MGT302_STRATEGIC MANAGEMENT

WEEK 2

BY FARRUKH IDREES

Presentation Sections


Introduction: Aim of the lecture, Some Concepts about environmental scanning Details: External assessment (Factors related to PEST) Conclusion: Summary

Why to go for Strategic Management?



There is one and only one social responsibility of business; to use its resources and energy in activities designed to increase its profits so long as it stays within the rules of the game and engages in open and free competition, without deception and fraud.

Corporate goals:
   

Profitability Growth Resource Utilization (ROI, ROE) Market Leadership

Strategic Management


Set of decisions and actions that result in formulating of strategy and its implementation to achieve the objectives of the corporation

Strategic Management


Systematic analysis of the factors associated with customers and competitors (the external environment) and the organization itself (the internal environment) to provide the basis for rethinking the current management practices. Its objective is to achieve better alignment of corporate policies and strategic priorities.

Strategic Decision Making Distinctions



It is marked by four key distinctions

It is based on a systematic, comprehensive analysis of internal attributes, and factors external to the organisation It is long term and future oriented-usually several years to a decade or longer-but built on knowledge about the past or present.

Third it is distinctively opportunistic, always seeking to take advantage of facorable situations that occur outside the organisation. Strategic thinking involves choices

Aim of the session



Practical framework for gathering, assimilating, and analyzing external information. Over view of I/O approach of strategic management

Environmental Scanning
 

External Assessment/Industry Analysis/External Audit It focuses on identifying and evaluating trends and events beyond the control of a single firm, such as increased foreign competition, population shift, stock market volatility etc.. It reveals the key opportunities and threats confronting an organization so that managers can formulate strategies to take advantage of the opportunities and avoid or reduce the impact of threats.

Importance of Environmental Scanning



Strategy is a problem of allocating resources. If strategy is to be successful, it must allocate superior resources against a decisive opportunity The idea is to concentrate our strength against our competitors relative weakness. Its not the strongest of the species that survive, not the most intelligent, but the one most responsive to change.

Sources for Environmental Scanning

      

Internet Key magazines, Trade Journals Newspapers Suppliers Distributors Sales persons

Sources for environmental scanning

        

Customers Competitors Communities Managers Stockholders Labor Unions Trade Associations Creditors Consultants

Industrial Organisation approach (I/O)



The industrial organisation approach to competitive advantage advocates that external (industry) factors are more important than internal factors in a firm achieving competitive advantage.

I/O


Porters five forces model is an example of I/O perspective, which focuses on analysing external forces and industry variables as a basis for getting and keeping competitive advantage. Firms performance is based on industry properties e.g. economies of scale, barriers to entry, product differentiation, and level of competitiveness than on internal resources, capabilities, structures, and operations.

I/O


it is not a question of whether external or internal factors are more important in gaining and maintaining competitive advantage. Effective integration and understanding of both external and internal factors is the key to securing and keeping a competitive advantage.

Components of Companys External Environment



All companies operate in a macro environment shaped by influences emanating from the economy at large; population demographics; societal values and life styles; governmental legislations and regulations; technological factors; and, close to home, the industry and competitive arena in which the company operates

Components of Companys External Environment



Macro Environment

PEST

Immediate Industry and Competitive Environment

Suppliers Substitute Products Buyers New Entrants Rival Firms

Competitive Forces


If a firm detects weakness in a competitor, no mercy at all is shown in capitalizing on its problems. Collecting and evaluating information on competitors is essential for successful strategy formulation. Identifying major competitors is not always easy because many firms have divisions that compete in different industries.

Key Questions about Competitors



What are the major competitors strengths/Weaknesses? What the major competitors objectives and strategies? How will the major competitors most likely respond to current economic, social, cultural, demographic, environmental, political, governmental, legal, competitive trends affecting our industry?

How vulnerable are the major competitors to our alternative company strategies? How are our products or services positioned relative to major competitors? To what extent are new firms entering and old firms leaving this industry?

What key factors have resulted in our present competitive position in this industry? What is the sales and profitability ranking of major competitors in the industry? What is the nature of suppliers and distributor relationships in this industry? To what extent could substitute products or services be a threat to competitors in this industry?

Competitive Intelligence (CI)



It is a systematic and ethical process for gathering and analyzing information about the competitions activities and general business trends to further a businesss goals. Good CI in business, as in the military, is one of the keys to success. The more informationa nd knowledge a firm can obtain about its competitors, the more likely it is that it can formulate and implement effective strategies.

Misconceptions about CI
  

Requires lots of resources Violates law Unethical business practice

Objectives of CI Program


To provide a general understanding of a company and its competitors To identify areas in which competitors are vulnerable and to assess the impact strategic actions would have on competitors To identify potential moves that a competitor might take that would endanger a firms position in the market

Marriott and Motorolla agree that all the information you could wish for can be collected without resorting to unethical tactics. They keep their intelligence staffs small, usually under five people, and spend less than 200K dollars per year on gathering competitive intelligence.

Macro Environment
       

Key Economic Variables: Availability of Credit Interest Rates Unemployment Trends Fiscal Policies Price Fluctuations Tax Rates Import Export Factors

          

Key Social Factors: Birth Rate Death Rate Attitude Towards Business Buying Habits Average level of Education Waste Management Air Pollution Recycling Attitude towards Product Quality Attitude towards leisure time

         

Key Political Variables: Changes in Tax Laws Number of Patents Changes in Patents Laws Lobbying Activities Size of Government Budgets World Oil Pak-American Relations Import Export Regulations Level of Governmental Subsidies