ms lecture 2 part 2 strategic management

Strategic Management(Part 2)

QSB2413 Management Science

Step 2: Internal and External Analysis

• SWOT analysis is a process that identifies the strengths, weaknesses, opportunities and threats of an organization.

Internal Environment Analysis

Conducting An Internal Analysis

• An internal analysis focuses on identifying the assets, resources, skills and processes that represent either a strength or weakness for an organization.

• A strength is an expect of an organization’s operations that represents value to the organization. (something you are better than others)

• A weakness represents a vulnerability that may hinder its ability to compete. (something you are lack of in competing)


• An organization must assess every elements of its internal environment including production, operations, finance, marketing, human resources, organizational structure, development capabilities, information and technology systems and organizational culture.

• All these areas will impact an organization’s success and must be assessed in the strategic analysis.


• Identify and focus on the core competencies of an organization, develop strategic plan.

• A core competency is a unique ability or strength of an organization, enable to compete more effectively than others in its industry.

• A competitive advantage exists when an organization uses its core competencies to capitalize on market opportunities and outperform its competitors in term of quality, price, service or accessibility.


Examples:-• Walmart has core competencies that enable

them to provide the lowest everyday prices for their customers. (NSK in Malaysia)

• Cold Storage has core competencies to provide fresher foods to their customers but now is competing with competitors such as Jaya Grocer and Village Grocer which are having the same concept/way to compete.


• Sustainable competitive advantage is a competitive advantage that is difficult for competitors to duplicate. (Eliminate the existing competitive advantage)

• The more difficult it is for competitors to duplicate a competitive advantage, the more sustainable that advantage is.

• Example, GPS and Waze. (Pokemon Go)• Cloud gaming, PS I, II, III

External Environment Analysis

Conducting An External Analysis

• An opportunity exists when an environmental condition or trend is favorable for the organization.

• A threat arises when an environmental condition or trend is unfavorable.

Conducting An External Analysis

• It is important to note that any given condition might be considered a threat by one organization and an opportunity by another.

• Example, “Cloud Gaming” – cloud computing.• Innovative companies view this as an

opportunity to seize the market, while traditional console manufacturers see it as a possible threat to their established operations.

(1) Economic Environment

• Common measurements of an economy’s health include the total GDP, percentage growth in GDP, interest rates, inflation rates, wages rate, unemployment rate and so on.

• Organizations must be aware of the global economic environment.

• Fluctuations in the markets of other countries may impact the global demand for products, the availability of resources and the cost of labor.


• Example, the rise of China as a player in the global marketplace has had impact of the consumer products such as Coca-Cola to grow their worldwide sales. (Product demand)

• However, China’s demand for resources to fuel its own growing economy have caused the price increases across the world for products such as oil and steel which affected many businesses that use these products negatively.


• Further, the low cost of labor in China has caused numerous domestic manufacturers to move their plants to China.

• In order to make wise / effective strategic decision, organizations must be aware of what is happening not only in their local economy, but also in other national economies and global economy as a whole.


• The economic environment is one of the most important considerations in developing a strategic plan.

• Careful forecasts of economic activity are imperative for effective planning.

• Example in construction industry, due to earthquake happened in Japan might caused the price of steel increased greatly.

(2) Sociocultural Environment

• The sociocultural environment is the collective attitudes, behavior patterns and lifestyle choices of the individuals who ultimately purchase the products and services of an organization.

• It influences not only what products and services are desired but also how they are produced and marketed. (E.g. Condominium with shopping mall concept and gym facilities, direct lift to the door step)

(2) Sociocultural Environment

• As the sociocultural environment changes, so too must the strategies of organizations.

• Good strategic planning demands that organizations clearly understand which sociocultural trends impact their strategy and how that impact will be felt.

(3) Technological Environment

• Changes in technology can greatly affect how organizations produce, market and deliver their products and services.

• From enterprise resource planning (ERP) systems such as Oracle, PeopleSoft and SAP to desktop and handheld computing devices and now to the “cloud”.

• Organizations must recognize and respond to technology changes.


• Many companies have capitalized on opportunities made possible by technology.

• For example, UPS and FedEx have invested heavily in proprietary technology, utilizing the Internet and various other technologies to improve organizational efficiencies.

• Consider how OnLive use cloud technology to provide consumers with superior and more convenient gaming products.


• How Cloud Computing benefits the construction industry?

• Why are construction companies moving to the cloud?

(4) Political-Legal Environment

• The political-legal environment includes all regulatory parameters within an organization must operate while doing business in a particular country or region.

• This reflects the relationship between business and government.

• Example, Google in China.

(4) Political-Legal Environment

• The political stability of a country is also an important consideration for businesses as well.

• Example, Would you do business in Syria or Iraq right now?

Organizing Analysis

• The strengths (S) and weaknesses (W) represent the internal environmental factors that affect competitiveness.

• Strengths increase an organization’s competitiveness and weaknesses impair it.

• Opportunities (O) and threats (T) are the external environmental factors that affect the organization. (changes)

• Opportunities are favorable environmental changes or trends, while threats are unfavorable.

Organizing Analysis• Performing a SWOT analysis can be extremely

valuable for an organization.• A good SWOT analysis provides an

understandable visual depiction of the environmental factors an organization faces.

• Once an organization has determined its mission, vision and values and assessed both its internal and external environments then that the strategic analysis is complete.

Strategy Formulation

• Setting the strategic direction for the organization.

• Once the strategic analysis has been completed, the organization is ready to formulate strategy.

• Strategy maybe formulated at three levels – (1) corporate-level strategy, (2) business-level strategy and (3) functional-level strategy.

Process of Strategy Formulation

(1) Setting strategic goals and objectives(2) Identifying strategic alternatives(3) Evaluating and choosing strategy

Levels of Strategic Formulation

Corporate-Level Strategy• Highest level of strategy formulation and it

answers the questions “what business should we be in?”

• This applies to vey large organizations that participate in multiple business lines.

• Example, Sunway Group in Malaysia.


• The purpose of corporate-level strategy is to diversify an organization’s operations.

• Diversification occurs when an organization adds a new business unit to its portfolio of businesses.

• Diversification hedges organizational risk because the more areas an organization involves itself in, the less it relies on the profitability of any single business.

• Example, Construction Company, Hotel, F&B business and etc.


Business-Level Strategy• Once an organization has determined its

portfolio of businesses, it must determine how to run each individual business in the portfolio.

• Business-level strategy answers the question “How do we run the business we are in?”

• Business strategy has a more specific focus than corporate strategy.


• It focuses on how each business unit within the organization’s corporate portfolio is to operate in its respective market.

• The aim of strategic planning at the business level is to develop a strategy that gives the company a competitive advantage and leads to organizational success.


Functional-Level Strategy• Once corporate and business strategies have

been developed, organizations must plan at the functional level.

• Functional-level strategy specifies the production, research and development, financial, human resource management and marketing activities necessary to implement the organization’s corporate and business strategies.


• The question answered by strategy formulation at the functional level is “How do we implement our strategy?”

• Focus on how to implement a corporate and business strategy.

Strategy Implementation

• Focusing on Execution• The importance of strategy implementation

cannot be overstated because the best-formulated strategy is virtually worthless if not implemented effectively.

• If an organization is to achieve the best results from its strategic planning efforts, it must ensure that its strategy is put into action.


• Strategy implementation is the execution of the organization’s strategy.

• It involves aligning the organization’s people and processes to fulfill its mission and achieve its vision.

• Organizations that achieve strategic success commit a tremendous amount of time, energy and effort to making sure that the strategy is implemented effectively.


• First, organization must have the appropriate human resource in place to execute on its strategy.

• Second, organization must ensure that their strategy is being communicated effectively to employees.

• Finally, evaluation and reward systems must be structured to motivate the activities necessary to implement the strategy of the organization.

Evaluation and Control

• Achieving Effectiveness and Efficiency• Involve assessing progress toward fulfilling the

mission of an organization.• In this phase of the process, managers evaluate

what strategic have and have not worked to guide the organization towards its mission.

• Organizations should develop multiple control systems to meet specific strategic needs.

Conclusion

• Successful leaders must have excellent strategic thinking and planning skills.

• It is much easier to influence employees to follow a strategy when the leaders have a clear understanding of the current state of the organization and have a vision for the future.

ms lecture 2 part 2 strategic management

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