Strategic management

Lecturer: Tran Thi Bich Nhung

Email: tranthibichnhung.cs2@[Link]

CONTENTS:
- Chapter 1: Introduction to strategic management
- Chapter 2: Business environment analysis
- Chapter 3: Business level strategy
- Chapter 4: Corporate level strategy
- Chapter 5: International strategy
- Chapter 6: Strategic implementation and control

1
 Chapter 2:
BUSINESS ENVIRONMENT
ANALYSIS

2
 CONTENTS:
- External environment analysis
- Internal environment analysis

EXTERNAL ENVIRONMENT
ANALYSIS

3
External environment analysis
- Industry environment
- Macro environment
=> Opportunities and Threats

External environment analysis

1. Industry environment
- Analyzing industry structure
- Identifying strategic groups within industries enable company to identify close competiors

- Analyzing industry life cycle

4
External environment analysis
1. Industry environment
- Analyzing industry structure

- The same basic

customer needs =>
Industry’s
boundaries
incorrectly -> decrease rev and profit

External environment analysis

1. Industry environment
- Analyzing industry structure

5
External environment analysis
1. Industry environment
a. Risk of entry by potential competitors

External environment analysis

1. Industry environment
Some of the barriers to entry are:
increase output -> unit cost decrease

• Economies of scale competitor can have more experiences -> it is difficult for potential competior to compete w the same price
• Product differentiation – brand loyalty have to spend a lot of money -> price increase -> demand decrease
• Capital requirements have to invest money and time -> the barrier to entry in service company is low
• Switching costs change a product of company to that of potential competitor
• Access to distribution channels
• Government policies Văn bản

6
External environment analysis
1. Industry environment
b. Rivalry among Established companies

• Industry competitive structure different implication for rivalry in the market

• Demand conditions
• Exit barriers in the industry

External environment analysis

1. Industry environment
b. Rivalry among Established companies
• Industry competitive structure
… refers to the number and size distribution of companies in it.
Industry structures vary and different structures have different
implications for the intensity of rivalry
ngành phân tán
ngành tập trung

Ex: EVN, PVN,...

7
External environment analysis
1. Industry environment
b. Rivalry among Established companies
• Industry competitive structure
Fragmented industry: - all of them want to be leader in the market -> rivalry high
- characterized by low entry barriers and commodity – type products.
- Low entry barriers => enter of new entrants => excess capacity =>
cut prices => price war => decrease in profit => out of business.
- A fragmented industry structure constitutes a threat rather than an
opportunities. Because it is often difficult to differentiate products

External environment analysis

1. Industry environment
b. Rivalry among Established companies
• Industry competitive structure
Consolidated industry:
- Companies are interdependent. When a company makes a
competitive action => force a response => undercut price or more
value => industry profit push down
- Seek to reduce this threat by following the price set by dominant
company.
- Explicit face to face price – fixing agreements are illegal =>
watching, anticipating and responding to each other’s behavior

8
External environment analysis
1. Industry environment
b. Rivalry among Established companies
• Industry demand
Growing demand (new customer or additional purchases by existing
customers) => moderate competition, reduce rivalry
Declining demand (leaving market or buying less) => more rivalry,

External environment analysis

1. Industry environment
b. Rivalry among Established companies
• Exit barriers
High => More intense rivalry and price competition
+ Investments in assets: machine; equipment and operating facilities
+ High fixed costs of exit: severance pay, health benefits and pensions
+ Sentimental reasons and pride
+ Bankruptcy regulations

9
External environment analysis
1. Industry environment
c. The Bargaining Power of Buyers
Buyers affect an industry through their ability to force
down prices, bargain for higher quality or more services.

Bargaining power of buyers:

Large purchases
Backward integration
Alternative suppliers
Low cost to change suppliers
Important buyers
Product is unimportant to buyer

External environment analysis

1. Industry environment
d. The Bargaining Power of Suppliers
Suppliers can affect an industry through their ability to raise input
prices or reduce the quality of purchased goods and services.

A supplier or a group of suppliers is powerful if some of

the following factors hold true:
* Industry is dominated by a few suppliers
* Unique product or service
* Substitutes are not readily available
* Ability to forward integrate
* Cannot threaten to enter their suppliers’ industry.

10
External environment analysis
1. Industry environment
e. Substitute products
- a product that appears to be different but can satisfy the same
need as another product
- The identification of possible substitute products means
searching for products that can perform the same function, even
though they have a different appearance.

External environment analysis

1. Industry environment
- Strategic groups within industries

11
External environment analysis
1. Industry environment
- Implications of strategic groups

- Closet competitors => the most immediate threat to a company’s

profitability
- different strategic groups can have a different competitive
forces. 5 forces can be strong or weak competitive force
depending on the competitive position adopted by each strategic
group in the industry.

External environment analysis

1. Industry environment
- Industry life cycle analysis

12
External environment analysis
1. Industry environment
- Industry life cycle analysis

 Embryonic Industries
 Growth Industries
 Shakeout Industries
 Mature Industries
 Declining Industries

External environment analysis

1. Industry environment
- Industry life cycle analysis

 Embryonic Industries
+ beginning to develop, growth is slow, buyer’ s unfamiliarity
with the industry products, high prices, poorly developed
distribution channels
+ Barriers to entry based on access to key technological know-
how rather than cost economies or brand loyalty
+ Rivalry in embryonic industry is based educating customers,
opening distribution channels, the design of product, NOT ON
PRICES

13
External environment analysis
1. Industry environment
- Industry life cycle analysis
 Growth Industries
+ demand is expanding rapidly
+ customers become familiar with the product
+ price falls, distribution channel develop
+ Threat from the potential competitors is highest
+ Intensity of rivalry tends to be relatively low.

External environment analysis

1. Industry environment
- Industry life cycle analysis
 Industry Shakeout
+ demand approaches saturation levels.
+ rivalry becomes intense because the emergence
of excess productive capacity => cut prices =>
price war and bankruptcy

14
External environment analysis
1. Industry environment
- Industry life cycle analysis

External environment analysis

1. Industry environment
- Industry life cycle analysis
 Mature Industries
+ the market is totally saturated, growth is low or zero
+ threat of entry from potential competitors decreases. customer demand decreases -> difficult to entry
get customers from other market
+ competition for market share develops => price war => focus
on cost minimization and building brand loyalty.
+ Most industries in the maturity stage have consolidated,
companies tend to recognize their interdependence and try to
avoid price wars

15
External environment analysis
1. Industry environment
- Industry life cycle analysis
 Declining Industries
+ the stage in which primary demand is declining
+ growth becomes negative for a variety of reasons
+ degree of rivalry among established companies increase. few customers

+ competitive pressures can become as fierce as in the

shakeout stage.
+ falling demand leads to the emergence of excess capacity
decrease p to compete w other competitors -> price war

External environment analysis

2. Macro environment
- … the broader economic, global, techonological,
demographic, social, and political context in which
companies and industries are embedded.

16
External environment analysis
2. Macro environment
a. Macroeconomic forces

 The growth rate of the economy

 Interest rates
 Currency exchange rates
 Price inflation

External environment analysis

2. Macro environment
a. Macroeconomic forces
The growth rate of the economy

 Economic growth => expansion in customer expenditures

=> opportunity to expand their operations and earn higher profits.
 Economic decline => reduction in customer expenditures
=> increase competitive pressure

17
External environment analysis
2. Macro environment
a. Macroeconomic forces

Interest rates

 Interest rates determine the demand for a

company’s products.
 Housing market, autos, capital equipment
(building, machine…)…

External environment analysis

2. Macro environment
a. Macroeconomic forces
Currency exchange rates + Price inflation

 Currency exchange rates define the value of

different national currencies against each other
=> direct impact on the competitiveness in the
global marketplace. currency exchange rate increase -> company get more money
 Price inflation can destabilize the economy,
slower economic growth, higher interest rates
and volatile currency movements.

18
External environment analysis
2. Macro environment
b. Technological forces
 Technological change can make established products obsolete
overnight and simultaneously creative new products.
 Technological change is both creative and destructive – both the
opportunity and threats

External environment analysis

2. Macro environment
b. Technological forces
Portable information devices and electronic
networking
Alternative energy sources
Precision farming
Virtual personal assistants
Smart, mobile robots
…

19
External environment analysis
2. Macro environment
c. Demographic Forces
 … are outcomes of changes in the characteristics of a
population, such as: age, gender, ethnic origin, race,
sexual orientation and social class.
 The aging of population => increase opportunities for:
cater to older people; home health care and recreation
industries.

External environment analysis

2. Macro environment
d. Social Forces
 … refer to the way in which changing social mores and values
affect an industry.
 Example: Greater health consciousness.

20
External environment analysis
2. Macro environment
e. Political and legal forces
 … are outcomes of changes in laws and regulations.
 Political processes shape a society’s laws, which constrain the
operations of organizations and managers => create both
opportunities and threats

External environment analysis

2. Macro environment
f. Global forces

21
INTERNAL ENVIRONMENT
ANALYSIS

22
Internal environment analysis
… refers to the factors within an organization,
including resources and capabilities.

Strengths are things that your organization

does particularly well or in a way that
distinguishes you from your competitors

Weaknesses refers to internal initiatives that

are underperforming

Internal environment analysis

- Competitive advantage refers to the ability of a
company to outperform its competitors in the
marketplace. competitors try to imitate these competitive advantages
- A company has a sustained competitive
advantage when it is able to maintain superior
profitability over a number of years.
- Two basic conditions determine a company’s
profitability: value creation and production
cost

23
Internal environment analysis

Internal environment analysis

- Superior value creation does not necessarily
require a company to have the lowest cost
structure or to create the most valuable product,
but it does require that the gap between V and C
be greater than the gap attained by competitors.

24
Internal environment analysis

Internal environment analysis

There are two main types of competitive advantages,

low cost advantage and differentiation advantage.
- A company that has a cost advantage is able to
produce goods or services at a lower cost than its
competitors.
- A company that has a differentiation advantage is able
to offer products or services that are unique in some
ways, and that customers perceive as being of
higher value than those of its competitors.

25
Internal environment analysis
Value chain

Internal environment analysis

Value chain

26
Internal environment analysis
Value chain
R&D:
- … concerned with the design of product and production processes.
- R&D function can help to lower costs or raise the value

Production:
- … concerned with process creating of good or service.
- By performing its activities effectively, the production function helps
to lower its cost structure.
- Is also consistent with high product quality
control the material -> control production process -> high quality

Internal environment analysis

Value chain
Sales and marketing:
- Through brand positioning and advertising, marketing function can
increase the value
- Marketing and sales can also create value by discovering customer
needs and feed them back to R&D function to design products.

Customer service:
- … to provide after-sales service and support.
- This function can create superior utility by solving customer
problems and supporting customers after they have purchased

27
Internal environment analysis
Value chain (support activities)
Materials management (Logistics):
- Controls the transmission of physical materials through the value
chain, from procurement through production and into distribution.
- Efficiency with this help lower cost, thereby creating more value.

Human resources:
- The right mix of skilled people to perform its value creation
activities effectively
- Can be trained, motivated and compensated to perform their value
– creation tasks.
- If the human resources are well, employee productivity rises and
customer service improve => create more value.

Internal environment analysis

Value chain (support activities)
Information system:
- … the electronic systems for managing inventory, tracking sales,
pricing products, selling products, dealing with customer and so on.

Company infrastructure:
- … is the companywide context within which all the other value
creation activities take place.
- Organization structure, control systems, company culture.
- Through strong leadership, top management can shape the
infrastructure of a company and performance of all value – creation
activities that take place within it.

28
 Internal environment analysis
Functional strategies and competitive advantage
Increasing Efficiency
- R&D: simplify the design, reducing the number of parts it contains,
decrease the required assembly time => higher employee
productivity, lower costs and higher profitability.
- Production: economies of scale, increase the productivity of capital
and labor, maximize learning effects, flexible manufacturing
technology, lean production, mass customization

- learning effects: cost that you become more efficient from experience -> how performance improve overtime (repeated task)
- flexible manufacturing: produce a variety of products on the same system with minimal retooling time and cost
- lean production: focused on eliminating waste, improving efficiency, and delivering value with fewer resources (ex: JIT inventory)
- mass customization: mass production + personalize to tailor products to individual customer preferences while still achieving economies of scale.

Internal environment analysis

Functional strategies and competitive advantage
Increasing Efficiency

29
 Internal environment analysis
Functional strategies and competitive advantage
Increasing Efficiency
- Marketing: product design, pricing, promotion, place, people,
process, physical evidence, customer defection rates.
- Materials management: JIT inventory system => reduce inventory
holding costs: warehousing, storage cost and working capital.
- HRM: employee productivity, self-managing team
- Information system: web-based information systems
- Infrastructure: structure, culture, style of strategic leadership and
control system.

Internal environment analysis

Functional strategies and competitive advantage
Increasing Efficiency

30
 Internal environment analysis
Functional strategies and competitive advantage
Increasing Quality
- Superior quality: (1) strong reputation for quality => differentiate +
(2) eliminating defects from production process => reduces waste,
lower cost and increases efficiency and its profitability
- Attaining superior reliability: six-sigma, TQM
- Improving quality as excellence: ordering ease, prompt delivery,
easy installation, the availability of customer training and consulting,
and maintenance services.

Internal environment analysis

Functional strategies and competitive advantage
Increasing Quality
- Attaining superior reliability: six-sigma, TQM
- The basic philosophy of quality improvement technologies:
+ fewer mistakes, fewer delays, better use of time and materials =>
improve quality
+ As a result, productivity improves
+ Better quality leads to higher market share and allows to raise price
+ increase the profitability and stay in business

31
 Internal environment analysis
Functional strategies and competitive advantage
Increasing Quality
- Improving quality as excellence:
+ which of these attributes are most important to customers
+ design the product, so that those attributes are embodied in the product
+ decide which of the significant attributes to promote and how best to
position them in the minds of consumers
+ product continual improvement in product attributes and often the
development of new product attributes.

Internal environment analysis

Functional strategies and competitive advantage
Increasing Innovation
- Reducing innovation failures:
+ Product development projects are driven by customer needs
+ New products are designed for ease of manufacture
+ Development costs are kept in check
+ Time to market is minimized
+ Close integration between R&D and marketing is achieved to ensure
that product development projects are driven by the needs of customers.

32
 Internal environment analysis
Functional strategies and competitive advantage
Achieving Superior Customer Responsiveness
- Customer focus: motivate whole company to focus on the customer,
from the top of organization to all employee
- Satisfying Customer Needs: (1) customize product to requirement of
individual customer and (2) reduce time to respond to or satisfy
customer needs

Internal environment analysis

Distinctive competencies and competitive advantage

- When a company is uniquely skilled at an activity that underlies

superior efficiency, quality, innovation, responsiveness to customers to
its rivals, we say that it has a distinctive competencies.
- A distinctive competency is a unique specific strength that allows a
company to better differentiate and/or achieve substantially lower
costs that its rivals and thus gain a competitive advantage.
- Distinctive competencies arise from two complementary sources:
resources and capabilities.

33
 Internal environment analysis
Distinctive competencies and competitive advantage

Internal environment analysis

Distinctive competencies and competitive advantage

34
 Internal environment analysis
Durability of competitive advantage
Barriers to imitation
- … are factors that make it difficult for a competitor to copy a company’s
distinctive competencies. The greater the barriers to imitation, the more
sustainable are a company’s competitive advantage.
- The easiest distinctive competencies to imitate: Possession of firm-
specific and valuable tangible resources
- Intangible resources can be more difficult to imitate. Marketing and
technological know-how are also important intangible resources.
Marketing strategies are easy to imitate, technological know-how immune
to imitation.
- Imitating the capabilities tends to be more difficult than imitating its
resources.

35