Chapter 3

Strategy Formulation
 Introduction

• Strategy formulation is the development of

long range plans for the effective management
of environmental opportunities and threats in
light of corporate strengths and weaknesses.
Strategic Formulation Process
 What is Company Vision?
• What do we want to become?
• Defines where the organization wants to be in the
future.
• It reflects the optimistic view of the organization's
future.
• A Vision statement outlines what a company wants
to be.
• It concentrates on future; it is a source of
inspiration; it provides clear decision-making criteria.
• A vision is an attempt to articulate what a desired
future for a company would look like.
 Contd..
• Vision defines the desired or intended future state
of an organization.

• Vision is a long term view, sometimes describing

how the organization would like the world in
which it operates to be.

• For example a charity working with the poor

might have a vision statement which read "A
world without poverty”.
 Contd…

• It refers to the broad category of long-term

intentions that the organization wishes to pursue.

• As the word ‘vision’ suggests, it is an image of

how the organization sees itself.

• It can be equated to a dream; the aspirations of

the organization for its future.
 Contd…
• Vision serves what an organization wishes to
achieve in long run.

• Strategic vision is a road map of a company’s

future; it creates a picture of a company’s
destination and provides a rationale for why this
destination makes good business sense for the
company.

• vision is concerned with “where we are going and

why,” i.e. it portrays a company’s future business
scope.
 Contd…

• El-Namaki (1992) considers vision as a

“mental perception of the kind of environment
an individual, or an organization, aspires to
create within a broad time horizon and the
underlying conditions for the actualization of
this perception.
• A vision statement, on the other hand,
describes how the future will look if the
organization achieves its mission.
 Contd…
• Experience shows that the most effective vision
statement results when a host of stakeholders (e.g.,
top-level managers, employees working in different
parts of the organization, suppliers, and customers)
are involved in developing it.

• A vision statement should be clearly tied to the

conditions in the firm’s external environment and
internal organization.
 Benefits of Vision statement
Vision provides direction and helps the organization prepare
for the future.
Vision provides guidance for decision-making.
Vision defines what you will and what you will not do.
Vision helps set priorities and guides planning.
Vision provides a source of inspiration.
Gets team focused.
It is a powerful motivator of action.
Vision articulates the position of an organization, which it
may attain in distant future.
Shows a picture of where the company is going.
Instills focus, discipline, and structure within the organization.
Ensures that team understands company direction.
 Features of Good Vision Statement
 Clarity and lack of ambiguity
 Paint a vivid(bright) and clear picture, not
ambiguous
 Describing a bright future (hope)
 Memorable and engaging expression
 Realistic aspirations, achievable
 Alignment with organizational values and culture,
Rational
 Time bound if it talks of achieving any goal or
objective
 contd..
Vision Statement Examples
To be the world leader in transportation products
and related services.” (General Motors).
“Our vision is to be the world’s best quick
service restaurant.” (McDonald’s)
“To make the automobile accessible to every
American.” (Ford Motor Company’s vision
when established by Henry Ford).
“A just world without poverty” (Oxfam)
To become preferred home of education in
Ethiopia by 2020(CPU college).
 Mission

• An organization’s mission is the purpose or the

reason for the organization existence.

• A well conceived mission statement defines the

fundamental, unique purpose that sets a company
apart from other firms of its type and identifies
the scope of the company's operation in terms of
the products offered and markets served.
 Contd…

• A mission statement may be defined narrowly or broadly

in scope.

• A broadly defined mission statement keeps the company

from restricting itself to one field or product line, but it
fails to clearly identify what it makes or which
product/market it plans to emphasize.
 Contd..
• A narrow mission very clearly states the
organizations primary business, but it may limit
the scope of the firm's activities in terms of
product or service offered, the technology used
and the market served.

• In comparison to vision, mission is relatively less

abstract, subjective, qualitative, philosophical &
non imaginative.

• Mission has a societal orientation.

 Contd…

• It is a statement, divulging what an organization,

intends to do for the society.
• Through the mission statement, an organization
gives a public statement specifying the direction
for different activities it would like to carry on.
• Mission has a societal orientation and is a
statement which reveals what an organization
intends to do for a society.
• Since a mission statement is often the most visible
and public part of the strategic management
process, it is important that it include most, if not
all, of these essential components. 
•
 Contd…
• Customers:  Who are the enterprise's customers?
• Products or services: What are the firm's major products or
services?
• Markets: Where does the firm compete?
• Technology: What is the firm's basic technology?
• Concern for survival, growth, and profitability:  What is the
firm's commitment towards economic objectives?
• Philosophy: What are the basic beliefs, core values,
aspirations and philosophical priorities of the firm?
• Self-concept: What are the firm's major strengths and
competitive advantages?
• Concern for public image: What is the firm's public image?
• Concern for employees: What is the firm's
attitude/orientation towards employees?
 Contd…

• It is a public statement which gives direction for

different activities which organizations have to
carry on.

• Organization’s mission becomes the cornerstone

for strategy.

• A mission statement gives the overall purpose of

an organization, while a vision statement
describes a picture of the "preferred future."
 Contd..

• Examples of mission statements,

“To organize world’s information and make it universal
accessible and useful”(Google).

“To be Earth’s most customer-centric company, where

customers can find and discover anything they might want to
buy online, and endeavors to offer its customers the lowest
possible prices.”(amazon.com).

“To give people the power to share and make the world more
open and connected.”(Facebook)
 Objectives

• Business organization translates their vision and

mission into objectives.

• Organizational objectives are defined as ends

which the organization seeks to achieve by its
existence and operation.

• Objectives are the end result of planned activity.

They state what is to be accomplished by when
and should be quantified if possible.
 Contd…
• The achievement of corporate objective should
result in the fulfillment of a corporate mission.

• In contrast to an objective, a goal is an open

ended statement of what one wants to accomplish
with no quantification of what is to be achieved
and no time criterion for completion.

• The areas in which a company might establish its

goals and objective are profitability, growth,
shareholder's wealth, utilization of resources etc.
 The d/ce b/n Goal & Objectives
Goals Objectives
• Goals are broad in their scope • objectives are narrow
• Goals are open ended statement • It state what is to be
with no quantification. accomplished by when and
• No time criterion for should be quantified if
completion. possible.
• Goals are general intentions • objectives are precise
• Goals are abstract. • objectives are concrete.
• Example, To increase profit • Example, To increase profit by
20% at the end of fiscal year(1
year).
 Assessing The Environment

• The business Environment -consists of all those

forces both internal and external that affect the
working of a business.
• It refers to the conditions, forces, events and
situations within which business enterprises have
to operate.
• Business and its environment are closely related
and the effectiveness of interaction of the two
determines the success or failure of a business
 Contd…
• The changes in the environment may create
opportunities, which the organizations try to
exploit or may bring threats for the organizations,
which the latter tries to control or neutralize.

• However, in order to develop successful strategies

to exploit such opportunities and control the
threats, analysis of an organization’s capabilities is
important for strategy making.
 Contd…
• Strategy formulation depends on the information
gathered from the internal and external
environment.

• Environmental scanning or analysis of the

environment determines the success of strategy
formulation.

• If an organization understands the environment in

which it operates, half the problem is solved.
 Contd,….

• This requires an analysis of what is happening

outside the organization and an evaluation of
current resources (strength and weaknesses) and
an assessment of opportunities and threats present
in the environment.

• Environment could be classified as external and

internal.
 Internal Environment
• The internal environment of a corporation consists
of variables (strengths and weaknesses) that are
within the organization and are not usually within
the short run control of top management. This
includes the corporation's culture, structure and
resources.

• Internal analysis is the process of identifying and

evaluating organizations specific characteristics
which possess strength and weakness.
 Contd…
• Generally, organization’s internal factors
includes:
The business mission
 Business objectives
 Business resources
Management commitment and
The management values which are all internal to
the organization and play a very important role in
the formulation of business policy.
 Contd…

Strength:
• Strength is the power and excellence with the resources,
skills and advantages in relation to the competitors.
• A strength is a distinct technical superiority such as,
 Best technical know-how
 Financial resources
 Skill of the people in the organization,
 Goodwill and image in the market for the product and
services,
 Company’s access to best distribution network,
 The discipline, morale, attitude and mannerisms of the
employees at all levels with a sense of belonging.
 Contd…
Weakness:
• Weakness is the incapability, limitation and
deficiency in resources such as technical, financial,
manpower, skills, brand image and distribution
pattern.

• It refers to constraints or obstacles, that arises

within the organization.
 Contd…

• The absence of certain strengths may be viewed

as a weakness. For instance:
Lack of patent protection
A weak brand name
Poor reputation among customers
High cost structure
Lack of access to the best natural resources
Lack of access to key distribution channels
 External Environment
• External environment includes all those factors and
forces which are external to the business organization.
• An organization is affected by a numbers of conditions in
the environment. Therefore, mangers must be aware of
these conditions in order to:
 Take advantage of opportunities.
 Reduces the impact of threats that can harm the
organization future.
• These external business environments can be general
classified into three types:
-General environment
-Industry environment and
-Competitive environment
 Contd…
• The general environment is composed of elements
in the broader society that can indirectly influence
an industry and the firms within the industry.
• Firms cannot directly control the general
environment’s segments and elements.

• The general business environment includes factors

such as economic, socio-cultural, demographic,
political/ legal, technological etc.
• These factors are beyond the control the company.
• The following, table gives the general segment of
each of these general environmental factors.
 Contd…

Discussion Question :
1. Discuss briefly how the general environment
segments posses opportunity and threats to firms
operating in particular economy?
 SEGMENTS OF THE GENERAL ENVIRONMENT

• The general environment consists of six segments:

demographic, economic, political/legal, socio-
cultural, global, and technological.
The Demographic Segment- is concerned with a
population’s size, age structure, geographic
distribution, ethnic mix, and distribution of
income.
i)Population Size
• While population size itself may be important to
firms that require a “critical mass” of potential
customers.
 Contd…
• One of the most important changes in a population’s
size is changes in a nation’s birth rate and/or family
size.
ii) Age Structure- Changes in a nation’s birth rate or
life expectancy can have important implications for
firms.
Are people living longer?
What is the life expectancy of infants?
These will impact the health care system (and firms
serving that segment) and the development of products
and services targeted to an older (or younger) population.
• An aging population tends to lower labor-force
participation and savings rates
 Contd….
(iii) Geographic Distribution: Population shifts from
one region of a nation to another or from non-
metropolitan to metropolitan areas may have an impact
on a company's strategic competitiveness.
• Issues that should be considered include:
Companies may have to consider relocation if
population shifts have a significant impact on the
availability of a qualified workforce.
The concepts of working-at-home and commuting
electronically on the information. These may imply
changes in recruiting and managing the workforce.
 Contd…

iv) Ethnic Mix

• This reflects the changes in the ethnic make-up of a
population and has implications both for a firm’s
potential customers and for the workforce.
• Issues that should be addressed include:
Will new products and services be demanded or can
existing ones be modified?
How will changes in the ethnicity of a population affect
the composition of the workforce?
Are managers prepared to manage a more culturally
diverse workforce?
How can the firm position itself to take advantage of
increased workforce heterogeneity?
 Contd…
v) Income Distribution
• Changes in income distribution are important
because changes in the levels of individual and
group purchasing power and discretionary
income(available for use) often result in changes
in spending (consumption) and savings patterns.

• Tracking, forecasting, and assessing changes in

income patterns may identify new opportunities
for firms.
 Contd…
The Economic Segment
• Refers to the nature and direction of the economy in
which a firm competes or may compete.
• Analysts must scan, monitor, forecast, and assess a
number of key economic indicators or elements,
including levels and trends of
Inflation rates and interest rates
Trade deficits and surpluses
budget deficits and surpluses
personal savings rates
Business savings rates
Gross domestic product
 Contd…
The Political/Legal Segment- It refers to the influence
exerted by three political institutions namely the
legislature, the executive and the judiciary in
developing and controlling business activities.

• Business decisions are greatly influenced by the

developments in the political environment.

• A change in the government brings about a change in

attitude, preference, objectives etc.
• For instance, Trump tax reform(US will loss 10 trillion dollar in
ten years
-In one Trump Twitter, amzon.com loss 7.5 billion dollar
 Contd…
• Business firms need to keep a track of all political
events, anticipate changes in government policies and
frame production and marketing strategies accordingly.
• Because of the influence that this segment can have on
the nature of competition as well as on the overall
profitability of industries and individual firms, analysts
must assess changes and trends in administration
philosophies regarding:
• Tax laws
• Industry deregulation
• Labor training laws
• Commitments to education
 Contd…

The Socio-cultural Segment-is concerned with

different societies’ social attitudes and cultural values.
• Every society has a culture of its own.
• Culture includes knowledge, belief, morals, laws,
customs and other capabilities and habits acquired by
an individual as a member of society.

• Cultural values are passed on from one generation to

another.
• Culture thus determines the types of goods and services
a business should produce.
• Business should realize the cultural differences and
bring out products accordingly.
 Contd….
The Technological Segment- Technology is the
systematic application of scientific or other organized
knowledge to practical tasks.

• Technological advancement makes it possible to

improve the quality of products, increase the output
and decrease the cost of product.

• Technological changes are rapid and to keep pace

with it, businessmen need to be alert and flexible in
order to quickly incorporate them in their business
organization so as to survive and succeed in the
competitive business world.
 Contd….

• The technological segment-includes creating new

knowledge and translating that knowledge into new
outputs, products, processes, and materials.

• Firms should pay careful attention to the

technological segment, since early adopters can gain
market share and above average returns.
 Contd…

The Global Segment- In the 21st-century

competitive landscape requires that firms also
must analyze global factors. Among the global
factors that should be assessed are:
The potential impact of significant international
events such as peace in the Middle East.
WTO principles
The identification of both important emerging
global markets and global markets that are
changing.
 Contd..

• The differences between cultural and

institutional attributes of individual global
markets (the focus in Korea on inhwa, or
harmony, based on respect for hierarchical
relationships and obedience to authority; the
focus in China on guanxi, or personal
relationships; the focus in Japan on wa, or
group harmony/social cohesion)
• Global market expansion opportunities
• The opportunities to learn from doing business
in other countries
 Contd…

• Analyzing the external environment is a difficult, yet

significant. An important objective of studying the general
environment is identifying opportunities and threats.
• Opportunities- represent conditions in the general
environment that may help a company achieve strategic
competitiveness .
• For example, the demographic trend indicating the
increment of the number of young aged population would
serve as a best opportunity for businesses intending to run
different services like Cafeteria, beauty salon and etc.
• By analyzing such situations, the companies can take
advantage of the significant growth in the number of
people in this market segment.
 Contd…

• Threats are conditions that may hinder or constrain a

company’s efforts to achieve strategic
competitiveness.
• Information used to analyze the general environment
can come from multiple sources: publications,
observation, attendance at trade shows, or
conversations with customers, suppliers, and
employees of public-sector organizations.

• One strategy that firms can use to enhance their

awareness of conditions in the external environment is
to establish an analysis process involving scanning,
monitoring, forecasting, and assessing
 The Industry Environment Analysis
• Industry is a group of firms producing products that are
close substitutes for each other (Coca-cola and Pepsi, Tea
and coffee).
• As they compete for market share, the strategies
implemented by these companies influence each.

• Unlike the general environment which has an indirect

effect on strategic competitiveness and firm profitability,
the effect of the industry environment is more direct.

• Michael Porter, contend that organizational performance

will be primarily determined by industry forces.
 Contd…
• The intensity of competition in an industry are a
function of five competitive forces (Porter’s Five-
Forces Model).

• Porter developed a framework for analyzing the

nature and extent of competition within an
industry.

• He suggested that there are five competitive forces

which determine the degree of competition within
an industry (see the diagram given below).
 Contd…

• Thus, an industry environment- is the constellation

factors that includes: threat of new entrants,
Bargaining Power of suppliers, Bargaining Power
of Buyers, Threat of Substitute Products, and the
intensity of rivalry among competitors—that
directly influence a firm and its competitive
decisions and responses.

• The Five Forces Model of Competition indicates

that these forces interact to determine the intensity
or strength of competition, which ultimately
determines the profitability of the industry.
 Contd…

• The next section discuses detail of the Porter’s five

forces indicated above.

Threat of New Entrants-

• A new entrant into an industry represents a

competitive threat to existing firms.

• It adds new production capacity and potential to

erode the market share of the existing industry.

 Contd..

• New entrants to an industry are important because, the

intensity of competitive rivalry in an industry generally
increases.

• This is because new competitors may bring substantial

resources into the industry and may be interested in
capturing a significant market share.

• If a new competitor brings additional capacity to the

industry when product demand is not increasing, prices
that can be charged to consumers generally will fall.
• This may also result a decline in sales and lower returns
for many firms in the industry.
 Contd..
• The threat of entry into an industry by new
competitors decreases when the barriers to entry
are high and strong. So managers may put up
substantial barriers to entry.
Barriers to Entry-
• Barriers to entering an industry are present when
entry is difficult or when it is too costly and places
potential entrants at a competitive disadvantage
(relative to firms already competing in the
industry).
 Contd…
• There are seven factors that represent potentially
significant entry barriers that can emerge as an
industry evolves or might be explicitly “erected” by
current participants in the industry to protect
profitability by deterring new competitors from
entry.

• Some barriers to new entrants in to an industry are :

 Contd…
A. Economies of scale available to existing
competitors
• Economies of scale refers to the relationship between
quantity produced and unit cost: As the quantity of a
product produced during a given time period
increases, the cost of manufacturing each unit
declines.
• Economies of scale exist in industries in which large
firms can produce goods at lower cost than small
firms.
• It will give them a competitive advantage over new
competitors who will not be able to match their lower
unit cost of production and cannot enter the field.
 Contd…
B. Product Differentiation:
• If customers perceive a product or service as unique, they
generally are loyal to that brand.

• Thus, new entrants may be required to spend a great deal of

money over a long period of time to overcome customer
loyalty to existing products.

• If the players in industry produce differentiated products and

customers are brand loyal, then potential new entrants will
encounter resistance in try to enter the industry.
• Brand loyalty will also be an important factor in increasing
the cost for customers of switching to the product of new
competitors.
 Contd…

C. Capital cost of entry

• Excessive capital requirement including investments in
plant equipment and working capital may impede a
firm’s entry into the market.

• A potential new entrant may not have sufficient capital

to enter the industry.

• The higher the investment required, the lesser the threat

from new entrants.

• So the capital cost can discourage the entry of other

manufacturing firms.
 Contd…

D. Switching Costs- are the costs that a consumer incurs

as a result of changing brands, suppliers or products.
 Contd…

E. Access to Distribution Channels:

• As existing firms in an industry generally have
developed effective channels for distributing
products, these same channels may not be
available to new firms entering an industry.

• Thus, access (or lack thereof) may serve as an

effective barrier to entry. so new competitors
may find difficult to gain access to channel of
distribution.
 Contd…

• Government Policy: Governments (at all levels)

are able to control entry into an industry through
licensing and permit requirements.
• For example, at the firm level, entry into the
banking industry is regulated at both the federal
and state levels.
• In some cases, state and/or federal licensing
requirements limit entry into the personal
services industry (securities sales and law), while
in others only state requirements may limit entry
(barbers and beauticians).
 Contd…

• While new entrants may be able to overcome

perceived uniqueness and brand loyalty, the cost
of such strategies generally will be high: offering
lower prices, adding additional features, or
allocating significant funds to a major advertising
and promotion campaign.

• In the short run, new entrants that try to overcome

uniqueness and brand loyalty may suffer lower
profits or may be forced to operate at a loss.
 Contd..
Threat of Substitute Products
• All firms must recognize that they compete
against firms producing substitute products.
• substitute products are those products that are
capable of satisfying similar customer needs.
• The threat of substitute products increases when:
 Buyers face few switching costs
The substitute product’s price is lower
 Substitute product’s quality and performance are
equal to or greater than the existing product.
 Contd…
• Firms can offset the attractiveness of substitute
products by differentiating their products in
ways that are perceived by customers as
relevant. Viable strategies might include
price, product quality, product features,
location, or service level.
 Contd…

Bargaining Power of Buyers

• Buyers of an industry product can exert bargaining
power over that industry by forcing prices down, by
reducing the amount of good they purchase from the
industry, by demanding better quality for the same
price.
• Buyer bargain power increases when:
Buyers are large and few in number
Buyers purchase a large portion of an industry’s total
output.
 Contd…

Buyers’ purchases are a significant portion of a

supplier’s annual revenues
Buyers can switch to another product without
incurring high switching costs
suppliers’ products are undifferentiated and
standardized
Substitutable products are available
 Contd..
Bargaining Power of Suppliers
• Suppliers are powerful when firm profitability is
reduced by suppliers’ actions.
• Suppliers can exert their power by raising prices or
by restricting the quantity and/or quality of goods
available for sale.
• The suppliers bargaining power increases the
industry when:
The industry is dominated by a few large suppliers
companies .
Substitute products are not available to industry
firms
 Contd..
Industry firms are not a significant customer
group for the supplier group
Suppliers’ goods are critical to buyers’
marketplace success
Suppliers’ products creates high switching
costs for buyers
suppliers represent a credible threat to
integrate forward into the buyers’ industry,
especially when suppliers have substantial
resources and
Suppliers’ products are highly differentiated.
 Contd..

• In the airline industry, suppliers’ bargaining

power is changing. There are few suppliers, but
demand for the major aircraft is also low. Boeing
and Airbus compete strongly for most orders of
major aircraft.
• However, China recently announced plans to
enter the market by building large commercial
aircraft, significant in a country which is
projected to purchase thousands.
 Contd…

Intensity of Rivalry among Competitors in the

industry
• Because an industry’s firms are mutually dependent,
actions taken by one company usually invite
competitive responses.

• In many industries, firms actively compete against

one another.

• Competitive rivalry intensifies when a firm is

challenged by a competitor’s actions.
 Contd…
• The intensity of rivalry in an industry depends
upon the extent to which firms in an industry
compete with one another to achieve strategic
competitiveness because success is measured
relative to other firms in the industry.

• Competition can be based on price, after sales

service, quality, or innovation.
 Contd..
• In addition to actions and reactions that result
from competitive forces in the industry (threat of
new entry, power of suppliers and buyers, and
threat of substitute products),the intensity of
competitive rivalry is also a function of a number
of other factors.
 Contd…
Industry rivalry increases when:
 There are numerous or equally balanced competitors
• Rivalry also will be intense in an industry when firms with
equivalent resources and power are available in the
industry.
• For example, battles for market share,
In the fast food industry between McDonald’s and Burger King
In the automobile industry between General Motors,
Ford, and Toyota
In athletic shoes between Nike and Reebok.
Boeing versus Airbus
are examples of intense rivalry between relatively
equivalent competitors.
 Contd…
 High Fixed Costs or High Storage Costs-
• When an industry is characterized by high fixed costs
relative to total costs, firms produce in quantities that are
sufficient to use a large percentage, so that fixed costs
can be spread over the maximum volume of output.

• Consequently, this may lower per unit costs and result

in excess supply if market growth is not sufficient to
absorb the excess inventory.
 Contd..
• The intensity of competitive rivalry increases as
firms use price reductions, and discounts or special
terms to reduce inventory.

• High storage costs, especially those related to

perishable or time-sensitive products (such as fruits
and vegetables) also can result in high levels of
competitive intensity as such products rapidly lose
their value if not sold within a given time period.

• Pricing strategies often are used to sell such products.

 Contd…

 Lack of Differentiation or Low Switching Costs-

• Firms that produce the products that are not
characterized by brand loyalty or perceived
uniqueness faces intense competition from rivals.

• For such products, industry rivalry is more intense

and competition is based primarily on price,
service, and other features of interest to
consumers.
 Contd…
• Switching costs can be used to decrease the
likelihood that customers will switch to
competitors’ products.

• Products for which customers incur no or few

switching costs are subject to intense price-
and service-based competition, similar to
undifferentiated products.
 Contd…

 When the strategic stakes are high-

• The intensity of competitive rivalry increases

when success in an industry is important to a large
number of firms.
 Contd…

 When high exit barriers prevent competitors from

leaving the industry

• Exit barriers—created by economic, strategic, and

emotional factors that cause companies to remain
in an industry, even though the profitability of
doing so is in question—also can increase the
intensity of competition in an industry.

• The higher the barriers to exit, the greater the

probability that competitive actions and reactions
will include price cuts and extensive promotions.
 Competitor Analysis
• Represents the firm’s understanding of its current
competitors.

• Competitors are rivalry firms /companies that serve

the same basic customer needs.

• For example, Total Ethiopia and Oilibiya, and Selam bus, and
Sky bus should be keenly interested in understanding each
other’s objectives, strategies, assumptions, and capabilities, in
order to understand each other’s competitive position.

• Competitor analysis represents a necessary adjunct

to performing an industry analysis.
 Contd…
• In a competitor analysis, the firm seeks to
understand the following:
What are the competitor, future objectives?

What the competitor is doing and can do, as

revealed by its current strategy?

What the competitor believes about the industry, as

shown by its assumptions?

What the competitor’s capabilities are, as shown by

its strengths and weaknesses?
 Contd…

• The following are important distinctions to

make regarding different external analyses:
 Analysis of the general environment focuses
on the future.
 Industry analysis focuses on factors and
conditions influencing firm profitability within
its industry.
 Competitor analysis focuses on predicting the
dynamics of rivals’ actions, responses, and
intentions.
 Contd…
Discuss in group on the following questions
1. What is strategic group mean?
2. What is competitive advantage?