UNIT-I

STRATEGY AND THE ORGANIZATION

Contents:
Concepts in Strategic Management, Strategic Management as a process –Developing a strategic
vision, Mission, Objectives, and Policies – Factors that shape a company‘s strategy – Crafting a
strategy – Industry and Competitive Analysis.

What is Strategy?
A combination of the words stratos, which meant ―army‖, an age in meaning
―to lead‖. Greek Language (6th century BC). A strategy is a comprehensive action plan that
identifies long-term direction and guides resource utilization to accomplish organizational
goals with sustainable competitive advantage. It results in superior performance to that of its
rivals it is said to have competitive advantage. For example, Wal-Mart‘s strategy of focusing
on cost savings from efficient logistics and information systems, and then passing on these
cost savings on to customers in the form of lower prices, has enabled the company to gain
ever more market share thereby boosting profitability.
Business Strategy:
A business strategy is a set of competitive moves and actions that a business uses to attract
c u s t o m e r s , compete successfully, strengthening performance, and achieve organizational
goals. It outlines how business should be carried out to reach the desired ends. Strategy equips the
top management with an integrated framework, to discover, analyze and exploit beneficial
opportunities, to sense and meet potential threats, to make optimum use of resources and strengths,
to counterbalance weakness.
Strategic Management:
Strategic Management is that set of managerial decisions and actions that determine the
long-term performance of a business enterprise. It involves formulating and implementing strategies
that will help in aligning the organization and its environment to achieve organizational goals.
Definition: Strategy:
• Strategy is the determination of the basic long-term goals and objectives of an enterprise and
the adoption of the courses of action and the allocation of resources necessary for carrying out
these goals. – By Alfred D Chandler.
• Strategy is the pattern of objectives, purpose, goals and the major policies and plans for
achieving these goals stated in such a way so as to define what business the company is in
to be and the kind of the company it is or is to be. – By Kenneth Andrews

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Definition: Strategic Management:
• Strategic management is a stream of decisions and actions which leads to the
development of an effective strategy or strategies to help achieve corporate objectives. -
Glueck
• SM is the process which deals with the fundamental organizational renewal and growth
with the development of strategies, structures and systems necessary to achieve such
renewal and growth and with the organizational systems needed to effectively manage the
strategy formulation and implementation processes. – Hofer.
Purpose of strategic management:
• Achieving effectiveness
• Perceiving and utilizing opportunities
• Mobilizing resources
• Securing an advantageous position
• Meeting challenges and threats
Characteristics of Strategic Management:
• Top management involvement
• Requirement of large amounts of resources
• Affect the firm‘s long-term prosperity
• Future-oriented.
• Multi-functional or multi-business consequences
• Non-self-generative decisions.
Features of Strategies:
• Strategies consist of general programme of action to be perused for achieving
organizational goals.
• Strategy involves choices that determine the nature and direction of the organization‘s
activities towards the attainment of goals.
• Strategies include tactics used by the opponents. They are meant not only to achieve
business goals but also to counter certain steps taken by the competitors.
• Strategy is a right combination of both internal and external factors. The strengths and
weaknesses of the organization and the likely impact of external factors should be
analyzed before deciding a policy for the future.
• Strategies are never static. They have to be modified or changed as per the needs of
the situation.

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Levels of Business Strategy:
• Corporate level strategy: Corporate-Level Strategy refers to the top management‘s
approach or game plan for administering and directing the entire concern. These are
based on the company‘s business environment and internal capabilities. It also called
as Grand Strategy. Corporate level strategy is a long-range, action-oriented, integrated
and comprehensive plan formulated by the top management. It is used to ascertain
business lines, expansion and growth, takeovers and mergers, diversification,
integration, new areas for investment and divestment and so forth.
Features of Corporate Level Strategy
• Corporate Level Strategies is developed by the company‘s highest level of
management considering the company‘s overall growth and opportunities in future.
• It describes the orientation and direction of the enterprise in the long run and the
overall boundaries which acts as the basis for formulating the company‘s middle and low-
level strategies, i.e. business strategies and functional strategies.
Business level strategy:
• Business level strategy: The strategies that relate to a particular business are known as
business-level strategies. It is developed by the general managers, who convert
mission and vision into concrete strategies. It is like a blueprint of the entire business.
Features of Business Level Strategy:
• Business-Level Strategies are mainly concerned with the firms having multiple
businesses and each business is considered as Strategic Business Unit (SBU). It
determines how the firm is going to compete in the market within each Line of
Business. So; these strategies are the course of action selected by a firm for each line
of business or SBU individually and intend to attain competitive advantage, in
separate lines of business.
Functional level strategy:
• Functional level strategy: Functional Level Strategy can be defined as the day to day
strategy which is formulated to assist in the execution of corporate and business level
strategies. These strategies are framed as per the guidelines given by the top level
management. Developed by the first-line managers or supervisors, functional level
strategy involves decision making at the operational level concerning particular
functional areas like marketing, production, human resource, research and
development, finance and so on.

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Features of Functional Strategy:
• It assists in the overall business strategy, by providing information concerning the
management of business activities.
• It explains the way in which functional managers should work, so as to achieve better
results.
• Functional Strategy states what is to be done, how is to be done and when is to be
done which ultimately acts as a guide to the functional staff.
Concepts/Components in Strategic Management:
• Competitive Advantage: Strategic management is all about gaining and
maintaining competitive advantage. This term can be defined as any activity a firm
does especially well compared to activities done by rival firms, or any resource a firm
possesses that rival firms desire. A firm must strive to achieve sustained competitive
advantage by (1) Continually adapting to changes in external trends and events and
internal capabilities, competencies, and resources; and (2) Effectively formulating,
implementing, and evaluating strategies that capitalize on those factors.
• Strategic Intent: An organization‘s strategic intent is the purpose that it exists and
why it will continue to exist, providing it maintains a competitive advantage. Strategic
intent gives a picture about what an organization must get into immediately in order to
achieve the company‘s vision. It motivates the people. It clarifies the vision of the
company. Strategic intent helps management to emphasize and concentrate on the
priorities.
• Strategic Analysis: The foundation of strategy is a definition of organizational
purpose. This defines the business of an organization and what type of organization it
wants to be. Many organizations develop broad statements of purpose, in the form of
vision and mission statements. This analysis allows the organization to set more
specific goals or objectives which might specify where people are expected to focus
their efforts.
• Strategic Choice: The analysis stage provides the basis for strategic choice. It allows
managers to consider what the organization could do given the mission, environment
and capabilities – a choice which also reflects the values of managers and other
stakeholders.
• Strategists : Strategists are the individuals most responsible for the success or failure
of an organization. They have various job titles, such as chief executive officer,
president, and owner, chair of the board, executive director, chancellor,
dean, and entrepreneur. Strategists they track industry and competitive trends,

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 develop forecasting models and scenario analyses, evaluate corporate and divisional
performance, spot emerging market opportunities, identify business threats, and
develop creative action plans.
• Vision and Mission Statements: Many organizations today develop a vision statement
that answers the question ―What do we want to become?‖ Developing a vision
statement is often considered the first step in strategic planning, preceding even development
of a mission statement. Many vision statements are a single sentence. For example, the
vision statement of Stokes Eye Clinic in Florence, South Carolina, is
―Our vision is to take care of your vision‖. Mission is ―enduring statements of
purpose that distinguish one business from other similar firms. A mission statement
identifies the scope of a firm‘s operations in product and market terms.‖ It addresses the
basic question that faces all strategists: ―What is our business?‖ A clear mission
statement describes the values and priorities of an organization.
• Long-Term Objectives: Objectives can be defined as specific results that an
organization seeks to achieve in pursuing its basic mission. Long-term means more
than one year. Objectives are essential for organizational success because they
provide direction; aid in evaluation; create synergy; reveal priorities; focus
coordination; and provide a basis for effective planning, organizing, motivating, and
controlling activities. Objectives should be challenging, measurable, consistent,
reasonable, and clear. In a multidimensional firm, objectives are needed both for the
overall company and each division.
• Annual Objectives: Annual objectives are short-term milestones that organizations
must achieve to reach long-term objectives. Like long-term objectives, annual
objectives should be measurable, quantitative, challenging, realistic, consistent, and
prioritized.
• Policies: Policies are the means by which annual objectives will be achieved. Policies
include guidelines, rules, and procedures established to support efforts to achieve
stated objectives.
Strategic Management Process:
Strategic Management is all about specifying organization‘s vision, mission and
objectives, environment scanning, crafting strategies, evaluation and control. Strategic
management involves certain functions or activities. The systematic way of doing these
functions or activities is described as strategic management process.
• Environmental Scanning- Environmental scanning refers to a process of collecting,
scrutinizing and providing information for strategic purposes. It helps in analyzing the

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 internal and external factors influencing an organization. After executing the
environmental analysis process, management should evaluate it on a continuous basis
and strive to improve it.
• Strategy Formulation: Strategy formulation is the first phase in the strategic
management process. It is concerned with devising a suitable plan of action after
studying the external business environment, analyzing the industry and assessing the
internal capabilities of the business concern. It involves six important steps.
❖ Defining the company mission,
❖ Analysis of the external business environment.
❖ Industry analysis.
❖ Internal analysis of the firm.
❖ Strategic alternatives.
❖ Strategic choice.
• Strategy Implementation: Strategy implementation is the second phase in the
strategic management process. It is concerned with putting the strategy into operation
or translating the strategy into strategic action. It necessitates three interrelated
activities of (i) Determination of annul objectives, (ii) Development of specific
functional strategies, and (iii) Development of policies. For the successful
implementation, the strategy must be also institutionalized through structure,
leadership, and culture.
• Strategy Evaluation and Control: Strategy evaluation and control is the last phase
in the strategic management process. Strategy evaluation is concerned with examining
whether the strategy implemented is working or producing results or accomplishing
its objectives or not. Strategic control is concerned with continuous monitoring and
tracking the strategy— putting the strategy in the right path or direction.
Decision Making Process:
• Define the Problem - Consider these questions:
❖ What is the problem? Can it be solved? Is this the real problem or a symptom
of a larger one?
• Gather Information - Seek information on how and why the problem occurred:
❖ Stakeholders: Talk to individuals or groups affected by the problem.
❖ Facts & data: Research, benchmarking studies, interviews with credible
sources, observed events etc.
• Develop and Evaluate Options - Generate a wide range of options:

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 ❖ Choose options that show promise, need more information, can be combined
or eliminated, or will be challenged.
• Choose the Best Action - Select the option that best meets the decision objective:
❖ Consider factual data, your intuition, and your emotional intelligence when
deciding a course of action.
• Implement and Monitor the Decision - Develop a plan to implement and monitor
progress on the decision:
❖ Step-by-step process or actions for solving the problem.
❖ Communications strategy for notifying stakeholders.
Modes of Strategic Management:
Strategy making, in reality, is much different from the theoretical procedure which is
recommended for strategy formulation. As a matter of fact, strategy making is a very
practical and skilled art of management; which grows on management with long experience.
From the practical viewpoint, there may be the following three modes of strategy making:
• Entrepreneurial Mode: Under this mode, the entrepreneur, who is the founder of the
organization or the descendant of the founder; decides upon strategies – on the basis
of his wisdom, experience, foresight, intuition etc.
• Adaptive Mode: Under this mode of strategy making, once the strategy is put into
practice; the management keeps a close watch on environmental happenings and
trends; and keeps adapting (or adjusting) strategies in the light of environmental
developments.
• Planning Mode: This is the scientific mode of strategy making; which is based on
SWOT analysis, gap analysis and other logical steps required in strategy formulation,
like development of strategic alternatives and their evaluation leading to the choice of
final strategy. Organizations governed by professional managers, follow this approach
to strategy formulation.
Developing a strategic vision, Mission, Objectives, and Policies:
• Vision: A vision statement identifies where the organization wants or intends to be in
future or where it should be to best meet the needs of the stakeholders. It describes dreams
and aspirations for future. For instance, Microsoft’s vision is ―to empower people
through great software, any time, any place, or any device.‖ Wal-Mart’s vision is to
become worldwide leader in retailing.
• A vision is the potential to view things ahead of themselves. It answers the question
―where we want to be‖. It gives us a reminder about what we attempt to develop An
effective vision statement must have following features-
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 • It must be unambiguous.
• It must be clear.
• It must harmonize with organization‘s culture and values.
• The dreams and aspirations must be rational/realistic.
• Vision statements should be shorter so that they are easier to memorize.
Developing Vision Statement:
These 7 simple steps will help define your company vision.
• Know your goals
• Consider your company‘s values
• Building on a mission statement for a great company vision
• A simple company vision is key
• Don‘t be ambiguous
• Be forward thinking
• Establish timeframes.
Strategic vision and Core Values:
What are company core values?
As a definition, company core values are the clearly stated principles about the
organization‘s vision, mission, and principles. That way, everyone is aligned around a
guiding philosophy to serve employees, customers, and the broader community. The core
values of a company are intrinsic - they come from leaders inside of the company.
Elements of core values:
Here‘s a more expansive list of values that companies consider important.
• Integrity.
• Honesty.
• Fairness.
• Accountability.
• Promise to Customers.
• Diversity and Inclusion.
• Learning
• Teamwork.
• Passion.
• Quality.

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Benefits of having a vision and mission statement are discussed below:
• Above everything else, vision and mission statements provide unanimity of
purpose to organizations and instill the employees with a sense of belonging and
identity.
• The vision and mission statements help to translate the objectives of the
organization into work structures and to assign tasks to the elements in the
organization that are responsible for actualizing them in practice.
Features of a Mission
• Mission must be feasible and attainable. It should be possible to achieve it.
• Mission should be clear enough so that any action can be taken.
• It should be inspiring for the management, staff and society at large.
• It should be unique and distinctive to leave an impact in everyone‘s mind.
Components of a Mission Statement:
• Basic product or service: What are the firm‘s major products or services?
• Primary markets: Where does the firm compete?
• Principal technology: Is the firm technologically current?
• Customers: Who are the firm‘s customers?
• Company philosophy: What are the basic beliefs, values, aspirations and ethical
priorities of the firm?
Objectives:
Objectives are defined as goals that organization wants to achieve over a period of
time. These are the foundation of planning. Policies are developed in an organization so
as to achieve these objectives. Formulation of objectives is the task of top level
management.
Characteristics of Objectives:
• Specific, Quantifiable, Measurable, Clear, Consistent, Reasonable, Challenging, Contain
a deadline for achievement, Communicated, throughout the organization
Role of Objectives:
• They provide legitimacy, They state direction, They aid in evaluation, They create
synergy, They reveal priorities, They focus coordination, They provide basis for resource
allocation They act as benchmarks for monitoring progress.
• Policies: Policies are designed to guide the behavior of managers in relation to the pursuit
and achievement of strategies and objectives. Policies are instrument for strategy
implementation. The term policy has various definitions in management literature. Some

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 authors equate policy with strategy. Others do this inadvertently by using "policy" as a
synonym for company mission, purpose or culture.
Policies and procedures help enforce strategy implementation in several ways:
• Policy institutionalizes strategy-supportive practices and operating procedures
throughout the organization.
• Policy reduces uncertainty in repetitive and day-to-day activities in the direction of
efficient strategy execution.
• Policy limits independent action and discretionary decision and behavior. Procedures
establish steps how things are to be handled.
• Policy helps align actions and behaviors with strategy. This minimizes zigzag
decisions and conflicting practices and establishes consistent patterns of action in
terms of how the organization is attempting to make the strategy work.
• Policy helps establish a fit between corporate culture and strategy.
Features of policies:
• Policies should reflect objectives, Policies should be consistent, Policies which
conflict with each other should be avoided. Policies should be flexible; In general
policies should neither be ignored nor departed from indiscriminately, Policies should
be controlled, stated policies can be assessed and controlled as part of any formal
planning system and strategic review.
Advantages of policies:
• Managers are required to think through the policy's meaning, content, and intended
use.
• The policy is explicit so misunderstandings are reduced.
• Equitable and consistent treatment of problems is more likely.
• Unalterable transmission of policies is ensured.
• Authorization or sanction of the policy is more clearly communicated, which can be
helpful in many cases.
Factors that shape a company strategy:
• Environmental Constraints: The dynamic elements of environment affect the way in
which choice of strategy is made. The survival and prosperity of a firm depend largely on
the interaction of the elements of environment—such as shareholders, customers,
suppliers, competitors, the government and the community. These elements constitute the
external constraints. The flexibility in the choice of strategy is often governed by the
extent and degree of the firm‘s dependence on the environment.

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• Dynamism of Market Sector: Glueck has said, ―The strategic choice is affected by the
relatively volatility of market sector the firm chooses to operate in.‖ Market forces vehemently
influence the choice of strategy. For example, a firm which obtains bulk supply of its raw
materials or components in a competitive market will have greater flexibility in its strategic
choice than another firm which has to depend for its supplies on an oligopolistic market.
• Intra-Organizational Factors: Organizational factors also affect the strategic choice.
These include organizational mission, strategic intent, goals, organization‘s business
definition, resources, policies, etc. Besides these factors, organizational strengths,
weaknesses, and capability to implement strategic alternatives also affect the strategic
choice.
• Corporate Culture: In choosing a strategic alternative, strategy makers must consider
pressures from the corporate culture. They must assess a strategy‘s compatibility with that
culture. Every organization has its own corporate culture. It is made of a set of shared
values, beliefs, attitudes, customs, norms, etc. The successful functioning of an
organization depends on ‗strategy-culture fit‘.
• Industry and Cultural Backgrounds: Industry and cultural backgrounds affect strategic
choice. For example, executives with strong ties within an industry tend to choose
strategies commonly used in that industry. Other executives who have come to the firm
from another industry and have strong ties outside the industry tend to choose different
strategies from what is being currently used in their industry.
• Pressures from Stakeholders: The attractiveness of a strategic alternative is affected by
its perceived compatibility with the key stakeholders in a corporation‘s task environment.
Creditors want to be paid on time. Unions exert pressure for comparable wage and
employment security. Governments and interest groups demand social responsibility.
Shareholders want dividends. All these pressures must be given some consideration in the
selection of the best alternative.
• Impact of Past Strategies: It has been noticed that the choice of current strategy may be
influenced by what type of strategies have been used or followed in the past. Pearce and
Robinson have said, ―A review of past strategy is the point at which the process of
strategic choice begins. As such past strategy exerts considerable influence on the final
strategic choice.‖
• Personal Characteristics: Personal factors like own perception, views, interests,
preferences, needs, aspirations, personal disposition, ambitions, etc., are important and
play a vital role in affecting strategic choice. Even the most attractive alternative might

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 not be selected if it is contrary to the attitude, mindset, needs, desires and personality of
the selector/strategist himself.
• Value System: The role of value system in choosing a strategic alternative is well
recognized. While evaluating the strategic alternatives, different executives may take
different positions because of differences in their personal values. Guth and Tagiuri found
that personal values were important determinants of the choice of corporate strategy.
Similarly, value system to top management affects the types of strategy that an executive
chooses.
• Managerial Attitude towards Risk: Managerial attitude towards risk is an important
factor that influences the choice of strategy. Individuals differ considerably in their
attitude towards risk taking. Some are risk prone, others are risk averse.

Crafting a Strategy:
A ‗Strategy‘ reflects managerial choices among alternatives. It signals organizational
commitment to particular products, markets, competitive approaches, and ways of operating
the enterprise. Strategy making brings into play the critical managerial issue of how to
achieve the targeted results in the light of the organization‘s situation and prospects. Objectives are
the ―ends‖, and strategy is the ―means‖ of achieving them.
Importance of crafting a strategy:
• Increased competitiveness and stronger business position.
• Winning additional market share.
• Overtaking key competitors on product quality or customer service or product
innovation.
• Achieving lower overall costs than rivals.
• Boosting the company‘s reputation with customers.
• Winning a stronger foothold in international markets,
The ‘hows’ of strategy:
• How to grow the business.
• How to satisfy customers.
• How to outcompete rivals.
• How to respond to changing market conditions.
• How to manage each functional piece of the business and develop needed
organizational capabilities.
• How to achieve strategic and financial objectives.
Crafting a strategy involves:
• Developing an intended strategy.
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 • Adapting it as events unfold (adaptive/reactive strategy), and linking the firm‘s
business approaches, actions, and competitive initiatives closely to its competences
and capabilities.
Importance of firm and environment to develop a strategy:
Analyzing firm and Environmental is necessary because there are rapid changes
taking place in the environment that has a great impact on the working of the business firm.
The following is the need and importance of firm and environment in developing a strategy:
• Optimum use of resources
• Survival and growth
• To plan long-term business strategy
• To aid decision-making
Industry Analysis:
An industry analysis is significant business function which is performed by business
proprietors and other management experts to evaluate the present business environment. This
is considered as effective market assessment tool designed to provide a business with an idea
of the intricacy of a particular industry. Industry analysis reviews the economic, political and
market factors that influence the way the industry develops. Major factors can include the
power manipulated by suppliers and buyers, the condition of competitors, and the possibility
of new market entrants.
Benefits:
• Industry analysis assists businesses to comprehend many economic factors of the
marketplace.
• To gain a competitive advantage
• To perform this important business functions
• To summarize specific components of the economic marketplace
• To secure external financing from banks or lenders.
Porter's Five Forces Analysis:
The primary model to assess the structure of industries was developed by famous
management theorist, Michael E. Porter in his 1980 book Competitive Strategy: Techniques
for Analyzing Industries and Competitors. Main purpose of Five Forces is to determine the
attractiveness of an industry. However, the analysis also provides basis for articulating
strategy and understanding the competitive scene in which a company operates.

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Porter's Five Forces:
The tool was created by Harvard Business School professor Michael Porter, to
analyze an industry's attractiveness and likely profitability. Since its publication in 1979, it
has become one of the most popular and highly regarded business strategy tools.
Porter recognized that organizations likely keep a close watch on their rivals, but he
encouraged them to look beyond the actions of their competitors and examine what other
factors could impact the business environment. He identified five forces that make up the
competitive environment, and which can erode your profitability. These are:
• Competitive Rivalry: This looks at the number and strength of your competitors. How
many rivals do you have? Who are they, and how does the quality of their products and
services compare with yours? Where rivalry is intense, companies can attract customers
with aggressive price cuts and high-impact marketing campaigns. Also, in markets with
lots of rivals, your suppliers and buyers can go elsewhere if they feel that they're not
getting a good deal from you. On the other hand, where competitive rivalry is minimal,
and no one else is doing what you do, then you'll likely have tremendous strength and
healthy profits.
• Supplier Power: This is determined by how easy it is for your suppliers to increase their
prices. How many potential suppliers do you have? How unique is the product or service
that they provide, and how expensive would it be to switch from one supplier to another?
The more you have to choose from, the easier it will be to switch to a cheaper alternative.

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 But the fewer suppliers there are, and the more you need their help, the stronger their
position and their ability to charge you more. That can impact your profit.
• Buyer Power: Here, you ask yourself how easy it is for buyers to drive your prices down.
How many buyers are there, and how big are their orders? How much would it cost them
to switch from your products and services to those of a rival? Are your buyers strong
enough to dictate terms to you? When you deal with only a few savvy customers, they
have more power, but your power increases if you have many customers.
• Threat of Substitution: This refers to the likelihood of your customers finding a
different way of doing what you do. For example, if you supply a unique software
product that automates an important process, people may substitute it by doing the
process manually or by outsourcing it. A substitution that is easy and cheap to make can
weaken your position and threaten your profitability.
• Threat of New Entry: Your position can be affected by people's ability to enter your
market. So, think about how easily this could be done. How easy is it to get a foothold in
your industry or market? How much would it cost, and how tightly is your sector
regulated? If it takes little money and effort to enter your market and compete effectively,
or if you have little protection for your key technologies, then rivals can quickly enter
your market and weaken your position. If you have strong and durable barriers to entry,
then you can preserve a favorable position and take fair advantage of it.
Steps in Industry analysis:
• Identify industry and provide a brief overview.
• Summarize the nature of the industry.
• Provide a forecast for industry.
• Identify government regulations that affect the industry.
• Analyze unique position within the industry
• List potential limitations and risks.
• Visiting to tradeshows and business events.
Steps/process in Industry analysis:
Competitive Analysis:
Competition refers to rivalry among various firms operating in a particular market that
satisfy the same customer needs. An industry‘s structure affects its long run profitability.
Therefore, competitors should be understood and monitored. In formulating business
strategy, managers must consider the strategies of the firm competitors. While in highly
fragmented commodity industries the moves of any sir competitor may be less important, in
concentrated industries competitor analysis becomes a vital part of strategic planning.

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A competitive analysis is a research process that uncovers who your competitors are and how
their products, positioning, strengths, and weaknesses compare to your brand. It‘s an analysis
that helps you answer competitive research questions like:
• Where does our brand stand?
• What can we do that‘s the same as our competitors?
• What can we do that‘s different from our competitors?
• What are the opportunities in our market?
• What can we do to beat competitors?
• Where do we need to focus?
Competitor Analysis Framework:
Michael Porter presented a framework for analyzing competitors. This framework is
based on the following four key aspects of a competitor:
• Competitor's Current Strategy: The two main sources of information about a
competitor's strategy is what the competitor says and what it does. What a competitor
is saying about its strategy is revealed in: Annual shareholder reports, Interviews with
analysts, Statements by managers, Press releases.
• Competitor's Objectives: Knowledge of a competitor's objectives facilitates a better
prediction of the competitor's reaction to different competitive moves. For example, a
competitor that is focused on reaching short-term financial goals might not be willing
to spend much money responding to a competitive attack. Rather, such a competitor
might favor focusing on the products that hold positions that better can be defended.
On the other hand, a company that has no short term profitability objectives might be
willing to participate in destructive price competition in which neither firm earns a
profit.
• Competitor's Assumptions: The assumptions that a competitor's managers hold
about their firm and their industry help to define the moves that they will consider.
For example, if in the past the industry introduced a new type of product that failed,
the industry executives may assume that there is no market for the product. Such
assumptions are not always accurate and incorrect may present opportunities.
• Competitor's Resources and Capabilities: A competitor's capabilities can be
analyzed according to its strengths and weaknesses in various functional areas, as is
done in a SWOT analysis. The competitor's strengths define its capabilities. The
analysis can be taken further to evaluate the competitor's ability to increase its
capabilities in certain areas.

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