STRATEGIC MANAGEMENT

Strategy can be identified as the future direction of a company & what it is wish to achieve? & how it will achieve it? (Ideally it should also identified how it would make itself different from the rest of the players in the market) Eg: Both Body Shop & Estee Lourder are cosmetic firms which are focuses on achieving certain objectives such as market share , profit targets etc: However the actions taken are different. Estee Lourder provide solutions to customers as a high end premium company which targets a limited set of customers with very high profit margin .O the other hand the Body Shop acts as a more common brand & target a larger portion of the market with average prices & appear as a people friendly brand which focuses on social problems & also care for the environment CIMA definition of Strategy

A course of action including the specification of resources to achieve specific objective

Themes of strategy This identifies the areas of a company on which the strategy will have an impact. 1. Strategy will impact the purpose of a firm & its long-term business operations. Eg: The Virgin Group Strategy of innovation & always trying out new things leads to business operations such as Virgin glacises (Space Tourism) 2. Scope of an Org - The Strategy enable to identify what type of business it will be getting to & also stay away from. Eg: Virgin group stay away from certain products like washing powder since it is already overcrowded with different venders.

3. To meet external environment challenges. Eg: When Virgin Group face tuff competition for its American Airline Virgin America how it overcame the competition was through providing innovative & new features such as more leg space for economic class , changing the lightening inside the aircraft in line with time of the day etc. 4. How to use internal resources & what to aligning them for Eg: Virgin Groups airlines uses more people to provide luxury customer care such as salon & spa treatment for its customers than administrative activities.

5. Delivering value to people who depend on the firm. Eg: Through a strategy of innovation, when the Virgin Group enter the railway industry it invested in the fastest train so that customer who depend on the firm could travel quicker with less time wasted.

LEVELS OF STRATEGY Strategy will exist in different levels with in an org.

Corporate level strategy

Business level strategy

Business level strategy

Functional level strategies Marketing Accounting Finance HR

Functional level strategies Marketing Accounting Finance HR

Corporate level strategy

This is the strategy & the direction set for the entire org. @ the top most level of the org. usually the founders, top mgt officials such as the CEO etc. would be setting up this type of a strategy. Eg: Microsoft Strategy is to help people through their solution to reach their potential.

Business level strategy

This refers to the strategy followed by different strategic business units.( product division) in order to achieve their objectives. is strategy should be in line with the corporate level strategy.

Eg: MS the following different business level strategies can be seen

1. MS Office products - Develop solutions that helps to achieve more work in lesser time for people.

2. MS Server product division Develop server solutions in line with corporate strategy & allows to handle more transactions per day for busuness.

Functional level strategies

These are the middle level strategies of a given SBU Whereby marketing, HR, & other business function would be carried out based on the higher level strategy. Eg: MS in its marketing how customers & business can achieve more potential with its products , its HR practices include actions such as feel for employee to go & try their skills & enjoy their sports & thereby reach their true potential.

ACTIONS INVOLVE SETTING A STRATEGY

For eg the Elephant house strategy would be to provide new & innovative beverages to the target market. To do so the following activities are needed. 1. Decide what the Org intend to be or the purpose why it is exists Eg: To provide highest Quality beverages 2. Set different goals & objectives to be achieve Eg: To be the most preferred Company in the country, to achieve 80% of market share by 2012 3. Identify the position & situation of the company with relevant to the market. Eg: Elephent House @ a strong brand name. 4. Developing different strategies for different product. Eg: Necto for kids , Cream Soda for youth , Kik Cola for cola lovers 5. Commit resources for realizing different strategies that were set.

Eg: Elephant House allocating resources for development of energy drink Wild Elephant which access to the company to night entertainment.

RATIONAL STRATEGY PLANNING PROCESS MODLE / RSPM

This process identifies how a company can develop a strategy in order to achieve its goals & objectives. Mission & Objectives Identify what the company wants to achieve. Analyze current position Identify the current situation both internally as well as externally. Strategic option generation Looking @ the different paths available to achieve the goals & targets Strategy implementation - Based on the path selected the company will carryout the relevant activities. Review & control Continuously check whether the selected strategy is the correct one & whether it is helping them to achieve the goals & objectives 1. MISSION & OBJECTIVES There are several sub concepts to be under mission & objective setting. Vision What the company wants to be in the long run. Eg: IBM vision is to be a solution provider to help build smarter planet. Mission - This is the purpose of the company existing in the business world .In other words what the company intends to do. Eg IBM mission id to develop latest solutions using newest developments in hardware & software. Goals Targets which the company wishes to achieve in the long run & are expressed in overall terms. Eg: An IBM goal would be the leader in energy efficient industrial solutions. Objectives An objective can be identified as a very specific statement on what is to be achieved by the organization. Usually it would have certain quantitative numbers giving a more measurable idea to the managers & employees on what is to be achieved.

Eg: IBM would have an objective to cut down emission of CO2 by the end of 2012 in all its solutions. Strategies This refers to actions taken in order to achieve the above mentioned mission, vision, goals & objectives. Eg: New IBM CEO Sam Palasimo refer to the strategies of recruiting people who are passionate on developing solution for a smarter planet & also committing resources for project more concerned with environment & social problem. THE PURPOSE OF A MISSION STATEMENT While the mission I the broad sense identify why a company exists it also serve the following purpose. 1. Provide a basis for consistent planning. 2. Establishing goals & work ethics.Which the company will try to achieve & the company will try to follow. 3. Developing objectives for the company. 4. Obtain support from all stakeholders of the org. specially the managers & employees. Eg: NIKE mission is to bring innovation & inspiration to every athletic & based on tjis the company has been planning its activities from the inception. Its work ethics or work principles are all guided by this.(such as the NIKE founders fighting hard to make running a professional sport) Further it set objectives such as a target no of innovation per year.(including clothing such as Dry fit which keeps an athletics body cool through ventilation)

The purpose of objectives can be easily remembered using the PRIME Model

P----------------------------- Planning R---------------------------- Responsibilities Managers can set targets based on the mission of the company. I----------------------------Integrate Different department & units of work can be ordinate together using the mission statement.

M--------------------------Motivation The mission would act as a motivational statement for the employees. E--------------------------Employee performance would be appraised based on the mission of the company. Eg: NIKE @ the corporate employee appraisal would recognize managers who have developed new innovations more than those who have cut down the cost.

The features of a good objective can be identified with the SMART acronymic

S-------------------------Specific An objective should be narrow & concentrated on one area as much as possible. M------------------------- Measurable Objective should have some quantitative targets which make it easy to identify whether the objectives are been achieved. A-------------------------Achievable It should be an objective which is in line with the mission & direction of the org. as well as with in the capabilities of employees. R------------------------Realistic The target which are set be once which can be achieved within the given time. T----------------------Time Oriented Objective should have a time limit within which it should be achieved.

Goals & objective structure

The targets in a company which it wishes to achieve can be organized in the following sequence. Eg: M & S Mission Statement To make inspirational quality products accessible to Long term purpose of all. existence of the company

Strategic Objectives Achieve sustainability by 2050 (Plan A) Higher level mgt targets & divisions set in order to achieve the mission Tactical Different functions of the company would be given objectives based on the strategic objectives of the company

The R&D dept been given targets for innovation & sustainability & they come up with organic liner.

Operational This is where objectives are set @ a factory level or Individual store level in line with the Individual managers & higher level objectives employees in the company would be given targets to achieve. Which overall leads to the achievement of the mission & higher level objectives.

M&S supplier factories in Asia been given CO2 emission reduction targets. Each M&S store having a plan A champion who for a day educates a target no of customers per day on the plan A making they realize the inspirational quality of M&S.

3. 3. ANALYSING THE CURRENT POSITION

Under this step both the external environment of the company as well as the internal situation of the company will be identified. Position Analysis Where are we now ?

External

Internal

Environment (PEST)

Industry (5 Forces)

Porters Value chain

Competencies

External Environment Analysis

(a) PEST Model This model considered the situation of the overall external environment based on political & legal factors. Economical factors such as inflation level & national income , social factors including consumer tastes & also technological development such as increase in internet & mobile phone usage.

(b)Industry analysis (Michel Porters 5 Forces)

(Study the situation of the industry) This model attempts to understand the nature of the industry in a particular country & it is useful in deciding whether to enter a new industry or exist an existing industry based on t he level of attractiveness. Threat of new entrants Bargaining power of customers

Bargaining power of suppliers Competitive rivalry within an industry

Treat of substitute products

Internal Analysis This is where the internal situation & position of the company is analyzed in detail. The following two models can be used to do this. (a) Value Chain Model

This model studies the primary function of the company which are the activities that directly deals with inputs & finished goods & also its look @ support activities which enable them.

(b) Core & Threshold competencies model Competencies are processes which a org. must do & these can be categorized as follows. Threshold competencies Process a company does which are common with other players in the industry. These competencies are must have competencies for any other company in the industry. Ex. For M&S on time daily delivery to the outlets. Core Competencies Process the company does which makes it different & special from the rest of the players in the market. Eg: For M&S Product innovation in sustainability

SWOT Analysis ( Bringing internal & external analysis results together )

SWOT Analysis

Strengths

Weaknesses

Opportunities

Threats

Strengths Internal factors of a company which will give it an advantage over the rest of the players. Eg M&S brand name & R&D facilities

Weaknesses An internal factor which can cause a disadvantage to the company. Eg: Low staff morale (before 2004) Lack of highpermart outlets Opportunities External factors which will bring positive results to the company. Eg: UK economy recovering , more customers become eco friendly

Threats External factors which can create challenges & issues for the company Eg: More UK customers wanting highpermart shopping, new laws on packaging

The key reasons why a SWOT analysis is done is in order to get an overall summarized idea of the internal & external analysis results & to make it easier to decision making. Further developing a SWOT makes its possible to develop strategies for the company as shown below.

S
Explo it

Overcome

Av oid

4. GENARATING STRATEGIC CHOICE

This is the 3rd phase of strategy development & it covers the following 3 decisions. (1) How can the company achieve a competitive advantage over the other competitors? (2) What are the directions to enter a market & in different market which products should be offered. (3) Identify the different methods of growth available

1. Basis of competition (How the competitive advantage is achieved)

Convert

The main question that is answered here is why customers would buy your product instead of competitors products? The two most common basis of competition are low cost (providing a product @ a very low price than the competitor) or by providing products with very high value addition than the other players. (Eg: Roles Roye cars having teek inertial ,

2. Strategic direction This identifies the different direction in which the company will grow in to future through different products & markets. The ansoft matrix can be used to understand 4 different directions a company can take.

Ansoft Metrics

Existing Products Market Penetration A company can generate more sales from existing mkt through promotion as well as finding new usages. Eg: Increasing I phone sales in US

New products Product Development Coming up with new product targeting the existing market & generating more revenue

Market Development Entering new markets with existing products. Eg: Apple launching the I phone in China.

Diversification Entering a completely new market with a new set of solution. Eg: Apple entering corporate solutions mkt through buying over Orion networks

E x i s t i n g M k t New Mkt

(3 ) Strategic Methods This topic studies the different methods available for a company to grow in the direction it has chosen to grow. (i)Internal Development This is where a company would grow by using its own reserves & resources. There would not be any partnership or integration involved. Eg: Coca cola developing Minute-maid (ii) Takeovers & Acquisitions A company can also grow in a selected direction by buying over an existing firm. Eg: Microsoft buying over skype Cargills buying over Maccalum Brewery (iii)Strategic Alliances This is where a company can grow in a direction chosen by entering in to partnership with other companies. Eg: KFC & Armani growing through franchising Apple & NIKE developing the NIKE plus shoe which is connected to the I Pod. 5. Implementing Strategy A well planned strategy will not be meaningful without proper implementation or action.

Tactical programs Middle mgt level decisions & prgrammes to lay a foundation for the strategy to be realized. Eg: Ritz Carlton have a leadership training for all employees. Also during the Malaysian tourism downtime did not getting to the price war like other luxury hotels. Operational Programmes Activities done @ the lowest level in order to realize the strategy that was set @ the top. Eg: Ritz Carlton hotels designing & maintaining rooms with the highest level of luxury component & also employing a larger staff who will attend to every need of customers. 6. Once an org has begun to implement a strategy .it is need to constantly check whether its objectives are been achieved through that strategy. Also it is important to do a review & control since the environment may have changed since the position audit was done making certain decision the company took not suitable. Eg: Coca cola setting a swat team to convince & treating all UK dealers who

Criticisms of Rational Strategy Model

(1) Org are not capable of having objectives because of stakeholder clashes (Nokia mgt wanting to increase R&D investment while shareholders wanting more profit) (2) It is not only the senior mgt & advanced managers that are involving setting strategy. Eg: Singapore Air lines cabin crew provided vital inside regarding breakfast & vine consumption in shortfall fly. (3) Strategy development is not a simple step by step model process. Certain strategic options that were selected may have to reverse later. Eg: Forsters in Australia entering the wing segment by later discontinuing it.

(4) Org.s sometimes end up following a strategy that is completely different from the original one. Eg: Samsung starting with fish transportation industry ending final with consumer electronic products.

Top down approach to strategy This is where strategic decisions are made @ the top & pass all to the lower levels to be implemented & carryout such an approach would had following features. 1. There is a dedicated team @ the top who would be making the decisions. Eg: Aramex 2. There is a well plan out communication programme through which strategic decision made @ the top are communicated to the lower level. Eg: Aramex founder getting involve in the training programme to new recruit 3. There would be a team that regularly studies the situation of the company & does a review to see whether the strategies working to the company.

Benefits of Top down approach 1. Avoid short term behavior & put a focus on long term goals. 2. Better goal congruence (aligning of goals) Since the top mgt coordinates all the activities. 3. A top down approach to strategy will ensure consistency & continuity of mgt planning & decision making.

Drawbacks of Top down approach 1. The decision made might not be practical because top may lack understanding of the ground situation. 2. It will kill the entreprenual spirit of the people & no new ideas will be generated. 3. The founder of the company will be involved in daily operations of the business.

Achieving competitive advantage

This identifies how an org can achieve super normal profits or a very high level of profit. 1. Positioning View In this approach as org would study the external environment & decide on how to position it self so that it offers something this is truly different from competitor offring. Under this approach of the positioning view the following three tactics are possible. (i) Competitive advantage through a very high market share.

Eg: Red Bull energy drinks attracting a large global market share through advertising. (ii) Competitive advantage through differentiation.

This is where the company will provide a product which is having features which are truly differentiated & make to be unique from the rest of the players product offering. Ex:F88 luxury energy drink by fashion TV.

(iii)

Competitive advantage through lower cost offering.

This is where the company would analyses the environment & offer products @ a price which is lower than any other players in the market. Eg: Wallmart the low cost American retailer sells through raiser thin margin to a very large customer base. They were the first in the US to start LCD TVs for less than $1000.

This position view approach is called THE OUT SIDE IN APPROACH. Where the company based on the environment needs would be changing its internal situation.

2. Resource Based Theory View This is an INSIDE OUT APPROACH taken through which a company will use its available strategic resources & strategic assets to offer something to the mkt (including customers & competitors as well as other connected parties in the mkt) will change.

There are 3 key arguments for adopting a resource base theory approach for the strategy.

1. Competitive advantage gain through a positioning view is not sustainable. Eg: Maruty loosing the low cost position to Tata nano 2. Environment are too dynamic & always changing which makes a position which company would have taken not suitable anymore. 3. If the company had the right resources it is much easier to change the environment than to change the internal company. Professor Barney RBT Views According to professor Barney if a companys resources have the following features it would give them a ability to achieve a competitive advantage. Valuable Eg: MC Donalds brand power, large no of stores which are spread worldwide etc. Rare Not a resource that others have access to. Eg: Ferrari fine tune engine.

Imperfectly Imitable Eg: Uniliver 100 years of existence is not something that can be copied by someone else. Substitutability should be low Eg: Bretanic enside media were easily substituted by MS using the Encata enside opidia cads.

Professor Key RBT Views.

According to professor Key the following set of internal resources shows the aspects require to achieve a competitive advantage.

(a) Competitive Advantage This refers to the strength & nature of relationship between the company & its employes as well as external parties such as customers & suppliers. Eg: MAS Holdings have strong bond with factory level employees. (b)Reputation of the company Eg: Black Berry (c)Ability for the company to innovate & come up with new solutions Eg:BMW (d)Ownership of strategic assets Assets that can give a company advantage no matter what the environment situation may be. Eg: Disneyland having ownership of Mickey Mouse & other cartoon character designs.

Pralahad & Hamel Core Competencies

Core competency is a process or activity which makes a company special & different from the rest. These core competencies should have the following features. (1) Should give wider mkt access to the company. (2) Customers should see a benefit which they get due to that core competency. (3) It should be difficult for competitors to imitate that competency or come up with something similar. Eg: Hondas core competency in creating small & fuel efficient engine.

Issues with RBT

The main problem with RBT approach is that managers will be reluctant to approve it & follow that approach because it contradict & clashes with the traditional views of strategy as well as the rational strategy planning model. Further the RBT approach lead to different conclusion on what a business can do which can sometimes confuse the management.

Eg: the Philips core competency in electronics circuit means there are multiple business areas which they could center in to. Further the RBT approach may not work in favor of al companies & certain companies that were depending on their internal resources have fail due to changing environment. Eg: The failure of Motorola.

Emergent Strategies

In ter na l

In ter na l

St r at

eg y eg y

St r at

Very often org: start with certain strategies in mind but only a part of it may actually be made to happen .Some parts of the strategy the company started off would never be realized (Now realized strategy) However due to forces of the environment certain new strategies may be identified by the company as well as adopted by them. So the ultimate strategy of the company is a combination of the Deliberate Strategy as well as Emergent Strategy. This is called the Realized Strategy.

The Honda Story on Emergent Strategy.

.Honda entered the US market to compete with big bikes such as Harley Davidson (Emergent Strategy) However they soon ran in to engine problems & heavy competition & had to move away from the big bikes market. (Now realized Strategy)

However with times the demand rose from dealers & customers for smaller & more fuel efficient methods of transportation.(Emergent Strategy) Ultimately Honda ended with providing small & fuel efficient bikes as well as cars. Due to emergent strategies managers would need to do the followings.

1. Be able to manage stability even in a changing environment. 2. Detect discontinuity or parts of the strategy which are not delivering expected results. Eg: Circue Due Soleil realizing that the traditional circuits model it operated on is no longer attracting people. 3. Identify & manage future patterns of the industry. 4. Most importantly managers should be able to understand the changing the environment & the strategies emerging from it & through that quickly change the company direction in order to be in line with the environment situation.

Logical Incrementalism
This is the concept that says that there is no direct & structured approach taken towards strategy & that company starts with an initial strategy & gradually muddle forward so that little by little they would realize what strategies work for them. Eg: Softlogic starting with a few industries & gradually as it went forward ventured in to new areas & also drop some of the earlier business ventures. The author Lindblom had negative attitude towards it but said that it is what exists in the corporate world today. On the other hand Quinn had a positive attitude towards LI. According to him rather than going with a full Blom Strategy which his risky, it is better to develop & initial strategy , get political support from a company & gradually step by step developing going forward.

Managing Stakeholders.

Stakeholders according to the CIMA definition are parties that would have interest on the strategy of an org: Popular types of stakeholders are , customers ,suppliers ,GOVT ,pressure groups, media etc. Eg: For Johnnie Walker in US their stakeholders would be the Cbama administration, CNN , pressure groups such as TADD (Teams against Drinking & Driving etc) Because stakeholders have a power over the company & also the company action will impact the stakeholder companies should pay close attention to stakeholder interest.

Mendelow Matrix
This is a model that shows the impotents of different stakeholders based on their power 7 interest in a company .The model also shows how to handle the different categories of stakeholders.

Level of interest.

P H i o g w e L o L r

Low

High

BOX A Low power, low interest stakeholders. These are the stakeholders that would be having the least amount of power over the strategy of the company & also the least interest. Eg: For SL small Miracle campaign these would be the small hotels & ticketing agent. The main way to handle these stakeholders is through providing direction with minimal effort. Box B-High interest, low power stakeholders These SH would be having a very high interest on the company activities as well as a low power over the company. Eg: SL SM campaign this would include the larger hotels & ticketing against as well as the tourist. The main tactic to handle them is through providing them with education & keeping them informed. Through this their commitment can be obtained.

BOX C- High power low interest stakeholders

These SH have a very high power over the strategy of the company but rather interest levels are lower. Eg: For SL SM campaign foreign embassies in the country falls under this category. The tactic to handle them is called an intervention approach where they would be kept satisfied. BOX D High interest high power. These are the most important SH for the company & therefore they are called key players. Eg: For the above campaign of tourism in SL the president & other GOVT authorities would fall under this category. The main tactic of handling such SH is to allowing hem active participation.

Assessing power of stakeholders. The power that SH has in a company will depend on the following aspects. 1. The status of stakeholders. The important of person with the company.

Eg: Steeve Jobs for Apple. The importance of the stakeholders contribution to the end product. Eg: Intel Inside

2. Stakeholder claims on resources This looks @ the following aspects. The control the stakeholders have over the budget. The volume of transactions done with the stakeholder Eg: Cargills buying millions of milk from the farmers gives them a high power. 3. Formal representation of the SH

This looks @ the following aspects. The level of formal decision making authority. Eg: The FB executive committee The amount of people behind an individual. Eg: Trade union leaders having high power.

Assessing Interest
This is a matter which is more complex than understanding the power. The reason for this is because interest is more hidden & difficult to identify. When assessing the interest of stakeholders in a company the following 2 aspects need to be study. 1. What are they interested in? Eg: For FB members would be interested on privacy settings & security measures taken by FB. Employees would be interested on job security & pay policies. The founders would be concerned about profit & growth of the business.

2. How or why they are interested. 3. Eg: FB members are interested since lack of security can create a bad public image. Employees are concerned because they are financially depended on the company & the founders are interested since many of them have committed their whole life to the project.

Clashes between stakeholders.

Since different stakeholders have different objectives & needs in many situations clashes tend to happen. Eg: Shareholders objective of higher profit clashing with employees objectives of salaries & benefits. However it should be noted that sometimes from within a same category of stakeholders there can be clashes with objectives. Eg: A banks finance director wanting to cut down cost Vs the IT director plans to increase invest in online banking system.

WHEN MAKING STRATEGIC DECISION THE COMPANY MUST TRY TO KEEP AS MANY SH AS POSSIBLE SATISFIED.

How to resolve stakeholder clashes Cyert & March tactics.

The following different tactics & steps have been identified by 2 authors as methods of solving clashes between stakeholders.

1. Satisfying This method tells to solve a clash by focusing on keeping the most powerful stakeholders happy. 2. Sequential Attention This is where different stakeholders are given a turn to satisfy their requirements. Eg: A listed company increasing employees salaries in one year & increasing dividends for a share next year. 3. Slide payments This is where certain stakeholders are kept happy by providing other benefits & perks. 4. Exercise Power If stakeholder clashes exist continuously a different stakeholder with a high level of power can get involve & usehis or her power to settle the clashes. Eg: The clash for salaries between estate workers & tea companies in SL settled by the president intervening.

Assessing the environment This means understanding the political impact from the environment. (the future situation in the environment) during the initial strategy planning phases. Eg: Nestlay would realize that the future environment will be very risky due to financial instability.

Stages of competitive environment analysis.

Understanding the competitive environment requires following two types of environment analysis. Micro environment analysis - (Study done to understand the nature of the industry).In order to do this Porters 5 forces model is used. Macro environment analysis (Study done to understand the bigger environmental factors which will affect not just one industry but all industries. To do this analysis the PEST MODEL & LONG PEST MODEL is used.

Micro Environment

When understanding the nature of an industry the 5 forces model mentioned above can be used to identify 5 industry forces which determined the overall competitiveness of the industry. Understanding the nature of these 5 forces is important to following 3 decisions. 1. Deciding whether to enter the industry or not

2. Deciding whether to invest further in an existing industry or not. Eg: Nestle investing further in emerging economies in the food industry. 3. Deciding whether to leave a particular industry or not.

***Because the 5 forces model shows the attractiveness & competitiveness of an industry these decisions can be made.

1. Threats from new entrants

This identify how easy or difficult it is for new players to enter the market or the industry. This depends on the following factors .Requirement of economies of scale. Eg: Industries such as the mobile industry require large customer numbers in order to cover its cost & be profitable. This deters new entrants. Level of differentiation in the industry.

If there is a low level of differentiation it would be easy for new players to capture the market. Eg: Cargills & SL icecream industry. Capital Requirement

If the industry require very high investment to begin ,new entrants would find it hard to enter. Eg: Mobile industry Oil industry.

GVT policies with regard to the industry. Eg : Indian gvt passing laws to encourage more foreign investors create high threats from new entrants.

 New entrants have an effect on existing players either through actual entry. (Creating loss of employees & market share)_ & also by forcing pre emptive strategies on the existing players. Eg: News about possible Airtel entry to SL market cause Dialog to slash prices.

Threats or pressure form substitutes

This force identifies the challenges to an industry from another industry that provides an alternative product or service. Eg: UK domestic air travel Vs domestic rail travel industry. The following key effects can be identified on one industry due to substitute industry.

a) It can force in the industry to develop enhancements to the industry.

The grant central railway services which faster travel & also comfortable facilities. b) It can make the industry obsolete c) MP3 Player industry making the CD player industry obsolete. The threats from substitutes depends on the following 1. The relative price & performance differences between the 2 substitutes.

2. Switching cost between substitutes Firewood Vs Gas for cooking Threats from bargaining power of buyers.

This identifies the power that a buyer or customer would have over company in that industry. This depend on the following factors. 1. Number of buyers If the buyers are smaller in number power is higher. Eg: Global mart phone industry buyers have a high power since there are only 6% of total mobile phone buyers. Level of differentiation of products If the available products are differentiated with each other then the buyer power would be less. Eg: Apple reduces buyer power for the I phone through strong branding. Level of buyer knowledge Higher the knowledge that consumer has they get mare power. Switching cost If the switching cost for the customers high then the power that the buyer has would be reduced.

Bargaining power of suppliers

This identifies the power which suppliers of the industry have over the company in the industry. This depends on the following 2 factors. 1. No of suppliers in the industry Lower the number the suppliers have a higher power. 2. Supplier product differentiation or in other words the importance of the supplier input for the company. 3. Eg: Cadbury chocolates are an important input to any British super market chain.

Threat of competitive rivalry

This identifies the intensity of competition between players in the industry. It depends on the following. No of players in the industry Higher the number competition is higher as well. Size & growth rate of the industry Larger the industry market size & higher the growth rate, there will be more opportunity so rivalry would be lower.

Level of product differentiation with in the industry also decide on the rivalry. If producers differentia e them self rivalry would be less.

British confectionary Industry & Porters 5 Forces

Low threat of new entrants Because of high capital requirement for manufacturing facilities & advertising. High economies of scale are required.

High threat of substitutes Since healthy snacks are becoming popular , nutritious snacks bars becoming a treat. Moderate supplier power This is because cocoa & sugar suppliers are moderated by the GVT regulations. High buyer power This is due to large levels of different brands been available & also low switching cost.

High level rivalry This is due to high number of players, lower differentiation & slow market growth.

Scenario Based Analysis

A scenario is a future possible situation ( Eg; Competitor entering the market , a major rival closing down operation etc ) & scenario planning is where a company would have different plan for different future situations & activate them depending on which situation becomes real. Eg: King fisher Air line would have separate plans if another rival enter the Indian air line market & also another set of plans such as investing in more aircraft & expending in to new locations if a rival player doesnt enter the market.

Industry life cycle

This model understands the situation or the stage in which an industry may be in.

Introduction stage
This is the stage where the industry starts & initially there are a few average quality products. There will be a low no of buyers who are usually rich & the no of competitors will be less. Usually the margins are extremely high.

Growth stage
In this more products are introduced to the market & they are more differentiated from each other. The no of buyers increase sufficiently. There will also be a higher no of competitors. However the margins will be reduced in order to allow more sales.

Maturity Stage
This is the stage where growth goes down & the products will be further differentiated to attract the market. The product will become more mass market. The level of competitors would not be growing but they would try & identify niche market & focus on them. The margin will further reduced.

Decline Stage
This is the lager stage where the industry dies & there will be a few no of standardized products that will be offered. No of buyers will be very small & so market will not be attractive leading to many competitors existing in the market .Margins will be further reduced in order to encourage more buyers.

Evaluating Environment Analysis Model

The key benefit of using Environment Analysis Model are, It forces the mgt to consider wider are as which affects the business. Allows & enables a division of work between teams. It provides a common language to the entire mgt team to be talking. Provides inside on strategic issues such as opportunities & threats as well as strengths 7 weaknesses.

Issues with Environment Analysis Model

Distort the reality & under estimates the real round situation such as corruptions & mafia issues. They present the environment as external though in reality the company itself would be a part of the environment. .These models do not look @ the network links or the connections that competitors would be having with suppliers. These model do not look A@ the network links or the connections that competitors would be having with suppliers. Overloads the mgt with extra tastes & activities.

Survival vs. Success Factors

Survival factors are the bear minimum requirements for a company to survival in the industry. Eg: For luxury brands this includes focusing on brand values , investing in brand promotions etc Luxury Company Tiffeny move away from these in the recession & started selling @ discount which make them loose the market share. Success factors on the other hand are those requirements for a company to be able to achieve a heavy advantage in the market over the other player. Eg: Luxury brand Cartious ability to expanding to emerging luxury market such as China.

Uncertainty
Uncertainty can be identified as the inability to protect or identify the outcome of future activity to lack of information. Uncertainty is cause by the following 2 aspects.

Complexity This refers to the difficulty or the understanding of environment due to so many external factors having an impact on it.

Eg: In the automobile industry due to heavy effect from all the PESTEL factors, it is difficult to understand the future situation.

Dynamism This identifies the rate of change in an industry, or in other words how fast it is changing. Higher the speed higher the uncertainty.

Impact on Uncertainty.
Due to high level of uncertainty org have to face the following impact. 1. 2. 3. 4. Plan for shorter time span. Focus more on emerging strategy. Invest & allocate more funds for external environment analysis. A heavy focus on Scenario Based planning.

Competitor Analysis
This activity focus on identifying & quantifying the strengths &weaknesses of a company comp aired to its competitors. In other words its about understanding where the companies stronger than its competitors & where the competitors are stronger than the company. Competitors can have an impact on a company through the following tactics.

1. Reducing prices 2. Launching a rival product to counter a new product of the company. 3. Aggressive explanation of production in order to reduce the companys market share. 4. Doing a costly product modification which the other players in the industry also have to follow.

Competitor Levels by Kotler.

This understands the nature of competition that exist in a market. 1. Brand competitors Two companies of similar types offering similar product to the market. Eg: Coca cola Vs pepsi 2. Industry Competitors Two companies which are providing same products to the market but they are different to each other in size. Eg: Cadbury vs. Nestle 3. Form Competitors Two players which will be form different industries but providing solutions for the customers to fulfill same needs. Eg : Sport cars & speed boards both provide solutions to help customers satisfy their self expression needs. 4. Generic Competitors Competitors from different industries who are competing for the same income of customers. Eg: Golf clubs vs Air condition upgrade for a house

The threat from competitors will depend on the following factors.

1. No of rivals & differentiation level. 2. Entry & mobility barriers for the competitors. (Mobility barriers look @ how easy or difficult it is for a competitor to enter a new business segment.) Strong brand name of Livies in casual clothing segment makes it difficult for it to enter segment such as fine suiting. 3. Cost structure if competitors have a high cost the threat from them would be low. 4. The degree of vertical integration of the competitor. High level of virtual integration by Food city provide them their own supply creating a high threat for any new player. Gathering competitor intelligence An org when obtaining intelligence regarding its competitors should focus on the following areas. 1. Identify the competitors current strategy. 2. Identify the main objective of competitor. Eg: Microsoft wanting 25% of market share in the search engine market by 2012 3. Identify assumptions about competitor & what the competitor believe in Eg: Microsoft believes that the online software market is growing & this mean Google should be well prepared to tackle the competition. 4. Identify the key resources & strengths of the competitors. Eg: The key resources & strengths of Microsoft are the brand power & capital availability.

When conducting an analysis of the competitors. The following types of information should be gathered