Strategic Management lecture # 07
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Strategic Management lecture # 07
- 1. JahanUniversity BachelorofBusinessAdministration Departmentof BusinessAdministration Subject: Strategic Management Lecture# Sixth Lecturer: Hijratullah Tahir 1
- 2. Objectives of the lecture After completion of this lecture students will be able to know: 1. Describe the nature and purpose of an external assessment 2. Identify and discuss 10 external forces that must be examined in formulating strategies 3. Explain Porter’s Five Forces Model 4. Discuss forecasting tools and techniques. 5. Explain how to develop and use an (EFE) Matrix. 2
- 3. Outline of the lecture Topic 1: Nature and Purpose of an external assessment Topic 2: Identify and discuss 10 external forces that must be examined in the formulating strategies Topic 3: Porter’s Five Forces Model Topic 4: Discuss forecasting tools and techniques Topic 5: Explain how to develop and use an (EFE) Matrix. 3
- 4. The Purpose and Nature External Audit • Purpose, develop a finite list of opportunities that could benefit a firm as well as threats that should be avoided. • The external audit is not aimed at developing an exhaustive list of every possible factor that could influence the business; • Firms should be able to respond either offensively or defensively to the factors by formulating strategies that take advantage of external opportunities or that minimize the impact of potential threats. 4
- 5. Key Internal Forces External forces can be divided into five broad categories: 1. economic forces; 2. Social, cultural, demographic, and natural environment forces; 3. Political, governmental, and legal forces; 4. Technological forces; and 5. Competitive forces. Relationships among these forces and an organization. 5
- 6. The Industrial Organization View • Strategic planning advocates that external (industry) factors are more important than internal ones for gaining and sustaining competitive advantage. • Michael Porter, contend that organizational performance will be primarily determined by industry forces • which focuses on analyzing external forces and industry variables as a basis for getting and keeping competitive advantage. 6
- 7. Economic Forces • Economic factors have a direct impact on the potential attractiveness of various strategies. • For example, high underemployment (minimum wage-type employment) • Industrial Average is high, corporate profits are high, dividend increases are up sharply, commodity prices are up sharply, especially food, which is contributing to rising inflation fears. 7
- 8. Social, Cultural, Demographic and Environmental • Above forces, impact strategic decisions on all products, services, markets, and customers. • All industries are being staggered and challenged by the opportunities and threats arising from theses forces. • In every way, Afghanistan is much different today than it was yesterday, and tomorrow promises even greater changes. 8
- 9. Political, Governmental, and Legal Forces 9 • Political issues have higher impact on Strategic Decisions. • Today’s world of instant tweeting and emailing. • Politician boost their interested sector. • Elections and Political stance of political parties also have impact. • Changes in patent laws, antitrust legislation, tax rates, and lobbying activities can affect firms significantly. • The increasing global interdependence among economies, markets, Govt.
- 10. Technological Forces • A variety of new technologies such as the Internet of Things, 3D printing, the cloud, mobile devices, biotech, analytics, auto tech, robotics, and artificial intelligence have impact on strategic-planning decisions. • Mobile technologies and applications to better determine customer trends and employing advanced analytics • Data analytics business is that sales of hardware, software, and services 10
- 11. Competitive Forces • Identifying rival firms and determining their strengths, weaknesses, capabilities, opportunities, threats, objectives, and strategies. • George Salk stated, “If you’re not faster than your competitor, you’re in a tenuous position, and if you’re only half as fast, you’re terminal.” • Collecting and evaluating information on competitors is essential for successful strategy formulation. 11
- 12. Porter’s Five- Forces Model • Former CEO of PepsiCo “Nothing focuses the mind better than the constant sight of a competitor that wants to wipe you off the map.” 12
- 13. 1. Rivalry Among Competing Firms • Successful firms, have competitive advantage over rival firms. • Changes in on firm strategy cause countermoves in other firms strategy like; such as lowering prices, enhancing quality, extending warranties, and increasing advertising. • As rivalry among competing firms intensifies, industry profits decline, and industry becomes inherently unattractive. • Increase marketing and production 13
- 14. 2. Potential Entry of New Competitors • Barriers; economies of scale quickly, gain technology and specialized know-how, lack of experience, strong customer loyalty, strong brand preferences • Despite barriers; new firms enter with higher- quality products, lower prices, and substantial marketing resources. • Strategists job, monitor new entry and do a counter attack as needed 14
- 15. 3. Potential Development of Substitute Products • In many industries, firms are in close competition with producers of substitute products in other industries. • Substitute products puts a ceiling on the price that can be charged before consumers will switch to the substitute product • For Example; Producers of eyeglasses and contact lenses 15
- 16. 4. Bargaining Power of Suppliers 16 • Affects the intensity of competition in an industry, especially when there are few suppliers. • Both suppliers and producers are interested to assist each other with reasonable prices, improved quality, enhancing long-term profitability. • Firms may pursue a backward integration strategy to gain control or ownership of suppliers.
- 17. 5. Bargaining Power of Consumer • When customers; buy in volume then affect intensity of competition in an industry. • Rival firms may offer extended warranties or special services to gain customer loyalty. • Bargaining power are higher when the products being undifferentiated. • consumers often can negotiate selling price, warranty coverage, etc. 17
- 18. Forecasting Tools and Techniques • Forecasts are educated assumptions about future trends and events. • Forecasting is a complex activity because of factors such as technological innovation, cultural changes, new products, improved services, stronger competitors, shifts in government priorities, etc. • Techniques are; 1. Making Assumptions 2. Business Analytics 18
- 19. The External Factor Evaluation Matrix Summarize and evaluate External Factors; Five steps are; 1. List 20 key external factors; both opportunities and threats, 2. Assign to each factor a weight that ranges from 0.0 (not imp.) to 1.0 (V Imp.) 3. Assign a rating between 1 and 4 to each key external factor 4. Multiply each factor’s weight by its rating to determine a weighted score. 5. Sum the weighted scores for each variable to determine the total weighted score for the organization. 19
- 20. The Competitive Profile Matrix • Identifies a firm’s major competitors and its particular S&W • The weights and total weighted scores, both CPM & EFE have the same meaning. While, CPM include both internal and external issues; • Ratings refer to strengths and weaknesses, where; 4= major strength, 3 = minor strength, 2 = minor weakness, and 1 = major weakness. • CPM, the ratings and total weighted scores for rival and sample firms c. • CPM analysis provides important internal strategic information. 20
- 21. Conclusion 21 • Increasing turbulence in markets and industries around the world. • Provide framework for collecting and evaluating external forces. • Firms need to anticipated emerging opportunities and threats. • Firms not taking advantage of e-commerce and social media networks are technologically falling behind. • A major responsibility of strategists to conduct external audit. • Porter’s Five Forces, EFE Matrix and CPM Matrix.
- 22. References 1. Strategic Management Concepts and Cases Sixteen Edition by Fred R. David. 2. Fundamental of Business Management Process by Marlon Dumas and Jan Mandelling. 22
Notas do Editor
- 1. When the number of competing firms is high 2. When competing firms are of similar size 3. When competing firms have similar capabilities 4. When the demand for the industry’s products is falling 5. When the product or service prices in the industry is falling 6. When consumers can switch brands easily 7. When barriers to leaving the market are high 8. When barriers to entering the market are low 9. When fixed costs are high among competing firms 10. When the product is perishable 11. When rivals have excess capacity 12. When consumer demand is falling 13. When rivals have excess inventory 14. When rivals sell similar products/services 15. When mergers are common in the industry
- Barriers; continue; large capital requirements, lack of adequate distribution channels, government regulatory policies, tariffs, lack of access to raw materials, possession of patents, undesirable locations, counterattack by entrenched firms, and potential saturation of the market ___ The strategist’s job, therefore, is to identify potential new firms entering the market, to monitor the new rival firms’ strategies, to counterattack as needed, and to capitalize on existing strengths and opportunities. When the threat of new firms entering the market is strong, incumbent firms generally fortify their positions and take actions to deter new entrants, such as lowering prices, extending warranties, add- ing features, or offering financing specials. complete with hotels,
- 1- when there are few good substitute raw materials, or when the cost of switching raw materials is especially high. 2 - development of new services, just-in-time deliveries, and reduced inventory costs, thus 3- This strategy is especially effective when suppliers are unreliable, too costly, or not capable of meeting a firm’s needs on a consistent basis. Firms generally can negotiate more favorable terms with suppliers when backward integration is a commonly used strategy among rival firms in an industry.
- 2 – Continue; stronger competitors, shifts in government priorities, changing social values,
- 1 - both opportunities and threats that affect the firm and its industry. List the opportunities first and then the threats. Be as specific as possible, using percentages, ratios, and comparative numbers whenever possible ___ 2 - The weight indicates the relative importance of that factor to being successful in the firm’s industry. Opportunities often receive higher weights than threats, but threats can receive high weights if they are especially severe or threatening. Appropriate weights can be determined by comparing successful with unsuccessful competitors or by discussing the factor and reaching a group consensus. The sum of all weights assigned to the factors must equal 1.0. ___ 3 - to indicate how effectively the firm’s current strategies respond to the factor, where 4 = the response is superior, 3 = the response is above average, 2 = the response is average, and 1 = the response is poor. Ratings are based on effectiveness of the firm’s strategies. Ratings are thus company-based, whereas the weights in Step 2 are industry-based. It is important to note that both threats and opportunities can receive a 1, 2, 3, or 4.
- 1 – Strength and Weaknesses ___ At the end; This comparative analysis provides important internal strategic information. Avoid assigning the same rating to firms included in your CPM analysis.