Presentation on theme: "Business Environments: External and Internal"— Presentation transcript:
1 Business Environments: External and Internal Welcome to Class 5Part TwoBusiness Environments: External and InternalChapter 2
2 The Competitive Environment (Cont from Class 4)ExternalEnvironmentGeneral EnvironmentCompetitive Environment
3 Rivalry among Competing Firms Threats of Substitutes We ended our last class by discussing Porter’s Five ForcesRivalry among Competing FirmsBargaining power ofBuyersSuppliersThreats of SubstitutesThreat ofNew EntrantsPorter'sFive Forces
4 Competitive Environment Michael Porter's Five Forces offer an informative portrait of the competitive environment.The “Forces” become even more acute within …Strategic GroupsandThese can play a major role in a firm’s degree ofsuccess or failure
6 Competition within strategic groups is generally Strategic Groups are clusters of firms that share similar:CustomersDistribution systemsVertical integrationBreadth and depth of product/service linesPricing for these products/services,Quality of products/servicesGeographic territoriesStrategies for competingCompetition within strategic groups is generallymore intense than between strategic groups because of the similaritiesPrice wars and other forms of extremelyhostile competitive behavior frequently occur.
7 Strategic Groups (Cont) Companies within strategic groups will change over time thus sustained vigilance is essential.When competitors within strategic groups change the rules of engagement change.Companies can enter a particular strategic group, leave, and reenter.The reentry players can be particularly dangerous:They understand the groupMay have new or reinforced distinctive competenciesMay have new competitive strategies.
8 Strategic Groups and Points of Similarity CustomersDistributionSystemsVerticalIntegrationBreadth &Depth ofProductsPricingQualityGeographicStrategies
10 Strategic Alliances Three most common Strategic Alliances are: Are formal relationships between two or more corporations with a mutual set of goals. They offer Competing companies unique opportunities to prosper through collaborative efforts rather than competing activities.Three most common Strategic Alliances are:(1) Licensing arrangements(2) Joint ventures(3) Cross-holding arrangements (CHAs)[with CHAs, each company takes equity stakes]
11 (1) Licensing agreements Licensing agreements = greatest individuality or distance between the strategic alliance firmsParties 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.
12 (2) Joint venturesRequire more confidence and trust than licensing agreements.Generally involve sharing technologies, processes, various value-adding assets, and products that more closely align the two firms.Usually designate the financial and technical commitment of each party.Other cooperative agreements include co-production agreements, research and development or technology development arrangements. The are not joint ventures but are similar.
13 (3) Cross-holding arrangements Cross-holding arrangements are near-merger like.They are the most complex of the strategic alliances and require the most care.Partners take a significant equity-stake in each other
15 GlobalizationGlobalization means nations are becoming more interdependent.The global economy is:Characterized by the quick and easy movement of people, knowledge, and ideas from country to country.The world-wide economic activity between various countries that are considered intertwinedCapable of having both negative and positive effects on various countries.
16 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.Companies cannot compete in the 21st Century with 20th Century ideas or technology.Methods of communicating, managing, and competing are changing rapidly.
17 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 beyondAlertness is an essential skill for competent TMTs
18 The Internal Environment BusinessEnvironmentsExternal EnvironmentInternal Environment
19 The Internal Environment The internal environment is comprised of an organization's:(a) value-producing resources and(b) leadership capabilitiesThese combine to determine the competitive strength of Strategic Competencies.Strategic competencies have three levels:(1) Basic Competencies (what a firm can do),(2) Core Competencies (what a firm can do really well), and(3) Distinctive competencies (what a firm can do really well AND distinguishes it from competitors)
24 Leadership Quality Leadership – 1. The ability to craft dynamic strategic plans2. The skill to implement, direct & control those plans.A firm with strong resources and dynamic leadership will nurture its basic and core competencies into distinctive competencies.
25 Leadership Capabilities Leadership is art of motivating a group of people to act as a team striving to achieve a common goal.Leaders should be1. Knowledgeable,2. Ethical,3. Talented,4. Courageous,5. Tenacious,6. InspiringThe quality of leadership is measured by BOTH their achievements and their methods.Excellence in leadership = achieving performance objectives in a legal, fair, ethical, and moral manner.
26 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
27 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 – (What a firm can do) Strategic Competencies evolve from Value-Producing Resources that are united, leveraged, & appliedMany resources + POOR leadership =weak competenciesStrong leadership + FEW value producing resources =Capable leadership + MANY value-producing resources = strong competencies
31 Levels of Strategic Competencies DistinctiveCompetenciesCore CompetenciesBasic Competencies
32 Levels of Strategic Competencies 1. Basic competencies are what a firm has demonstrated that it "can do" profitably.2. Core competencies are what a firm "can do extremely well" while enhancing its profitability.3. Distinctive competencies represent not only what the company can do extremely well but also "what distinguishes the firm" from competitors.Distinctive competencies enable a firm to move closer to a prime objective of achieving and sustainingabove average returns.
33 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.)