St.

Mary’s University
School of Graduate Studies
Course Name: Strategic Management
Credit Hrs: Two (2)
Total Chapters: Seven (7)
Evaluation Modality:
Article Review (15%)
Strategy Development and Presentation ((20
doc + 15 presentation)=35)
Final Exam (50%)
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 •

CHAPTER ONE

THE NATURE OF STRATEGIC

MANAGEMENT
 Nowadays competitiveness is major
challenges for organizations.
What is the purpose of Business
Organization ?
To provide a match b/n what customers want
and what organizations are able to supply

What is difficult ?

Because the external environment is volatile and

changes the rules of the game and customer taste
changes.
Thus, managers are seeking modern approaches to gain
more competitive advantage
Copyright ©2013 Pearson Education, Inc.
publishing as Prentice Hall 1-3
The Nature of Strategic management
Strategic Management
◦ is the art and science of formulating,
implementing and evaluating cross functional
decisions that enable an organization to
achieve its objectives.
◦ it implies that strategic management focuses
on integrating the different functional units of
an organization so as to achieve its objectives.
◦ it implies that strategic management cement
all the functional units together
The Nature of Strategic management
 Strategic Management:
◦ is both a philosophy and a processes by
which an organization determines its
long term objectives and how to realize
them as well as taking actions to
implement them.
◦ By its very process and methods
strategic management encourages
consensus building and team work
among staff.
Historical Development of Strategic
Management
Basic
Financial
Planning
Long Range
Planning
Strategic
Planning
Strategic
Management
1-6
Strategic Management Vs Strategic
Planning
Strategic management
◦ is different from strategic planning which was
widely believed to be the answer for all
problems specially in 1960/1970’s. Because:
 The concept of strategic management includes the
notion of strategy formulation, implementation, and
evaluation.
 Where as strategic planning referring only to strategy
formulation.
 Strategic planning is an incomplete instrument for
managing change in today's complex world since it is
not action driven.
Strategic management Vs Long Range
Planning
Strategicmanagement is also different
from long range planning. Because:
◦ The essence of strategic management is just to
exploit and create new and different
opportunities for tomorrow.
◦ Where as long range planning tries to optimize
for tomorrow the trends of today.
◦ In other words Strategic management has an
anticipatory stance where as long range
planning is done on the basis of retroactive
analysis.
 Stages of Strategic Management

Strategy Strategy Strategy

formulation implementation evaluation

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Stages of Strategic Management

• Crafting a vision and mission

Strateg • Determining the strategic factors
•
y •
Establishing long-term objectives
Generating alternative strategies
formul • Choosing particular strategies to
pursue
ation
include
s
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 Stages of Strategic Management
Strategy formulation issues include
◦ Deciding what new businesses to enter
◦ What businesses to abandon
◦ How to allocate resources
◦ Whether to expand operations or diversify
◦ Whether to enter international markets, to merge
or form a joint venture, and
◦ How to avoid a hostile takeover.
 Stages of Strategic Management
Strategy implementation requires a firm
to:
 Establish annual objectives
 Devise policies
 Motivate employees
 Allocate resources so that formulated strategies can be
executed
◦ often called the action stage
◦ involves mobilizing employees and managers to
put formulated strategies into action
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 Stages of Strategic Management
Strategy implementation includes
◦ Developing a strategy-supportive culture
◦ Creating an effective organizational structure
◦ Redirecting marketing efforts
◦ Preparing budgets
◦ Developing and utilizing information systems and
◦ Linking employee compensation to organizational
performance.
 Stages of Strategic Management
Strategy evaluation
◦ reviewing external and internal factors that are the
bases for current strategies, measuring
performance, and taking corrective actions
◦ Managers desperately need to know when
particular strategies are not working well; strategy
evaluation is the primary means for obtaining this
information

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The Strategic-Management Model
 The strategic management model dictates:
Where are we now?
Where we wan to go?
How will we get there?
 Where are we now? Must consider
 the company’s market positions and competitive pressures
it confronts
 its resources, strengths and capabilities,
 its competitive shortcomings,
 the appeal its products and services have to customers and
 its current performance
.
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The Strategic-Management Model
Where do we want to go?
The direction which management believes the
company should be headed in light of the
company’s present situation and the winds of
market change
 How will we get there?
Concerns the ins and outs of crafting and
executing strategy. Without a strategy a
company cannot have a particular destination

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A Comprehensive Strategic-
Management Model

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Benefits of Strategic Management
The principal benefit of strategic
management has been to help organizations
formulate better strategies through the use
of more systematic, logical, and rational
approach to strategic choice
Strategic management:
◦ Enhance communication
◦ Improved/deeper understanding
◦ Increase Commitment
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Benefits of Strategic management
Economic benefits
Improve the ability of managers to prevent
problems
Improved the quality of strategic decisions
through group interactions
Reduce gaps and overlaps in activities of groups
and individuals through proper role
identifications
Provide a platform for better employee incentive
Lesser resistance to change
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Limitations of strategic management
Complex and dynamic environment
◦ The more uncertain is the future, the less is the
relevance of strategic management in
exploring opportunities and mitigating threats
 Rigidity – strategic management brings
rigidity in the organization through
strategic planning
◦ various internal inflexibilities may be
experienced in the organization like human
and procedural
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Limitations of Strategic Management
Limitations in implementation – strategic
management may not be in a position to
address tasks that have an operative
nature
Costly exercise
Sense of frustration
Risk of avoiding responsibility

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VMOSA
Vision

◦ answers the question “What do we want to

become?”
◦ often considered the first step in strategic
planning
◦ provides a direction and inspiration for
organizational goal settings
◦ is a symbol and a cause to which we want bond
stakeholders
◦ Should never carry the how part
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 VMOSA
 Vision

◦ A statement of realistic dream

◦ A vision statement should be a few short phrases or a
sentence that conveys your hopes for the future
◦ Craft a statement that is:
 Understood and shared by members of the
organization
 Broad enough to include a diverse variety of
perspectives
 Inspiring and uplifting
 Easy to communicate (fits on a T-shirt!)
 VMOSA
Features of a good vision statement:
◦ Easy to read and understand.
◦ Compact and Crisp to leave something to
people’s imagination.
◦ Gives the destination and not the road-map.
◦ Provides a motivating force, even in hard times.
◦ Is perceived as achievable and at the same time
is challenging and compelling, stretching us
beyond what is comfortable.

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 VMOSA
Mission
◦ enduring statements of purpose that
distinguish one business from other similar
firms
◦ identifies the scope of a firm’s operations in
product and market terms
◦ addresses the basic question that faces all
strategists: “What is our business?”

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VMOSA
Mission
◦ It expresses the "what and how" of your
effort, describing what your group is going to
do to make your vision a reality.
◦ An example of a mission statement: "Our
mission is to develop a safe and healthy
neighborhood through collaborative planning,
community action, and policy advocacy."
VMOSA
Mission
◦ While your vision statement inspires people
to dream, your mission statement should
inspire them to action.
◦ Make it concise, outcome-oriented, and
inclusive.
VMOSA
A good mission statement:
◦ Have to have a very visible linkage to the
business goals and strategy
◦ Should not be same as the mission of a
competing organization
◦ Clear to understand and communicate

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VMOSA
Objectives
◦ are the specific, measurable steps that will
help you achieve your mission.
◦ Develop objectives that are SMART:
 specific,
 measurable,
 achievable (eventually),
 relevant to your mission, and
 timed (with a date for completion.)
 VMOSA
Objectives should be S.M.A.R.T. + C.:

 Specific.
◦ That is, they tell how much (e.g., 10%) of what is to be achieved (e.g.,
what behavior of whom or what outcome) by when (e.g., by 2025)?
 Measurable.
◦ Information concerning the objective can be collected, detected, or
obtained.
 Achievable.
◦ It is feasible to pull them off.
 Relevant to the mission.
◦ Your organization has a clear understanding of how these objectives fit
in with the overall vision and mission of the group.
 Timed.
◦ Your organization has developed a timeline (a portion of which is made
clear in the objectives) by which they will be achieved.
 Challenging.
◦ They stretch the group to set its aims on significant improvements that
 VMOSA
Why Should You Create Objectives?
There are many good reasons to develop
objectives for your initiative. They include:
◦ Having benchmarks to show progress.
◦ Completed objectives can serve as a marker to
show members of your organization and others
what your initiative has accomplished.
◦ Creating objectives helps your organization keep
focused on issues most likely to have an impact.
◦ Keeping members of the organization working
toward the same long-term goals.
 VMOSA
How Do You Create Objectives?

 So once your organization has decided that it

does wish to develop objectives, how do you
go about doing so? Let's look at the process
that will help you to define and refine
objectives for your organization.
 Define or reaffirm your vision and mission
statements
◦ The first thing you will need to do is review the
vision and mission statements your organization has
developed. Before you determine your objectives,
you should have a "big picture" that they fit into.
 VMOSA
How Do You Create Objectives?

 Determine the changes to be made

◦ The crux of writing realistic objectives is learning
what changes need to happen in order to fulfill your
mission.
 Collect baseline data on the issues to be
addressed
◦ As soon as your organization has a general idea of
what it wants to accomplish, the next step is to
develop baseline data on the issue to be addressed.
Baseline data are the facts and figures that tell you
how big the problem is; it gives specific figures about
the extent to which it exists in your Company.
 VMOSA
Strategy
◦ is a means by which long-term objectives of the firm will
be achieved
◦ is the creation of a unique and valuable position ,
involving a different set of activities. It is about
being different (Porter)
◦ relates to non-routine problems for which no pre-
determined solutions exist
◦ Is a tool that can be used to fight business
rivalries
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VMOSA
A strategy
◦ is a way of describing how you are going to
get things done.
◦ It is less specific than an action plan (which
tells the who-what-when); instead, it tries to
broadly answer the question, "How do we get
there from here?" (Do we want to take the
train? Fly? Walk?)
VMOSA
The following are some of the
fundamental objectives of strategy:
◦ To foresee the future
◦ To know where firms are going and why they
are going there
◦ To take into account the probable behaviours
of customers and competitors
◦ To maximize the strength of the corporate firm
and minimize the strength of competitors

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VMOSA
Strategy is a set of actions and decisions that
enables a firm to answer questions like:
◦ Where does a firm compete?
◦ What unique values would a firm bring in,
why customers choose products or services of
a particular firm?
◦ What resources and capabilities do the firm
utilize?
◦ How does a firm sustain its capabilities to
provide that unique value?
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VMOSA
Mintzberg summarize strategy using 5P’s
Strategy is:
◦ a plan because it relates how we intend to
realize our goals
◦ a ploy because it relies on secrecy and deception
◦ a pattern in decisions and actions
◦ a position (the stance we take). It is a mediator
between the internal and external environment
◦ a perspective as it is a vantage point and can be
seen from other vantage points too
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VMOSA
A good strategy will take into account existing
barriers and resources (people, money, power,
materials, etc.). It will also stay with the overall
vision, mission, and objectives of the initiative.
 Often, an initiative will use many different
strategies-
◦ providing information,
◦ enhancing support,
◦ removing barriers,
◦ providing resources, etc.--to achieve its goals.
VMOSA
Annual objectives and Policies
◦ short-term milestones that organizations must
achieve to reach long-term objectives
◦ should be measurable, quantitative,
challenging, realistic, consistent, and
prioritized
◦ should be established at the corporate,
divisional, and functional levels in a large
organization

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VMOSA
Annual objectives and Policies
◦ the means by which annual objectives
will be achieved
◦ include guidelines, rules, and procedures
established to support efforts to achieve
stated objectives
◦ guides to decision making and address
repetitive or recurring situations

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Determinants of strategy
The four major determinants of strategy in todays
complex, dynamic and uncertain environment:
◦ External opportunities and Threats (Industry
specific factors)
◦ Internal Resources, Capabilities and
competencies (Firm specific factors)
◦ Personal values of the executives (Ethical
Behaviour)
◦ Obligation to the society and stakeholders
(CSR)
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End of Chapter
one
 Chapter Two
The Business Environment
The business environment
The business environment can be
grouped into two:
◦ External Environment
 Remote/Macro/ General
 Immediate/Micro/Task
◦ Internal environment

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 Outcomes From External & Internal Environmental
Analyses

By Studying the External By Studying the

Environment, firms identify: Internal Environment,
firms identify:
•What they might
choose to do? • What they can do?

Examine unique
Examine resources, capabilities &
opportunities & competencies –
threats
sustainable
competitive advantage
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The external environment
Tools of analysis of the external
environment:
◦ PEST/E analysis
 is done for sake of accommodating
relevant elements in the strategic
development processes of
organizations.
◦ Five forces competitive analysis
 Forces that impact competition within
the confines of an industry 1-
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External Analysis –steps
Step 1: Environmental scanning – gather
relevant information. It allows managers
to stay up to date and reduce uncertainty
Step 2:Interpret environmental factors –
determine whether the factors are
opportunities or threats. Identify the most
important opportunities and threats
Step 3: Take actions to capitalize
opportunities and minimize threats
External Analysis ...
OPPORTUNITIES:
An opportunity is a major favorable situation in
a firm’s environment.
Identification of

◦ a previously overlooked market segment

◦ changes in competitive or regulatory
circumstances
◦ technological changes, and
◦ improved buyer or supplier relationships
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External analysis cont’d...
THREATS:
 A threat is a major unfavorable situation in a firm’s
environment. Threats are key ingredients to the firm’s
current or desired position.
 Identification of

◦ the entrance of new competitors

◦ slow market growth
◦ increased bargaining power of key buyers or
suppliers,
◦ technological changes, and new or revised regulations
could represent threats to a firm’s success.

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Why external analysis?
External analysis allows firms to:
◦ Discover threats and opportunities
◦ Make informed decisions as best as possible
◦ Better understand the nature of competition in
an industry
◦ See if above normal profits are likely in an
industry
Key External Forces
External forces can be divided into five
broad categories:
1. Macroeconomic forces
2. Social, cultural, demographic, and natural
environmental forces
3. Political, governmental, and legal forces
4. Technological forces
5. Competitive forces
Relationships Between Key External
Forces and an Organization
1. Economic Forces
Some key economic variables:
 Availability of credit
 Level of disposable income
 Interest rates
 Inflation rates
 Unemployment trends
 Consumption patterns
 Import/Export factors
 Demand shifts
 Price fluctuations
 Fiscal policies
Economic forces

Economic decline leads to:

◦ A reduction in customer expenditure
◦ Increases competitive pressures
◦ Frequently causes price wars in mature
industries
The level of interest rates can determine the
demand for a company's product
◦ It is important when customers are routinely
borrow many to finance their purchases
Economic forces
Price inflation
◦ can destabilize the economy, producing
slower economic growth, higher interest
rates and volatile currency.
◦ Inflation keeps increasing, investment
planning becomes hazardous
◦ So high inflation is a threat to
companies
2. Social, Cultural, and
Demographic Forces
Some key socio-cultural variables:
 Ethical standards
 Size of population
 Life expectancies
 Income disparity
 Consumer activism
 Geographic shifts in population
 Education
 Quality and Quantity of Life of people
 Long Term Vs. Short Term Orientations
3. Political, Governmental, and Legal Forces

Politicalfactors define the legal and

regulatory parameters of organizations’
operation.
Some key Political (Gov’al & legal) variables
 Tax laws
 Trade liberalization
 Environmental protection laws
 Import/Export regulations
 Size of Government budget
 Local, state & national elections
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Political, Governmental, and Legal
Forces
Political actions aimed at protecting:

◦ employees, customers, the general

public and the environment
◦ organizations via property right
laws, government subsidies, and
product research grants

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Political, Governmental, and Legal
Forces
Political action can bring about substantial
impact on three governmental functions
that influence the external environment of
firms:
 Supplier function: government decision
regarding the accessibility of private
businesses to government-owned natural
resources and products will profoundly
affect the viability of the strategies of the
firms.
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Political, Governmental, and Legal
Forces
Customer function: government demand for
products and services can create, sustain,
enhance, or eliminate many market
opportunities.

Competitive function: the government can

operate as an almost unbeatable competitor in
the market place.
 Thus, knowing of government’s strategies
can help a firm avoid unfavorable
confrontation with the government as a
competitor. 1-
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4. Technological Forces
Organizations must strive to understand the
existing scientific or technological advances:
avoid obsolescence and promote innovation

- Technological advancements can:

◦ Create new markets
◦ Result in a proliferation of new and improved
products
◦ Change the relative competitive cost positions
in an industry
◦ Replace existing products and services
Technological Forces.. Example
For instance, the Internet has changed the very
nature of opportunities and threats by:
◦ altering the life cycles of products
◦ increasing the speed of distribution
◦ creating new products and services
◦ erasing limitations of traditional geographic
markets
◦ changing the historical trade-off between
standardization and flexibility.
Technological Forces
In general the Internet is:
◦ Altering scale Economies
◦ Changing entry barriers, and
◦ Redefining the relationship between
industries and various suppliers,
creditors, customers, and competitors
 The SWOT Matrix

A firm should not necessarily pursue the

more lucrative opportunities. Rather, it may
have a better chance at developing a
competitive advantage by identifying a fit
between the firm's strengths and upcoming
opportunities.
In some cases, the firm can overcome a
weakness in order to prepare itself to pursue a
compelling opportunity.
To develop strategies that take into account
the SWOT profile, a matrix of these factors 65
 The SWOT Matrix cont’d …

Strengths Weaknesses

Opportunities
S-O W-O
strategies strategies

Threats S-T W-T

strategies strategies
66
The SWOT Matrix cont’d …
S-O strategies pursue opportunities that are a
good fit to the company's strengths.
W-O strategies overcome weaknesses to pursue
opportunities.
S-T strategies identify ways that the firm can use
its strengths to reduce its vulnerability to external
threats.
W-T strategies establish a defensive plan to
prevent the firm's weaknesses from making it
highly susceptible to external threats.
67
5. Competitive Forces
An important part of an external audit is
identifying rival firms and determining
their strengths, weaknesses, capabilities,
opportunities, threats, objectives, and
strategies
These process can be executed through a
proper analysis of the
operating/immediate environment.
 The Immediate Environment

- In this environment firms can carry

out:
1. Industrial Analysis- PFFM
2. Competitors analysis

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Analysis of the Industry
An industry is a group of firms
producing products that are close
substitutes
 Firms that influence one another
 Includes a rich mix of competitive forces

70
 Analysis of the industry cont’d.
Analysis of the industry environment:
◦ focuses on the factors & conditions
influencing the firm’s profitability in the
industry.
◦ Compared to the general environment, the
industry environment has a more direct
effect on the firm’s strategic
competitiveness & capability of earning
above-average returns
71
 Industry Analysis …
Industry analysis refers to the analysis
of:
◦ Industry trends as a whole
◦ Competition within the industry
◦ Technologies employed
◦ What it takes to succeed – the key success factors
◦ Comparing the firm, its products, its systems, its
technology etc., with other firms in the industry.

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Nature and Degree Of Competition

The nature and degree of competition in an

industry hinge on five forces:
1. The threat of new entrants
2. The bargaining power of suppliers
3. The bargaining power of buyers
4. The threat from substitute products
5. Rivalry (competition) among existing
firms
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The Five-Forces Model of Competition

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 Nature cont’d …
How Competitive Forces Shape Strategy?
◦ The essence of strategy formulation is coping with
competition. Competition exists in the fight for market
share.
◦ Therefore, competition in an industry is rooted in its
underlying economics, and competitive forces.
◦ In light of this, customers, suppliers, potential entrants,
and substitute products are all competitors that may be
more or less prominent or active depending on the
industry type.
◦ Thus, the collective strength of these forces determines
the ultimate profit potential of an industry.

75
 Nature cont’d …
The weaker the forces collectively the greater the
opportunity for superior performance in the
industry would be.
Thus,to cope with them, the strategist must explore
below the surface and analyze the sources of
competition. For example:
◦ What makes the industry vulnerable to entry?
◦ What determines the bargaining power of
suppliers?

76
 Nature cont’d …
Knowledge of these underlying sources of
competitive pressure provides the groundwork for a
strategic plan of action to:
◦ Highlight the critical strengths and weaknesses of
the company
◦ Animate the positioning of the company in its
industry
◦ Clarify the areas where strategic changes may
yield the greatest payoff
◦ Highlight the industry trends as either
opportunities or threats
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 Threat of Entry
There are six major sources of barriers to
entry:
1. Economies of scale
2. Product differentiation
3. Capital requirements
4. Cost (dis)advantages
5. Access to distribution channels
6. Government policy
7. Expected retaliations 78
 Threat of Entry cont’d …
Economies of scale:
Deter entry by forcing the aspirant either to
come in on large scale or accept a cost
disadvantage.

Scale of economies in production, research,

marketing, and service are probably the key
barriers to entry in the mainframe computer
industry, as Xerox and GE discovered.

79
 Threat of Entry cont’d …
Product differentiation:
Brand identification creates a barrier by
forcing entrants to spend heavily to overcome
customer loyalty.
Product differentiation is perhaps the most
important barrier in soft drinks, cosmetics,
and investment banking.

80
 Threat of Entry cont’d …
Capital requirements:
The need to invest large financial resources
in order to compete, creates a barrier to entry.
Capital is necessary not only for fixed
facilities but also for customer credit,
inventories, and absorbing start-up loses.
The huge capital requirements in certain
fields, such as computer manufacturing and
mineral extraction, limit other entrants.

81
 Threat of Entry cont’d …
Cost (dis)advantages independent of scale:
Well-established companies may have cost
advantages not available to potential rivals, no
matter what their size and economies of scale.

These advantages can stem from the effects of:

◦ the learning curve, and proprietary technology,
◦ access to the best raw material sources,
◦ assets purchased at pre-inflation prices,
◦ government subsidies, favorable location, and
◦ official rights (patents)
82
 Threat of Entry cont’d …

Access to distribution channels:

Affectsnew entrants since the new product
must displace others via price breaks,
promotions, and intense selling efforts.

When there are limited wholesale or retail

channels and the existing competitors
occupied them, entry into the industry will
be tougher.
83
 Threat of Entry cont’d …

Government policy:
The government can limit or even foreclose entry
to industries with such controls as license
requirements and limits on access to raw materials.

The government can play a major indirect role by

effecting entry barriers through controls such as air
and water pollution standards and safety
regulations.

84
 Threat of Entry cont’d …
Expected Retaliation
Existing firms might respond in
different ways when new comers enter
in to the market.

Responses by existing competitors may

depend on a firm’s present stake in the
industry and available business options

85
 Powerful Suppliers
Suppliers can exert bargaining power
on participants in an industry by
◦ raising prices of inputs or
◦ reducing the quality of purchased
goods and services affecting the
profitability of the industry.

86
 Powerful Suppliers cont’d …
Supplier power increases when:
◦ Suppliers are large and few in number e.g.oil
◦ Suitable substitute products are not available e.g. tele
◦ Individual buyers are not large customers of suppliers and
there are many buyers. E.g. retail vs whole-saler buyers
◦ Suppliers’ goods are critical to buyers’ marketplace
success. key inputs
◦ Suppliers’ products create high switching costs
◦ Suppliers pose a threat to integrate forward into buyers’
industry

87
 Powerful Buyers
Customers can force down prices, demand higher
quality or more service, and play competitors off
against each other – all at the expense of industry
profits.
The product buyers’ purchase from the industry is
standard or undifferentiated.
◦ In this situation, the buyers are always sure that
they can find alternative suppliers, may play one
company against another.

88
 Powerful Buyers cont’d …
Buyer power increases when:
1. Buyers are large and few in number
2. Buyers purchase a large portion of an industry’s
total output
3. Buyers’ purchases are a significant portion of a
supplier’s annual revenues
4. Buyers can switch to another product without
incurring high switching costs
5. Buyers pose threat to integrate backward into the
sellers’ industry
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 Threat of Substitute Products
The threat of substitute products
increases when:
A. Buyers face few switching costs
B. The substitute product’s price is lower
C. Substitute product’s quality and
performance are equal to or greater than the
existing product

90
 Rivalry Among Competing Firms
Industry rivalry increases when:
1. There are numerous or equally balanced
competitors
2. Industry growth slows or declines
3. There are high fixed costs or high storage costs
4. There is a lack of differentiation opportunities or
low switching costs
5. When the strategic stakes are high
6. When high exit barriers prevent competitors from
leaving the industry 91
 Interpreting Industry Analysis

Low entry barriers

Suppliers & buyers Unattractive

have strong positions
industry
Strong threats from
substitute products

Intense rivalry
Low profit
among competitors potential

92
Interpreting Industry Analysis cont’d …

High entry barriers

Suppliers & buyers Attractive

have weak positions
industry
Few threats from
substitute products

Moderate rivalry High profit

among competitors
potential

93
 Competitor Analysis
Competitor analysis focuses on each company
against which a firm directly competes.
Analysis of competitors is focused on predicting the
dynamics of competitors' actions, responses &
intentions
Competing firms are keenly interested in
understanding each other’s objectives, strategies,
assumptions and capabilities.
Furthermore, intense rivalry creates a strong need to
understand competitors.

94
 Competitor Analysis cont’d …
In a competitor analysis, the firm seeks to understand:
What drives the competitor, as shown by its future
objectives.
 What the competitor is doing and can do, as revealed
by its current strategy.
 What the competitor believes about its own firm and
the industry, as shown by its assumptions.
 What the competitor’s capabilities are, as shown by
its strengths and weaknesses.
95
Competitor analysis components

Chapter 4 - Industry& Comp Analysis 96

 Competitor Analysis cont’d …
 Competitor intelligence is used to get data
and information about competing firms.
It can be used to better understand and anticipate
competitor’s objectives, strategies, assumptions and
capabilities.
It helps the firm to prepare an anticipate response
profile for each competitor.
Thus, the result of an effective competitor analysis
helps a firm to understand, interpret and predict its
competitors’ actions and responses.
97
 Competitor Array
One common and useful technique is constructing a
competitor array. The steps include:
1. Define your industry - scope and nature of the
industry
2. Determine who your competitors are
3. Determine who your customers are and what
benefits they expect
4. Determine what the key success factors are in your
industry

98
 Competitor Array cont’d …
5. Rank the key success factors by giving each one a
weight - The sum of all the weightings must add
up to one.
6. Rate each competitor on each of the key success
factors
7. Multiply each cell in the matrix by the factor
weighting.
8. Sum columns for a weighted assessment of the
overall strength of each competitor relative to
each other

99
 This can best be displayed on a two dimensional matrix - competitors
along the top and key success factors down the side. An example of a
competitor array follows:

Key Industry Competitor Competitor Competitor Competitor

Weighting
Success Factors #1 rating #1 weighted #2 rating #2 weighted

1. Extensive
distribution
.4 6 2.4 3 1.2

2. Customer focus .3 4 1.2 5 1.5

3. Economies of scale .2 3 .6 3 .6

4. Product innovation .1 7 .7 4 .4

Total 1.0 20 4.9 15 3.7

100
End of Chapter
Two
 CHAPTER THREE
INTERNAL ASSESSMENT
(Evaluating Company Resources and
Competitive Capabilities)
 Internal analysis
Internal environment analysis
◦ is a way of looking the firms internal
capabilities to determine its internal
strengths and weaknesses

◦ enables an organization to determine

what it can do- that is, the actions
permitted by its unique resources,
capabilities and core competencies.
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Internal analysis
Internal analysis helps the firm:
◦ Determine if its resources and
capabilites are likely sources of
competitive advantage
◦ Identify attractive resources for which
resource position barriers can be built.
◦ Establish strategies that will exploit any
sort of resource driven competitive
advantages
Internal Analysis - Resources Vs.
Capability
Resources
◦ Anything which could be thought of as a
strength or weakness of a given firm.
◦ Tangible and intangible assets of a firm
◦ Used to conceive and implement strategies
Capabilities
◦ A subset of resources that enable a firm to take
full advantage of other resources
 E.g. marketing skill, cooperative strategies
The theory behind internal analysis-
RBV
The resource based view:
◦ Develop to answer the question: why do some
firms achieve better economic performance
◦ Used to help firms achieve competitive
advantage and superior economic performance
◦ Assumes that a firm’s resources and
capabilities are the primary drivers of
competitive advantage and economic
performance
The theory behind internal analysis-
RBV
The resource based view
◦ addresses the question of an organization’s
identity – in terms of its unique resources or
capabilities
◦ it is principally concerned with the source and
nature of strategic capabilities
◦ has an intra-organizational focus
◦ argues that performance is a result of firm
specific resources and capabilities
The theory behind internal analysis-
RBV
The Resource based view:
◦ According to RBV, the essence of strategy is or
should be defined by the firm’s unique resources
and capabilities.
◦ It suggests that competitive advantage and
enduring economic performance results are a
consequences of firm specific resources and
capabilities that are costly to copy by other
competitors.
◦ These Resources and capabilities can be
important factors of sustainable competitive
advantage and superior firm performance if they
RBV within the conversation of strategy
Strategy can be viewed as a continuous
search for rent (Bowman, 1974), where
rent is defined as a resource owner’s
opportunity costs.
The generation of above normal rates of
return (i.e. rent) is the focus of analysis
for competitive advantage (Porter, 1985)
The competitive advantage of firms
which is a good cause for rent can be
achieved either through superior skill or
RBV within the conversation of strategy (Types of Rent)

 Ricardian Rent achieved by

◦ Ownership of Valuable Land
◦ Location Advantage
◦ Patents and Copyrights
 Monopolistic Rent may be achieved by:
◦ Government Protection
◦ Collusive Arrangements
◦ Size- economics of scale
 Schumpeterian/Entrepreneurial Rent
◦ Risk Taking
◦ Entrepreneurial insight in an uncertain/complex
environment
Assumptions of RBV
Two critical assumptions of RBV:
◦ Resource heterogeneity
 Different firms may have different resources
◦ Resource Immobility
 It may be costly for firms without resources
to acquire or develop
 Some resources may not spread from and to
a firm without substantial cost
What does these assumptions really
mean?

If one firm has resources that are valuable

and other firms don’t
If other firms cannot imitate these
resources without incurring costs
The firm possessing the valuable
resources will likely gain a sustained
competitive advantage
Under what circumstances will a
resource lead to high returns over
longer periods of time?

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The VRIN(o) Frame Work
Valuable Rare Costly to None Exploite Competit Economi
imitate substitut d by ive c
able organiz implicati implicati
ation ons on
No Competiti Below
ve normal
Disadvant
age
Yes No Competiti Normal
ve Parity

Yes Yes Yes Yes Temporar Above

y normal
competiti
ve
advantage
Yes Yes Yes Yes Yes Sustained Above
CA normal
Which theory of strategic management do
you think more practical and appealing
for a business firm to achieve sustainable
competitive advantage and enduring
economic performance?
◦ Market based view/Industry specific
factors/Product/Market position theory-
barriers to entry and exit
◦ Resource based view/Firm specific
factors/Resource position theory/ Barriers to
imitation. 1-
115
The proponents of the systems school of thought
developed two major principles i.e. the principle of
synergy and entropy. The later principle asserts that a
system (an organization) will die out unless it interacts
with the external environment.
Besides, theorists in the contingency school of thought
strongly believe in the Darwinian theory of adaption and
natural selection. They advocate the idea that a business
firm will survive and thrive if and only if it adjusts itself
towards the ever changing environment – in simple terms
they believe in the maxim “ Survival of the Fittest ”
These two principles (entropy and survival of the
fittest) pronounce the relevance of external
1-
environment in determining the success and failure of a 117
Are the market positioning and
resource based approaches competing
or complementary?

1-
118
MBV Vs. RBV
 Many scholars believed that RBV is a rival
paradigm to the MBV paradigm.
 Some other researchers believed that they are
complementary paradigm rather than rival
 Grant argues that market attractiveness is
based on resources and capabilities of
individual firms
◦ Structural sources of market attractiveness such as
barriers to entry, monopolistic price setting power
or vertical bargaining power are all, in the final
analysis the consequences of individual firms
MBV Vs. RBV – Grant argues…
For example,
◦ Barriers to entry are the results of individual firms
patent, brands and retaliatory capability
◦ Monopolistic price setting power stems from market
share which is a consequence of cost efficiency,
financial strength and other resources and
capabilities
◦ Vertical bargaining power depends up on individual
firm size and financial resources etc.
◦ Therefore, no market attractiveness but individual
firms resources and capabilities are the primary basis
for inter-firm potential differentials
MBV Vs. RBV
 To Grant, the Porterian generic strategies are linked
into firm-specific resources and capabilities which are
basis of value creation process.
◦ For example, cost advantage is based up on firms
resources and capabilities as process technology, size
of the plants, and access to low cost inputs, while
differentiation advantage comes from brands,
product technology, marketing, distribution and
service capabilities.
 Therefore, the resources and capabilities of a firm are
primary constraints in formulating strategy and creating
high/low performance
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MBV Vs. RBV
 On the other hand, Porter argues that the ultimate
sources of competitive advantage originates in the
structural forces that shape the market.
 To him, there are logically two answers to the sources of
competitive advantage
 The 1st is the resources and capabilities condition of
firms to Porter are basically called as Initial
Conditions.
◦ As a result of their history, firms may have pre-
existing reputations, skills, service capabilities etc.,
influencing choices as well as constrain them.

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122
MBV Vs. RBV
 The 2nd is that competitive advantage may be through
pure managerial choice, independent of initial
conditions.
 Then he argues that lying behind all initial conditions
and managerial choices are external market
conditions.
 The proponents of RBV propose that

◦ What made them choose, at the first place,

◦ Where to compete (the choice of market).
◦ To them, there must be some kind of internal factors
made them believe that they were capable of doing
business better in a particular market.
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123
MBV Vs. RBV
The debate turns out to be the origins of
the origin or to put it differently, which
one comes first, chicken or egg?
The debate becomes as such fruitless,
even worse, it is impossible to put an end
to the debate since it turns over an
empirically unjustifiable causal reasoning.


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MBV Vs. RBV
The founder of RBV, Wernerfelt, found that
firm specific effect explains about twice as
much variance in profit rates as market
effect.
Besides. empirical evidences confirmed that
both organization (firm effect) and competition
(market effect) are clearly important in shaping
strategy and performance.
Therefore, Strategy and Performance are
the functions of:
◦ Market effects – barriers to entry and exit 1-
125
Value Chain

Value consists of the performance

characteristics provided by companies in
the form of goods or services for which
customers are willing to pay.

. The firm creates value by performing a

series of activities that Porter identified as
the value chain
Value Chain ...
The value chain links the value of the
activities of an organization with its main
functional parts.
It attempts to make an assessment of the
contribution that each part makes to the
overall added value of the business.

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127
Value chain…
The focus of value-chain analysis is to
examine the corporation in the context of
the overall chain of value-creating
activities, of which the firm may be only
a small part.
The concept was used in accounting
analysis for some years before Professor
Michael Porter suggested that it could be
applied to strategic analysis in the year
1985.
Value Chain Analysis
Value chain analysis:
◦ is a template used to identify the firms cost
position and whether the cost stance of the
firm allows the implementation of business
level strategies.
◦ allows a firm to identify the cost and the
different set of value drivers
◦ In short value chain analysis provides
fundamental inputs that can be used to
maximize value creation and minimize cost.
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129
Value Chain Analysis...
Michael Porter Identified two different
sets of activities in the value chain;
◦ Primary Activities
 Upstream value chain/inbound logistics
 Operations
 Downstream value chain/outbound logistics
 Marketing and sales
 After sale services
◦ Support activities –that provide support for the
primary activities of the firm:- infrastructure,
finance, procurement and so on. 1-
130
Value Chain…
According to porter, the primary activities
of the company are:
◦ Inbound logistics - concerned with
receiving the goods from suppliers,
storing them until required by
operations, handling and transporting
them within the company.
◦ Operations -this is the production area
of the company
Value Chain
Outbound logistics -these distribute the
final product to the customer. They would
clearly include transport and warehousing.
Marketing and sales-this function
analyses customer’s want and need and
brings to the attention of customers what
products or service the company has for
sale.
Service -before or after a product or
service has been sold, there is often a need
Value Chain…
Each of the primary activities will add
value to the organization in its own way.
◦ For example, higher standards of
service, lower production costs, faster
and cheaper outbound delivery and so
on. By this means, they provide the
areas of competitive advantage of the
organization.
Value Chain
Supporting Activities:
◦ Procurement
◦ Technology development
◦ Human resource management
◦ Firm infrastructure- planning and
control system
Value Chain…
Essentially, Porter linked two areas
together.
◦ The added value that each part of the
organization contributes to the whole
organization
◦ The contribution to the competitive advantage
of the whole organization that each of these
parts might then make.
The value chain can also be taken as a
key source for generating a competitive
advantage to firms.
Competitive advantage
Why do some companies outperform
others? What is (are) the basis of their
competitive advantage?
◦ In retail industry, Wal-Mart has
consistently outperformed Kmart.
◦ In the global auto industry Toyota has
consistently outperformed General
Motors for most of the last twenty years
Competitive advantage…
A firm outperform its rivals due to the
prevalence of superior efficiency, superior
quality, superior innovation and superior
responsiveness to the market.
We refer to efficiency, quality, innovation,
and customer responsiveness as the four
generic building blocks of competitive
advantage.
This days information technology, CSR and
environmental issues are also generating a
competitive advantage for global firms.
Are the positioning and resource based
approaches competing or
complementary?
The answer is they are complementary

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End of Chapter
Three