BA 307 Dr. J. Seth Chatfield

1. Explain how the firm's external environment should be examined as part of the strategic management process 2. Explain how the firm's internal environment should be examined as part of the strategic management process 3. State the meaning and purpose of the firm’s strategic intent and missions 4. Understand how the strategy formulation process helps the firm achieve its mission 5. Describe the issues that should be considered in strategy implementation 6. Understand how the outcomes of the strategic management process should be assessed 2

 Analysis of the firms internal environment  Analysis of the firms external environment  Define the firms mission  Formulation and implementation of a strategy to create or continue a competitive advantage 3

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 Competitive Advantage ◦ When a firm sustains profits that exceed the average for its industry  Cost advantage  Differentiation advantage 5

 SWOT analysis ◦ Strengths ◦ Weaknesses ◦ Opportunities ◦ Threats 6 SWOT does not tell the firm what strategies to pursue, it provides input for strategic decisions Internal Environment External Environment

7 SWOT Video

Internal External  Strengths  Customer Loyalty  Brand Recognition  Top Growth Stock  Strong Dealer Network  Weaknesses  Limited Product Line  Quality  Limited Cross-Cultural Appeal  Opportunities  International Markets  Youth Market  Threats  Narrow Market Niche  Generation Gap  Customer Resistance to Change  Strong Signs of Weakening Demand 8

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 Scanning ◦ Analysis of general environmental factors that may be relevant to the firm’s future  Monitoring ◦ Observing environmental changes on a continuous basis to determine whether a clear trend is emerging  Forecasting ◦ The firm attempts to predict what is likely to happen in the future  Assessing ◦ Evaluation of environmental data received to study the implications for the firm 11

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 The General Environment – Broad environmental forces ◦ Demographic trends  Population size, age distribution, ethnic mix, labor force composition (more women), the size and composition of families ◦ Economic conditions ◦ Political/legal forces ◦ Sociocultural conditions  Norms, values, and preferences of a society ◦ Technological changes ◦ Globalization 13

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The Industry Environment  Porters Five Forces 1.Threat of new entrants 2.Threat of substitute products or services 3.Bargaining power of customers (buyers) 4.Bargaining power of suppliers 5.Intensity of competitive rivalry 15

1. Threat of new entrants ◦ Barriers to entry ◦ Brand equity ◦ Capital requirements ◦ Access to distribution ◦ Customer loyalty ◦ Industry profitability 16

2. Threat of substitute products or services ◦ Buyer propensity to substitute ◦ Relative price performance of substitute ◦ Switching costs ◦ Perceived level of product differentiation ◦ Number of substitute products on the market ◦ Ease of substitution 17

3. Bargaining power of customers (buyers) ◦ Ratio of buyers to sellers ◦ Buyer information available ◦ Buyer price sensitivity ◦ Degree of buyer dependency upon existing channels of distribution ◦ Availability of existing substitute products 18

4. Bargaining power of suppliers ◦ Degree of differentiation of inputs ◦ Presence of substitute inputs ◦ Employee solidarity (labor unions) 19

5. Intensity of competitive rivalry ◦ Sustainable competitive advantage through innovation ◦ Competition between online and offline firms ◦ Level of advertising expense ◦ Degree of transparency 20

 Strategic Groups  Direct Competitors 21

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 Resource types – the spectrum of inputs that firms use to deliver products & services ◦ Tangible resources  Financial  Physical  Workers ◦ Intangible resources – are invisible and not obvious, they are difficult for competitors to purchase or imitate  Reputation  Technology – patents, copyrights, trade secrets  Human capital – the skills, knowledge, reasoning, and decision making abilities of the workforce 23

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 Functional Analysis ◦ Examines the organizational capabilities for each of the functional areas of the business  Value-chain analysis ◦ Examines the firm as a sequential series of activities and attempts to identify the value added of each activity  Benchmarking ◦ comparing the firms activities or functions with those of other firms 25

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 Strategic Intent – The firms internally focused definition of how the firm intends to use its resources, capabilities, and core competencies to win competitive battles  Mission – The firms externally focused definition of what it plans to produce and market, utilizing its internally based core competency 27

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 Corporate-level strategy – an overall approach to the direction of the organization ◦ Concentration – focusing on one market Example Wm. Wrigley Jr. Company – focus and product offering confined to gum and candy ◦ Diversification – focusing on more than one market  Horizontal (Concentric) Diversification - acquiring a competitor  Vertical Diversification – acquiring a supplier or a customer  Conglomerate – acquiring unrelated firms 29

 Proctor & Gamble ◦ Beauty & grooming  Braun, Cover Girl, Oral-B, Crest, Gillette, Ivory, Scope, Herbal Essences….. ◦ Household Care  Febreze, Luvs, Cascade, Charmin, Swiffer, Bounce, Downy, Tide, Pampers 30

 Live Nation Entertainment ◦ Ticketmaster ◦ Live Nation Concerts ◦ Artist Nation ◦ Live Nation Network 31

 General Electric ◦ Appliances (industrial & consumer) ◦ Aviation ◦ Capital ◦ Consumer Electronics ◦ Critical Power 32

 Aim of diversification should be to create value or wealth in excess of what firms would enjoy without diversification.  Synergy: the value of the combined firm after acquisition should be greater than the value of the two firms prior to acquisition. ◦ Obtained in three ways:  Exploiting economies of scale.  Unit costs decline with increases in production.  Exploiting economies of scope.  Using the same resource to do different things.  Efficient allocation of capital.  Many assets in acquired firms are undervalued -- managers seek to exploit these opportunities and improve their operations and add value to their businesses. 33

 Portfolio analysis – the classification of businesses within a diversified company into a single framework or taxonomy ◦ 2 of the most widely used techniques are: 1.McKinsey-General Electric Portfolio Analysis Matrix 2.Boston Consulting Group’s Growth-Share Mix 34

35  This two dimensional matrix is used to classify all the business units of a diversified corporation  Then the matrix is used as a diagnostic tool to make recommendations

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 Cost-leadership ◦ Providing products and services that are less expensive than those of competitors  Differentiation ◦ Delivering products and services that customers perceive as unique 37

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 Strategic Leadership  Organizational Structure ◦ Defining roles, reporting relationships, decision making process, etc…  Organizational Controls ◦ Sarbanes-Oxley act 2002 – accountability standards  Cooperative Strategies ◦ Partnerships/alliances with other firms  Human Resource Strategies ◦ Recruitment, evaluation, rewards  Corporate Entrepreneurship & Innovation 39

40 Standard Measures of Strategic Success: 1.***Long term success 2.Profits 3.Growth of sales/market share 4.Growth of corporate assets 5.Reduced competitive threats 6.Innovations that fuel future success

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 Explain how the firm's external environment should be examined as part of the strategic management process ◦ Components  Scanning monitoring, forecasting, and assessing ◦ Forces  General environment, industry environment, strategic groups, direct competitors

 Explain how the firm's internal environment should be examined as part of the strategic management process ◦ Resource analysis ◦ Capabilities analysis

 State the meaning and purpose of the firm’s strategic intent and missions ◦ Strategic intent: how the firm would like to use it resources and capabilities ◦ Strategic mission: the firm’s external focus on what it will produce and the market

 Understand how the strategy formulation process helps the firm achieve its mission ◦ Corporate-level strategy  Portfolio analysis  Diversification type  Diversification process ◦ Business-level strategy

 Describe the issues that should be considered in strategy implementation ◦ Formulated strategy must be implemented effectively and feedback gathered ◦ Required elements  Corporate governance system  System for completing the work  Functional strategies  Strong leadership

 Understand how the outcomes of the strategic management process should be assessed ◦ Shareholders should earn at least an average rate of return ◦ Satisfaction of other stakeholders ◦ Short-term and long-term results