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1950s ± budgetary planning and control... Financial control... Budgeting & project management and
appraisal... Emphasised financial management

1960s ± Corporate planning, planning for growth, forecasting & investment planning, rise of corporate
planning departments & formal planning.

Early to Mid 1970s ± Corporate strategy ± diversification ± portfolio strategy planning ± synergy market
share ± diversification ± quest for global market share .Late 1970s to early 1980s ± Analysis of industry &
competition, positioning, analysis of industry & competition, industry/market selectivity. Active asset
management .Late 1980s ± early 1990s ± Quest for competitive advantage, competitive advantage,
resource analysis, core competences - restructuring, BPR, refocusing and outsourcing. .Late 1990s ±
early 2000s ± Strategic innovation, The ³New Economy´ - Innovation & knowledge ± dynamic sources of
advantage ± Knowledge Management, cooperation ± Virtual organisation, alliances ± quest for critical
mass .Late 2000s - Strategic Management ± strategy is a design tool ± you need to design a strategy to
build a design tool. Strategy by design

Strategy. µA course of action, including the specification of resources required, to achieve a

specific objective.¶ CIMA: Management Accountingp

It is widely held that growth is the fundamental strategic challenge for business leaders.
Today¶s business environment is making creative strategy even more critical. Virtually every business We
can argues that the world is getting more complex, whether it¶s the new rules of the Internet economy; the
³flattening´ of global markets; the emergence of new world-scale competitors; or the fluidity of people,
ideas,and capital. In this environment, constant strategic recreation may offer the only hope of long-term
success. books tell stories of great strategic triumphs (and failures), examining heroic leaders and critical
decisions, analyzing businesses individually and en masse to glean lessons and codify rules. But what
value does this serve in preparing leaders for the creative process of developing the next strategy? Many
of the heroes of our best strategic tales, including some told in the books reviewed here, were not great
students of strategy.
Indeed, many of our modern business icons ² BillGates, Sam Walton, Richard Branson, Fred Smith, and
the like ² didn¶t proceed from theory to action. And perhaps their genius can¶t be codified. As the
philosopher Immanuel Kant argued, ³Genius is a talent for producing that for which no definite rule can
be given, and not an aptitude in the way of cleverness for what can be

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learned according to some rule.´ It is therefore no wonder that most business books discuss how to
evaluate a strategy, but few offer much help in creating one.
|

 

Competitive
Strategy: Techniques for Analyzing Industries and
Competitors   

 

  
 

 


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  is the process of formulating, implementing and evaluating strategies to

support the cross functional decision of the company. In today¶s world, everything is changing
with unexpected speed.Competition,Innovation,polices,environment,technology and human
resource are some major concerns of the company.Companies follow the traditional ad-
hoc,forecasting methods to compete in the market will not work for long term. Strategic planning
is now become mandatory process to clearly define company objectives,goals,internal
resources,external factors and to evaluate overall cycle for eliminating bottlenecks



  
 compromise of following following phases:

1- Compny vision & mission

2-Internal audit

3-External audit

4-Formulation of strategy

5-Implementation of strategy

6-Evaluation of strategy

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Strategic Position & ACtion Evaluation matrix   M


 
 


  
 

 








  
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To explain how the SPACE matrix works, it is best to reverse-engineer it. First, let's take a look
at what the outcome of a SPACE matrix analysis can be, take a look at the picture below. The
SPACE matrix is broken down to four quadrants where each quadrant suggests a different type
or a nature of a strategy:

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• Con
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• Compm

This is what a completed SPACE matrix looks like:

This particular SPACE matrix tells us that our company should pursue an aggressive strategy.
Our company has a strong competitive position it the market with rapid growth. It needs to use
its internal strengths to develop a market penetration and market development strategy. This can
include product development, integration with other companies, acquisition of competitors, and
so on.

Now, how do we get to the possible outcomes shown in the SPACE matrix? The SPACE Matrix
analysis functions upon two internal and two external strategic dimensions in order to determine
the organization's strategic posture in the industry. The SPACE matrix is based on four areas of
analysis.

Internal strategic dimensions:

Financial strength (FS)

Competitive advantage (CA)

External strategic dimensions:

Environmental stability (ES)

Industry strength (IS)

There are many SPACE matrix factors under the internal strategic dimension. These factors
analyze a business internal strategic position. The financial strength factors often come from
company accounting. These SPACE matrix factors can include for example return on
investment, leverage, turnover, liquidity, working capital, cash flow, and others. Competitive

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advantage factors include for example the speed of innovation by the company, market niche
position, customer loyalty, product quality, market share, product life cycle, and others.

Every business is also affected by the environment in which it operates. SPACE matrix factors
related to business external strategic dimension are for example overall economic condition,
GDP growth, inflation, price elasticity, technology, barriers to entry, competitive pressures,
industry growth potential, and others. These factors can be well analyzed using the Michael
Porter's Five Forces model.

The SPACE matrix calculates the importance of each of these dimensions and places them on a
Cartesian graph with X and Y coordinates.

The following are a few model technical assumptions:

- By definition, the CA and IS values in the SPACE matrix are plotted on the X axis.
- CA values can range from -1 to -6.
- IS values can take +1 to +6.

- The FS and ES dimensions of the model are plotted on the Y axis.

- ES values can be between -1 and -6.
- FS values range from +1 to +6.

o   ¯ 

The SPACE matrix is constructed by plotting calculated values for the competitive advantage
(CA) and industry strength (IS) dimensions on the X axis. The Y axis is based on the
environmental stability (ES) and financial strength (FS) dimensions. The SPACE matrix can be
created using the following seven steps: The SPACE matrix is constructed by plotting calculated
values for the competitive advantage (CA) and industry strength (IS) dimensions on the X axis.
The Y axis is based on the environmental stability (ES) and financial strength (FS) dimensions.
The SPACE matrix can be created using the following seven steps:

Step 1: Choose a set of variables to be used to gauge the competitive advantage (CA), industry
strength (IS), environmental stability (ES), and financial strength (FS).

Step 2: Rate individual factors using rating system specific to each dimension. Rate competitive
advantage (CA) and environmental stability (ES) using rating scale from -6 (worst) to -1 (best).
Rate industry strength (IS) and financial strength (FS) using rating scale from +1 (worst) to +6
(best).

Step 3: Find the average scores for competitive advantage (CA), industry strength (IS),
environmental stability (ES), and financial strength (FS).

Step 4: Plot values from step 3 for each dimension on the SPACE matrix on the appropriate axis.

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Step 5: Add the average score for the competitive advantage (CA) and industry strength (IS)
dimensions. This will be your final point on axis X on the SPACE matrix.

Step 6: Add the average score for the SPACE matrix environmental stability (ES) and financial
strength (FS) dimensions to find your final point on the axis Y.

M
 Find intersection of your X and Y points. Draw a line from the center of the SPACE
matrix to your point. This line reveals the type of strategy the company should pursue

 ë 
. (Specific, Measurable, Action Oriented, Realistic, Time bound). Each goal should
have action plan(s) to assure they are achieved. Frequently some of the goals from one level become
objectives for the next level down in the organization. When this happens it assures that goal oriented
action plans anywhere in the organization can be traced up the organization to demonstrate they are in
support of the top level objectives and strategy. When there are gaps in that linkage it is common to have
misunderstandings and efforts that are not aligned and hence not as efficient nor as effective as they
could. Effective team building starts at the executive level, includes management training at all levels
including front line supervisors and has a leadership skills development training plan for every employee.

 Six Sigma can be an integral part of strategic planning or a business plan. For many Six
Sigma is part of that vision. Achieving a performance level that has less than 3.4 ppm defect or error rate
may seen like the Impossible Dream for some, yet for other's it has been achieved.. For a strategy
involving cost leadership, Six Sigma can be focused to improve internal processes, yields, productivity,
eliminate complexity, reduce cycle time and in general help gain or maintain low cost supplier position
for your particular product or service. If your strategy includes being the lowest price in the market your
costs had better be the lowest.

Six Sigma also should be an integral part of any customer loyalty strategy. One of the keys to customer
loyalty is providing the customer with products and services that meet or exceed their expectation every
time. Every transaction and interaction between a customer, or potential customer, is an opportunity to
meet or fail to meet that specific customers expectations. Few systems are good enough to offer the
desired level of product or service on a consistent basis to keep loyal customers without some constant
attention and work. The tremendous benefits from having loyal customers can not be overstated. Jack
Welch has been quoted as saying that only when GE's Six Sigma efforts started focusing on the external
customers did they begin to really see the benefits




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Strategic management primarily concerned with strategy formulation and its implementation

As strategic management concept there should be first come in mind about

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‡ corporate strategy
‡ business unit strategy
‡ functional or departmental level or operational strategy

Corporate strategy:
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While a business must continually adapt to its competitive environment, there are certain core ideals that
remain relatively steady and provide guidance in the process of strategic decision-making. These
unchanging ideals form the 
 and are expressed in the company 

.

The mission statement communicates the firm's core ideology and visionary goals, generally consisting of
the following three components:

1. 

 to which the firm is committed

2. 
 
of the firm
3. Ñ
 the firm will pursue to fulfill its mission

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The firm's core values and purpose constitute its core ideology and remain relatively constant. They are
independent of industry structure and the product life cycle.

The core ideology is not created in a mission statement; rather, the mission statement is simply an
expression of what already exists. The specific phrasing of the ideology may change with the times, but
the underlying ideology remains constant.

The three components of the business vision can be portrayed as follows:

 
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Core Val es

The core values are a few values (no more than five or so) that are central to the firm. Core values reflect
the deeply held values of the organization and are independent of the current industry environment and
management fads.

One way to determine whether a value is a core value to ask whether it would continue to be supported if
circumstances changed and caused it to be seen as a liability. If the answer is that it would be kept, then it
is core value. Another way to determine which values are core is to imagine the firm moving into a totally
different industry. The values that would be carried with it into the new industry are the core values of the
firm.

Core values will not change even if the industry in which the company operates changes. If the industry
changes such that the core values are not appreciated, then the firm should seek new markets where its
core values are viewed as an asset.

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For example, if innovation is a core value but then 10 years down the road innovation is no longer valued
by the current customers, rather than change its values the firm should seek new markets where
innovation is advantageous.

The following are a few examples of values that some firms has chosen to be in their core:

• excellent customer service

• pioneering technology
• creativity
• integrity
• social responsibility

Core P rpose

The core purpose is the reason that the firm exists. This core purpose is expressed in a carefully
formulated mission statement. Like the core values, the core purpose is relatively unchanging and for
many firms endures for decades or even centuries. This purpose sets the firm apart from other firms in its
industry and sets the direction in which the firm will proceed.

The core purpose is an idealistic reason for being. While firms exist to earn a profit, the profit motive
should not be highlighted in the mission statement since it provides little direction to the firm's
employees. What is more important is how the firm will earn its profit since the "how" is what defines the
firm.

Initial attempts at stating a core purpose often result in too specific of a statement that focuses on a
product or service. To isolate the core purpose, it is useful to ask "why" in response to first-pass, product-
oriented mission statements. For example, if a market research firm initially states that its purpose is to
provide market research data to its customers, asking "why" leads to the fact that the data is to help
customers better understand their markets. Continuing to ask "why" may lead to the revelation that the
firm's core purpose is to assist its clients in reaching their objectives by helping them to better understand
their markets.

The core purpose and values of the firm are not selected - they are discovered. The stated ideology should
not be a goal or aspiration but rather, it should portray the firm as it really is. Any attempt to state a value
that is not already held by the firm's employees is likely to not be taken seriously.

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The visionary goals are the lofty objectives that the firm's management decides to pursue. This vision
describes some milestone that the firm will reach in the future and may require a decade or more to
achieve. In contrast to the core ideology that the firm discovers, visionary goals are selected.

These visionary goals are longer term and more challenging than strategic or tactical goals. There may be
only a 50% chance of realizing the vision, but the firm must believe that it can do so. Collins and Porras
describe these lofty objectives as "Big, Hairy, Audacious Goals." These goals should be challenging

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enough so that people nearly gasp when they learn of them and realize the effort that will be required to
reach them.

Most visionary goals fall into one of the following categories:

• ë 
 - quantitative or qualitative goals such as a sales target or Ford's goal to "democratize the
automobile."
• 


- centered on overtaking a specific firm such as the 1950's goal of Philip-Morris
to displace RJR.
• 

 - to become like another firm in a different industry or market. For example, a
cycling accessories firm might strive to become "the Nike of the cycling industry."
• 
   - especially appropriate for very large corporations. For example, GE
set the goal of becoming number one or number two in every market it serves.

While visionary goals may require significant stretching to achieve, many visionary companies have
succeeded in reaching them. Once such a goal is reached, it needs to be replaced; otherwise, it is unlikely
that the organization will continue to be successful. For example, Ford succeeded in placing the
automobile within the reach of everyday people, but did not replace this goal with a better one and
General Motors overtook Ford in the 1930's.

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points an organization in a particular direction, charts a strategic path for it to follow
in preparing for the future, and moulds organizational identity. A Strategic vision is a
road map of a company¶s future ± providing specifics about technology and
customer focus, the geographic and product markets to be pursued, the capabilities
it plans to develop, and the kind of company that management is trying to create
. A vision is not a strategy; it precedes a strategy and sets the
tone for the corporate strategy. A vision is the prism through which the
company¶s efforts are viewed and concentrated. Sometimes, the vision is a
little out of focus,
.
A more recent example of the power of vision in the same industry is the
turnaround of IBM. Louis Gerstner became Chairman of IBM in 1993. He
took over a leaking boat. His first statement, The last thing IBM needs right
now is a vision, received a lot of publicity
Six months after being appointed Chairman he set out a vision for IBM which
led to the major cultural changes and subsequent financial turnaround of the
organization. As summarized in Who Says Elephants Can¶t Dance?, here
are the eight principles that Louis Gerstner set out:
1. The marketplace is the driving force behind everything we do.
2. At our core, we are a technology company with an overriding
commitment to quality.
3. Our primary measures of success are customer satisfaction and
shareholder value.
4. We operate as an entrepreneurial organization with a minimum of
bureaucracy and a never ending focus on productivity.

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5. We never lose sight of our strategic vision.

6. We think and act with a sense of urgency.
7. Outstanding, dedicated people make it all happen, particularly
when they work together as a team.
8. We are sensitive to the needs of all employees and to the
community in which we operate.




  
. It requires a creative understanding and delineation of the

kaleidoscope of the corporate environment, along with a sifting of the past history and experience, and a
glimpse of the future. Visions inspire and mobilize human resources into action. Leaders need to develop
visions. Everyone has a vision or a dream, but not every vision makes it into the world of reality.
According to Norman Strauss, former adviser to Prime Minister Thatcher, ³The word is reserved for those
that do. Other hopes are fantasies and illusions, the impractical dreams of unsound minds.´. Visions are a
source of untold power for the corporation, rarely tapped to the fullest. Chance has always favoured the
prepared mind; now it favours the prepared mind with a vision. True leaders in all fields create visions.
John Kennedy inspired a nation; Pierre Trudeau created a vision for Canada, adopted by millions of
Canadians; Ray Kroc of McDonald¶s had a culinary vision now shared all over the world; Mother Theresa
was an inspiration with her vision of humanity. Vision is one of the few variables that can be shared by
everyone in a organization and well beyond the corporate boundaries; for example, to the sporting field,
the political arena, and any area of human endeavour. The ability to share and the shaping of values is
what gives vision power.



ë

Ñ

Norman Strauss, in an article in Director, has suggested that there are several types of visions that the
manager can develop. Until now, the discussion has centered on the overall corporate vision, which can
be broken down into various components:
o  Ñ ± An understanding of the past actions and activities of the company. Understanding
how the company arrived is very important; much can be learned from history.
Ñ ± An understanding of the current situation.
 
 Ñ ± The direction to take in the future. In essence, where we have been, where we are, and
where we are going.
"

 Ñ ± An understanding of how to inspire people to achieve the corporate goals.
$ Ñ ± Structuring the organization so that it has a competitive edge.


Ñ ± Strauss¶ most important and all encompassing vision is the
view of the totality of the company and its environment. System vision
determines the possibilities within the constraints.


Ñ
Visions can be created at all levels of the organization. Leaders exist not only at the top, but also on the
shop floor. Creating a vision starts with an understanding of both the internal organization and the
relationship of the organization to its environment and its various stakeholders (organizations are seen to
have stakeholders, or interested parties; some of these are: customers, distributors, shareholders,
employees, and the community In other words, keep your eye on the future goal, but make sure that you
take advantage of the opportunities that present themselves. The future vision supports day to day
activities and provides them with meaning and direction, but it should not be a barrier to action and
creativity. Professor G. Morgan and reported in his book, Riding the Waves of Change: It¶s absolutely
crucial to have a good understanding ± call it whatever you want ± of why you are in business and what
you are doing. The rapidity of change makes it all the more important. I think this is what the great

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successful organizations have in the key places. The world is such a changeable place that you need to
have a wellarticulated long-term sense of where you¶re going, which gives you the base,
the confidence, to take on whatever adaptability issues come along without losing your sense of direction.
You¶ve got to respond to the issues of the moment without losing that long-term sense. You need a sense
of corporate purpose and an awareness that the organization has a personality that goes beyond what it is
doing right now.
First, keep in mind that a vision precedes any type of strategy . Vision is the envelope that surrounds a
firm¶s strategy. Vision is about ideas, values, shared meanings and understanding, and most important, it
is the beacon for tomorrow. A vision is not a strategy and the two should not be confused, although they
often are. Visions are about the future, they are inspirational, and they create motivation and commitment
in an organization. Visions do not provide the specific road map; that is the business of strategy. Strategy
and vision are intertwined. In his book, The Rise and Fall of Strategic Planning, Henry Mintzberg
suggests that strategic plans fail if there is no vision to support the plans. According to Mintzberg, the
vision also acts as a stimulant to action.
For one thing, the term Ϋ had been tossed around by so many people and used in so many different
ways that it created more confusion than clarification. Some viewed vision as about having a crystal-ball
picture of the future marketplace. Others thought in terms of a technology or product vision, such as the
Macintosh computer. Still others emphasized a vision of the organization-values, purpose, mission, goals,
images of an idealized workplace. Talk about a muddled mess! No wonder so many hardnosed practical
businesspeople were highly skeptical of the whole notion of vision; it just seemed so ±well±fuzzy, unclear
and impractical.´


%& ¯ 

We can start by inquiring into what we mean by mission anyway. It is very hard to focus on what you
cannot define, and my experience is that there can be some very fuzzy thinking about mission, vision, and
values. Most organizations today have mission statements, purpose statements, official visions, and little
cards with the organization¶s values. But precious few of us can say our organization¶s mission statement
has transformed the enterprise. And there has grown an understandable cynicism around lofty ideals that
don¶t match the realities of organizational life«.
A mission statement is the purpose of the organization. It states who we are, whom we serve
what products and services we provide and how we make those products and services available
to our customers, clients, or patients. The mission statement tells what the organization was
formed to do. Some like to include levels or performance in the mission statement. I contend that
just adds complexity. State what you are about and let the performance speak to the level or
quality.

With values, vision and mission understood a strategy should be developed. To attempt to
develop a strategy before values, vision and mission are clear, understood, and accepted is a
mistake. Quite simply strategy is the observable actions in the marketplace that lead to a
competitive advantage. Keys are observable actions, marketplace and competitive advantage. If
any one of these is missing there may be some nice sounding words, pretty pictures and flowery
talk but there is no strategy.The first obstacle to understanding mission is a problem of language.
Many leaders use mission and vision interchangeably, or think that the words ² and the
differences between them ² matter little. But words do matter. Language is messy by nature,
which is why we must be careful in how we use it.. The essence of leadership ² what we do
with 98 percent of our time ² is communication. To master any management practice, we must

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start by bringing discipline to the domain in which we spend most of our time, the domain of
words.

The dictionary ² which, unlike the computer, is an essential leadership tool ² contains multiple
definitions of the word mission; the most appropriate here is, ³purpose, reason for being.´
Ñ        and values articulate
how we intend to live as we pursue our mission.

Competition, Innovation, polices,environment,technology and human resource are some major

concerns of the company. Companies follow the traditional ad-hoc,forecasting methods to
compete in the market will not work for long term. Strategic planning is now become mandatory
process to clearly define company objectives,goals,internal resources,external factors and to


¯ 
m
Changes in a firm's strategic direction do not occur automatically. On a day-to-day basis, policies are
needed to make a strategy work. Policies facilitate solving recurring problems and guide the
implementation of strategy. Broadly defined, policy refers to specific guidelines, methods, procedures,
rules, forms, and administrative practices established to support and encourage work toward stated goals.
Policies are instruments for strategy implementation. Policies set boundaries, constraints, and limits on
the kinds of administrative actions that can be taken to reward and sanction behavior; they clarify what
can and cannot be done in pursuit of an organization's objective.

ë e link between mission, goals and objectives:

Whilst the mission is an open-ended statement of the firm¶s purposes and strategies, strategic
goals and objectives translate the mission into strategic milestones for the business strategy to
reach. In other words, the outcomes that the organizations seeks to achieve.
A strategic objective will possess four characteristics which set it apart from a mission statement:
1. A precise formulation of the attribute sought;
2. An index or measure for progress towards the attribute;
3. A target to be achieved;
4. A time-frame in which it is to be achieved.
Another way of putting this is to say that objectives must be SMART, that is,
· Specific- unambiguous in what is to be achieved.
· Measurable- specified as a quantity;
· Attainable- within reach;
· Relevant- appropriate to the group or individual to whom it is applied;
· Time-bound- with a completion datep

$ '

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The vision must be converted into objectives which encompass what the
organization wants to accomplish. An ideal business objective is short and to the point. It is quantifiable
and measurable. It has a specific time when it is expected to be achieved. For example: Our objective in
manufacturing is to decrease costs an average of 10% by December. Other characteristics of a good
business objective are: clear meaning; no clichés, for example, we aim to improve our delivery service to
our customers; reachable, even if an objective is a stretch objective, it should be realistic and attainable.
Department objectives should be aligned with overall corporate objectives (umbrella objectives).

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Objectives should be well thought out; they should not be frivolous wish

lists. The time frame for an objective should be the planning cycle, which is usually one year. If a long
term objective is developed, it should be labeled as such and should not exceed two or three years. Long
term objectives should be listed separately from annual business objectives. It should be noted that it may
be difficult to fit completion dates on long term objectives, and even more difficult to attach specific
strategies and implementation to these objectives. Longer term objectives may be covered better under
vision. A company¶s performance or a department¶s performance is measured by how well it does when
compared to the objectives the company or department sets for itself. It is a measure of outcome that
helps an organization keep an eye on whether or not it is achieving what it set out to achieve. There is an
old business saying that states, ³You cannot manage what you cannot measure,´ or put another way,
³What gets measured, gets done.´ Objective setting is one of the best tools for helping a company set out
strategy and action for achieving success. If you have mediocre and vague objectives ± such as, lower
costs, improve competitiveness, increase revenues ± you will have mediocre and vague performance.
Objectives must provide guidance about where a company or a department wants to be.
An analysis of objectives set and objectives achieved is often labeled a 
. Once a gap is
identified, it is then up to management to come up with plans to narrow or close this gap. This could
mean adjusting the objectives or the strategy used to reach the objectives. Realism is important
when setting objectives.
Objectives can cover a wide area ± financial, marketing, manufacturing, human resources, and
technology. Setting objectives is a cornerstone for developing strategy (how to achieve the objectives),
and action (what has to be done to put the strategy into action), such as activities,
investments, and budgets. This is the to-do list.Objectives or Goals? What is the difference between an
objective and a goal? None ± objectives are generally used for business planning, and goals for personal
planning. Many people use objectives and goals to mean the same thing.

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the activities to be undertaken in order to reach the

objectives, and where these activities will take place. By defining what to
pursue, the company also defines what not to pursue.
A strategy develops a range of activities that must be carried out in order to
meet the company¶s stated objectives. Thompson, Gamble and Strickland
use Mintzberg¶s phrase, crafting a strategy, in an entrepreneurial fashion, to
mean that a company should search for opportunities to do new and different
things, or to do existing things in new and different ways. They see strategy
as a series of how to:
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Political factors can have a direct impact on the way business operates. Decisions made
by government affect the operations of units within the university to a varying degree.
Political refers to the big and small µp¶ political forces and influences that may affect the
performance of, or the options open to the unit concerned. The political arena has a huge
influence upon the regulation of public and private sector businesses, and the spending
power of consumers and other businesses, both within UCC and outside of UCC. Political
factors include government regulations and legal issues and define both formal and
informal rules under which UCC and units must operate. Depending on its role and
function within the university a unit may need to consider issues such as:
‡ How stable is the internal/external political environment?
‡ Will government policy influence laws that regulate third level education?
‡ What is the government's policy on the education?
‡ Is the government involved in trading agreements such as the Bologna Agreement?
‡ The impact of employment laws
‡ The impact of environmental regulations
‡ Trade restrictions and tariffs
‡ Political stability (internally and externally
‡ Decision-making structures
September 2003
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All businesses are affected by economical factors nationally and globally. Whether an
economy is in a boom, recession or recovery will also affect consumer confidence and
behaviour. The dramatic impact of reduced funds upon UCC is already very apparent.
This will impact upon the nature of the competition faced by the university and particular
units within the university, upon service provision, and upon the financial resources
available within UCC. Economic factors affect the purchasing power of potential
customers, and the state of the internal/external economy in the short and long-term. The
unit may need to consider:
‡ Economic growth
‡ Interest rates
‡ Inflation rate
‡ Budget allocation
‡ The level of inflation
‡ Employment level per capita
‡ Long-term prospects for the economy and the impact upon funding of third Level
Education etc
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Social factors will include the demographic changes, trends in the way people live, work
and think and cultural aspects of the macro environment. These factors affect customer
needs and the size of potential markets (inside and outside of UCC).
‡ Population growth rate
‡ Age distribution
‡ Career attitudes
‡ Internal/external emphasis on safety
‡ Internal/external attitudes to change
‡ What is the stakeholder expectation of the unit?
‡ What is the perceived impact of the unit upon UCC and external stakeholders?
‡ How are views expressed?
‡ How does the unit respond to such views?

ëo#$"$!"/ë$ 
New approaches to doing new and old things, and tackling new and old problems do not
necessarily involve technical factors, however, technological factors are vital for
competitive advantage, and are a major driver of change and efficiency. Technological;
factors can for example lower barriers to entry, reduce minimum efficient production
levels, and influence outsourcing decisions. New technology is changing the way
business operates. The Internet is having a profound impact on the strategy of
organisations.

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 framework is especially helpful with a process redesign or a change
management objective. Strategic planning must be developed within the context of an
organization. The Seven S framework shows how strategy fits into the larger picture, and allows
management to consider how the direction of the company will affect all facets of the company.

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The Seven S's are Structure, Systems, Strategy, Style, Skills, Staff, and Shared Values. Each
element is interrelated with the other elements. Therefore, management must consider how
changes to one element will affect all other elements

•   
+ An organization may be structured around customers, products, functions, or

other gravitaional centers. Structural elements should be semi-autonomous, yet capable of
facilitating interaction amongst one another. (For example, in a functional structure,
cross-functional teams will play important roles.)
•  

+ A company's strategy defines the business within the marketplace - staking out
a position of strength that can be maintained for years, if not decades. Strategy begins
with a theory that provides puts a company's actions into the context of a larger,
explainable process. It attempts to correlate cause and effect within a business context, so
that action can be evaluated on the basis of expected result.
• 

,
.+ Refers to the behaviors, beliefs, and approach that is ingrained within
the organization. Some corporations have innovative, risk-taking styles, others are highly
conservative. A company's style affects who it does business with (i.e., vendors and
partners), as well as who does business with it (i.e., customers). If a company's style
clashes with its stated strategy (e.g., a conservative culture claiming a strategy of bold
change), style is likely to win the day. With concerted effort, style can be changed.
However this requires delicacy and patience.

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•  includes not just the people, but the systems affecting individual and group
performance. This includes training, incentives, wages, heirarchy, and intangibles that
affect motivation. Although performance reviews and hiring processes are often seen as
bureaucratic and unpleasant, they play a vital role in the organization and deserve as
much attention as business strategy.
• - include core compentencies and secondary competencies that are the aggregate of
employees' individual skills. Companies may have funcational skills in engineering,
R&D, marketing, or managing customer relationships. Skills may be based on employees'
knowledge, or may involve utilization of patents, assets, or systems.
• 

 consist of processes and procedures that organize the flow of information and
operations. Financial systems allocate and control the flow of money into (e.g., from
customers) and out of (e.g., to employees and vendors) the company. Operational systems
manage the flow and processing of good and services. Marketing and sales tracking
systems provide information about products, customers, and sales effectiveness. Each
system should have a reporting component that enables management to monitor
performance, and provides data with which to make strategic and operational decisions.
• 
 
! are unwritten principles that shape behavior. Superordinate Goals
are often unwritten, and must be learned based on the behavior and history of the
company, rather than what is stated in the company's mission statement.


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The ×! is simple and useful technique for strategic analysis. It is
convenient for multi-product or multi-divisional companies. It
focuses on cash flow and is useful for investment and marketing
decisions.
The ×!   considers two variables, namely..
N  %ë! $ëo ë
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The market growth rate is shown on the vertical (y) axis and is
expressed as a %.
The horizontal (x) axis shows relative market share. The share is
calculated by reference to the largest competitor in the market
The ×! growth/share   is divided into four cells or
quadrants, each of which represent a particular type of business.
Divisions or products are represented by circles. The size of the

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group sales. A development of the   is to reflect the relative
profit contribution of each division and this is shown as a pie-
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BCG STARS (high growth, high market share)

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Some limitations of the BCG matrix model include:

• The first problem can be how we define market and how we get data about market share
• A high market share does not necessarily lead to profitability at all times
• The model employs only two dimensions ± market share and product or service growth
rate
• Low share or niche businesses can be profitable too (some Dogs can be more profitable
than cash Cows)

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• The model does not reflect growth rates of the overall market
• The model neglects the effects of synergy between business units
• Market growth is not the only indicator for attractiveness of a market

There are probably even more aspects that need to be considered in a particular use of the BCG
model.

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In 1968, then-CEO of GE, Fred Borch, asked McKinsey and Co. for an examination of GE¶s
corporate structure. McKinsey¶s examination revealed that GE¶s structure was inadequate, and
they argued that ³the firm should be organized on more strategic lines, with greater concern for
external conditions than internal controls.´ The company was divided into strategic business
units, or SBUs.
In 1971, a GE exec. asked McKinsey to evaluate strategic plans drawn up by the SBUs.
According to GE, the BCG Growth Matrix, with only two performance measures, was
insufficient for the company¶s needs.From this request, the GE/McKinsey 9-block matrix, a
system using a ³dozen measures to screen for industry attractiveness and another dozen to screen
for competitive position,´ was
developed

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The General Electric Company,
with the aid of the Boston
Consulting Group and McKinsey
and Company, pioneered the nine
cell strategic business screen
illustrated here. The circle on the
matrix represents your enterprise.
Both axes are divided into three
segments, yielding nine cells. The
nine cells are grouped into three
zones:

The !

4
consists of the

three cells in the upper left corner.
If your enterprise falls in this zone
you are in a favorable position with relatively attractive growth opportunities. This indicates a "green
light" to invest in this product/service.

The &
4
consists of the three diagonal cells from the lower left to the upper right. A position in
the yellow zone is viewed as having medium attractiveness. Management must therefore exercise caution
when making additional investments in this product/service. The suggested strategy is to seek to maintain
share rather than growing or reducing share.

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The
4
consists of the three cells in the lower right corner. A position in the red zone is not
attractive. The suggested strategy is that management should begin to make plans to exit the industry.

Now the GE-McKinsey model, like all generic strategy models has its own set of limitations.

• A major assumption behind the GE-McKinsey matrix is that it can operate when the
economies of scale are achievable in production and distribution. Unless the same holds
true, the concept of leveraging the competencies of the firm and the SBU falls flat.
• Also some of the factors of competitive strength and market competitiveness may be
extremely important for a particular instance, while another instance may even require
even other factors. The top management of the organization should decide upon these
factors very carefully as there is no generic set of factors with which all SBUs may be
evaluated.
• The relative weightage given to each of the factors of competitive strength and market
competitiveness is often arbitrary. While some methodology such as the Analytic
Hierarchy Process may be used to compute the relative importance of such factors, such
is mostly not done. Thus the overall position of the SBU on the matrix could come under
criticism.
• The core competencies of the firm or the corporation are not represented in this analysis.
The core competencies may be leveraged across SBUs and can be a deciding factor while
judging the competitive strength of the SBUs

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• The term µValue Chain¶ was used by Michael Porter in his book "Competitive
Advantage: Creating and
• Sustaining superior Performance" (1985). The value chain analysis describes the
activities the organization
• performs and links them to the organizations competitive position.
• Value chain analysis describes the activities within and around an organization, and
relates them to an
• analysis of the competitive strength of the organization. Therefore, it evaluates which
value each particular
• activity adds to the organizations products or services. This idea was built upon the
insight that
• an organization is more than a random compilation of machinery, equipment, people and
money. Only
• if these things are arranged into systems and systematic activates it will become possible
to produce
• something for which customers are willing to pay a price. Porter argues that the ability to
perform particular

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• activities and to manage the linkages between these activities is a source of competitive
advantage.
• Porter distinguishes between primary activities and support activities. Primary activities
are directly
• concerned with the creation or delivery of a product or service. They can be grouped into
five main
• areas: inbound logistics, operations, outbound logistics, marketing and sales, and service.
Each of
• these primary activities is linked to support activities which help to improve their
effectiveness or efficiency.
• There are four main areas of support activities: procurement, technology development
(including
• R&D), human resource management, and infrastructure (systems for planning, finance,
quality,
• information management etc.).
• The basic model of Porters Value Chain is as follows:

• 

## Hofer  or "¯  / -
 Evolution  ´ and is quite
similar to the    )"
 .
Hofer   implies the division of the company into strategic
Business units. The next step resides in assessing the competitive position of business units, by using
Techniques similar to those used by the McKinsey  . The position occupied by each strategic
business Unit is graphically represented by using the two axes of the  . Thus, on the vertical axis
(Ox) the

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Competitive position of strategic business units is set and on the vertical axis (Oy) the stage of the life
cycle Specific to the  -
 where these operate is set.

the power of the Hofer   resides in the fact that it may outline the distribution of strategic business
units during stages specific to life cycle of the  -
 (industry). Similar to the McKinsey  , the
present   offers the company the possibility to make a diagnosis regarding the portfolio, in order to
establish if it exhibits a balanced or unbalanced structure. A balanced portfolio should be composed of
strategic business units of the type corresponding to ´Stars´ and to ´Cash Cows´ and to a few ´Question
Marks´, which have recently penetrated the  -
 or which are about to become ´Stars´. Of course, in
practice, most of the companies will have portfolios whole salient feature will be the unbalance.

The strategic consequences of this analysis focus on the various stages of life cycle when strategic
business units are not covered. Thus, similar to the other methods of business portfolio analysis, the Hofer
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• The term ³marketing mix´ was coined in the early 1950s by Neil Borden in his American
Marketing Association presidential address. This is one of the preliminary knowledge
every marketer must have and is considered to be the basics of every marketing theory,
which emerged henceforth.

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• The  major marketing management decisions can be classified in one of the
following four categories, namely ¯  , ¯ 
, ¯
(distribution) and ¯ .

•
• ¯  + It is the tangible object or an intangible service that is getting marketed through
the program. Tangible products may be items like consumer goods (Toothpaste, Soaps,
Shampoos) or consumer durables (Watches, IPods). Intangible products are service based
like the tourism industry and information technology based services or codes-based
products like cellphone load and credits. Product design which leads to the product
attributes is the most important factor. However packaging also needs to be taken into
consideration while deciding this factor. Every product is subject to a life-cycle including
a growth phase followed by an eventual period of decline as the product approaches
market saturation. To retain its competitiveness in the market, continuous product
extensions though innovation and thus differentiation is required and is one of the
strategies to differentiate a product from its competitors.
• ¯ 
+ The price is the simply amount a customer pays for the product. If the price
outweigh the perceived benefits for an individual, the perceived value of the offering will
be low and it will be unlikely to be adopted, but if the benefits are perceived as greater
than their costs, chances of trial and adoption of the product is much greater.
• ¯
: Place represents the location where a product can be purchased. It is often referred
to as the distribution channel. This may include any physical store (supermarket,
departmental stores) as well as virtual stores (e-markets and e-malls) on the Internet. This
is crucial as this provides the place utility to the consumer, which often becomes a
deciding factor for the purchase of many products across multiple product categories.

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the Ansoff Matrix outlines the options open to firms if they wish to grow, improve profitability and
revenue. These options indicate to how to manage the development of the productrangepThe Ansoff
Matrix is: a model for outlining the range of marketing options open to a firm
 -
¯

 8)9 %,   

 -
.
Focusing on existing products for existing markets, means that the firm aims to increase sales within its
present market place. To be successful at market penetration firms must be aware of what has made the
product a success in the first place. The firms marketing strategy should be based on this existing
relationship. There are several penetration strategies open to firms. These strategies include:

‡ The easiest method is to attract customers who have not yet become regular users, but are occasional
users. This can be a successful strategy where there is fast market growth and new consumers are just
'testing the water'.
‡ Attack competitors sales. This will often happen in mature markets, where
increased sales will have to come from Identify new customers who would use a
product in a different way. One method of achieving the first of these, different markets, is to find new
geographical markets. The original Beetle car which ceased production for the UK market, around 1975,
were still being sold in Mexico 1990. Another example of identification of new customers, is the targeting
of Lucozade as a sports drink rather than something to have next to your bed when you have flu or
measles. Any launch into a new geographical market is an example of the first of these options.

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Develop markets for existing products.If the business takes the option of market development, the
objective will be to find new markets for the firms existing products. There are two broad market
development strategies. These are:
‡ Identify users in different markets with similar needs to existing customers.
‡ Identify new customers who would use a product in a different way. One method of achieving the first
of these, different markets, is to find new geographical markets. The original Beetle car which ceased
production for the UK market, around 1975, were still being sold in Mexico 1990. Another example of
identification of new customers, is the targeting of Lucozade as a sports drink rather than something to
have next to your bed when you have flu or measles. Any launch into a new geographical market is an
example of the first of these option
¯  )


8)9 %,#
   
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A third option available is to develop new products for existing markets. In this case the business will
attempt to increase profitability and growth by introducing new products targeted at the existing customer
base. The first and most popular option of product development in the consumption goods market is to
produce and market new products which are closely associated with the products or brands which
customers already consume. So Mars confectionery, now produces Mars Ice Cream, Mars drinks etc.
Virgin is another good example. For the teenage market we had Virgin Mega stores and Virgin Cola - two
products targeted at the same market. A further example is the move into financial services and banking
by firms such as Marks & Spencer and Tesco. There are also product development strategies that can be
used with industrial or producer markets. These strategies are based on examining
)
 8o!o %,)


   
 -
.The final
option available is to develop new products for new markets. This may be attempted if the firm sees a
new opportunity, and has investment funds available or alternatively the firm may be forced into this type
of action because of pressures in existing markets or on existing product ranges. This diversification
option comes with the greatest level of risk, as it is not based on existing knowledge within the firm.
Virgin's move into trains has not been as successful as was initially hoped, and the criticisms of the
service provided may have some effect on the overall strength of the brand. On the other hand Nokia,

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Europe's most successful mobile phone manufacturer, started out life as a producer of paper products. In
this case diversification has been incredibly successful

The whole process of picking up the right projects which are in true alignment to the organization¶s
business strategy and then monitoring the market conditions, the strategy and the continued alignment of
the projects are collectively known as project portfolio management.

722:ë ë!""#
Peter Drucker, who has been called the father of management theory, states: ``The greatest change in
corporate culture, and the way business is being conducted, may be the accelerating growth of
relationships based not on ownership, but on partnership'' (Drucker, 1996).

#-
, the largest producer of athletic foot- wear in the world, does not manufacture a
single shoe``How can this be?'' you ask. These companies, like many other companies these days, have
entered into  
 
 with their suppliers to do much of their actual production and
manufacturing for them.

A  
 
 is ``an agreement between firms to do business together in ways that go beyond
normal company-to- company dealings, but fall short of a merger or a full partnership'' however, there is
an increasing trend towards multi-company alliances. As an example, a six-company  
 

was formed between Apple, Sony, Motorola, Philips, AT&T and Matsushita to form General Magic
Corporation to develop Telescript communications software. it can dramatically improve an

organization's operations and competitiveness Companies are forming alliances to obtain technology, to
gain access to specific markets, to reduce financial risk, to reduce political risk, to achieve or ensure
competitive advantage The failure rate of strategic alliances strategy is projected to be as high as 70
percent. Success factors for strategic Alliances


 

 


The commitment of the senior management of all companies involved in a strategic alliance is a key
factor in the alliance's ultimate success. Effective and strong management team A McKinsey study found
that 50 percent of alliance failures are due to poor management. Thorough planning Planning,
commitment, and agreement are essential to the success of any relationship.
The overall strategy for the alliance must be mutually developed. Key managing individuals and areas of
focus for the alliance must be identified. Partner selection Partnership selection is perhaps the most
important step in creating a successful alliance. A successful alliance requires the joining of two
competent firms, seeking a similar goal and both intent on its success Communication between partners:
maintaining relationships As with any relationship, communication is an essential attribute for the alliance
to be successful. Without effective communication between partners, the alliance will inevitably dissolve
as a result of doubt and mistrust which accompany any relationship which does not manifest good
communication practices. International vision In order to succeed in an international
strategic alliance, managers of firms must incorporate a global strategic vision into
their enterprise Clearly understood roles In forming strategic alliances the partners
must have clearly understood roles. Questions which must be answered concerning the role of each
partner would include the following: Do you share equally in the marketing and operations management

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of the alliance with your partner, or will he run the show? On what basis is control of the alliance
determined: commitment of manpower? Cash?
A McKinsey study found that 50 percent of alliance failures are due to poor strategy while 50 percent are
the result of poor management Clearly defined, shared goals and objectives In forming a strategic
alliance the question must be asked: ``How integrated will the alliance be with the parent organizations?''
Some alliances are highly integrated with one or more of the parent organizations and share such
resources as manufacturing facilities, management staff, and support functions like payroll, purchasing,
and research and development. Whatever the relationship between the two partners, the merging of
separate corporate cultures in which the parent firms may have different, even ultimately conflicting,
strategic intents can be difficult and anything but smooth. It is extremely important that alliances are
aligned with the company strategy. Frequent performance feedback In order for strategic alliances to
succeed, their performance must be continually assessed and evaluated against the short and
long-term goals and objectives for the alliance. Hewlett-Packard business development manager, Bryon
Look states that: ``after each alliance is formed, we hold a postmortem with all the involved (HP) parties.
We look at the original objectives, the implementation, what went right and
what went wrong Conclusions Strategic alliances strategy has been prescribed as an important tool for
attaining and maintaining a competitive advantage. In addition, strategic alliances concept is growing in
appeal to organizations because of the cost savings achieved in executing operations. Indeed,
many companies are forming alliances looking for the best quality or technology or the cheapest labor or

production costs

ñ

ë rnaro nd Strategies

Most managers and management researchers view organizational decline as reversible (Chowdhury &
Lang, 1993; Porter, 1985). Specific turnaround strategies have been proposed to enhance a firm¶s chances
of persevering through an existence-threatening performance decline, ending the threat, and achieving
sustainable performance recovery (Chowdhury, 2002).We define turnaround strategies as a set of
consequential, directive, long-term decisions and actions targeted at the reversal of a perceived crisis that
threatens the firm¶s survival. Turnaround strategies have received systematic research attention in the
management literature (e.g., Barker & Duhaime, 1997; Hofer, 1980; Lohrke & Bedeian, 1998; Schendel,
Patton, & Riggs, 1976); however, the accumulated empirical and conceptual studies have resulted in a
rather fragmented understanding and in some important areas the empirical findings have remained
ambiguous² especially with regard to firm recovery (Nystrom & Starbuck, 1984; Pearce & Robbins,
1993). Under some conditions, turnaround may not be feasible. In other settings, the organization may
lack the capabilities or resources to implement an appropriate turnaround strategy correctly. Even if
implemented correctly, in a feasible setting, organizational outcomes of a turnaround strategy still depend
on emergent factors (e.g., competitor actions), which can prevent or delay any turnaround.

Finally, turnaround attempts often face additional challenges in the form of severe time pressures,
extremely limited slack resources, and diminishing stakeholder support (Arogaswamy, Barker, & Yasai-
Ardekani, 1995).


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ëop-management changes. According to the turnaround literature, top management develops and
implements turnaround strategies that address an imminent organizational crisis. Top managers become
the change agents to reverse organizational decline. Hofer (1980) claims that there is an almost universal
need to change the current top management in a turnaround situation. Research finds that incumbent
managers are less motivated to engage in turnaround strategies (Ford, 1985; Ford & Baucus, 1987)²
especially if they are strongly committed to the firm¶s current strategy or attribute decline to external
causes only (Barker & Barr, 2002; D¶Aveni & MacMillan, 1990).In addition,changes of the top-
management team can provide important signals to outside stakeholders (e.g., lenders and creditors) that
the firmis separating itself frompast failed strategies.
Such signals can increase thewillingness of outside stakeholders to support the struggling organization
(Bernabeo, 2002). Thus, the turnaround literature supports top-management change for organizational
turnaround²in spite of potential disadvantages associated with organizational knowledge loss and
transition frictions (Arogaswamy et al., 1995; Barker & Mone, 1994; Lohrke, Bedeian,& Palmer, 2004).

ñ

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actions
lndicate the time period over which long-range objectives be achieved
‡Firms involved with multiple industries, businesses, produ lines, or customer groups usually
combine several grand strategies
‡ ny one of these strategies could serve as the basis for achieving the major long-term objectives
of a single firm

/ 



Stability
Growth
Combination
Retrenchment

Stability

+ 
 
‡To remain the same size or ‡To grow slowly and in a controlled fashion

  
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Combination
It involves deliberate use of different strategies for diffe or divisions at the same time or
chronological use of dii strategies over the period of time.
etrenc ment

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The organization goes through a period of forced decline by either shrinking current

businessunits or selling off or liquidating entire businesses p

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Any organization should be placed in any one of four quadrants. Appropriate strategies for an
organization to consider are listed in sequential order of attractiveness in each quadrant of the
matrix.

It is based two major dimensions

1. Market growth

2. Competitive position

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2 contains that company¶s strong having competitive
situation Firms located in Quadrant I of the Grand Strategy Matrix are in an excellent strategic
position . These firms must focus on current market and appropriate to follow market penetration
market development and products development are appropriate strategies. Companies positioned
in this quadrant have very strong strategic position. These firms focus on their established
competitive advantage (CA) and take advantage of it as long as it allows them. These companies

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must concentrate on the existing market by adopting the set of product development, market
development and market penetration strategies. Organizations that fall in quadrant 1 have focus
on a single product and can go for related diversification strategy to minimize the risk related to
limited product line. If these organizations have higher resources they can go for horizontal,
backward and forward set of strategies. These firms can take risks being an aggressive and can
afford to obtain advantage of opportunities in numerous

ways.

G  

contains that company¶s having weak competitive situation and rapid market growth. Firms
positioned in QUADRANT II need to evaluate their present approach to the marketplace
seriously. Although their industry is growing, they are unable to compete effectively, and they
need to determine why the firm¶s current approach is ineffectual and how the company can best
change to improve its competitiveness. Because QUADRANT II firms are in a rapid-market-
growth industry, an intensive strategy (as opposed to integrative or diversification) is usually the
first option that should be considered. Firms laying in this quadrant have the rapid growing
industry but can not fight competently. Due to the growth of the industry, firms in this quadrant
use intensive strategy as a first strategic option. If companies do not have competitive advantage,
horizontal integration is more advantageous option. Last but not the least strategic option is the
liquidation which provides fund needed for other Strategic Business Unit (SBU) or to acquire
other businesses

G  

All those firms which fall in this quadrant have slow growth market and have relatively weak
position. contains that company¶s weak competitive situation and slow market growth. Firms
have to make noticeable modifications to sustain their position. Retrenchment strategy has
priority in this quadrant followed by diversification to transfer resource to another growing
business. Last strategic option available for the firms positioned in this quadrant is liquidation or
divestiture of the business.

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G  

contains that company¶s strong competitive situation and slow market growth. Finally,
Quadrant IV businesses have a strong competitive position. but are in a slow-growth industry.
These firms have the strength to launch diversified programs into more promising growth areas.
Quadrant IV firms have characteristically high cash flow levels and limited internal growth
needs and often can pursue concentric, horizontal, or conglomerate diversification successfully.
Quadrant IV firms also may pursue joint ventures Companies competing in this quadrant have
slow growth industry but have a strong competitive position. These firms can diversify into
different untapped businesses by utilizing their existing resource. These firms face restricted
internal growth and have high cash flow intensity which allows them to practice related and
unrelated diversifications effectively. Finally these firms can go for joint ventures to fulfill their
internal growth needs. 

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Porter¶s five force

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Porters five forces is a competitive analysis model, it helps you to understand at the nature of
competition within your industry, hence it is used when completing your industry analysis.

The model of the /
Competitive Forces was developed by Michael E. Porter in his book Competitive
Strategy: Techniques for Analyzing Industries and Competitors³ in 1980. Since that time it has become an
important tool for analyzing an organizations industry structure in strategic processes.

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This model is based on the insight that a corporate strategy should meet the opportunities and threats in
the organizations external environment. Especially, competitive strategy should base on and
understanding of industry structures and the way they change. Porter has identified five competitive
forces that shape every industry and every market. These forces determine the intensity of competition
and hence the profitability and attractiveness of an industry
ë
 '

corporate strategy should be to modify these competitive forces in a way that improves
the position of the organization

× ¯



The term 'suppliers' comprises all sources for inputs that are needed in order to provide
goods or services. Supplier bargaining power is likely to be high
when:
‡ The market is dominated by a few large suppliers rather than a fragmented source of supply,
‡ There are no substitutes for the particular input,
‡ The suppliers customers are fragmented, so their bargaining power is low,
‡ The switching costs from one supplier to another are high,
‡ There is the possibility of the supplier integrating forwards in order to obtain higher prices and margins
This threat is especially high when
‡ The buying industry has a higher profitability than the supplying industry,
‡ Forward integration provides economies of scale for the supplier,
‡ The product is undifferentiated and can be replaces by substitutes,
‡ Switching to an alternative product is relatively simple and is not related to high costs,
‡ Customers have low margins and are price- sensitive,
‡ Customers could produce the product themselves,
‡ The product is not of strategical importance for the customer,
‡ The customer knows about the production costs of the product
‡ There is the possibility for the customer integrating backwards.
ë
#
 Entry ×arriers

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The competition in an industry will be the higher, the easier it is for other companies to enter this
industry. In such a situation, new entrants could change major determinants of
the market environment (e.g. market shares, prices, customer loyalty) at any time. There is
always a latent pressure for reaction and adjustment for existing players in this industry.

Barriers to entry are unique industry characteristics that define the industry. Barriers reduce the rate of
entry of new firms, thus maintaining a level of profits for those already in the industry. From a strategic
perspective, barriers can be created or exploited to enhance a firm's competitive advantage. Barriers to
entry arise from several sources!

p Úovernment creates barriers, government also restricts competition through the granting
of monopolies and through regulation. Industries such as utilities are considered natural
monopolies because it has been more efficient to have one electric company provide power to a
locality than to permit many electric companies to compete in a local market. To restrain utilities
from exploiting this advantage, government permits a monopoly, but regulates the industryp
9p Patents and proprietary knowledge serve to restrict entry into an ind stry.
&*

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3. sset specificity in ibits entry into an ind stry.Asset specificity is the extent to
which the firm's assets can be utilized to produce a different product. When an industry requires
highly specialized technology or plants and equipment, potential entrants are reluctant to commit
to acquiring specialized assets that cannot be sold or converted into other uses if the venture fails.
Asset specificity provides a barrier to entry for two reasons: First, when firms already hold
specialized assets they fiercely resist efforts by others from taking their market share. New
entrants can anticipate aggressive rivalry. For example, Kodak had much capital invested in its
photographic equipment business and aggressively resisted efforts by Fuji to intrude in its market.
These assets are both large and industry specific. The second reason is that potential entrants are
reluctant to make investments in highly specialized assets.
4.
rganizational (nternal) Economies of Scale. The most cost efficient level of
production is termed  
 
(MES). This is the point at which unit costs for
production are at minimum - i.e., the most cost efficient level of production. If MES for firms in
an industry is known, then we can determine the amount of market share necessary for low cost
entry or cost parity with rivals. For example, in long distance communications roughly 10% of
the market is necessary for MES. If sales for a long distance operator fail to reach 10% of the
market, the firm is not competitive.The existence of such an economy of scale creates a barrier to
entry. The greater the difference between industry MES and entry unit costs, the greater the
barrier to entry.

Barriers to exit work similarly to barriers to entry. Exit barriers limit the ability of a firm to leave the
market and can exacerbate rivalry - unable to leave the industry, a firm must compete. Some of an
industry's entry and exit barriers can be summarized as follows:





+

• Common technology
• Little brand franchise
• Access to distribution channels
• Low scale threshold

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+

• Patented or proprietary know-how

• Difficulty in brand switching
• Restricted distribution channels
• High scale threshold





+

• Salable assets
• Low exit costs
• Independent businesses

) 


+

• Specialized assets
• High exit costs
• Interrelated businesses

The threat of new entries will depend on the extent to which there are barriers to entry. These are typically
‡ Economies of scale (minimum size requirements for profitable operations),
‡ High initial investments and fixed costs,
‡ Cost advantages of existing players due to experience curve effects of operation with fully depreciated
assets,
‡ Brand loyalty of customers
‡ Protected intellectual property like patents, licenses etc,
‡ Scarcity of important resources, e.g. qualified expert staff
‡ Access to raw materials is controlled by existing players,
‡ Distribution channels are controlled by existing players,
‡ Existing players have close customer relations, e.g. from long-term service contracts
‡ High switching costs for customers
‡ Legislation and government action

ë
 

A threat from substitutes exists if there are alternative products with lower prices of better performance
parameters for the same purpose. They could potentially attract a significant proportion of market volume
and
hence reduce the potential sales volume for existing players. This category also relates to
complementary products. Similarly to the threat of new entrants, the treat of substitutes is determined by
   like
‡ Brand loyalty of customers,
‡ Close customer relationships,
‡ Switching costs for customers,
‡ The relative price for performance of
substitutes,
‡ Current trends.


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This force describes the intensity of competition between existing players

(companies) in an industry. High competitive pressure results in pressure on prices,
margins, and hence, on profitability for every single company in the industry.

ë 

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1.  

  increase rivalry because more firms must compete for the same
customers and resources. The rivalry intensifies if the firms have similar market share, leading to
a struggle for market leadership.
2.  -
  causes firms to fight for market share. In a growing market, firms are able
to improve revenues simply because of the expanding market.
3. o 
  result in an economy of scale effect that increases rivalry. When total costs are
mostly fixed costs, the firm must produce near capacity to attain the lowest unit costs. Since the
firm must sell this large quantity of product, high levels of production lead to a fight for market
share and results in increased rivalry.
4. o  
    

  
   cause a producer to sell goods as soon as
possible. If other producers are attempting to unload at the same time, competition for customers
intensifies.
5. "   increases rivalry. When a customer can freely switch from one product to
another there is a greater struggle to capture customers.
6. "

  

 is associated with higher levels of rivalry. Brand
identification, on the other hand, tends to constrain rivalry.
7.  
 -

  when a firm is losing market position or has potential for great gains.
This intensifies rivalry.
8. o 
  
 place a high cost on abandoning the product. The firm must compete. High
exit barriers cause a firm to remain in an industry, even when the venture is not profitable. A
common exit barrier is asset specificity. When the plant and equipment required for
manufacturing a product is highly specialized, these assets cannot easily be sold to other buyers in
another industry.
9. 

  with different cultures, histories, and philosophies make an industry
unstable. There is greater possibility for mavericks and for misjudging rival's moves. Rivalry is
volatile and can be intense..
p
 -
 A growing market and the potential for high profits induces new firms to
enter a market and incumbent 
 
 

p§

Competition between existing players is likely to be high when

‡ There are many players of about the same size,
‡ Players have similar strategies
‡ There is not much differentiation between players and their products, hence, there is much price
competition
‡ Low market growth rates (growth of a particular company is possible only at the expense of a
competitor),
‡ Barriers for exit are high (e.g. expensive and highly specialized equipment)

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 -
-

 
 
 
 
:
‡ Supplier Power: The power of suppliers to drive up the prices of your inputs;
‡ Buyer Power: The power of your customers to drive down your prices;
‡ Competitive Rivalry: The strength of competition in the industry;
‡ The Threat of Substitution: The extent to which different products and services can be used in place
of your own; and
‡ The Threat of New Entry: The ease with which new competitors can enter the market if they see that
you are making good profits (and then drive your prices down)




 
× ¯


‡Partnering‡Supply chain management ‡ Supply chain training
‡ Increase dependency ‡ Build knowledge of supplier costs and Methods ‡ Take over a supplier

 
× ¯


‡Partnering ‡Supply chain management ‡ Increase loyalty ‡Increase incentives and value added
‡Move purchase decision away from price ‡Cut put powerful intermediaries (go directly to customer)

 
ë
#
 
‡Increase minimum efficient scales of operations ‡Create a marketing / brand image (loyalty as a barrier)
‡Patents, protection of intellectual property‡Alliances with linked products / services ‡Tie up with
suppliers ‡Tie up with distributors ‡Retaliation tactics

 
ë
 


‡Legal actions ‡Increase switching costs ‡Alliances ‡Customer surveys to learn about their Preferences
‡Enter substitute market and influence from Within ‡Accentuate differences (real or perceived)

 


 





¯


‡Avoid price competition ‡Differentiate your product
‡Buy out competition ‡Reduce industry over-capacity ‡Focus on different segments ‡Communicate with
competitors

 =

Porter¶s model of five Competitive Forces has
been subject of much critique. Its main weakness results from the historical context in
which it was developed. In the early eighties, cyclical growth characterized the global economy. Thus,
primary corporate objectives consisted of profitability and survival. A major prerequisite for achieving
these objectives has been optimization of strategy in relation to the
external environment. At that time,development in most industries has been fairly
stable and predictable, compared with today¶sdynamics

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SWOT Analysis is an effective way of identifying your Strengths and Weaknesses, and of
examining the Opportunities and Threats you face.
o
+
To carry out a SWOT Analysis, write down answers to the following questions. Where
appropriate, use similar questions:

 +
‡ What advantages do you have? ‡ What do you do well?
‡ What relevant resources do you have access to? ‡ What do other people see as your strengths?
Consider this from your own point of view and from the point of view of the people you deal
with. Don't be modest. Be realistic. If you are having any difficulty with this, try writing down
a list of your characteristics:

‡ Economies of scale ‡ Proprietary technology

‡ Patented processes ‡ Lower costs (raw materials or processes)

‡ Respected company, product, or brand image ‡ Superior management talent
‡ Better marketing skills ‡ Superior product quality
‡ Alliances with other firms ‡ Good distribution skills
‡ Committed employees

.

-

+
A popular example is poor retention rate of employees
Lack of strategic direction
‡ Limited financial resources ‡ Weak spending on R & D
‡ Very narrow product line ‡ Limited distribution
‡ Higher costs ‡ Weak market image ‡ Poor marketing skills ‡ Limited management skills

‡ Under-trained employees ‡ Alliances with weak firms ‡ Internal operating problems

§

 



 

















 

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.An opportunity allows a company to increase profits by offering a gap in demand, a wider consumer
base, or an opportunity to reduce costs. A company's strategic goal is to move forward to achieving
opportunities that arise in the marke
Rapid market growth
‡ Rival firms are complacent ‡ Changing customer needs/tastes
‡ Opening of foreign markets ‡ Mishap of a rival firm
‡ New uses for product discovered ‡ Economic boom
‡ Government deregulation ‡ New technology
‡ Demographic shifts ‡ Other firms seek alliances
‡ Sales decline for a substitute product ‡ New distribution methods

‡ Changes in technology and markets on both a broad and narrow scale

‡ Changes in government policy related to your field
A useful approach to looking at opportunities is to look at your strengths and ask yourself
whether these open up any opportunities. Alternatively, look at your weaknesses and ask
yourself whether you could open up opportunities by eliminating them.
ë
+
‡ Entry of foreign competitors
‡ Introduction of new substitute products ‡ Product life cycle in decline
‡ Changing customer needs/tastes ‡ Rival firms adopt new strategies
‡ Increased government regulation ‡ Economic downturn
‡ New technology ‡ Demographic shifts
‡ Foreign trade barriers ‡ Poor performance of ally firm
‡ What obstacles do you face? ‡ What is your competition doing? ‡ Is changing technology threatening
your position? ‡ Do you have bad debt or cash-flow problems?
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Consider all weaknesses one by one listed in the SWOT Analysis with each threat to
determine both can be avoided.

• Strengths and Opportunities (SO) ± How can you use your strengths to take advantage of these
opportunities?
• Strengths and Threats (ST) ± How can you take advantage of your strengths to avoid real and
potential threats?
• Weaknesses and Opportunities (WO) ± How can you use your opportunities to overcome the
weaknesses you are experiencing?
• Weaknesses and Threats (WT) ± How can you minimize your weaknesses and avoid threats?


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