills, Staff, Style and Subordinate Goals or Shared Values. At that time, American
companies were not yet ready to embrace the role of corporate culture, shared values and
beliefs in the success of an organization. Pascale also believed that Japanese businesses
had long-term plans in contrast with American companies.
Kenichi Ohmae, head of McKinsey and Co., Tokyo Office released the book, The Mind
of the Strategist in America, which was originally published in Japan in 1975. He reiterated
that a strategy should not be too analytical but should be more of a creative art. It is a
combination of intuition and flexibility. This was not the case of American management,
where there was always a step-by-step process and procedures were followed to the latter.
In 1982, Tom Peters and Robert Waterman released In Search of Excellence, which
was a response to Ohmae’s book. They studied 62 companies and rated them in a six-
performance criteria – must be above 50% in four out of the six criteria performance metrics
for 20 years. Based on this study, 43 companies passed the test and came up with eight
keys to succeed:
 Customer focus. The company should know and understand the customers.
 Action-oriented. The company should implement the strategies not just mere
paperwork and plans without action.
 Entrepreneurship. The company exude an entrepreneurial spirit: innovate and
create.
 Simplicity. Managers should be simple and should not make things too complex.
 Stick to what the company knows best. The company should continue in the field
where it excels.
 Value-oriented. The company should respect and motivate its people and in turn,
they will be productive at work.
 Centralize and decentralize. The company centralizes its control but also allows
autonomy in each business unit.

J. Rehfeld (1994) discussed the importance of transformation of knowledge from

various cultures to a management style to compete globally. The Japanese style kaizen had
not been successful in the United States unless it was modified to suit American culture.

The Competitive Edge

CBME 2/gtam/2020 Page 6 of 18

 Gary Hamel and C. K. Prahalad introduced the strategic architecture concept. Part
of this theory is a core competency. It is a detail of what the company has or can do better
than its competitors.
In 1932Dave Packard and Hill Hewlett conceptualized Management by Walking
Around (MbWA). Employees of Hewlett and Packard visited not only customers but also
employees and suppliers. They were building a strategic relationship base with key people
who can be a source or viable strategies for the company. The MbWA was popularized in
1985 by the book of Tom Peters and Nancy Austin.
Japanese managers retaliated with a similar concept which originated in Honda,
called 3Gs: Genba, Genbutsu, and Genjitsu which are translated to: actual place, actual
thing, and actual situation.
Management guru, Michael Porter introduced several concepts: the five forces
analysis, generic strategies, the value chain, and many more. The five forces model
introduced the company to gain sustainable competitive advantage.
In 1993, John Kay improved the value chain concept by putting a financial touch.
Adding value means the difference between the market value of outputs and the cost of
inputs, divided by the firm’s net output. He claimed that a company should have three
capabilities: innovation, reputation, and organizational structure.
The positioning theory was popularized by Al Ries and Jack Trout in the book,
Positioning: The battle for Your Mind in 1979. This means crafting a strategy that would
make the brand/product in the minds of the consumers.
In 1932, Jay Barney discussed that a strategy is a product of resources such as
human, technology, and suppliers and combined in unique ways.
Michael Hammer and James Champy on the other hand, championed engineering
which involves the organization of a firm’s assets around whole processes rather than tasks.
In 1939, Richard Lester identified seven best practices that a company needs to
adapt:
 Continuous improvements in cost, quality, service and product innovation
done on a simultaneous bases;
 Breaking down organizational barriers between departments;
 Eliminating layers of management to make it leaner and simpler;
 Closer relationship with customers and suppliers;
 Intelligent use of new technology;
 Global focus; and
 Improving human resource skills.

Theorists like W. Edwards Deming, Joseph Juran, A. Kearney, Philip Crosby and
Armand Feignbaum developed quality improvement techniques like Total Quality
Management, Continuous Improvement, Lean Manufacturing, Six Sigma, and Return on
Quality.
Another set of theorists advocated customer service as the key to an organization’s
success. These are James Heskett (1988) Earl Sasser (1995), William Davidow, Len
Schlesinger, A Paraugman (1988), Len Berry, Jane Kingman-Brundage, Christopher Hart
and Christopher Lovelock (1994). They provided fishbone diagramming, service charting,
Total Customer Service (TCS), the service profit chain, service gap analysis, service
encounter, strategic service vision, service mapping, and service teams.

CBME 2/gtam/2020 Page 7 of 18

 Process management developed techniques like product quality management. The
sequence of steps enabled the company to eliminate inefficiencies and make the process
more effective.
Carl Sewell, Frederick Reicheld, C. Gronros and Earl Sasser believed in the loyalty
effect among customers. The term is loyalty effect, which Reicheld broadened to include
employee loyalty, supplier loyalty, distributor loyalty, and shareholder loyalty.
These theorists also developed the customer lifetime value. This made customer
service a long-term endeavor, a long-term relationship with customers. This is now better
known as relationship marketing and customer relationship management.
James Gilmore and Joseph Pine had mass customization concept. They explained it
further in the book, The Experience Economy, which allowed for a company to individualize
a product for each customer without losing economies of scale. Bernd Schmitt expanded it
further to customer experience management.
James Collins and Jerry Porras believed in core values that would make the company
last. These core values are seen in the employees who will help build a great company.
Arie de Geus (1997) identified four key traits of companies that have survived for the
last 50 years:
 Sensitivity to the business environment. It is the ability to be attuned with the
forces in the environment.
 Cohesion and identity. It is the ability to build a company with shared vision
and purpose.
 Tolerance and decentralization. It is the ability to build relationships among
the employees and strategic business units.
 Conservative financing. It is the ability to handle financial matters well.

Jordan Lewis used the term alliance strategies. He considered distributors,

suppliers, firms in related industries, and even competitors as strategic partners. The
relationships should endure and be characterized by mutual respect and trust.

Military Theorists
Military theorists popularized the book, The Art of War by Sun Tzu, On War by Von
Clausewitz, and the Little Red Book by Mao Tse Tung which became instant business
classics. They theorized tactical strategies needed to survive and topple the enemy
(competitor). From the book of Mae Tse Tung, came the principles of guerilla warfare. The
marketing books are Business War Games by Barrie James (1984), Marketing Warfare by Al
Ries and Jack Trout (1986) and Leadership Secrets of Attila the Hun by Wess Roberts
(1987).
Philip Kotler, a marketing guru is a well-known proponent of marketing warfare
strategy with his books in marketing management. The theories are divided into offensive
marketing warfare strategies, and guerilla marketing warfare strategies.
In 1993, Moore developed an ecological model of competition, a Darwinian-inspired
strategy wherein strategies coincide with ecological stability.

Strategic Change
In 1970, Alvin Toffler set a trend in strategic management with his book Future
Shock. This was followed by the Third Wave in 1980. He believed in the power of making
the change in order to survive. He did not succumb to complacency and instead explained
what change can do to a company to survive.
CBME 2/gtam/2020 Page 8 of 18
 In 1997, Watts Wacker and Jim Taylor confirmed this upheaval further in the Age of
Access. Jeremy Rifkin (2000) popularized this Age of Access three years later with same
name.
Peter Drucker in 1968 coined the Age of Discontinuity and in 2000, Gary Hamel
discussed strategic decay, which believed that changes are needed no matter how powerful
existing strategies are.
In 1978, Derek Abell described strategic windows, stressing the importance of time in
both the start and end of a particular strategy. In 1989, Charles Handy had strategic drift
which is a gradual and transformational change which is a sudden shift caused by
unforeseen changes in the environment. Andy Grove conceptualized the strategic inflection
point. It is where a new trend is indicated in 2000, Malcolm Gladwell discussed the tipping
point, where a trend takes off.
In 1983, Noel Tichy and Richard Pascale in 1990 propagated the importance of a
company to reinvent itself.
In 1996, Art Kleimer claimed that a company needs to foster a corporate culture to
initiate the change. Adam Slywotsky theorized strategic anticipation, to spot emerging
patterns of changes in the industry and in the environment.
In 1997, Clayton Christensen and Kees van de Heiden developed their own strategies
on change. In 1998, Henry Mintzberg developed strategic planning with five types of
strategies:
 Strategy as plan. Direction, guide, course of action.
 Strategy as play. A maneuver intended to outdo a competitor.
 Strategy as pattern. A consistent pattern of past behavior.
 Strategy as position. Location of brands, products or companies within the
boundaries of consumers.
 Strategy as perspective. Determined by a master strategist.

In 1999, Constantinos Markides discussed strategy formulation and implementation

as continuous. J. Noncrieff stressed strategy dynamics, a combination of planned and
unplanned strategies.
Chaos theory deals with turbulent systems. Axelrod, R., Holland J. and Kelly S. and
Allison M.A. call these systems of multiple actions complex adaptive systems.

Information Technology-Oriented Strategy

Daniel Bell (1985) examined the sociological consequences of information technology.
Gloria Schuck and Shoshana Zuboff identified the psychological facets.
In 1990, Peter Senge collaborated with Arie de Geus and theorized the importance of
the use on information in the success of the organization. Senge identified five components
of a learning organizations.
 Personal responsibility, self-reliance, and mastery. It is always crucial to face
problems and make decisions, or take advantage of opportunities based on the
organization’s capabilities.
 Mental models. There is a need to explore the individual mental capacities of each
one in the organization.
 Shared vision. The visions are cascaded and communicated to all the employees in
the organization.
 Team learning. Employees learn through teams.

CBME 2/gtam/2020 Page 9 of 18

  Systems thinking. It is also called synergy. It is looking at the organization as a
whole rather than per individual employee.

Thomas Stewart uses the term intellectual capital to describe investment of the
organization in knowledge. This comprises of human capital (knowledge of employees),
customer capital (knowledge of customers), and structural capital (knowledge that resides
in the capital itself).
Evans and Wurslet described how industries with a high information component are
transformed. Encarta demolished Encyclopedia Britannica because of its low sales.
Encarta’s product life as of today has also ended. This is because of the information
provided in the internet.
Access to information systems allowed senior managers to take a look on various
strategies to keep up with the competition. The most notable of these strategies are the
balanced scorecard developed by Robert S. Kaplan and David P. Norton.

Psychology of Strategic Management

Henry Mintzberg realized that senior managers deal with unpredictable situations in
1973. On the other hand, John Kotler studied the activities of 15 executives and studied
how they work and make strategic decisions.
Daniel Isenberg in his study of senior managers found that their decisions are mostly
based on intuition. In 1977, Abraham Zaleznik identified the difference between managers
and leaders. Leaders are considered as visionaries, those who inspire. Managers are
concerned with processes, plans, and forms.

End of Chapter Questions:

1. Explain briefly the meaning of SWOT analysis.
2. Differentiate the following: production orientation, sales orientation, and marketing
orientation.
3. Discuss the meaning of strategic change and the theorists behind it.
4.
Assignment: (by group)
Make a term paper on any of the following theorists:
1. Henry Mintzberg
2. Peter Drucker
3. Kenichi Ohmae
4. Peter Senge
5. Michael Porter
6. Philip Kotler
Discuss their lives, theories, books, and management principles.

CBME 2/gtam/2020 Page 10 of 18

Chapter 3

Environmental Scanning
Learning Objectives:
After you have studied this chapter, you should be able to:
1. Enumerate and discuss the market structure;
2. Discuss the five forces model of Michael Porter;
3. Explain the five main P strategies;
4. Define and discuss competitive intelligence; and
5. Know the meaning of SWOT analysis.

Environmental scanning is the process of conducting research through surveys,

observation and other methods, and gathering and analyzing information for the
organization.

External Environment
 Task. The task environment consists of those aspects of the organization that affect the
company itself. Stakeholders –community, creditors, suppliers, customers, competitors
and other organizations.
 Social. The social environment includes the political, legal, economic, sociocultural, and
technological aspects. Political – government rules and regulations (taxes, licenses,
policies on health and sanitation, registration, etc.). There are legal requirements that
the companies should follow.
There are changes in the overall economy where the organization operates. There are
price fluctuations that a company must monitor the prices of its raw materials and other
costs related to the production of the product; to monitor present monetary and fiscal
policies, specifically interest rates or money market rates. Present economic trends
related to the behaviour of primary products and services which may affect the
company’s product or service offerings should be taken into consideration.
There is a clamour also for protecting the environment and the quest for environment-
friendly goods and services.
On the social side, consumer demographics (age, sex, income level, race, employment,
location, home ownership and level of education) are considered.

Market Structure
The role of the market structure is that managers would be able to predict market
outcomes through the extent to competition in the market.
1. Market Concentration. It is the extent or degree to which a relatively small number
of firms account for a relatively large percentage of the market.
2. Entry Barriers. These refer to the difficulties and challenges by potential new
entrants which are entering the market.
3. Product Differentiation. It refers to the degree by which a company is able to
distinguish its product or service to other players in the market as valued by
consumers.
Generally, the more concentrated the number of players are, the higher the
entry barriers. Since there are only few players in the market, they would not want a
potential new company to enter the market which may grab a significant market share.
CBME 2/gtam/2020 Page 11 of 18
Also, the more concentrated the market, the greater the product differentiation
because each player will go out of its way to maintain the market share and make its
product or service offerings more unique and different.

Market Structure based on the Number of Seller in the Market

1. Atomistic. A situation in which perfect competition exists because of the existence
of many small companies. Because there are so many companies, no one is able to
dominate the market or set prices. This results in low profits but also low cost for
clients or consumers.
2. Oligopolistic. Few large sellers have a high level of interaction with one another.
Usually, players in the oligopolistic competition can set their own prices, and
competition is somewhat fierce. These firms prefer not to compete via price wars and
therefore compete in various other ways, such as advertising, product differentiation
and barriers.
3. Monopoly. A market structure characterized by a single seller, selling a unique
product in the market. In a monopoly market, the seller faces no competition, as
he is the sole seller of goods with no close substitute. ... He enjoys the power of
setting the price for his goods. Monopolistic competition is a type of imperfect
competition such that many producers sell products that are differentiated from one
another and hence are not perfect substitutes.
Product Differentiation categories
 Homogeneous products. These are products that are highly identical. The wet
market is usually the popular place for many homogeneous products.
 Differentiated products. These are products differentiated by design, quality,
branding, among others. These are branded products with distinctions on
features, design and quality. Their unique characteristics connote a certain
price.
Ease of Market Entry
 Ease of entry. There are no difficulties in entering market for new entrants.
 Moderately difficult entry. There are barriers but not too difficult for sellers to
monopolize the market.
 Blockaded entry. There are barriers that are too high which potential players
cannot enter. Existing companies could make it difficult for new players to
enter the market.
Understanding Porter's Five Forces
(https://www.mindtools.com/pages/article/newTMC_08.htm)
The tool was created by Harvard Business School professor Michael Porter, to
analyze an industry's attractiveness and likely profitability. Since its publication in 1979, it
has become one of the most popular and highly regarded business strategy tools.
Porter recognized that organizations likely keep a close watch on their rivals, but he
encouraged them to look beyond the actions of their competitors and examine what other
factors could impact the business environment. He identified five forces that make up the
competitive environment, and which can erode your profitability. These are:
1. Competitive Rivalry. This looks at the number and strength of your competitors.
How many rivals do you have? Who are they, and how does the quality of their products
and services compare with yours?
CBME 2/gtam/2020 Page 12 of 18
 Where rivalry is intense, companies can attract customers with aggressive price cuts and
high-impact marketing campaigns. Also, in markets with lots of rivals, your suppliers
and buyers can go elsewhere if they feel that they're not getting a good deal from you.
On the other hand, where competitive rivalry is minimal, and no one else is doing what
you do, then you'll likely have tremendous strength and healthy profits.
2. Supplier Power.  This is determined by how easy it is for your suppliers to increase
their prices. How many potential suppliers do you have? How unique is the product or
service that they provide, and how expensive would it be to switch from one supplier to
another?
The more you have to choose from, the easier it will be to switch to a cheaper alternative.
But the fewer suppliers there are, and the more you need their help, the stronger their
position and their ability to charge you more. That can impact your profit.
3. Buyer Power. Here, you ask yourself how easy it is for buyers to drive your prices
down. How many buyers are there, and how big are their orders? How much would it
cost them to switch from your products and services to those of a rival? Are your buyers
strong enough to dictate terms to you?
When you deal with only a few savvy customers, they have more power, but your power
increases if you have many customers.
4. Threat of Substitution.  This refers to the likelihood of your customers finding a
different way of doing what you do. For example, if you supply a unique software
product that automates an important process, people may substitute it by doing the
process manually or by outsourcing it. A substitution that is easy and cheap to make
can weaken your position and threaten your profitability.
5. Threat of New Entry.  Your position can be affected by people's ability to enter your
market. So, think about how easily this could be done. How easy is it to get a foothold in
your industry or market? How much would it cost, and how tightly is your sector
regulated?
If it takes little money and effort to enter your market and compete effectively, or if you
have little protection for your key technologies, then rivals can quickly enter your market
and weaken your position. If you have strong and durable barriers to entry, then you
can preserve a favourable position and take fair advantage of it.

Competitive Intelligence
It is the act of gathering, analyzing and distributing vast information, coined as
intelligence, about anything that would help competing in the market. It is more concerned
with doing the right thing, than doing the thing right.
Benefits:
 It identifies the company’s possible risks before the company makes an important
decision.
 Opportunities are identified for the company to better manage its resources and
make necessary allotments and priorities for possible new product or service
offerings.
Major Areas of Competitive Intelligence
 Assessment of strategies

CBME 2/gtam/2020 Page 13 of 18

  Perception of competitor strategies
 Effectiveness of current operations
 Capabilities of competitors
 Long term market prospects
The assessment of current operations while looking at long-term market prospects
makes it important for a company to have some knowledge about how competitors behave
in the marketplace.

Figure 1: Porter’s Five Forces Model

These areas operate in three approaches:

Strategic intelligence is being able to understand the competitor’s future prospects and
goals. This also includes the competitors’ major customers and suppliers.
Tactical intelligence is a small-scale intelligence and operational in the short run. This
includes the competitors’ terms of sale, pricing policies, and plans. Information gathered is
usually used by middle-level managers.
Counter intelligence is knowing how to defend company secrets. Competitors are equally
interested in the company’s secrets. Therefore, it has to ensure that company secrets are
not divulged in the wrong places.

SWOT Analysis

CBME 2/gtam/2020 Page 14 of 18

 SWOT Analysis is a basic straightforward model in environmental scanning which
helps the company in identifying four key elements/factors: strengths, weaknesses,
opportunities and threats (Zarate, 2011).

A SWOT analysis focuses on the four elements comprising the acronym, allowing
companies to identify the forces influencing a strategy, action or initiative. Knowing these
positive and negative elements can help companies more effectively communicate what
parts of a plan need to be recognized (www.businessnewsdaily.com/08282018).
Internal factors
The first two letters in the acronym, S (strengths) and W (weaknesses), refer to
internal factors, which means the resources and experience readily available to the
company. Examples of areas typically considered include:
 Financial resources (funding, sources of income, investment opportunities)
 Physical resources (location, facilities, equipment)
 Human resources (employees, volunteers, target audiences)
 Access to natural resources, trademarks, patents and copyrights
 Current processes (employee programs, department hierarchies, software systems)

External factors
External forces influence and affect every company, organization and individual.
Whether these factors are connected directly or indirectly to an opportunity or threat, it is
important to take note of and document each one. External factors typically reference
things you or your company do not control, such as:
 Market trends (new products and technology, shifts in consumer needs)
 Economic trends (local, national and international financial trends)
 Funding (donations, legislature and other sources)
 Demographics
 Relationships with suppliers and partners
 Political, environmental and economic regulations

End of Chapter Questions:

1. Illustrate Porter’s Five Forces Model by coming up with a decision in the following
situation; Teresa is in a dilemma. She has been working for many years as a full-
time office worker in a medium-sized company. Definitely, she will avail of their early
retirement program. With this, she is now in the process of choosing between two
alternatives: start a sari-sari store or buy a farm in Bulacan where her family lives.
Imagine that you are Teresa and come up with the sari-sari store option and then the
farm option using Porter’s model.
2. What is competitive intelligence? How does it fit in the strategic planning process?
3. Use SWOT analysis in assessing yourself.
4. How does SWOT analysis work in a company with small-scale, medium scale, and
multinational corporations? Contrast and compare.
5. Debate on the use and misuse of competitive intelligence as a tool for competitive
advantage.
6. How does Porter’s Five Forces Model fit in to the globalization and latest trends in the
global economy?

CBME 2/gtam/2020 Page 15 of 18

 7. Which among the three structural features of the market is the most important to
consider with the following products: a. service-oriented industries, b.
manufacturing firms, c. pharmaceutical firms?
8. How can the five forces model and the competitive intelligence join forces to come up
with a better strategy?
9. How can competitive intelligence be used with a new product?
10.Recall the product life cycle and explain competitive intelligence based on the
product’s introduction and maturity life cycle.

CBME 2/gtam/2020 Page 16 of 18