Strategic Management Lecture 03

7/30/2019 Strategic Management Lecture 03

1/22

The Environment ofBusiness

III


2/22

Stakeholders

Stockholders : dividend

price appreciation

Customers : product/service

quality

Employees : employmentwages

personal growthopportunity


3/22

Stakeholders

Suppliers : revenuethrough sale

growthopportunity

Local community : jobs

civicinvolvementeconomic development

Society at large : economichealthenvironment protection


4/22

The Components of a Companys

MACROENVIRONMENT

The

Economy

at Large

COMPANY

Suppliers Substitutes

Buy

ers

New

Entrants

Riva

l

Firm

s

IMMEDIATE

INDUSTRY AND

COMPETITIVE

ENVIRONMENT


5/22

Political and Legal

Deregulation

Repeal of Glass-Steigall

Act 1999

Tort Reform

Disabilities Act


6/22

Economy

Interest rate

Exchange rate

Unemployment

Trend in GDP


7/22

Technology

Reduced height of entry

barrier

Biotechnology

Pollution/Global

Warming Wireless communication

Miniaturization


8/22

Socio-cultural

Health Consciousness

Postponement of family

formation More women in workforce

Greater concern for

environment


9/22

Demography

Aging population

Rising affluence

Greater disparities in

income levels

Geographic distribution

of population


10/22

Global

WTO

Currency Exchange Rate

Emergence of China and

India


11/22

#1. Dominant Economic

Traits

Market Size

Scope of Competition (Local, Regional,National, Global)

Industry Growth Cycle (Early, Takeoff,Mature, Stagnant, Decline)

Number of Rivals and their relative sizes

Number of Buyers and their relative sizes

Prevalence of Backward and Forward

Linkage Ease of Entry and Exit

Pace of Technological Change

Learning Curve Effect

Capital Requirement

Profitability (above/below par)


12/22

#2 Porters Five Forces

Substitute Products(of firms in

other industries)

Supplier

s of KeyInputs

Buyers

Potential

New

Entrants

Rivalry

Among

Competing

Sellers


13/22

Bargaining Power of

Buyers

- Many small companies and

few buyers, Large buyers

- Buyers can switch orders

between suppliers enabling

them to play one supplieragainst another

- Vertical integration is afeasible option


14/22

Suppliers

- Product has few substitutes and

are important to the buyers

- Products are differentiated to the

extent that buyers cannot easily

switch

- Threat of vertical integration

- Buying companies cannotthreaten with backward integration


15/22

Rivalry

- Demand conditions :

growing/declining

- Exit barriers :

high/low

- Competitive structure :

fragmented,

consolidated


16/22

Substitutes

- Products serving similar

consumer needs

sugar vs artificial sweetener

taxi vs bus

private vs public university


17/22

Threat of Entry

- Brand loyalty

- Economies of scale

- Entry barriers

- Govt. regulation


18/22

Generic Competitive

Strategies

Two basic types:

- Low cost

- Differentiation

Three generic strategies resulting

from the scope of application :- Cost

- Differentiation

- Focus.


19/22

Generic Competitive

Strategies

COST leadership

promoted by means such as

frugality, discipline and attention todetails.

DIFFERENTIATION

facilitated by a culture of

encouraging innovation,

individualism and risk taking.


20/22

Cost OR

Differentiation An organizational structure that

is supportive of cost leadership

can be ruinous fordifferentiation

e.g.

tight control systempursuit of scale economies

dedication to learning curve.


21/22

Stuck in the Middle

Being all things to all people can be

a recipe for disaster and such firms

cannot have a sustainablecompetitive advantage.

Whatever strategy is chosen, it has

to be sustainable.

This can be made through making

it difficult for imitators by putting up

a moving target.


22/22

Risks

Cost : imitation

technology changes

proximity

to differentiation

Differentiation : imitation

loss of attraction of

differentiation base

Focus : imitation

target segment gets

unattractivenew focusers arrive

Documents

Strategic Management Lecture 03