2 Mission and Objectives Decisions aboutBusiness DefinitionMission and ObjectivesManagers’Mental ModelsBeliefs andUnderstandingsabout:Macro Env.Industry Env.Appropriate Sizeand DiversityHow to OrganizeDecisions aboutCorporate Strategy and DiversificationActivities,Resources and CapabilitiesMarket PositionPerformance andCompetitiveAdvantageDecisions aboutBusiness StrategyDecisions aboutOrganizational Structure and ImplementationFeedback (Reinforces or suggests changes in managers’ mental models)
3 Decisions about Where and How to Compete Corporate Level Strategy (Defines Scope: What industries should the firm compete in?)Business Level Strategy (Defines Positioning: How will the firm compete?)Functional Level Strategy (Maximizes resource productivity)
4 Decisions about Where and How to Compete Corporate Level Strategy (Defines Scope: What industries should the firm compete in?)(None)Business Level Strategy (Defines Positioning: How will the firm compete?)Best Cost (Value for Low Price)What are some of the key differentiators?Functional Level Strategy (Maximizes resource productivity)How do they do this?
5 Define the Issue Background and Boundaries of the Issue How is this issue related to your firm’s value proposition?What do customers want?What do you offer relative to what they want?EvidenceWhat are the relevant external facts?(Consumers, Customers, Competitors, and the External Environment)What do you already know?What do you need to know?Alternatives and ImplicationsPotential Impact (Strategic and Financial)
7 What do you need to know? (External Analysis) Macro Environment FactorsEconomicTechnologicalPolitical/LegalSocial/Cultural
8 Economic FactorsThe state of the macroeconomic environment determines the generalhealth and well-being of the economy. This in turn affects acompany’s ability to earn an adequate rate of return.Examples: GDP trends, interest rates, money supply, inflation,unemployment levels, wage/price controls, energy availability,and costs, disposable and discretionary income.Globally: Monetary and Fiscal policies, currency convertibility,exchange rates, economic development, political economy
9 Social/Cultural Factors This category of factors describe the beliefs, values, attitudes,opinions, and lifestyles of persons in the firm’s externalenvironment as developed from cultural, demographic, religious,educational and ethnic conditioning.Examples: Lifestyle changes, career expectations, age distribution,regional shifts in population, birth rates, life expectancies,growth rate in population, consumer activism, rate of familyformation.Global: Human rights, literacy levels, language, social institutions,skill level of the workforce
10 Political/Legal Factors These factors define the legal and regulatory parameters withinwhich a firm must operate.Examples: Antitrust regulations, environmental protection, tax laws,employment laws, stability of government, foreign trade protectionGlobal: Form of government, political ideology, protectionistsentiment, terrorist activity, legal system, government’s attitudetoward foreign firms.
11 Technological Factors This factor deals with the general technological infrastructure, therate of change in technology, and those things impacting thedevelopment and introduction of new technologies.Examples: Total government spending for R&D, Total industryspending for R&D, focus of technological efforts, patent protection,new developments in technology transfer, productivityimprovements through automation.Global: Regulations on technology transfer, information flowinfrastructure, patent and trademark protection.
13 What do you need to know? Industry Boundaries and Substitutability 1. Helps firms to determine the relative attractiveness of different segments.2. Helps firms to appropriately classify competitors into groups and determinedirect and indirect competitors.3. Helps firms to predict behavior of individual firms in light of ability to deliver value.ImpendingCompetitorsSmall/Med players in growth modeLarge players in related marketsInvisibleCompetitorsLarge Playersfrom another industrymoving secretly intothe marketImmediate CompetitorsLarge Players, well established
14 Industry Analysis What do you need to know? The Value of the Product/Service to CustomersThe Bargaining Power of Firms Relativeto their Suppliers and BuyersThe Intensity of CompetitionWhat’s driving change in the industry?(e.g., Shifts in competition, macro factors, entry/exit of major players)
15 Bargaining Power of the Bargaining Power of the Porter’s Five Forces ModelThreat of New EntrantsBargaining Power of theSuppliersInter-FirmRivalryBargaining Power of theBuyersThreat of Substitutes
16 Bargaining Power of the Porter’s Five Forces Model (Competitive Forces)Who are the Buyers?Factors impacting the bargaining power of the buyers:Standardized industry productPurchases are made in large volumeNumber of buyers is smallSignificant threat of backward integrationSwitching costs are lowBuyers are well-informed about the seller’s costsBargaining Power of theBuyers
17 Bargaining Power of the Porter’s Five Forces Model (Competitive Forces)Factors impacting the bargaining power of the suppliers:Product represents a significant % of purchaser’s finalproductFew suppliersUnique product or inputSignificant threat of forward integrationSupplied product is less expensive for thepurchaser to buy than makeBargaining Power of theSuppliersStrong? Medium? Weak?
18 Porter’s Five Forces Model (Competitive Forces) Threat of New EntrantsStrong? Medium? Weak?Why are New Entrants a threat?Factors impacting the threat of New Entrants:Economies of scaleCapital RequirementsAccess to Distribution ChannelsOther entry barriers (regulation)Competitive retaliationHigh industry profitability and growth
19 Porter’s Five Forces Model (Competitive Forces) What is a substitute? Why are substitute products a threat?Factors impacting the threat of substitute products:Price of available substitutesSwitching costsIndustry growth and demandComparability of substitute in terms of quality, performance,other featuresThreat of SubstitutesStrong? Medium? Weak?
20 Porter’s Five Forces Model (Competitive Forces) Factors impacting Inter-Firm Rivalry:ConcentrationProduct DifferentiationExcess CapacityExit BarriersCost ConditionsIndustry Life Cycle# of equally balanced competitorsInter-FirmRivalryStrong? Medium? Weak?
21 Bargaining Power of the Porter’s Five Forces Model (Competitive Forces)Relative Power ofother StakeholdersThreat of New EntrantsBargaining Powerof theSuppliersInter-FirmRivalryBargaining Power of theBuyersThreat of Substitutes
23 What do you need to know? Key Success Factors Prerequisites for SuccessWhat docustomers want?How does the firmsurvive competition?Analysis of DemandWho are the customers?What do they want?What drives competition?What are the maindimensions of competition?How intense is competition?How can the firm obtain superior performance?KEY SUCCESS FACTORS