23366532 Strategic Management Inputs

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PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie Cook

The University of West AlabamaThe University of West Alabama

Strategic ManagementStrategic ManagementCompetitiveness and Globalization:Competitiveness and Globalization:

Concepts and Cases Concepts and Cases

Michael A. Hitt � R. Duane Ireland � Robert E. Hoskisson

Seventh edition

STRATEGIC

MANAGEMENT

INPUTS

STRATEGIC

MANAGEMENT

INPUTS

© 2007 Thomson/South © 2007 Thomson/South--Western.Western.

All rights reserved.All rights reserved.

CHAPTER 2CHAPTER 2

Th e External Environment:Th e External Environment:Opportunities, Th reats,Opportunities, Th reats,Industry Competition,Industry Competition,and Competitor Analysis and Competitor Analysis



© 2007 Thomson/South-Western. All rights reserved. 2±2

FIGUREFIGURE 2.12.1 The External Environme nt The Ex t e rnal Environme nt




Ge ne ral Environme nt Ge ne ral Environme nt

�� Dimensions in the broader society that influenceDimensions in the broader society that influencean industry and the firms within it:an industry and the firms within it:

DemographicDemographic

EconomicEconomic

Political/legalPolitical/legal

SocioculturalSociocultural

TechnologicalTechnologicalGlobalGlobal




TABLETABLE 2.12.1 The Ge ne ral Environme nt: Segme nts and Ele me ntsThe Ge ne ral Environme nt: Segme nts and Ele me nts




Industry Environme nt Industry Environme nt

�� The set of factors directly influencing a firm andThe set of factors directly influencing a firm andits competitive actions and competitiveits competitive actions and competitive

responsesresponses

Threat of new entrantsThreat of new entrants

Power of suppliersPower of suppliers

Power of buyersPower of buyers

Threat of product substitutesThreat of product substitutes

Intensity of rivalry among competitorsIntensity of rivalry among competitors




Compe titor A nalysisCompe titor A nalysis

�� Gathering and interpretingGathering and interpretinginformation about all of theinformation about all of the

companies that the firmcompanies that the firm

competes against.competes against.

�� Understanding the firm¶sUnderstanding the firm¶s

competitor environmentcompetitor environment

complements the insightscomplements the insights

provided by studying theprovided by studying the

general and industrygeneral and industry

environments.environments.






Opportunitie s and Thre atsOpportunitie s and Thre ats

�� OpportunityOpportunity

A condition in the general A condition in the general

environment that, if exploited,environment that, if exploited,

helps a company achievehelps a company achieve

strategic competitiveness.strategic competitiveness.

�� ThreatThreat

A condition in the general A condition in the general

environment that may hinder aenvironment that may hinder acompany¶s efforts to achievecompany¶s efforts to achieve

strategic competitiveness.strategic competitiveness.




Industry Environme nt A nalysisIndustry Environme nt A nalysis

�� Industry DefinedIndustry Defined A group of firms producing products that are close A group of firms producing products that are close

substitutessubstitutes

�� Firms that influence one another Firms that influence one another

�� Includes a rich mix of competitive strategies thatIncludes a rich mix of competitive strategies thatcompanies use in pursuing strategiccompanies use in pursuing strategic

competitiveness and abovecompetitiveness and above--average returnsaverage returns




FIGUREFIGURE 2.2 2.2 The Five Force s of Compe tition Mode lThe Five Force s of Compe tition Mode l




Thre at of New Entrants: Barrie rs to EntryThre at of New Entrants: Barrie rs to Entry

�� Economies of scaleEconomies of scale

�� Product differentiationProduct differentiation

�� Capital requirementsCapital requirements

�� Switching costsSwitching costs�� Access to distribution channels Access to distribution channels

�� Cost disadvantages independent of scaleCost disadvantages independent of scale

�� Government policyGovernment policy

�� Expected retaliationExpected retaliation




Barrie rs to EntryBarrie rs to Entry

�� Economies of ScaleEconomies of Scale

Marginal improvements in efficiency that a firmMarginal improvements in efficiency that a firm

experiences as it incrementally increases its sizeexperiences as it incrementally increases its size

�� Factors (advantages and disadvantages) relatedFactors (advantages and disadvantages) relatedto largeto large-- and smalland small--scale entryscale entry

Flexibility in pricing and market shareFlexibility in pricing and market share

Costs related to scale economiesCosts related to scale economies

Competitor retaliationCompetitor retaliation




Barrie rs to Entry (contd)Barrie rs to Entry (contd)

�� Product differentiationProduct differentiation Unique productsUnique products

Customer loyaltyCustomer loyalty

Products at competitiveProducts at competitive

pricesprices

�� Capital RequirementsCapital Requirements

Physical facilitiesPhysical facilities

InventoriesInventories

Marketing activitiesMarketing activities

Availability of capital Availability of capital

�� Switching CostsSwitching Costs OneOne--time costs customerstime costs customers

incur when they buy from aincur when they buy from a

different supplier different supplier

�� New equipmentNew equipment

�� Retraining employeesRetraining employees

�� Psychic costs of ending aPsychic costs of ending a

relationshiprelationship

�� Access to Distribution Access to Distribution

ChannelsChannels Stocking or shelf spaceStocking or shelf space

Price breaksPrice breaks

Cooperative advertisingCooperative advertising

allowancesallowances




Barrie rs to Entry (contd)Barrie rs to Entry (contd)

�� Cost DisadvantagesCost DisadvantagesIndependent of ScaleIndependent of Scale

Proprietary productProprietary product

technologytechnology

Favorable access to rawFavorable access to raw

materialsmaterials

Desirable locationsDesirable locations

�� Government policyGovernment policy

Licensing and permitLicensing and permit

requirementsrequirements Deregulation of industriesDeregulation of industries

�� Expected retaliationExpected retaliation Responses by existingResponses by existing

competitors may dependcompetitors may depend

on a firm¶s present stake inon a firm¶s present stake in

the industry (availablethe industry (available

business options)business options)




Bargaining Powe r of Supplie rsBargaining Powe r of Supplie rs

�� Supplier power increases when:Supplier power increases when:

Suppliers are large and few in number.Suppliers are large and few in number.

Suitable substitute products are not available.Suitable substitute products are not available.

Individual buyers are not large customers of suppliersIndividual buyers are not large customers of suppliersand there are many of them.and there are many of them.

Suppliers¶ goods are critical to the buyers¶Suppliers¶ goods are critical to the buyers¶

marketplace success.marketplace success.

Suppliers¶ products create high switching costs.Suppliers¶ products create high switching costs.

Suppliers pose a threat to integrate forward intoSuppliers pose a threat to integrate forward into

buyers¶ industry.buyers¶ industry.




Bargaining Powe r of Buye rsBargaining Powe r of Buye rs

�� Buyer power increases when:Buyer power increases when:

Buyers are large and few in number.Buyers are large and few in number.

Buyers purchase a large portion of an industry¶s totalBuyers purchase a large portion of an industry¶s total

output.output.Buyers¶ purchases are a significant portion of aBuyers¶ purchases are a significant portion of a

supplier¶s annual revenues.supplier¶s annual revenues.

Buyers¶ switching costs are low.Buyers¶ switching costs are low.

Buyers can pose threat to integrate backward into theBuyers can pose threat to integrate backward into the

sellers¶ industry.sellers¶ industry.

Buyer has full information.Buyer has full information.




Thre at of Sub stitut e ProductsThre at of Sub stitut e Products

�� The threat of substitute products increasesThe threat of substitute products increaseswhen:when:

Buyers face few switching costs.Buyers face few switching costs.

The substitute product¶s price is lower.The substitute product¶s price is lower.Substitute product¶s quality and performance areSubstitute product¶s quality and performance are

equal to or greater than the existing product.equal to or greater than the existing product.

�� Differentiated industry products that are valuedDifferentiated industry products that are valued

by customers reduce this threat.by customers reduce this threat.




Int e nsity of Rivalry A mong Compe titorsInt e nsity of Rivalry A mong Compe titors

�� Industry rivalry increases when:Industry rivalry increases when:

There are numerous or equally balanced competitors.There are numerous or equally balanced competitors.

Industry growth slows or declines.Industry growth slows or declines.

There are high fixed costs or high storage costs.There are high fixed costs or high storage costs.There is a lack of differentiation opportunities or lowThere is a lack of differentiation opportunities or low

switching costs.switching costs.

When the strategic stakes are high.When the strategic stakes are high.

When high exit barriers prevent competitors fromWhen high exit barriers prevent competitors from

leaving the industry.leaving the industry.




Low e ntry b arrie rs

Int e rpre ting Industry A nalyse sInt e rpre ting Industry A nalyse s

Unattractive Unattractive IndustryIndustry

Supplie rs and b uye rs

have strong positions

Strong t hre ats from sub stitut e products

Int e nse rivalry among compe titors

Low profit potential




Int e rpre ting Industry A nalyse s (contd)Int e rpre ting Industry A nalyse s (contd)

A ttractive A ttractive IndustryIndustry

High e ntry b arrie rs

Supplie rs and b uye rs have we ak positions

Few t hre ats from sub stitut e products

Mode rat e rivalry among compe titors

H igh profit potential




Strat egic GroupsStrat egic Groups

�� Strategic Group DefinedStrategic Group Defined A set of firms emphasizing similar strategic A set of firms emphasizing similar strategic

dimensions and using similar strategiesdimensions and using similar strategies

�� Internal competition between strategic group firmsInternal competition between strategic group firms

is greater than between firms outside that strategicis greater than between firms outside that strategicgroup.group.

�� There is more heterogeneity in the performance of There is more heterogeneity in the performance of

firms within strategic groups.firms within strategic groups.

± ± Similar market positionsSimilar market positions ± ± Similar productsSimilar products

± ± Similar strategic actionsSimilar strategic actions




Strat egic GroupsStrat egic Groups

�� Strategic DimensionsStrategic Dimensions

Extent of technological leadershipExtent of technological leadership

Product qualityProduct quality

Pricing PoliciesPricing Policies

Distribution channelsDistribution channels

Customer serviceCustomer service




Compe titor A nalysisCompe titor A nalysis

�� Competitor IntelligenceCompetitor IntelligenceThe ethical gathering of needed information and dataThe ethical gathering of needed information and data

that provides insight into:that provides insight into:

�� A competitor¶s direction ( A competitor¶s direction (future objectivesfuture objectives ) )

�� A competitor¶s capabilities and intentions ( A competitor¶s capabilities and intentions (current current

strategy strategy ) )

�� A competitor¶s beliefs about the industry ( A competitor¶s beliefs about the industry (itsits

assumptionsassumptions))

�� A competitor¶s A competitor¶s capabilitiescapabilities




FIGUREFIGURE 2.2 2.2

Compe titor Compe titor

A nalysis A nalysis Compone ntsCompone nts




Comple me ntorsComple me ntors

�� ComplementorsComplementorsThe network of companies that sell complementaryThe network of companies that sell complementary

products or services or are compatible with the focalproducts or services or are compatible with the focal

firm¶s own product or service.firm¶s own product or service.

�� If a complementor¶s product or service adds valueIf a complementor¶s product or service adds value

to the sale of the focal firm¶s product or service, itto the sale of the focal firm¶s product or service, it

is likely to create value for the focal firm.is likely to create value for the focal firm.

�� However, if a complementor¶s product or service isHowever, if a complementor¶s product or service is

in a market into which the focal firm intends toin a market into which the focal firm intends toexpand, the complementor can represent aexpand, the complementor can represent a

formidable competitor.formidable competitor.




Et hical Conside rationsEt hical Conside rations

�� Practices considered both legal and ethical:Practices considered both legal and ethical:Obtaining publicly available informationObtaining publicly available information

Attending trade fairs and shows to obtain competitors¶ Attending trade fairs and shows to obtain competitors¶

brochures, view their exhibits, and listen tobrochures, view their exhibits, and listen to

discussions about their productsdiscussions about their products

�� Practices considered both unethical and illegal:Practices considered both unethical and illegal:

BlackmailBlackmail

TrespassingTrespassingEavesdroppingEavesdropping

Stealing drawings, samples, or documentsStealing drawings, samples, or documents




What A re t he Ke y Factors for What A re t he Ke y Factors for Compe titive Succe ss?Compe titive Succe ss?

�� KSFsKSFs are competitive elements that most affectare competitive elements that most affect

every indu stry member¶ severy indu stry member¶ s ability to prosper inability to prosper in

the marketplacethe marketplace

Specific strategy elementsSpecific strategy elements Product attributesProduct attributes

ResourcesResources

CompetenciesCompetencies

Competitive capabilitiesCompetitive capabilities

�� KSFsKSFs spell difference betweenspell difference between

Profit and lossProfit and loss

Competitive success or failureCompetitive success or failure




Ide ntifying IndustryIde ntifying Industry

Ke y Succe ss FactorsKe y Succe ss Factors

�� Answers to three questions pinpoint Answers to three questions pinpoint KSFsKSFs

On what basis do customers choose between competingOn what basis do customers choose between competingbrands of sellers?brands of sellers?

What must a seller do to be competitively successfulWhat must a seller do to be competitively successful ----what resources and competitive capabilities does it need?what resources and competitive capabilities does it need?

What does it take for sellers to achieve a sustainableWhat does it take for sellers to achieve a sustainablecompetitive advantage?competitive advantage?

�� KSFsKSFs consist of theconsist of the 33 -- 55 reallyreally major major determinantsdeterminants

of financial and competitive success in an industryof financial and competitive success in an industry




KSFs for Bee r IndustryKSFs for Bee r Industry

�� Utilization of brewing capacityUtilization of brewing capacity ---- to keepto keepmanufacturing costs lowmanufacturing costs low

�� Strong network of wholesale distributorsStrong network of wholesale distributors ---- toto

gain access to retail outletsgain access to retail outlets�� Clever advertisingClever advertising ---- to induce beer drinkersto induce beer drinkers

to buy a particular brandto buy a particular brand




KSFs for A ppare l ManufacturingKSFs for A ppare l Manufacturing

IndustryIndustry�� Fashion designFashion design ---- toto

create buyer appealcreate buyer appeal

�� LowLow--cost manufacturingcost manufacturingefficiencyefficiency ---- to keep sellingto keep selling

prices competitiveprices competitive




Ex ample : KSFs for Tin and A luminum Ex ample : KSFs for Tin and A luminum

Can IndustryCan Industry�� Locating plants close to endLocating plants close to end--useuse

customerscustomers ---- to keep costs of shippingto keep costs of shipping

empty cans lowempty cans low

�� Ability to market plant output within Ability to market plant output within

economical shipping distanceseconomical shipping distances




Strat egic Manage me nt Principle Strat egic Manage me nt Principle

A sound strategy incorporates A sound strategy incorporates

efforts to beefforts to be c ompetent on all c ompetent on all

industry key success factors andindustry key success factors and

toto ex c el on at least oneex c el on at least one factor!factor!

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23366532 Strategic Management Inputs