Pitfalls in Strategic Planning

1. Using strategic planning to gain control over decisions and resources

2. Doing strategic planning only to satisfy accreditation or regulatory requirements
3. Too hastily moving from mission development to strategy formulation
4. Failing to communicate the plan to employees, who continue working in the dark
5. Top managers not actively supporting the strategic-planning process
6. Failing to involve key employee in all phases of planning
7. Failing to crate a collaborative climate supportive of change
8. Viewing planning as unnecessary or unimportant
9. Becoming so engrossed in current problems that insufficient or no planning is done
10.Being so formal in planning that flexibility and creativity are stifled
 CHAPTER 4
Environmental
Scanning
&
Industry
Analysis
BAYLON, Louise Valerie SALES, Rafael
CANETE, Applemie
RAGUDOS, Janine Anne
GIDO, Shianne May
 Learning Objectives
After reading this chapter, students should be able to:

● Recognize aspects of an organization’s ● Construct strategic group maps to assess the

environment that can influence its long term competitive positions of firms in an industry
decisions

● Identify the aspects of an organization’s ● Identify key success factors and develop an
environment that are most strategically important industry matrix

● Conduct an industry analysis to understand the ● Use publicly available information to conduct
competitive forces that influence the intensity of competitive intelligence
rivalry within an industry
● Know how to develop an industry scenario
● Understand how industry maturity affects industry CREDITS: This presentation template was
competitive forces created by Slidesgo, including icons by Flaticon,
● Beandable to construct
infographics an EFAS
& images by table that
Freepik
● Categorize international industries based on their summarizes external environmental factors
pressures for coordination and local
responsiveness
 Environmental Scanning and Industry Analysis

Industry Analysis: Competitive

Environmental Analyzing the Task Intelligence Forecasting The Strategic Synthesis of
Scanning
Environment Audit External Factors

1. External 1. Porter’s Approach to 1. Source of 1. Danger of Identify External EFAS – External

Environmental Industry Analysis Competitive Assumptions Factors Factors Analysis
Variables Intelligence (Opportunities and Summary
a. Natural 2. Industry Evolution 2. Useful Threats)
b.Societal (STEEP 2. Monitoring Forecasting
ANALYSIS) 3. Categorizing Competitors for Techniques
c. Task International Industries Strategic
Planning
2. External 4. International Risk
Strategic Factors Assessment

5. Strategic Groups

6. Strategic types

7. Hypercompetition

8. Using Key Factors To

Create an Industry Matrix
 Environmental Scanning
● is the monitoring, evaluation, and dissemination of
information from the external and internal
environments to key people within the corporation.
● A corporation uses this tool to avoid strategic surprise
and to ensure its long-term health.

Why is it necessary to scanned?

It must scan the external environment to identify possible

opportunities and threats and its internal environment for
strengths and weaknesses.
IDENTIFYING EXTERNAL
ENVIRONMENTAL
VARIABLES

“A changing environment can help as well as hurt a company. Many

pioneering companies have gone out of business because of their failure to
adapt to environmental change or, even worse, because of their failure to
create change.”
ENVIRONMENTAL
VARIABLES
 Industry Analysis
● It is popularized by Michael Porter refers to an in-depth examination of key factors
within a corporation’s task environment.

● It is a vital responsibility of any business analyst.

● It is a study of a specific industry to understand its future outlook based on past

trends and its demand-supply mechanics.

● Businesses use industry analysis to help them understand how companies,

including their own, compete within an industry.
Scanning the ● Exploit not Conserve?

Natural - Government regulation force business

corporations to deal with the side
Environment effects of their activities

● Concept of sustainability
- The concept of sustainability argues that
a firm’s ability to continuously renew
itself for long-term success and
survival is dependent not only upon the
greater economic and social system of
which it is a part, but also upon the
natural ecosystem in which the firm is
embedded
 Scanning the Societal Environment: STEEP Analysis
STEEP Analysis, the scanning of Sociocultural, Technological, Economic, Ecological, and Political-legal
environmental forces.
- (It may also be called PESTEL Analysis for Political, Economic, Sociocultural, Technological,
Ecological, and Legal forces.)
Some Important Variables in the Societal Environment
Economic Technological Political-Legal Sociocultural

● GDP trends ● Total government spending ● Antitrust regulations ● Lifestyle changes

● Interest rates
● Money supply
● Inflation rates
● Unemployment levels
● Wage/price controls
● Devaluation/revaluation
● Energy alternatives
● Energy availability and cost
● Disposable and
discretionary income
● Currency markets
● Global financial system
for R&D
● Total industry spending for
R&D
● Focus of technological efforts
● Patent protection
● New products
● New developments in
technology transfer from lab
to marketplace
● Productivity improvements
through automation
● Internet availability
● Telecommunication
infrastructure
● Computer hacking activity
● Environmental protection
laws
● Global warming
legislation
● Immigration laws
● Tax laws Special
incentives
● Foreign trade regulations
● Attitudes toward foreign
companies
● Laws on hiring and
promotion
● Stability of government
● Outsourcing regulation
● Foreign “sweat shops”
● Career expectations
● Consumer activism Rate of
family formation
● Growth rate of population
● Age distribution of
population
● Regional shifts in
population
● Life expectancies
● Birth Rates
● Pension plans
● Health care
● Level of education
● Living wage
● Unionization
 Technological breakthroughs that are already
having a significant impact on many industries:

● Portable information devices and electronic networking

● Alternative energy sources
● Precision farming
● Virtual personal assistants
● Genetically altered organisms
● Smart, mobile robots
By the Researchers at
George Washington University
Eight Sociocultural Trends
Increasing
environmental Declining mass market
awareness

Growing Changing pace and

health consciousness location of life

Expanding Changing
seniors market household composition

Increasing diversity
Impact of Generation
of workforce and markets
Y Boomlet
 International Societal Considerations
international societal environments vary so widely that a corporation’s
internal environment and strategic management process must be very
● Differences in societal environments flexible. strongly affect the ways in
which a multinational corporation (MNC)

Multinational Corporation (MNC) - a company with significant

assets and activities in multiple countries, conducts its
marketing, financial, manufacturing, and other functional
activities.
Example: Europe’s lower labor productivity, due to a shorter work week and restrictions on the
ability to lay off unproductive workers, forces European-based MNCs to expand operations in
countries where labor is cheaper and productivity is higher.
To account for the many differences among societal environments from
one country to another,
Some Important Variables in International Societal Environments
Economic Technological Political-Legal Sociocultural

● Economic development ● Regulations on ● Form of government ● Customs, norms,

● Per capita income
● Climate
● GDP trends
● Monetary and fiscal
policies
● Unemployment levels
● Currency convertibility
● Wage levels
● Nature of competition
● Membership in regional
economic associations,
e.g., EU, NAFTA, ASEAN
● Membership in World
Trade Organization
(WTO)
● Outsourcing capability
● Global financial system
technology transfer
● Energy availability/cost
● Natural resource
availability
● Transportation network
● Skill level of workforce
● Patent-trademark
protection
● Internet availability
● Telecommunication
infrastructure
● Computer hacking
technology
● New energy sources
● Political ideology
● Tax laws
● Stability of government
● Government attitude toward
foreign companies
● Regulations on foreign
ownership of assets
● Strength of opposition
groups
● Trade regulations
● Protectionist sentiment
● Foreign policies
● Terrorist activity
● Legal system
● Global warming laws
● Immigration laws
values
● Language
● Demographics
● Life expectancies
● Social institutions
● Status symbols
● Lifestyle
● Religious beliefs
● Attitudes toward
foreigners
● Literacy level
● Human rights
● Environmentalism
“Sweat shops”
● Pension plans
● Health care
Slavery
Scanning the Task Environment

Scanning External Environment

Issues Priority Matrix

A corporation’s external
strategic factors are the key
environmental trends that
are judged to have both a
medium to high probability
of occurrence and a medium
to high probability of impact
on the corporation.
Forces Driving Industry Competition
 Porter’s Five Forces (1979) then
Porter’s six forces (1990)
-Threat of new entrants
Approach to -Rivalry among existing firms
Industry -Threat of substitute products or
Analysis services

-Bargaining power of buyers

Michael Porter - Professor at
-Bargaining power of suppliers
the Institute for strategy and
Competitiveness, based at
Harvard Business School. -Relative power of stakeholders
 Threat of New Entrants
New Entrants to an industry typically bring to it new capacity, a desire to gain market share,
and substantial resources. Therefore, new entrants are threats to an established
corporation.

An entry barrier is an obstruction that makes it difficult for a company to enter an industry.

Some of the possible barriers to entry are:

–Economies of scale
–Product differentiation
–Capital requirements
–Switching costs
–Access to distribution channels
–Cost disadvantages
–Government policy
 Rivalry among Existing Firms
1 Number of
competitors

2 Rate of industry 3 Product or

growth service
characteristics

4 Amount of 5 Capacity
fixed costs

Height of exit barriers:

6

Diversity of rivals
7
 Threat of Substitute Products or Services
-A substitute product is a product that appears to be different but can satisfy the same
need as another product.

Bargaining Power of Buyers

-Buyers affect an industry through their ability to force down prices, bargain for
higher quality or more services, and play competitors against each other.
A buyer or a group of buyers is powerful if some of the following factors hold true:
● A buyer purchases a large proportion of the seller’s product or service
● A buyer has the potential to integrate backward by producing the product itself
● Alternative suppliers are plentiful because the product is standard or undifferentiated
● Changing suppliers costs very little
● The purchased product represents a high percentage of a buyer’s costs, thus providing an incentive to
shop around for a lower price.
● A buyer earns low profits and is thus very sensitive to costs and service differences
● The purchased product is unimportant to the final quality or price of a buyer’s products or services
and thus can be easily substituted without affecting the final product adversely
 Bargaining Power of Suppliers
Suppliers can affect an industry through their ability to raise prices or reduce the
quality of purchased goods and services.

A supplier or supplier group is powerful if some of the following factors apply:

1. The supplier industry is dominated by a few companies, but it sells to many.

2. Its product or service is unique and/or it has built up switching costs.
3. Substitutes are not readily available.
4. Suppliers are able to integrate forward and compete directly with their present
customers.
5. A purchasing industry buys only a small portion of the supplier group’s goods and
services and is thus unimportant to the supplier.
Relative Power of Other Stakeholders
Some of these groups are governments, local communities, creditors, trade
associations, special-interest groups, unions , shareholders, and complementors.
 Industry Evolution
Fragmented industry
where no firm has large market share, and each firm serves only a
small piece of the total market in competition with others
(for example, cleaning services)

Consolidated industry
dominated by a few large firms, each of which struggles to
differentiate its products from those of the competition.
 CATEGORIZING INTERNATIONAL INDUSTRIES

Continuum of International Industries

 STRATEGIC TYPES
A strategic type is a category of firms based on a common strategic orientation and a
combination of structure, culture, and processes consistent with that strategy.

● companies with a limited product line.

● Focus on improving the efficiency of their operations
DEFENDERS
Example: Lincoln Electric

● Companies with fairly broad product lines

PROSPECTORS ● Focus on product innovation and market opportunities
Example: Rubbermaid

ANALYZERS ● Corporations that operate in at least two different product-market areas

● Focus on Efficiency on stable product market and innovation on other
Example: P&G (Procter and Gamble)

REACTORS ● Corporations that lack of a consistent strategy-structure-culture relationship

● Response to environmental pressure Example: Southwest Airlines
 HYPERCOMPETITION

In hypercompetition the frequency, boldness, and

aggressiveness of dynamic movement by the
players accelerates to create a condition of
constant disequilibrium and change.
 - Key success factors
are variables that can

Using key Success

significantly affect the
overall competitive

Factors to Create
positions of companies
within any particular

an Industry
industry.

Matrix - An industry matrix

summarizes the key
success factors within a
particular industry.
 Competitive intelligence
is a formal program of gathering information on a company’s
competitors. Often called business intelligence, it is one of the
fastest growing fields within strategic management.

SOURCES OF COMPETITIVE MONITORING COMPETITORS FOR

INTELLIGENCE STRATEGIC PLANNING
● The primary activity of a competitive
● Consulting & Survey firm
intelligence unit is to monitor competitors
● Internet Network organizations that offer same, similar, or
● Gathering substitutable products or services in the
● Customer voices business area in which a particular
company operates.
 Useful Forecasting
FORECASTING
technique:
● Formulate historical data as a 1. Brainstorming
projection for the future 2. Expert opinion
3. Statistical Modeling
● Danger of assumptions 4. Prediction markets
5. Scenario writing

Industry scenario is a forecasted description of a particular industry’s

likely future. Such a scenario is developed by analyzing the probable impact
of future societal forces on key groups in a particular industry
EFAS (External Factors Analysis Summary) Table
CHAPTER 5
Internal
Scanning:
Organizational
Analysis
 Learning Objectives
After reading this chapter, students should be able to:

● Apply the resource view of the firm

to determine core and distinctive
competencies
● Use the VRIO framework and the
value chain to assess an
organization’s competitive
advantage and how it can be
sustained
● Assess a company’s corporate
culture and how it might affect a
proposed strategy
● Scan functional resources to
determine their fit with a firm’s
strategy
CREDITS: This presentation template was
created by Slidesgo, including icons by Flaticon,

● Understand a company’s business ● Construct an IFAS Table that

and infographics & images by Freepik

model and how it could be imitated summarizes internal factors

ORGANIZATIONAL ANALYSIS
-concerned with identifying and developing an
organization’s resources and competencies

There are two approaches for analyzing

the organization:
1. A Resource Based View ( RBV )
2. Value Chain Analysis (VCA)
 Proponents of the RBV contend that organizational
performance will primarily be determined by
1.The Resource-Based internal resources that can be grouped into three
View (RBV) approach all-encompassing categories:

● Physical resources
- contends that ● Human resources
● Organizational resources
internal resources are
more important for a For a resource to be valuable, it must be
firm than external
factors in achieving
These three characteristics of resources enable a firm
and sustaining to implement strategies that improve its
competitive efficiency and effectiveness and lead to a
advantage. sustainable competitive advantage.
 Resources
-an organization’s assets and are
thus the basic building blocks of the
organization.

Core and •Tangible

•Intangible

Distinctive Capabilities
-a corporation’s ability to exploit its

Competencies
resources
-consist of business processes and
routines that manage the
interaction among resources to turn
inputs into outputs
 - a cross-functional integration and
COMPETENCY coordination of capabilities

CORE - a collection of competencies that cross divisional

boundaries, is widespread throughout the corporation
COMPETENCY and is something the corporation does exceedingly well.

- core competencies that are superior to those of

the competition. A firm’s strengths that cannot be easily
DISTINCTIVE matched or imitated by competitors. Building competitive
C0MPETENCY advantages involves taking advantage of distinctive
competencies.
 EXAMPLE
CORE DISTINCTIVE
COMPETENCY C0MPETENCY
(1) New product development in one
division of the company is a result of GENERAL ELECTRIC has
integration of information system Distinctive competency in
capabilities, marketing capabilities, R&D
capabilities, production capabilities in management development. Its
the division. executives are sought out by other
companies hiring top managers.
(1) Fedex in information technology to all its
operations. And AVON in its selling.
 VRIO framework (Barney)
Value (Does it provide customer value and competitive
advantage?)
Rare (Do no other competitors possess it?)
Imitability (Is it costly for others to imitate?)
Organization (Is the firm organized to exploit the /resource?)

This can be done by comparing measures of these factors with measures of

(1) the company’s (2) the company’s key (3) the industry as
past performance competitors a whole.
USING RESOURCES TO GAIN COMPETITIVE ADVANTAGE
Step resource-based approach to
strategy analysis

1. Identify and classify

the firm’s resources in
terms of strengths and
5.Identify resource weaknesses
gaps and invest in
upgrading
weaknesses 2.Combine the firm’s strengths
into specific capabilities and core
competencies.

4.Select the strategy that

best exploits the firm’s 3.Profit potential of these
capabilities and
capabilities and
competencies relative to
competencies
external opportunities
 A corporation can gain access to a distinctive
competency in four ways:

It may be an asset
It may be shared It may be carefully built
endowment, such It may be
with another and accumulated over
as a key patent, acquired from
coming from the business unit or time within the
someone else. alliance partner.
founding of the company.
company.
For example, Whirlpool For example, Apple
bought a worldwide For example, Honda carefully
Computer worked with a
For example, Xerox distribution system when it extended its expertise in small motor
design firm to create the
grew on the basis of its purchased Philips’s manufacturing from motorcycles to
special appeal of its personal
original copying patent appliance division. autos and lawnmowers.
computers and iPods
DETERMINING THE SUSTAINABILITY OF
AN ADVANTAGE
Two characteristics determine the sustainability of a firm’s
distinctive competency(ies):

DURABILITY IMITABILITY

TRANSPARENCY

TRANSFERABILITY

REPLICABILITY
 Business Models
-It is a company’s method for making money in the current business environment. It
includes the key structural and operational characteristics of a firm.

A business model is usually composed of five elements:

-Who it serves
-What it provides
-How it makes money
-How it differentiates and sustains competitive advantage
-How it provides its product/service

The simplest business model is to provide a good or service that can be sold so that
revenues exceed costs and expenses
 ● Customer solutions model - making money not by selling products,
but by selling its expertise to improve its customers’ operations.

● Profit pyramid model - get customers to buy the product in at the

low-priced, low-margin entry point and move them up to high-priced,

Possible
high-margin products where the company makes its money.

● Advertising model - heavily used in commercial radio and television.

Internet-based firms, such as Google, offer free services to users in

Business ●
order to expose them to the advertising that pays the bills.

Entrepreneurial model - This model, a company offers specialized

Models
products/services to market niches that are too small to be
worthwhile to large competitors but have the potential to grow
quickly.

● Efficiency model - This model, a company waits until a product

becomes standardized and then enters the market with a low-priced,
low-margin product that appeals to the mass market.

● Time model - A model that being the first to market with a new
innovation to offer in a business.
 VALUE CHAIN ANALYSIS
- is a linked set of value-creating activities
that begin with basic raw materials
coming from suppliers, moving on to a
series of value-added activities involved in
producing and marketing a product or
service, and ending with distributors
getting the final goods into the hands of
the ultimate consumer.
 INDUSTRY VALUE-CHAIN ANALYSIS
A concrete description of the different processes required in creating
goods and services starting with raw materials and ending with the
finished result.
CORPORATE VALUE-CHAIN ANALYSIS
The process of assessing each activity in a company's value chain in order to see where
improvements may be made.

Corporate value chain analysis involves the following three steps:

1. Examine each product line’s value chain in terms of the various activities involved in
producing that product or service

2. Examine the “linkages” within each product line’s value chain

3. Examine the potential synergies among the value chains of different product lines or
business units
A Corporation’s Value Chain
 BASIC ORGANIZATIONAL
STRUCTURE

SIMPLE FUNCTIONAL DIVISIONAL

STRUCTURE STRUCTURE STRUCTURE

CONGLOMERATE
STRUCTURE

STRATEGIC BUSINESS
UNITS
BASIC
ORGANIZATIONAL
STRUCTURE
CORPORATE CULTURE - is the collection of beliefs, expectations, and
values learned and shared by a corporation’s members and transmitted
from one generation of employees to another.
Corporate culture has two distinct attributes;
1. Cultural intensity is the degree to which members of a unit accept the
norms, values, or other culture content associated with the unit.
2. Cultural integration is the extent to which units throughout an
organization share a common culture. This is the culture’s breadth
 STRATEGIC MARKETING ISSUES
Market position deals with the question, “Who are our customers?” It refers to the
selection of specific areas for marketing concentration and can be expressed in terms of
market, product, and geographic locations.

Marketing mix refers to the particular combination of key variables under a corporation’s
control that can be used to affect demand and to gain competitive advantage.
Product life cycle is a graph
showing time plotted against the
monetary sales of a product as it
moves from introduction through
growth and maturity to decline.
 BRAND AND CORPORATE REPUTATION
Brand is a name given to a company’s product which identifies that item in
the mind of the consumer.
Corporate brand is a type of brand in which the company’s name serves as
the brand.
Corporate reputation is a widely held perception of a company by the
general public.
It consists of two attributes:
(1) stakeholders’ perceptions of a corporation’s ability to produce quality goods

(2) a corporation’s prominence in the minds of stakeholders.

 STRATEGIC FINANCIAL ISSUES

● Financial leverage (the ratio of total debt to total assets) is helpful in

describing how debt is used to increase the earnings available to common
shareholders.

● Capital budgeting is the analyzing and ranking of possible investments in

fixed assets such as land, buildings, and equipment in terms of the
additional outlays and additional receipts that will result from each
investment.
 STRATEGIC RESEARCH AND DEVELOPMENT
(R&D) ISSUES

R&D intensity- spending on R&D as a percentage of sales revenue

- principal means of gaining market share in global
competition

Technology transfer- the process of taking a new technology from

the laboratory to the marketplace.
 R&D MIX

Basic R&D is conducted by scientists in well-equipped laboratories

where the focus is on theoretical problem areas.
Product R&D concentrates on marketing and is concerned with
product or product-packaging improvements.
Engineering (or process) R&D is concerned with engineering,
concentrating on quality control, and the development of design
specifications and improved production equipment.
 Impact of Technological Discontinuity on Strategy
Technological discontinuity - when a new technology cannot
simply be used to enhance the current technology, but actually
substitutes for that technology to yield better performance.

Strategic Operations Issues

Intermittent systems Continuous systems
Operating leverage
-the item is normally - work is laid out as
-the impact of a
processed lines on which products
specific change in
sequentially, but the can be continuously
sales volume on net
work and sequence of assembled or
operating income.
the process vary processed.
 Increasing Use of Teams
Concurrent Engineering
Autonomous (self- Cross-functional specialists now work side
managing) a group of
work teams various by side and compare notes
people work together
disciplines are involve constantly in an effort to
without a supervisor to
in a project from the design cost-effective
plan, coordinate, and
beginning. products with features
evaluate their own work.
customers want.

Virtual teams are groups of geographically

and/or organizationally dispersed coworkers that
are assembled using a combination of
telecommunications and information
technologies to accomplish an organizational
task
Supply chain management is the forming of networks for sourcing raw
materials, manufacturing products or creating services, storing and distributing
the goods, and delivering them to customers and consumers
IFAS (Internal Factor Analysis Summary) Table
THANKYOU!