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Welcome to Class 5 Part Two Chapter 2 External Environment General Environment Competitive Environment The Competitive Environment (Cont from Class 4)

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Presentation on theme: "Welcome to Class 5 Part Two Chapter 2 External Environment General Environment Competitive Environment The Competitive Environment (Cont from Class 4)"— Presentation transcript:

1

2 Welcome to Class 5 Part Two Chapter 2

3 External Environment General Environment Competitive Environment The Competitive Environment (Cont from Class 4)

4 Rivalry among Competing Firms Bargaining power of Buyers Bargaining power of Suppliers Threats of Substitutes Threat of New Entrants Porter's Five Forces We ended our last class by discussing Porter’s Five Forces

5 Competitive Environment Michael Porter's Five Forces offer an informative portrait of the competitive environment. The “Forces” become even m mm more acute within … S SS Strategic Groups and These can play a m mm major role in a firm’s degree of success or failure

6 Competitive Environment & Strategic Groups

7 Strategic Groups are clusters of firms Strategic Groups are clusters of firms that share similar: 1.Customers 2.Distribution systems 3.Vertical integration 4.Breadth and depth of product/service lines 5.Pricing for these products/services, 6.Quality of products/services 7.Geographic territories 8.Strategies for competing Competition within strategic groups is generally more intense than b bb between strategic groups because of the similarities Price wars and other forms of extremely hostile competitive behavior frequently occur.

8 sustained vigilance essential Companies within strategic groups will change over time thus sustained vigilance is essential. competitors change rules change When competitors within strategic groups change the rules of engagement change. enterleave reenter Companies can enter a particular strategic group, leave, and reenter. The reentry players dangerous: The reentry players can be particularly dangerous: 1. They understand the group 2. May have new or reinforced distinctive competencies 3. May have new competitive strategies. Strategic Groups (Cont)

9 Strategic Group Customers Distribution Systems Vertical Integration Breadth & Depth of Products PricingQualityGeographicStrategies Strategic Groups and Points of Similarity

10 Competitive Environment & Strategic Alliances

11 formal relationships  Are formal relationships between two or more corporations with a mutual set of goals. unique opportunities  They offer Competing companies unique opportunities to prosper through collaborative efforts rather than competing activities. Strategic Alliances Three most common Strategic Alliances are: (1) Licensing arrangements (2) Joint ventures (3) Cross-holding arrangements (CHAs) [ with CHAs, each company takes equity stakes ]

12 (1) Licensing agreements greatest individuality between Licensing agreements = greatest individuality or distance between the strategic alliance firms do not combine Parties do not combine their management team, value chains, primary technologies, or other unique skills sets. They often involve cross-marketing agreements, sharing outsourcing activities, and some form of mutual customer supply agreements.

13 (2) Joint ventures Require more confidence and trust than licensing agreements. sharing more closely align the two firms. Generally involve sharing technologies, processes, various value-adding assets, and products that more closely align the two firms. designate financial technical commitment Usually designate the financial and technical commitment of each party. Other cooperative agreements include co-production agreementsresearch and development or technology development arrangements. The are not joint ventures but are similar. Other cooperative agreements include co-production agreements, research and development or technology development arrangements. The are not joint ventures but are similar.

14 (3) Cross-holding arrangements Cross-holding arrangements are near-merger like. most complex of the strategic alliances They are the most complex of the strategic alliances and require the most care. Partners take a significant equity-stake in each other

15 Competitive Environment & Globalization

16 Globalization Globalization means nations are becoming more interdependent. global economy is: The global economy is: 1. Characterized by the quick and easy movement of people, knowledge, and ideas from country to country. 2. The world-wide economic activity between various countries that are considered intertwined 3. Capable of having both negative and positive effects on various countries. Globalization

17 Globalization (Cont) Market opportunities not even imaginable a decade ago are now realities. The global economy is also able to deliver new and more complex commercial threats to every business competing in this domain. 21 st Century Companies cannot compete in the 21 st Century with 20 th Century ideas or technology. changing rapidly Methods of communicating, managing, and competing are changing rapidly.

18 Globalization (Cont) Disruptive technologies = “cutting edge to obsolete” These can emerge with little or no warning and push an industry from "cutting edge" to one that is "irrelevant and obsolete." e.g. 8-track tapes to cassettes to CDs to MP3 and beyond Alertness is an essential skill for competent TMTs Alertness is an essential skill for competent TMTs

19 The Internal Environment Business Environments External Environment Internal Environment

20 The Internal Environment The internal environment is comprised of an organization's: (a) value-producing resources (a) value-producing resources and (b) leadership capabilities Strategic Competencies These combine to determine the competitive strength of Strategic Competencies. Strategic competencies have three levels: Strategic competencies have three levels: (1) Basic Competencies (1) Basic Competencies (what a firm can do), (2) Core Competencies (2) Core Competencies (what a firm can do really well), and (3) Distinctive competencies AND (3) Distinctive competencies (what a firm can do really well AND distinguishes it from competitors)

21 Value-Producing Resources

22 Value-Producing Resources – (What a firm has) Value-Producing Resources – (What a firm has) Tangible resources: 1. Land 2. Facilities 3. Equipment 4. Financial capital 5. Inventories, etc. Intangible resources: 1.Knowledge capital 2.Creative and innovative workers 3.Social relationships 4.Organizational culture 5.Beneficial locations 6.Patents, copyrights, Trademarks 7.Reputation. tangible intangible Resources are both tangible and intangible.

23 Value-Producing Resources Tangible Resources Intangible Resources Value- Producing Resources

24 Leadership

25 Leadership Quality Leadership Quality Leadership – 1. The ability to craft dynamic strategic plans 2. The skill to implement, direct & control those plans. distinctive competencies A firm with strong resources and dynamic leadership will nurture its basic and core competencies into distinctive competencies.

26 Leadership Capabilities Leadership is art of motivating a group of people to act as a team striving to achieve a common goal. Leaders should be 1. Knowledgeable, 2. Ethical, 3. Talented, 4. Courageous, 5. Tenacious, 6. Inspiring The quality of l ll leadership is m mm measured by BOTH their achievements and their m mm methods. Excellence in leadership = achieving performance objectives in a legal, fair, ethical, and moral manner.

27 Capable Leaders are able to: Think critically Develop plausible scenario models Craft viable strategic plans Implement and manage strategic plans Maintain an open mindset Communicate thoroughly Motivate employees Make decisions harmonious with the firm's vision and mission Balance the interest of all stakeholders Promote ethical decisions and behaviors Demonstrate courage by always doing the right thing Accept responsibility for the consequence of all decisions and actions

28 Capable Leaders have knowledge of: Human resources Corporate cultures and National cultures Industry-specific customs, practices, and procedures Accounting and finance Techniques for the effective utilization of corporate resources Systems for monitoring and assessing progress Analysis methods Tactical and strategic planning process

29 Strategic Competencies

30 What a firm can do Strategic Competencies – (What a firm can do) Strategic Competencies evolve from Value-Producing Resources that are united, leveraged, & applied Many resources + POOR leadership = weak competencies Strong leadership + FEW value producing resources = weak competencies Capable leadership + MANY value-producing resources = strong competencies

31 Strategic Competencies Value- Producing Resources Capable Leadership Strategic Competencies

32 Levels of Strategic Competencies DistinctiveCompetencies Core Competencies Basic Competencies

33 Levels of Strategic Competencies can do 1. Basic competencies are what a firm has demonstrated that it "can do" profitably. can do extremely well 2. Core competencies are what a firm "can do extremely well" while enhancing its profitability. can do extremely well but also "what distinguishes the firm 3. Distinctive competencies represent not only what the company can do extremely well but also "what distinguishes the firm" from competitors. Distinctive competencies Distinctive competencies enable a firm to move closer to a prime objective of achieving and sustaining above average returns. above average returns.

34 Distinctive Competencies When products or services offered by a firm possess Distinctive Competencies – they exhibit the following qualities: (1) Valuable (The products or services are profitable.) (2) Rare (The products or service are extremely uncommon.) (3) Difficult to Substitute (They cannot easily be produced, copied, or substituted by competitors.) (4) Growth Potential (They are likely to be increasingly beneficial to the company in the future.)

35 Value-Producing Resources Capable Leadership (Good Governance) Distinctive Competencies Strategic Competitiveness Above Average Returns

36 Good Governance Value- Producing Resources Distinctive Competencies Strategic Competitiveness & Sustainable Competitive Advantage Above Average Returns Distinctive Competencies

37 Environments External GeneralCompetitiveInternal Resources Leadership Summary

38 End of Part Two: Business Environments Read Chapter Three: Creating Value Smile!


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