STRATEGIC MANAGEMENT
UNIT – II
 Environmental Analysis of a Firm
 Competition Analysis – Porter’s Five Force Model
 Internal Analysis of a firm
- SWOT Matrix
- Value Chain Analysis
 Core Competence
 Critical Success Factors (CSF)
 Scenario Planning
ENVIRONMENTAL ANALYSIS OF A FIRM
REMOTE EXTERNAL ENVT
IMMEDIATE EXTERNAL ENVT
COMPETITORS
INTERNAL ENVT
TECHNOLOGY
DEVELOPMENT
CUSTOMERS
OWNERS
FIRM
TOP
MANAGERS
EMPLOYEES
GOVT. AGENCIES
POLITICAL FACTORS
SUPPLIERS
SOCIAL
CHANGE
Political
Environment
Economic
Environment
International
Environment
Environmental
Factors
Socio – Cultural
Environment
Technological
Environment
ECONOMIC ENVIRONMENT

GENERAL ECONOMIC
CONDITIONS

FACTOR MARKET OR
SUPPLIER COMPONENT
1.
Economic system
National Income & its
distribution
Monetary policy
Fiscal policy
1.
Natural resources
Infrastructure facilities
Raw material & supplies
Plant & equipment supplies
Financial facilities
Manpower & productivity
2.
3.
4.
2.
3.
4.
5.
6.
POLITICAL – LEGAL ENVIRONMENT
 Political system, political parties and their ideologies, stability etc

Defence and foreign policies, maintenance of external relationships with
other countries etc

Legal rules, their formulation, implementation, efficiency and
effectiveness
POLITICAL ENVIRONMENT
PROMOTING
ENVIRONMENT
 Stimulation of business
through the provision of
various facilities, incentives,
etc
REGULATING
ENVIRONMENT
 Puts certain restrictions on
the operations of business
organization
TECHNOLOGICAL ENVIRONMENT

It includes inventions & techniques which affect the ways of doing
things

It can create new markets & new business segments

It can change relative competitive cost position of the organization
SOCIO – CULTURAL ENVIRONMENT

Consists of attitudes, beliefs, desires, expectations, education and
customs of the society at a given point of time

Expectations of the society from the business

Attitudes of society towards business

Views towards achievement of work

Views towards customs, tradition

Level of education
INTERNATIONAL ENVIRONMENT

Economic liberalization

Competition from MNCs

Opening operations abroad
COMPETITION ANALYSIS – PORTER’S FIVE
FORCE MODEL

Developed by Michael Porter

Competitive forces determine profitability
PORTER’S FIVE FORCE MODEL
POTENTIAL ENTRANTS
Threats of entry
Bargaining power of suppliers
SUPPLIERS
RIVALRY AMONG
EXISTING
FIRMS
BUYERS
Bargaining power of buyers
Threat of substitute products
SUBSTITUTES
THREAT OF NEW ENTRANTS

New entrants bring new capacity, the desire to gain market share and
have substantial resources

The extent to which there are high ‘entry barriers’ is an indication of
strategic strength

Barriers to entry
Economies of scale
Product differentiation
Capital reqiurements
Access to distribution channels
Govt. policy
1.
2.
3.
4.
5.
BARGAINING POWER OF BUYERS

If there is a powerful buyer group, there will be buyer’s market and the producer’s profits
will suffer

Powerful buyer market exists when
1.
If it is concentrated or it purchases in large volume
2.
If the products of the industry are standard or undifferentiated. Eg: Industrial
products
3.
If the products sold by the industry form a component of its product and represents
a significant proportion of its costs. Eg: TV picture tubes, automobile components
4.
If buyers earn low profit, they are more price sensitive
5.
If quality is un-important to buyers
6.
If buyers pose a problem of backward integration. Eg: Textiles, automobiles
BARGAINING POWER OF SUPPLIERS

Can exert bargaining power by raising prices of goods and services

A supplier group is powerful when
1.
Few suppliers in the market
2.
Product of suppliers are unique or differentiated
3.
Switching cost is high
4.
No substitutes
5.
Threat of forward integration by suppliers
6.
If the target buyer group’s dd for product is insignificant
SUBSTITUTE PRODUCTS


Amount of competition depends on the substitutability of products
Cheaper and better quality substitutes
RIVALRY AMONG EXISTING FIRMS

Competition among different players is the most crucial factor

It is increasing market share at the cost of competitors

Numerous competitors in the industry and all try to increase sales and
market share

Industry growth is slower

Lack of product differentiation

Urgency to sell to avoid product obsolescence

Exit barrier is high if investment is locked up.
INTERNAL ANALYSIS OF FIRM
ENVIRONMENT SCANNING
INTERNAL ANALYSIS
STRENGTH
WEAKNESS
EXTERNAL ANALYSIS
OPPORTUNITIES
THREATS
SWOT MATRIX

Popular tool for analysis of the overall strategic position of a business.

Simple tool

Relationship in SWOT analysis is represented by a 2x2 matrix

The matrix identifies the Strength, Weakness, Opportunities and Threat of a
firm

S & W – Positive considerations

W & T – Negative considerations
POSITIVE
NEGATIVE
I
N
T
Patents
Strong brand name
Lack of patent protection
S
Weak brand name
Good reputation
Poor reputation
Cost advantage
High cost structure
Exclusive access to high grade
natural resources
Lack of access to best natural
resources
L
Favourable access to distribution
networks
Lack of access to key
distribution channels
E
An unfulfilled customer need
E
R
N
A
S
O
X
Arrival of new technologies
T
Loosening of regulations
E
Removal of international trade barriers
R
N
A
L
Shifts in consumer tastes
Emergence of substitute
products
New regulations
Increased trade barriers
W
T
SWOT MATRIX

SO strategies pursue opportunities that are a good fit ti the co’s
strengths

WO strategies overcome weakness to pursue opportunities

ST strategies identify ways that the firm can use its strength to
reduce its vulnerability to external threats

WT strategies establish a defensive plan to prevent the firm’s
weaknesses from making it highly susceptible to external threats
ASSESSING INTERNAL ENVIRONMENT THROUGH FUNCTIONAL
APPROACH AND VALUE CHAIN

Value chain analysis describes the activities the organization
performs and links them to the orgn’s competitive position

It evaluates which value each activity adds to the orgn’s
product/service

Activities classified into primary and support activities.
VALUE CHAIN ANALYSIS
A
S
C
U
T
P
I
P
V
O
I
R
T
T
I
FIRM INFRASTRUCTURE
MARGIN
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
E
PROCUREMENT
S
INBOUND
LOGISTICS
OPERATIONS
OUTBOUND
MARKETING
LOGISTICS
& SALES
PRIMARY ACTIVITIES
MARGIN
SERVICE
VALUE CHAIN ANALYSIS

Primary Activities
Involved in creation of product / service
Core activities

Support Activities
Provide support to effective performance of primary activities
VALUE CHAIN ANALYSIS
Inbound Logistics
Transportation
Material Handling
Warehousing
Inventory Management
Operations
Manufacturing
Assembling
Testing
Packaging
Primary
Activities
Marketing & Sales
Advertising
Sales promotion
Channel selection
Pricing
Service
Outbound Logistics
Storing
Physical Distribution
Installation
After sales service
Supply of parts
Training to customers
VALUE CHAIN ANALYSIS
Firm Infrastructure
Technology Development
General Management
Accounting
Finance
Legal
Secretarial
Innovation
Development
Support
Activities
HRM
Procurement
HR Planning
Recruitment
Selection
Development
Obtaining Inputs,
Raw materials,
Machinery
CORE COMPETENCE

Strength that is unique to the firm

Set of unique internal skills, processes or systems

Inimitable by competitors

Differentiates the business from other similar businesses

Adds value to customer’s products

Mainly Technology based

Present at grass root level of product
Eg : TATA & HUL
EXAMPLES OF CORE COMPETENCE

Sony – miniaturisation

Honda – engines for cars, motor cycles, lawn movers, generators

Canon – optics, imaging, microprocessor controls
CRITICAL SUCCESS FACTORS

Feature of a firm that becomes critical to success

Areas where the firm must excel to outperform competitors

Areas that must receive continuous management attention

CSF differs from industry to industry
AREAS OF CSF

Industry characteristics
Petroleum – Capital
FMCG – Sales promotion, distribution

Competitive strategy & industry position

Environmental factors
BSNL – De-regulation & Customer service

Temporal factors

Managerial position
CRITICAL SUCCESS FACTORS - Examples

Improved productivity

High employee morale

Improved product / service quality

Increased earnings per share

Growth in market share

Completion of new facilities
CSF in different industries
Tooth paste
industry
Food
processing
industry
Shoe
industry
Automobile
industry
Form
Quality
Quality
Styling
Flavor
Packaging
Cost efficiency
Distribution
network
Sophisticated
retailing
Strong dealer
network
Sales
promotion
Product image
Foam
Freshness
Distribution
network
Promotion
Brand
loyalty
Product mix
Manufacturin
g cost control
Meeting envt
standards
Courier
service
Speedy
dispatch
Reliability
Price
SCENARIO PLANNING

Future trends can be forecasted to a certain extent but cannot be
defined accurately

Strategists should develop alternate scenarios

Scenarios consist of sensing, interpreting, organising and bringing
diverse info about the future
Scenario Development
Process
Prepare
Background
Write
Scenarios
Select Critical
Indicators
Forecast each
indicator
Establish past
Behavior for
each indicator
Verify potential
Future events