lecture 4
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08/04/23 08:21 Ibrahim Elbeltagi 1
Concepts Of Strategic Management
The study of strategic management
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Strategic management Definition
Strategic management is that set of managerial decisions and actions that determines the long-run performance of a corporation.
Strategic management includes: 1. Environmental scanning (both external and internal).2. Strategy implementation.3. Evaluation and control.
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How has strategic management evolved
Strategic management within a firm generally evolves through four sequential phases:
1. Basic financial planning.2. Forecast-based planning.3. Externally oriented planning (strategic planning).4. Strategic management.
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Initiation of strategy: Triggering events
A triggering event is something that stimulates a change in strategy. Some of the possible triggering events are:
1. New CEO.2. Intervention by an external institution.3. Threat of a changing in ownership.4. Management’s recognition of a performance gap.
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External AssessmentExternal Assessment
“If you're not faster than your competitor, you’re in a tenuous position, and if you’re only half as fast, you’re terminal.”
—George Salk—
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External Assessment (Cont’d)External Assessment (Cont’d)
“The idea is to concentrate our strength against our competitor’s relative weakness.”
—Bruce Henderson—
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External Assessment (Cont’d)External Assessment (Cont’d)
External Strategic-Management AuditExternal Strategic-Management Audit
Industry analysis Environmental scanning
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External Assessment (Cont’d)External Assessment (Cont’d)
External audit:External audit:
Focuses on identifying & evaluating events beyond the immediate control of the firm
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External Assessment (Cont’d)External Assessment (Cont’d)
External audit focuses onExternal audit focuses on:
Increased foreign competition Population shifts Demographics (e.g., aging population) Information technology
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External Assessment (Cont’d)External Assessment (Cont’d)
External audit revealsExternal audit reveals: Key opportunities Key threats
Managers then formulate strategies:Managers then formulate strategies: Take advantage of opportunities Avoid/reduce impact of threats
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External Assessment (Cont’d)External Assessment (Cont’d)
External AuditExternal Audit
Aimed at identifying key variables that offer actionableactionable responses
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External Assessment (Cont’d)External Assessment (Cont’d)
Key External ForcesKey External Forces Five (5) broad categories:
Economic forces
Social, cultural, demographic, & environmental forces
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External Assessment (Cont’d)External Assessment (Cont’d)
Key External Forces Key External Forces (Cont’d)(Cont’d)
Five (5) broad categories:
Political, governmental, & legal forces
Technological forces
Competitive forces
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External Assessment (Cont’d)External Assessment (Cont’d)
Competitors Suppliers Distributors Creditors Customers Employees Communities Managers Stockholders Labor Unions Special Interest Groups Products Services
OPURTUNITIES &threats
Key external forces
CompetitorsSuppliers
DistributorsCreditors
CustomersEmployees
CommunitiesManagers
StockholdersLabor Unions
Special Interest GroupsProducts
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External Assessment (Cont’d)External Assessment (Cont’d)
Process of External AuditProcess of External Audit: Involve as many managers & employees as possible Gather competitive intelligence Information about social, demographic, cultural,
environmental, etc. Monitor sources of information (key magazines, articles,
etc.) Utilization of Internet Suppliers, distributors, customers as sources of
information
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External Assessment (Cont’d)External Assessment (Cont’d)
Process of External AuditProcess of External Audit: Involve as many managers & employees as possible Gather competitive intelligence Information about social, demographic, cultural,
environmental, etc. Monitor sources of information (key magazines, articles,
etc.) Utilization of Internet Suppliers, distributors, customers as sources of
information
Key External FactorsKey External Factors:
Vary over time&
Vary by industry
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External Assessment (Cont’d)External Assessment (Cont’d)
Process of External AuditProcess of External Audit: Involve as many managers & employees as possible Gather competitive intelligence Information about social, demographic, cultural,
environmental, etc. Monitor sources of information (key magazines, articles,
etc.) Utilization of Internet Suppliers, distributors, customers as sources of
information
Key External FactorsKey External Factors::
Important to achieving long-term objectives Measurable Applicable to all competing firms Hierarchical
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External Assessment (Cont’d)External Assessment (Cont’d) Examples of Key External FactorsExamples of Key External Factors: Market share Breadth of competing products World economies Proprietary & key account advantages Price competitiveness Technological advancements Interest rates
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Economic ForcesEconomic Forces Monitor Key Economic VariablesMonitor Key Economic Variables::
Availability of credit Level of disposable income Interest rates Inflation rates Money market rates Government budget deficits Gross domestic product trend Consumption patterns
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Economic Forces (Cont’d)Economic Forces (Cont’d) Monitor Key Economic VariablesMonitor Key Economic Variables: (Cont’d): (Cont’d) Unemployment trends Worker productivity levels Value of the dollar in world markets Stock market trends Foreign countries’ economic conditions Import/export factors Demand shifts for goods/services Income differences by region/customer
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Economic Forces (Cont’d)Economic Forces (Cont’d) Monitor Key Economic VariablesMonitor Key Economic Variables: (Cont’d): (Cont’d)
Price fluctuations Exportation of labor & capital Monetary policies Fiscal policies Tax rates ECC policies OPEC policies LDC policies
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Social & Environmental ForcesSocial & Environmental Forces
Social, cultural, demographic, and environmental changes:
Major impact on: Products Services Markets Customers
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Social & Environmental ForcesSocial & Environmental Forces
World population > 6 billion
U.K. population < 60 million Great potential for domestic production expansion to
other markets
Domestic only is a risky strategy
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Social & Environmental ForcesSocial & Environmental Forces
53.3346 m30 mOceania28.52392 m305 mNorth America16.08729 m628 mEurope60.52809 m504 mLatin America
140.321.8 b749 mAfrica47.225.3 b3.6 bAsia
% Increase% Increase2050205019981998CountryCountry
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Social & Environmental ForcesSocial & Environmental Forces
E-commerce PerspectiveE-commerce Perspective
Question: “Is the Internet Revolution Bypassing Poor,
Minorities?”
Answer: Yes!
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Social & Environmental ForcesSocial & Environmental Forces
Internet revolution is widening the gap between rich & poor
42% U.S. households have personal computers
80% of them are in households w/family income > $75,000
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Social & Environmental ForcesSocial & Environmental Forces
Internet usage lowest (3%) among Americans earning $10K or less
26.7% of White Americans use Internet at home compared to 9.2% Blacks & 8.8% of Hispanics
90% shares of common stock of American companies held by the wealthiest 10% of Americans
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Social & Environmental ForcesSocial & Environmental Forces Key social, cultural, demographic, & Key social, cultural, demographic, &
environmental variables:environmental variables: Childbearing rates Number of special-interest groups Number of marriages Number of divorces Number of births Number of deaths Immigration & emigration rates
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Social & Environmental ForcesSocial & Environmental Forces Key social, cultural, demographic, & Key social, cultural, demographic, &
environmental variables: (Cont’d)environmental variables: (Cont’d) Life expectancy rates Per capita income Attitudes toward business Average disposable income Buying habits Ethical concerns Attitudes toward saving
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Social & Environmental ForcesSocial & Environmental Forces Key social, cultural, demographic, & Key social, cultural, demographic, &
environmental variables: (Cont’d)environmental variables: (Cont’d) Racial equality Average level of education Government regulation Attitudes toward customer service Attitudes toward product quality Energy conservation Social responsibility
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Social & Environmental ForcesSocial & Environmental Forces
Key social, cultural, demographic, & Key social, cultural, demographic, & environmental variables: (Cont’d)environmental variables: (Cont’d)
Value placed on leisure time Recycling Waste management Air & water pollution Ozone depletion Endangered species
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Political, Govt., & Legal ForcesPolitical, Govt., & Legal Forces Government RegulationGovernment Regulation
Key opportunities & key threats
Antitrust legislation (Microsoft) Tax rates Lobbying efforts Patent laws
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Political, Govt., & Legal ForcesPolitical, Govt., & Legal Forces
Increasing Global InterdependenceIncreasing Global Interdependence
Impact of political variables
Formulation of strategies Implementation of strategies
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Political, Govt., & Legal ForcesPolitical, Govt., & Legal Forces
Increasing Global InterdependenceIncreasing Global Interdependence
Strategists in a global economy Forecast political climates Legalistic skills Diverse world cultures
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Political, Govt., & Legal ForcesPolitical, Govt., & Legal Forces Globalization of IndustryGlobalization of Industry
Worldwide trend toward similar consumption patterns
Global buyers & sellers
E-commerce
Instant transmission of money & information across continents
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Political, Govt., & Legal ForcesPolitical, Govt., & Legal Forces Key Political, govt., & legal variables:Key Political, govt., & legal variables:
Government regulation/deregulation Tax law changes Special tariffs Political Action Committees (PACs) Voter participation rates Number of patents Changes in patent laws
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Political, Govt., & Legal ForcesPolitical, Govt., & Legal Forces Key Political, govt., & legal variables: Key Political, govt., & legal variables:
(Cont’d)(Cont’d) Environmental protection laws Equal employment legislation Level of government subsidies Antitrust legislation/enforcement Sino-American relationships Russian-American relationships European-American relationships
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Political, Govt., & Legal ForcesPolitical, Govt., & Legal Forces Key Political, govt., & legal variables:(Cont’d)Key Political, govt., & legal variables:(Cont’d)
Ethnic minorities relationships Import-export regulations Monetary policy Political conditions in other countries Government budgets World oil, currency, & labor markets Location and severity of terrorist activities
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Technological ForcesTechnological Forces
Technological ChangeTechnological Change
Dramatic effect on business Fiber optics Biometrics EFT Computer engineering Superconductivity advancements
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Technological Forces (Cont’d)Technological Forces (Cont’d)
Internet impact on opportunities & threats:Internet impact on opportunities & threats:
Altering life cycles of products Increasing speed of distribution Creating new products & services Erasing limitations of traditional geographic
markets
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Technological Forces (Cont’d)Technological Forces (Cont’d) Internet impact on opportunities & threats: Internet impact on opportunities & threats:
(Cont’d)(Cont’d) Altering economies of scale Changing entry barriers Redefining relationships
Industries & suppliers, creditors, customers, and competitors
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Technological Forces (Cont’d)Technological Forces (Cont’d)
Capitalizing on Information Technology (IT) Chief Information Officer (CIO)
Chief Technology Officer (CTO)
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Competitive ForcesCompetitive Forces External Audit & Competing FirmsExternal Audit & Competing Firms
Identifying rival firms Strengths Weaknesses Capabilities Opportunities Threats Objectives Strategies
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Competitive ForcesCompetitive Forces Competitor InformationCompetitor Information Sources:
Moody’s Manuals Standard Corporation Descriptions Value Line Investment Surveys Dun’s Business Rankings Standard & Poor’s Industry Surveys Industry Week Forbes, Fortune, Business Week
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Competitive ForcesCompetitive Forces
Most competitive firms in AmericaMost competitive firms in America Seven Characteristics
Market share matters Understand what business you are in Broke or not, fix it Innovate or evaporate
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Competitive Analysis: Porter’s Competitive Analysis: Porter’s Five-Forces ModelFive-Forces ModelPotential development of substitute products
Rivalry among competing firms
Bargaining power of suppliers
Potential entry of new competitors
Bargaining power of consumers
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Global ChallengeGlobal Challenge
Differences U.S. and MNCs Differences U.S. and MNCs Affect strategic management:
Language Culture Politics Economy Government interference Labor relations Trade barriers
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Reference
For more details about this lecture see Chapter 3 in:
Strategic Management: Concepts and Cases, 9/eFred David
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