Strategic

Manageme
nt
Subject Code : 2830001
Module 1
Strategic Management An Introduction
Module 2
Strategy Formulation
Module 3
Strategy Implementation
Module 4
Strategic Control
Module 1
Strategic Management An
Introduction
Introduction and Models
External Environmental Analysis
Internal Environmental Analysis
Thinking Strategically: The Three Big
Strategic Questions
1. What is our present situation?
Industry conditions, Companys current financial position
Market standing, its resources and capabilities
Competitive strengths and weaknesses etc.
2. Where do we want to go from here?
Business(es) to be in and market positions to stake out
Buyer needs and groups to serve
Outcomes to achieve
Thinking Strategically: The Three Big
Strategic Questions

3. How are we going to get there?

A companys answer to how
will we get there? is its strategy.
 Vision and Mission
Vision
A enduring picture of what the firm wants to be
and, in broad terms, what it wants to ultimately
achieve.
Stretches and challenges people and evokes
emotions and dreams.
Effective vision statements are:
Developed by a host of people from across the
organization.
 Vision and Mission (contd)
Mission
Specifies the business or businesses in which the firm
intends to compete and the customers it intends to serve.
Is more concrete than the firms vision.
Is more effective when it fosters strong ethical standards.

Above-average returns are the fruits of the firms

efforts to achieve its vision and mission.
What Is Strategy?
Consists of the combination of competitive moves
and business approaches used by managers to
compete successfully, improve performance and grow
the business.
Strategy is about competing differently from rivals
doing what competitors dont do or even better, doing
what they cant do.
Every strategy needs a distinctive element that affects
customers and produces a competitive edge.
The Hows That
Define a Firm's Strategy
How to please customers
How to respond to changing Strategy
market conditions is HOW
to . . .
How to outcompete rivals
How to grow the business
How to manage each functional piece of the business
and develop needed organizational capabilities
How to achieve strategic and financial objectives
Identifying a companys Strategy -
what to look for
The pattern of actions and business
approaches that define a companys strategy
like..
Actions to gain sales and market share via more
performance features, more appealing design, better
quality or customer service or other such actions.
Actions to strengthen the firms bargaining position
with suppliers, distributors and other.
Actions to upgrade, build or acquire competitively
important resources and capabilities.
Actions and approaches used in managing different
departments and key functions.
Identifying a companys Strategy -
what to look for
Actions to gain sales and market share with
lower prices based on lower cost.
Actions to strengthen competitiveness via
strategic alliances and collaborative
partnerships.
Actions to strengthen market standing and
competitiveness by acquiring or merging with
other companies.
Actions to enter new product or geographic
markets or to exit existing ones.
Striving for
Competitive Advantage
To achieve sustainable competitive advantage, a
companys strategy usually must be aimed at either
Providing a distinctive product or service or
Developing competitive capabilities rivals can not match
Achieving a sustainable competitive advantage greatly
enhances a companys prospects for
Winning in the marketplace and
Realizing above-average profits

What separates a powerful strategy from an ordinary strategy

is managements ability to create a series of moves,
both in the marketplace and internally, that
produces sustainable competitive advantage!
 Strategic Approaches to Building
Competitive Advantage

Strive to be the industrys low-cost provider

for eg. Big Bazar and Indigo airlines in India..
Outcompete rivals on a key differentiating
feature like quality, wider product selection, added
performance, value added services, more attractive
styling or technological superiorityfor eg. Apple
Innovative, Rolex-Prestige, Samsung-Variety, SBI-
Reliability
 Strategic Approaches to Building
Competitive Advantage

Focus on a narrow market niche, doing a

better job than rivals of serving the unique
needs of niche buyers for eg. Sugarfree
tablets, SBI Kohinoor Banking, Himalaya herbal, Star
cricket, TGB caf piano mid night buffet
Develop expertise, resource strengths, and
capabilities not easily imitated by rivals for
eg. Eye Q hospital on the basis of expertise of their
doctors, Reliance on the basis of resources etc
A Companys Strategy Is Partly Proactive
and Partly Reactive
Strategic Management Process
Study the external and internal environments.
Identify marketplace opportunities and threats.
Determine how to use core competencies.
Use strategic intent to leverage resources,
capabilities and core competencies and win
competitive battles.
Integrate formulation and implementation of
strategies.
Seek feedback to improve strategies.
Why Do Strategies Evolve?
A companys strategy is a work in progress
Changes may be necessary to react to
Fresh moves of competitors
Evolving customer preferences
Technological breakthroughs
Shifting market conditions
Crisis situations
Stakeholders
Individuals and groups who can affect,
and are affected by, the strategic
outcomes achieved and who have
enforceable claims on a firms
performance.
Stakeholder Involvement
Two issues affect the extent of stakeholder involvement
in the firm:
How to divide returns
to keep stakeholders
involved?
How to increase
returns so everyone
has more to share?
The Three Stakeholder Groups
Stakeholders
Capital Market Capital Market
Stakeholders Stakeholders
Shareholders
Major suppliers of
capital
Banks
Private lenders
Venture capitalists
Capital Market Stakeholders
Shareholders and lenders expect the firm to
preserve and enhance the wealth they have
entrusted to it.
Want the return on their investment (and, hence, their
wealth) to be maximized.
Expect returns to be commensurate with the degree of
risk to the shareholder.
Management must balance the interests of
shareholders and lenders with its concerns for
the firms future competitive ability.
Stakeholders (contd)
Capital Market
Stakeholders

Product Market Product Market

Stakeholders Stakeholders
Customers
Suppliers
Host communities
Unions
 Product Market Stakeholders
Customers
Demand reliable products at low prices
Suppliers
Seek loyal customers willing to pay highest sustainable prices for
goods and services
Host communities
Want companies willing to be long-term employers and providers
of tax revenues while minimizing demands on public support
services
Union officials
Want secure jobs and desirable working conditions
Stakeholders (contd)
Capital Market
Stakeholders

Product Market
Stakeholders

Organizational Organizational
Stakeholders Stakeholders
Employees
Managers
Nonmanagers
Organizational Stakeholders
Employees
Expect a dynamic, stimulating and rewarding work
environment.
Are satisfied by a company that is growing and
actively developing their skills.
 What Is a Business Model?
A companys business model is managements
blueprint for delivering a valuable product or service
to customers in a manner that will generate ample
revenues to cover costs and yield an attractive profit.
Two Important elements of business model are.
Customer Value Proposition lays out the
companys approach to satisfy buyer wants and needs
at a price customer will consider a good value.
The profit formula describes the companys
approach to determine a cost structure that will allow
acceptable profits
Relationship Between Strategy and
Business Model
Strategy - Deals with
a companys Business Model
competitive initiatives -Concerns whether
and business revenues and costs
approaches flowing from the
strategy
demonstrate the
business can be
amply profitable and
viable
Tests of a Winning Strategy
Three tests can be applied to determine
whether a strategy is a winning
strategy or not
THE FIT TEST
How well does the strategy fit the firms situation?
The winning strategy should exhibit good external fit and
is in sync with prevailing market conditions..
At the same time, it has to be tailored to the companys
resources and competing capabilities.
Tests of a Winning Strategy
COMPETITIVE ADVANTAGE TEST
Does strategy lead to sustainable competitive
advantage?
More importantly it has to be durable in nature.
PERFORMANCE TEST
Does strategy boost firm performance?
Above average financial performance or gains in
market share, competitive position or profitability
are signs of winning strategy.
Other Criteria for Judging the Merits
of a Strategy
Internal consistency and unity among all
pieces of the strategy
Degree of risk the strategy poses as
compared to alternative strategies
Degree to which the strategy is flexible
and adaptable to changing circumstances
Good Strategy Formulation + Good Strategy Execution
= Good Management

Crafting and executing strategy are core management

functions
Among all things managers do, nothing affects a
companys ultimate success or failure more fundamentally
than how well its management team
Charts the companys direction,
Develops competitively effective strategic moves and business
approaches, and
Pursues what needs to be done internally to produce good day-
in/day-out strategy execution
 Important Definitions
Risk
An investors uncertainty about the economic gains or
losses that will result from a particular investment
Average Returns
Returns equal to those an investor expects to earn from
other investments with a similar amount of risk.
Above-average Returns
Returns in excess of what an investor expects to earn
from other investments with a similar amount of risk.
I/O (Industrial Organization) Model of
Above-Average Returns
Dominance of the External Environment
The industry in which a firm competes has a stronger
influence on the firms performance than do the choices
managers make inside their organizations.
Industry Properties Determining Performance
Economies of scale
Barriers to market entry
Diversification
Product differentiation
Degree of concentration of firms in the industry
Four Assumptions of the I/O
Model
External environment imposes pressures and constraints that
1
determine strategies leading to above-average returns.

Most firms competing in an industry control similar

2
strategically relevant resources and pursue similar strategies.

Resources used to implement strategies are highly mobile

3
across firms.

Organizational decision makers are assumed to be rational

4 and committed to acting in the firms best interests (profit-
maximizing).
I/O Model of Above-Average
Returns
External Environments 1. Strategy is dictated by
the external
General
environment of the
Global
firmwhat
opportunities exist in
Industry these environments?
Environment
2. Firm develops internal
skills required by
Competitor external environment
Environment
what can the firm
do about the
Technological
opportunities?
Environment
Industrial Organization Model
The External Environment 1. Study the external
environment, especially
the industry environment:
Economies of scale
Barriers to market entry
Diversification
Product differentiation
Degree of concentration
of firms in the industry
Industrial Organization Model
The External Environment

Attractive Industry 2. Locate an attractive

industry with a high
potential for above-
average returns.
Attractive industry:
One whose structural
characteristics suggest
above-average returns.
Industrial Organization Model

The External Environment

Attractive Industry

Strategy Formulation 3. Identify the strategy called

for by the attractive
industry to earn above-
average returns.
Strategy formulation:
Selection of a strategy
linked with above-average
returns in a particular
industry.
Industrial Organization Model

The External Environment

Attractive Industry

Strategy Formulation

Assets and Skills 4. Develop or acquire assets

and skills needed to
implement a chosen
strategy.
Assets and skills: those
assets and skills required to
implement a chosen
strategy.
Industrial Organization Model
The External Environment

Attractive Industry

Strategy Formulation

Assets and Skills

Strategy Implementation 5. Use the firms strengths

(its developed or acquired
assets and skills) to
implement the strategy.
Strategy implementation:
select strategic actions
linked with effective
implementation of the
chosen strategy.
Industrial Organization (I/O) Model
The External Environment

Attractive Industry

Strategy Formulation

Assets and Skills

Strategy Implementation

Superior Returns

Superior returns: earning

above-average returns
The Resource-Based Model of Above-Average Returns

Model Assumptions
Each organization is a collection of unique
resources and capabilities that provides the
basis for its strategy and that is the primary
source of its returns.
Capabilities evolve and must be managed
dynamically.
Differences in firms performances are due
primarily to their unique resources and
capabilities rather than structural
Resource-Based Model of Above-
Average Returns
1. Strategy is dictated by
the firms unique
resources and
Resources capabilities.

Capabilities
2. Find an environment in
which to exploit these
assets (where are the
Competitive Advantage
Core Competencies
Strategy:
best opportunities?)

Environment
Environment
Resources and Capabilities
Capabilities
Resources
Inputs into a firms
production process:
Capital equipment
Skills of individual
employees
Patents
Finances
Talented managers
Capacity of a set of
resources to perform
in an integrative
manner
A capability should
not be:
So simple that it is
highly imitable.
So complex that it
defies internal
steering and
control.
Resource-Based Model (contd)
Resources
1.Identify the firms
Resources: inputs into a resources
firms production process
strengths and
weaknesses
compared with
competitors
Resource-Based Model (contd)
Resources
2. Determine the firms
Capability
capabilitieswhat it
Capability: capacity of an can do better than its
integrated set of resources competitors.
to integratively perform a
task or activity.
Resource-Based Model (contd)
Resources

Capability
3. Determine the potential
Competitive Advantage of the firms resources
and capabilities in terms
Competitive advantage: of a competitive
ability of a firm to advantage.
outperform its rivals.
Resource-Based Model (contd)
Resources

Capability

Competitive Advantage

Attractive Industry 4. Locate an attractive

industry.
Attractive industry: an
industry with opportunities
that can be exploited by the
firms resources and
capabilities.
Resource-Based Model (contd)
Resources

Capability

Competitive Advantage

Attractive Industry

Strategy Formulation 5. Select a strategy that

and Implementation best allows the firm to
utilize its resources
Strategy formulation and capabilities
and implementation: relative to
strategic actions taken opportunities in the
to earn above average
external environment.
returns.
Resource-Based Model (contd)
Resources

Capability

Competitive Advantage

Attractive Industry

Strategy Formulation
and Implementation

Superior Returns

Superior returns:
earning above-average
returns
 Why Two Models?
Industrial Organization Resource-Based Model
(I/O) Model
Focuses on the inside
Focuses on the
of the firm
environment outside the
firm.

Successful strategy formulation and implementation

actions result only when the firm properly uses both
models.
 EXTERNAL
ENVIRONMENTAL
ANALYSIS
Analysis of the External
Environments
General environment
Focused on the future
Industry environment
Focused on factors and conditions influencing a firms
profitability within an industry
Competitor environment
Focused on predicting the dynamics of competitors actions,
responses and intentions
The External Environment
The General Environment: Segments
and Elements
 Competitor Analysis

Gathering and interpreting information about all

of the companies that the firm competes
against.

Understanding the firms competitor

environment complements the insights provided
by studying the general and industry
environments.
Opportunities and Threats
Opportunity
A condition in the general environment
that, if exploited, helps a company achieve
strategic competitiveness.
Threat
A condition in the general environment that
may hinder a companys efforts to achieve
strategic competitiveness.
Industry Environment Analysis
Industry Defined
A group of firms producing products that
are close substitutes
Firms that influence one another
Includes a rich mix of competitive strategies
that companies use in pursuing strategic
competitiveness and above-average returns
The Five Forces of Competition Model by Michael Porter
1. Intensity of Rivalry Among
Competitors
Industry rivalry increases when:
There are numerous or equally balanced competitors.
Industry growth slows or declines.
There are high fixed costs or high storage costs.
There is a lack of differentiation opportunities or low
switching costs.
When the strategic stakes are high.
When high exit barriers prevent competitors from
leaving the industry.
2. Threat of New Entrants : Barriers
to Entry
Economies of Scale
Marginal improvements in efficiency that a
firm experiences as it incrementally increases
its size
Flexibility in pricing and market share
Costs related to scale economies
Barriers to Entry (contd)
Switching Costs

One-time costs customers

Product differentiation
Unique products
Customer loyalty
Products at competitive
prices
Capital Requirements
Access to Distribution Channels
Physical facilities
Inventories
Marketing activities
Availability of capital
incur when they buy from a
different supplier
New equipment
Retraining employees
Psychic costs of ending a
relationship
Stocking or shelf space
Price breaks
Cooperative advertising
allowances
 Barriers to Entry (contd)

Cost Disadvantages
Independent of Scale Expected revenge
Proprietary product
technology
Responses by existing
Favorable access to raw competitors may
materials depend on a firms
Desirable locations present stake in the
Government policy industry (available
business options)
Licensing and permit
requirements
Deregulation of industries
3. Bargaining Power of Suppliers
Supplier power increases when:
Suppliers are large and few in number.
Suitable substitute products are not available.
Individual buyers are not large customers of suppliers and there
are many of them.
Suppliers goods are critical to the buyers marketplace success.
Suppliers products create high switching costs.
Suppliers pose a threat to integrate forward into buyers industry.
4. Bargaining Power of Buyers
Buyer power increases when:
Buyers are large and few in number.
Buyers purchase a large portion of an industrys total
output.
Buyers purchases are a significant portion of a
suppliers annual revenues.
Buyers switching costs are low.
Buyers can pose threat to integrate backward into
the sellers industry.
5. Threat of Substitute Products
The threat of substitute products increases when:
Buyers face few switching costs.
The substitute products price is lower.
Substitute products quality and performance are
equal to or greater than the existing product.
Differentiated industry products that are
valued by customers reduce this threat.
Interpreting Industry Analyses
Low entry barriers

Suppliers and
buyers have strong
positions Unattractive
Strong threats Industry
from substitute
products
Intense rivalry
Low profit potential
among
competitors
Interpreting Industry Analyses
(contd)
High entry
barriers
Suppliers and
buyers have weak
positions Attractive
Few threats from Industry
substitute
products
Moderate rivalry
among High profit potential
competitors
Strategic Groups
Strategic Group Defined
A set of firms emphasizing similar strategic
dimensions and using similar strategies
Internal competition between strategic group firms is
greater than between firms outside that strategic
group.
They have..
Similar market positions
Similar products
Similar strategic actions
Strategic Groups
Strategic Dimensions
Extent of technological leadership
Product quality
Pricing Policies
Distribution channels
Customer service
Competitor Analysis
Competitor Intelligence
The ethical gathering of needed information and
data that provides insight into:
A competitors direction (future objectives)
A competitors capabilities and intentions (current
strategy)
A competitors beliefs about the industry (its
assumptions)
A competitors capabilities
Competito
r Analysis
Componen
ts
What Are the Key Factors for Competitive Success?

KSFs are competitive elements that most

affect every industry members ability to
prosper in the marketplace
Specific strategy elements
Product attributes
Resources
Competencies
Competitive capabilities
KSFs spell difference between
Profit and loss
Competitive success or failure
Identifying Industry Key Success Factors

Answers to three questions pinpoint KSFs

On what basis do customers choose between competing
brands of sellers?
What must a seller do to be competitively successful --
what resources and competitive capabilities does it
need?
What does it take for sellers to achieve a sustainable
competitive advantage?

KSFs consist of the 3 - 5 really major determinants

of financial and competitive success in an industry
KSFs for Apparel
Manufacturing Industry
Fashion design -- to create buyer
appeal
Low-cost manufacturing efficiency --
to keep selling prices competitive
KSFs for Tin and Aluminum Can Industry

Locating plants close to end-use

customers -- to keep costs of shipping
empty cans low
Ability to market plant output within
economical shipping distances
 Driving Forces

Driving forces are the

major underlying causes
of changing industry and
competitive conditions

Industries change because forces

are driving industry participants
to alter their actions
Strategic Management Principle
A sound strategy incorporates

efforts to be competent on all

industry key success factors

and to excel on at least one

factor!
 INTERNAL
ENVIRONMENT
AL ANALYSIS
Outcomes from External and Internal
Environmental Analysis

Examine opportunities Examine unique

and threats resources, capabilities,
and competencies
(sustainable competitive
advantage)
 SWOT ANALYSIS
S W
S W O T represents the first letter in
S trengths
O T
W eaknesses
O pportunities
T hreats
For a companys strategy to be well-conceived, it must be
Matched to its resource strengths and weaknesses
Aimed at capturing its best market opportunities and erecting
defenses against external threats to its well-being
Steps of SWOT Analysis
Components of Internal Analysis
Resources, Capabilities and Core
Competencies
Resources
Are the source of a
firms capabilities
Are broad in scope
Cover a spectrum of
individual, social and
organizational
phenomena
Alone, do not yield a
competitive
advantage
Resources, Capabilities and Core
Competencies
Resources
Are a firms assets,
including people and
the value of its brand
name
Represent inputs into a
firms production
process, such as:
Capital equipment
Skills of employees
Brand names
Financial resources
Talented managers
Resources, Capabilities and Core
Competencies
Resources
Tangible resources
Financial resources
Physical resources
Technological resources
Organizational resources
Intangible resources
Human resources
innovation resources
Reputation resources
Tangible Resources
Financial Resources The firms borrowing capacity
The firms ability to generate internal
funds
Organizational Resources The firms formal reporting structure
and its formal planning, controlling,
and coordinating systems
Physical Resources Sophistication and location of a firms
plant and equipment
Access to raw materials
Technological Resources Stock of technology, such as patents,
trade-marks, copyrights, and trade
secrets
Intangible Resources
Human Resources
Knowledge
Trust
Managerial capabilities
Organizational routines

Innovation Resources Ideas

Scientific capabilities
Capacity to innovate

Reputational Resources 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
Resources, Capabilities and Core
Competencies
Capabilities
Are the firms capacity to
deploy resources that have
been purposely integrated to
achieve a desired end state
Emerge over time through
complex interactions among
tangible and intangible
resources
Often are based on
developing, carrying and
exchanging information and
knowledge through the firms
human capital
Resources, Capabilities and Core
Competencies
Capabilities
The foundation of many
capabilities lies in:
The unique skills and
knowledge of a firms
employees
The functional expertise
of those employees
Capabilities are often
developed in specific
functional areas or as
part of a functional area
Capabilities
Functional Area Capabilities Example of Firm
Distribution Effective use of Logistic Wal mart
& management technique
and
MIS Effective and efficient
control of inventories
through point of purchase
data collection method
Human Resources Motivating, empowering and Microsoft
retaining employees
Marketing Effective promotion of brand Gillette, McKinsey & co.
name and products
Management Effective organisational PepsiCo
structure
Manufacturing Designing and producing Sony, Samsung
& reliable products
Research and
Resources, Capabilities and Core
Competencies
Core Competencies
Resources and capabilities
that serve as a source of a
firms competitive
advantage:
Distinguish a company
competitively and reflect its
personality
Emerge over time through an
organizational process of
accumulating and learning
how to deploy different
resources and capabilities
Resources, Capabilities and Core
Competencies
Core Competencies
Activities that a firm
performs especially well
compared to competitors
Activities through which
the firm adds unique value
to its goods or services
over a long period of time
Conditions Affecting Managerial Decisions
about Resources, Capabilities and Core
Competencies
Competitive Advantage
Firms achieve strategic competitiveness and
earn above-average returns when their core
competencies are effectively
Acquired
Bundled
Leveraged
Over time, the benefits of any value-creating
strategy can be duplicated by competitors
Competitive Advantage (contd)
Sustainability of a competitive advantage is
a function of
The rate of core competence obsolescence
due to environmental changes
The availability of substitutes for the core
competence
The difficulty competitors have in
duplicating or imitating the core competence
Building Sustainable Competitive
Advantage
Four Criteria of
Sustainable
Competitive
Advantage
Valuable
Rare
Costly to imitate
Nonsubstituable
Building Sustainable Competitive
Advantage
Valuable capabilities
Help a firm neutralize
threats or exploit
opportunities
Rare capabilities
Are not possessed by
many others
Building Sustainable Competitive
Advantage
Costly-to-Imitate
Capabilities
Historical
A unique and a valuable
organizational culture or
brand name
Social complexity
Interpersonal
relationships, trust, and
friendship among
managers, suppliers, and
customers
Building Sustainable Competitive
Advantage
Nonsubstitutable
Capabilities
No strategic equivalent
Outcomes from Combinations of the Criteria for
Sustainable Competitive Advantage
Competencies vs. Core Competencies vs.
Distinctive Competencies

A competence is the product of organizational learning

and experience and represents real proficiency in
performing an internal activity
A core competence is a well-performed
internal activity central (not minor or incidental)
to a companys competitiveness and profitability
A distinctive competence is a competitively valuable
activity a company performs better than its rivals
Key Indicators of How Well the Strategy Is Working

Trend in sales and market share

Acquiring and/or retaining customers
Trend in profit margins
Trend in net profits, ROI, and EVA
Overall financial strength and credit ranking
Efforts at continuous improvement activities
Trend in stock price and stockholder value
Image and reputation with customers
Leadership role(s) Technology, quality, innovation, e-
commerce, etc.
 The Concept of Value
Chain

A companys business consists of all

activities undertaken in designing,
producing, marketing, delivering, and
supporting its product or service
A companys value chain consists of a
linked set of value-creating activities
performed internally
Value Chain Analysis (contd)
Primary activities involved with:
A products physical creation
A products sale and distribution to buyers
The products service after the sale
Support activities
Provide the support necessary for the primary
activities to take place
Value Chain Analysis (contd)
Value chain
Shows how a product moves from raw-material stage
to the final customer
To be a source of competitive advantage, a
resource or capability must allow the firm:
To perform an activity in a manner that is superior to
the way competitors perform it, or
To perform a value-creating activity that competitors
cannot complete
The Basic Value
Chain

Human Resource Management

Service

Technological Development
Marketing and Sales

Firm Infrastructure
Outbound Logistics

Procurement
Operations

Inbound Logistics
 The Value-Creating Potential of Primary Activities

Inbound logistics
Activities used to receive, store, and disseminate inputs to
a product (materials handling, warehousing, inventory
control, etc.)
Operations
Activities necessary to convert the inputs provided by
inbound logistics into final product form (machining,
packaging, assembly, etc.)
Outbound logistics
Activities involved with collecting, storing, and physically
The Value-Creating Potential of Primary
Activities
Marketing and sales
Activities completed to provide means through which
customers can purchase products and to induce them
to do so (advertising, promotion, distribution
channels, etc.)
Service
Activities designed to enhance or maintain a
products value (repair, training, adjustment, etc.)

Each activity should be examined relative

 The Value-Creating Potential of
Primary Activities: Support

Procurement
Activities completed to purchase the inputs needed to
produce a firms products (raw materials and supplies,
machines, laboratory equipment, etc.)
Technological development
Activities completed to improve a firms product and the
processes used to manufacture it (process equipment,
basic research, product design, etc)
Human resource management
Activities involved with recruiting, hiring, training,
 The Value-Creating Potential of
Primary Activities: Support (contd)

Firm infrastructure
Activities that support the work of the entire value chain
(general management, planning, finance, accounting,
legal, government relations, etc.)
Effectively and consistently identify external opportunities and
threats
Identify resources and capabilities
Support core competencies

Each activity should be examined relative to

Outsourcing
The purchase of a value-creating activity from
an external supplier
Few organizations possess the resources and
capabilities required to achieve competitive
superiority in all primary and support activities
By forming and emphasizing fewer
capabilities
A firm can concentrate on those areas in which it
can create value
Specialty suppliers can perform outsourced
Outsourcing Decisions
A firm may
outsource all or
only part of one
or more primary

Human Resource Management

and/or support Service

Technological Development
activities.
Outsourced Marketing and Sales
activity

Firm Infrastructure
Outbound Logistics

Procurement
Operations

Inbound Logistics
Strategic Rationales for
Outsourcing
Improve business focus
Lets a company focus on broader business
issues by having outside experts handle various
operational details
Provide access to world-class capabilities
The specialized resources of outsourcing
providers makes world-class capabilities
available to firms in a wide range of applications
 Strategic Rationales for Outsourcing
(contd)
Accelerate business re-engineering benefits
Achieves re-engineering benefits more quickly by
having outsiderswho have already achieved world-
class standardstake over process
Sharing risks
Reduces investment requirements and makes firm
more flexible, dynamic and better able to adapt to
changing opportunities
Frees resources for other purposes
Redirects efforts from non-core activities toward those
that serve customers more effectively
 Outsourcing Issues
Evaluating resources and capabilities
Do not outsource activities in which the firm itself can
create and capture value
Environmental threats and ongoing tasks
Do not outsource primary and support activities that are
used to neutralize environmental threats or to complete
necessary ongoing organizational tasks
Nonstrategic team of resources
Do not outsource capabilities that are critical to the firms
success, even though the capabilities are not actual sources
of competitive advantage
Firms knowledge base
Cautions and Reminders
Never take for granted that core competencies will
continue to provide a source of competitive
advantage
All core competencies have the potential to
become core rigidities
Core rigidities are former core competencies that
now generate tiredness and poor innovation
Determining what the firm can do through
continuous and effective analyses of its internal
environment increases the likelihood of long-term
Now you should be able to
explain..
Vision Capabilities
Mission Core Competences
Strategy
Competitive Advantage
Proactive
Competitive Disadvantage
Reactive
Sustainable Com Adv
Stakeholders
External Environment
Business model
Above average return Opportunities

I/O Model Threats

Resource based Model Rivalry
Resources Bargaining power
Substitute
Now you should be able to
explain..
Strategic Group Value Chain
Competitor Analysis Outsourcing
Key Success Factors (KSF)
Driving Forces
Internal Environment
Strength
Weakness
Valuable
Rare
Costly to imitate
Non substitutable