STRATEGIC

MANAGEMENT
Concept Of Environment
The Company And Its Environment
 Concept of environment
• According to Keith Davis business environment is “the aggregate of
all conditions events and influences that surround and affect it.”
• Therefore business environment may be understood as the
backgrounds of an enterprise under which it operates and factors
which influence its business decisions. It is complex, dynamic and
challenging.
 THE COMPANY AND ITS ENVIRONMENT

• In the process of formulation of a strategy the company must analyze

the organizations resources capabilities and competence. At the time
of conducting the analysis the following questions need to be
answered.
Purpose of the analysis?
Can the company with its existing
capabilities take an advantage of the Following a course of action different
external opportunities and meet the from rival firms.
threats identified ? Developing strategies giving better
outcome than that of its rivals.
What are the competencies Making it difficult for the other firms to
possessed and deficiencies that duplicate the strategy
need to be addressed ?
DEVELOPME Competi
tive
NT OF Advanta
ge
ORGANIZATI
ON’S Sustained
Market

COMPETITIVE Performance

ADVANTAGE Strategic
Asset:
Company’s
Core
Competencies

Company
Resources
And
Capabilities
 RELATING OPPORTUNITIES AND
RESOURCES OF ENVIRONMENTAL
APPRAISAL
 RELATING OPPORTUNITIES AND RESOURCES OF ENVIRONMENTAL APPRAISAL
INTRODUCTION

Strategic management is concerned with establishing

the proper organization.
It creates environment fit for matching organizational
factors with the environmental factors.
It involves analysis of the organizational strengths and
weakness and the environmental opportunities and
threats.
RELATING OPPORTUNITIES AND RESOURCES OF ENVIRONMENTAL APPRAISAL
INTRODUCTION

Environmental appraisal is the process of

monitoring the organization’s external
environment to identify the opportunities and
threats affecting the strategic decisions of the
organization.
 SITUATION ANALYSIS

Strengths
Weakness
SWOT
Opportunitie Threats
s
 SWOT
strengths weakness opportunities threats

Strong brand image Poor brand image Large , growing Political instability
markets

Quality products Poor quality Growing urban Religious battles

income

Modern technology Obsolete Growth of Terrorist attack

technology consumerism

Motivated poor morale of Liberalization of FDI Cost up

employees employees

Good industrial Excess manpower Export incentives High attrition rate

relations
 SWOT ANALYSIS ON NOKIA
Wide range of products
Financially strong
Strong manpower W
Largest network Price
S Promotion
After sales service

NOKIA
O Growing demand of WLL network
wide range of products Emerging of mobile companies
Increase sales T
Target right people at the right
time
Environmental
Scanning
 Environmental Scanning

Environmental scanning is the monitoring, evaluating

and disseminating of information from the external and
internal environment to key people within the
organization.

Every organization should strike a balance between

environment, values and resources to survive and flourish
in highly competitive and turbulent environment
Need For Environmental Scanning
• For the proper conduct of the business

• To identify the favorable opportunities for starting new ventures

• To predict the future and adjust the operations well in advance

• To study the threats to adjust and revise policies to suit the changing conditions

• To identify existing competitors and their operations and future plans

• To identify the internal weaknesses and thereby reduce them

• To know the claims and expectations of the society

• To determine the input-output relationship

Components of External Environment

Economic Environment
Business
Technical Environment
Environment
Competitive Environment

Political Environment

Demographic Environment

Socio-Cultural Environment

International Environment

Natural Environment
Economic Environment
Those Economic factors which have their affect on the working of the business is
known as economic environment. Economic environment is very dynamic and complex
in nature.

Factors :
• Economic Conditions
• Economic Systems
• Economic policies
• Economic Legislations
Technical Environment
The developments in the field of technology which affects business by new inventions of
productions and other improvements in techniques to perform the business work is the
technical environment.

Factors :
• Technological changes
• New or improved distribution channels
• Improved communication and knowledge transfer etc.
Competitive Environment
The competitive environment of a business is the part of a company's external
environment that consists of other firms trying to win customers in the same market. It
includes all immediate rivals.

Factors :
• Number of product lines
• Competitors price
• Product differentiation
• Quality
• Market share
• Advertising
• Competitive advantage
Political Environment
Government actions which affects the operations of a company or business. These actions
may be on local, regional, national or international level.

Factors :
• Government policies
• Governmental stability
• Government laws
 
Demographic Environment
It refers to the demographic factors of the market in which an organization operates, and
which are used to segment the target population for effective marketing. It includes the
dimensions and dynamics of population.

Factors :
• Population growth rate
• Age composition
• Sex composition
• Education level
• Religion
Socio- Cultural Environment
A set of beliefs, customs, practices and behavior that exists within a population.

Factors :
• Attitudes
• Customs and traditions
• Social institutions
• Class structure
• Expectations
• Desires
• Values
International Environment
It focuses on the fundamental forces of globalization and their implications for the
operations of business organizations.

Factors :
• Trade barriers
• Developments in foreign markets
• Relationship between the countries
• International organizations and groupings
Natural Environment
It refers to the ecological and geological factors that affects the operations and
performance of a business organization.

Factors :
• Resource availability
• Weather and climate conditions
• Topographical factors
• Location aspect in the global context
• Port facilities
PORTER’S FIVE FORCES
MODEL

MONALISHA
 INTRODUCTION

• Founder – Michael E. Porter

• Founded - 1979
• An approach used for developing strategies in many
industries.
• Shapes every industry and every market.
• Analyzes the economic and market forces.
• Determines the intensity of the competition.
• Improves the position of the organization.
• Decision making.
 PORTER’S FIVE FORCES :

1. Bargaining Power of Suppliers

2. Bargaining Power of Customers/Buyer

3. Threat of New Entrants

4. Threat of Substitutes

5. Competitive Rivalry between Existing Players

BURGAINING POWER OF SUPPLIERS
• SUPPLIER CONCENTRATION

• IMPORTANCE OF SALES TO SUPPLIER

• DIFFERENTIATION OF INPUTS

• SWITCHING COSTS FOR FIRMS IN THE INDUSTRY

• PRESENCE OF ALTERNATE INPUTS

• THREAT OF FORWARD INTEGRATION

• COST RELATIVE TO TOTAL PURCHASES BY INDUSTRIES

PORTER’S FIVE FORCES
BARGAINING POWER THREAT OF NEW
OF CONSUMER ENTRANTS
BARGAINING POWER OF CUSTOMERS
INTRODUCTION
 DETERMINING FACTORS
BUYER’S POWER IS HIGH\LOW IF:
BUYERS\SELLERS BUYER SWITCHING COST
CONCENTRATION
 DETERMINING FACTORS
BUYER’S POWER IS HIGH\LOW IF:
PRODUCT DIFFERENTIATION  SUBSTITUTES
 DETERMINING FACTORS
BUYER’S POWER IS HIGH\LOW IF:
PRODUCT KNOWLEDGE IMPORATNCE
 DETERMINING FACTORS
BUYER’S POWER IS HIGH\LOW IF:
SELF PRODUCTION PRICE SENSITIVITY
 INTERPRETATION

GREATER
PROFITABILITY
ATTRACTIVE
INDUSTRY

LOWER
BARGAINING
POWER
BARGAINING POWER
THREAT OF NEW ENTRANTS
INTRODUCTION
 DETERMINING FACTORS
BARRIERS TO ENTRY:
ECONOMIES OF SCALE RAW MATERIALS
 DETERMINING FACTORS
BARRIERS TO ENTRY:
INTELLECTUAL PROPERTY CUSTOMER RELATIONS AND
BRAND LOYALTY
 DETERMINING FACTORS
BARRIERS TO ENTRY:
CONSUMER SWITCHING ACCESSING DISTRIBUTION
COST CHANNELS
 DETERMINING FACTORS
BARRIERS TO ENTRY:
GOVERNMENT POLICY INITIAL CAPITAL
INVESTMENT
 INTERPRETATION

GREATER
PROFITABILITY
ATTRACTIVE
INDUSTRY

LOW THREAT
OF NEW
ENTRANTS
PORTER’S 5 FORCES
 THREAT OF SUBSTITUTES
SUBSTITUTES OF DAIRY MILK:

SOY MILK DAIRY MILK ALMOND MILK RICE MILK COCONUT MILK
• SUBSTITUTE = products in other industries
• Products demand = price change of a substitute
product
• Product’s price elasticity is affected by substitute
products.
• Threat exists from alternative products with
lower prices of better performance parameters.

JAGGERY

MOLASSES

ARTIFICIAL
SWEETNERS
 Threat of substitutes is determined by:
• Brand loyalty of customers
• Close customer relationships
• Switching costs for customers
• The relative price for performance of
substitutes
• Current trends
SUBSTITUTES FOR APPLE PRODUCTS
 COMPETITIVE RIVALRY BETWEEN
EXISTING PLAYERS
Competition is likely to be high when:
• There are many players of about the same size

• Not much differentiation between players and

products.
• Players have similar strategies

• Low market growth rates

• Barriers for exit are high

 COMPETITIVE MOVES

• Changing prices

• Improving product differentiation

E- BIKE
• Creatively using channels of distribution

• Exploiting relationships with customers

 Intensity of rivalry is influenced by the
following industry characteristics:
• A large number of firms

• Slow market growth

• High fixed costs
• High storage costs or highly perishable
products

• Low switching costs

• Low levels of product differentiation

• Strategic stakes are high

• High exit barriers
• A diversity of rivals
• Industry shakeout
EXISTING RIVALRY OF APPLE
Strategic Focus Group

Chapter 3
 Definition : Strategic Focus group
• A strategic group is group of firms in an industry following the
same or a similar strategy along the strategic dimensions.”
(Porter M E, 1980)

Segmentation - based on product

markets but
Strategic focus groups uses firms
characteristics as the basis for

Amul is an Indian Dairy industry that is based

out in Anand, Gujarat. Established in the year
1948, this popular brand is managed by the
Gujarat Co-operative Milk Marketing
Federation (GCMMF) 
Strategic Focus group
 Strategic Focus group
• Strategic groups are not the same as market
segments or segmentation strategies, but are viewed
from the perspective of strategic positioning.
Firms in a strategic group resemble each other in different
ways:
•they pursue similar broad strategies.
•they tend to have similar characteristics (e.g. size, skills).
• they tend to have similar market shares.
•they tend to respond to external events or competitive
manoeuvres in similar ways.
 Strategic Focus group
• On the extremes, an industry may be made up of
one strategic group if all industry players
– pursue similar strategies; or each firm may be
considered a “strategic group” if each industry
– player pursues unique strategies.

• · A strategic group map is normally used as an analytical tool of strategic

groups
 Strategic Focus group
• Strategic Groups And Implications For Strategy
– The following are some of the firm is faced by a choice as to
which strategic group to compete in.
– Normally a firm’s close competitors are those in its strategic
group.
– Different strategic groups have different structural attractiveness
basing on Porter’s five forces framework of competition.
– The following may be sources of opportunities to a firm in a
strategic group:
– Creating a new strategic group.
– Shifting to a more favourably situated strategic group
•
 Strategic Focus group
• Strengthening the structural position of the
existing strategic group or the firm’s position in the
group.
• Moving to a new group and improving the group’s
structural positioning.
• The following may be sources of risks faced by a
firm in a particular strategic group.
• Risks of other firms entering its strategic group.
• Risks of factors worsening the firm’s strategic
group, e.g. threats from substitutes, high supplier
 Competitor Analysis
• Purpose
– to forecast competitors’ future strategies and decisions.
– to predict competitor’s likely reactions to a firm’s
strategy and competitive initiatives.
– to determine how competitive behaviour can be
influenced to the benefit of the initiating
– firm.
 Competitor Analysis
• Questions it answers
• Who are our competitors?
• What are the competitors’ objectives?
• What are the competitors’ strategies?
• What are the competitors’ assumptions?
• What are the competitors’ strengths and
weaknesses?
 Process of Competitor Analysis
1.Identifying Competitors
• Competition to a firm comes in different ways.
• Kotler (1997) identifies four levels of competition based on the degree
of product substitution:
• Brand competition
– e.g. Toyota Corolla Vs Nissan Sunny, Mercedes Vs BMW.
• Industry Competition
– e.g. FMCG Industry.
• Form Competition
– e.g. passenger transport -competition between ETs, buses, planes etc.
• Generic Competition
• Defined from the broadest possible view i.e. competing against
• all the firms fighting for the same dollar of the consumer.
 Competitor Analysis
• 2. Identifying Competitors’ Objectives
• The main objective is profit maximization.
• However, there is an array of others which are
weighted
• differently:
• cash flow
• technological leadership
• market share growth/expansion
• service leadership
 Competitor Analysis

3.Identifying Competitors’ Strategies

• Competitor strategies may be identified by what
the competitor say (intended strategies) and does
(realised strategies).

4. Identifying Competitors’ Assumptions

• It is important to find out what each competitor’s
assumptions are about itself, the industry and
other companies.
Competitor Analysis
5. Identifying And Evaluating Competitor
Strengths And Weaknesses
• This is important as it will reveal the extent to
which the competitor is a threat to firm.
• · Benchmarking can be a good way of trying to
identify a firms strengths and weaknesses
• compared to competitors’.
Competitor Analysis
THANK YOU
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