STRATEGIC MANAGEMENT SESSIONS & SEMINARS November 1, 2011 Session 7 - 8

Our goal? Learn about & practice all steps of strategic planning process Choose a company for which to formulate a strategic business plan Identify / formulate: - mission statement – framework w/in which strategy shall be crafted - corporate vision – where do we want to be in # years - business aims -> specific objectives Scan the environment – carry out external, internal & industry analysis -> situational analysis -> Internal analysis - core business & competencies, resources available, corp. structure, required inputs, corp. culture => IFAS (Internal Factor Analysis Summary)

Our goal? Practice all steps of strategic planning process Environment scanning cont’d: -> External analysis - PEST(LE) => EFAS (External Factor Analysis Summary) - Industry Analysis (task environment): -> Porter’s Five (Six) forces => Industry Matrix - Situational Analysis – finding a strategic fit b/w external opportu- nities & internal strengths - mitigating harmful effects of external threats due to internal weaknesses => SFAS (Strategic Factor Analysis Summary) => SWOT analysis

Strategic Management Model Existing Existing business model Mission, vision, goals, objectives, corp. values SWOT => Strategic choice External analysis -> opportunities, threats Internal analysis -> strengths, weaknesses Functional-level strategies Business-level strategies Corporate-level strategies Strategy implementation

Strategic Management Cycle

External factor analysis - Summary

Michael Porter’s 5 Forces

Industry analysis – Porter’s 5 (6?) forces Threat of new entrants Barriers to entry: - economies of scale - product differentiation - capital requirements - switching costs - access to distribution channels - cost disadvantages independent of size - government policy

Industry analysis – Porter’s 5 (6?) forces Rivalry among existing firms Rivalry related to: - number of competitors - rate of industry growth - produce or service characteristics - amount of fixed costs - capacity - height of exit barriers - diversity of rivals

Industry analysis – Porter’s 5 (6?) forces Threat of substitute products (goods/services) Products - satisfy the very same need as their direct substitutes Although they appear to be different If switching costs are low => strong effect on an industry Relative power of stakeholders Labor unions Governments Shareholders Banks …

Industry analysis – Porter’s 5 (6?) forces Bargaining power of buyers Buyers are powerful when: - they purchase large proportion of seller’s products - they are capable of integrating backward - there are many alternative suppliers - switching to other suppliers is not costly - the product purchased is NOT important to the final quality/price of buyer’s products - the product purchased accounts for a substantial %age of buyer’s costs - they earn low profits

Industry analysis – Porter’s 5 (6?) forces Bargaining power of suppliers Suppliers are powerful when: - Suppliers’ industry is dominated by a few players selling to many buyers - Their products are unique - Their products have high switching costs - Substitutes are hardly available or not at all - They can integrate forward and compete directly w/current customers - The goods made/sold by them to buyers constitute only a small portion of suppliers’ total product portfolio

Industry analysis – Porter’s 5 (6?) forces

Air-travel industry Rivalry among industry players - Airbus vs. Boeing (vs. ATR, Tupolev) Threat of new entrants - severe regulations - large capital investment - sophisticated supplier and support industries - highly skilled labor - zero/negative profits during an extended start-up phase - China/Russia/Japan or … ? may encourage a subsidized entry into market of their own national company

Air-travel industry Bargaining power of buyers - limited # of traditional and low cost airlines; leasing companies => considerable & growing power b/c of decreased # of orders for new aircraft - they have low switching costs -> Boeing is willing & able to offer better price &/or service than Airbus to steal orders from Airbus - low cost airlines – order aircraft w/basic equipment easily to be produced by either of 2 manufacturers

Air-travel industry Bargaining power of suppliers - engine manufacturers – crucial for aircraft manufacturers - gradually undergoing consolidation - non-existent substitutes due to certification requirements (high reliability/efficiency) => strong bargaining power weakened by shrinking military market to which they also supply Threat of substitutes - high-speed trains (Germany, France) traveling between points falling into air-travel network => lower demand for air-travel alternative - automobile industry – cars, highway network in EU, comfort (A/C) - IT – e.g. skype conference calls => no need to meet physically in 1 place

Air-travel industry Relative power of stakeholders - Banks – loans to aircraft manufacturers backed up by long-term contracts w/airlines, governments, renting companies …… - Suppliers, labor unions, international relations in the defense sector …