CORE CURRICULUM

Components of an Organization’s Aspirations

CORE CURRICULUM
Questions Addressed by Aspirations
and Competitive Strategy
CORE CURRICULUM
Two Dimensions
of the Value of
Organizational
Aspirations
CORE CURRICULUM
Coherence
and Alignment
of Organizational
Aspirations
CORE CURRICULUM
Evaluation of Commonly Criticized Forms
of Aspirations
 Some Common Aspiration Statements

• A mission is just a careful restatement of what

a firm does “Our mission is to help business be
successful through the use of debt capital –
i.e. we are a bank
• This mission is ineffectivebecause it is not
strategic: it conveys no information as to how
the organization chooses to compete. It is also
not very motivating, unless people feel a
personal mission to help small businesses
 Some Common Aspiration Statements

• A list of “motherhood and apple pie statements”: Our

mission is to treat our employees well, serve our
communities and generate a solid return for our
shareholders
• What firm doesn’t have this mission?
• This mission is ineffective as it is neither motivating
nor strategic. It is difficult to see how it could align
with employees’ personal aspirations. It is
undifferentiated and therefor contiaisn no information
about how the organization chooses to compete
 Some Common Aspiration Statements

• A list of goals without any plan for attaining them:

Our mission is to stamp out childhood hunger
• Great goal, but how are you going to do it?
• Even though it is highly motivating, this mission is
ineffective because it is not strategic. It conveys no
information about the choices the organization has
made that will allow it to make progress toward
this goal more effectively than any other
organisation
 Some Common Aspiration Statements

• To grow to 17000 financial advisers by 2012 by

offering trusted and convenient face-to-face
financial advice to conservative individual
investors who delegate their financial
decisions, through a national network of one-
financial-adviser offices
• This is an excellent “strategy statement”, but it
is ineffective as an aspiration because it is not
motivating
CORE CURRICULUM
The Strategy Process
CORE CURRICULUM
A Hierarchy of Strategy Statements
 Walmart – Vision, Mission
• Vision:
– “To be the best retailer in the hearts and minds of
consumers and employees.”
• Mission
– “Saving people money so they can live better.”
• Company Slogan
– “Save money. Live better.”
 Walmart – Policies, Principles and Rules

• Open Door Policy. Managers' doors are open to employees at all levels
• Sundown Rule. Employees should answer all customer and supplier
questions on the same day the questions are received
• Grass Roots Process. Walmart strives to capture suggestions and ideas
from the sales floor and front lines—and to implement them
• 3 Basic Beliefs and Values. Respect for the individual, service to our
customers, and striving for excellence are cornerstones of the business
• The 10-Foot Rule. Making eye contact, greeting people, and offering
help to customers who come within 10 feet of employees is a 24/7 rule
• Servant Leadership. Leaders are in service to their team, not vice versa
• The Wal-Mart Cheer. This is an actual, structured chant that was
created by founder Sam Walton to lift morale every morning. He got the
idea after visiting a Korean manufacturing facility in 1975.
 Amazon
• "Our vision is to be earth's most customer-
centric company; to build a place where
people can come to find and discover anything
they might want to buy online."
 Apple Vision
• Apple’s current vision statement was introduced by CEO Tim Cook, who
stated, “We believe that we are on the face of the earth to make great
products and that’s not changing. We are constantly focusing on
innovating. We believe in the simple not the complex. We believe that we
need to own and control the primary technologies behind the products that
we make, and participate only in markets where we can make a significant
contribution. We believe in saying no to thousands of projects, so that we
can really focus on the few that are truly important and meaningful to us.
We believe in deep collaboration and cross-pollination of our groups, which
allow us to innovate in a way that others cannot. And frankly, we don’t
settle for anything less than excellence in every group in the company, and
we have the self- honesty to admit when we’re wrong and the courage to
change. And I think regardless of who is in what job those values are so
embedded in this company that Apple will do extremely well.”
 Apple - Mission
• "Man is the creator of change in this world. As such, he should
be above systems and structures, and not subordinate to them.“
• "Apple designs Macs, the best personal computers in the world,
along with OS X, iLife, iWork and professional software. Apple
leads the digital music revolution with its iPods and iTunes
online store. Apple has reinvented the mobile phone with its
revolutionary iPhone and App Store, and is defining the future
of mobile media and computing devices with iPad.“
• "Apple is committed to bringing the best personal computing
experience to students, educators, creative professionals and
consumers around the world through its innovative hardware,
software and Internet offerings."
 BMW
• Mission
– "The BMW Group is the world's leading provider
of premium products and premium services for
individual mobility."
 Mercedes
• "What Drives Us,"
• The six values that "drive" Mercedes-Benz USA
are:
– The audacity to reject compromise
– The instinct to protect what matters
– The commitment to honor a legacy
– The vision to consider every detail
– The foresight to take responsibility
– The ingenuity to outperform expectations
 Chrysler
• "Our vision is to build cars and trucks people want to buy, will enjoy driving and will
want to buy again.“
• "To create the type of exciting, efficient, reliable, safe vehicles you expect and deserve.“
• three basic principles for the new Chrysler Group...
• Enhance our core: invest in product enhancements; strengthen our customer focus;
improve our relationship with our dealers and recommit the entire organization to a
new level of quality.

• Extend our business: develop or establish partnerships to provide new products; build
off of existing products to extend into new segments; explore new and adjacent
market opportunities and accelerate new technologies and innovation.

• Expand our market: pursue global alliances to fill gaps in our product portfolio and
open new geographic opportunities; increase global sales by building from our existing
dealer network and invest closer to our global customers by enhancing regional
business operations and global engineering centers.
 Honda
• "Maintaining a global viewpoint, we are dedicated
to supplying products of the highest quality, yet at
a reasonable price for worldwide customer
satisfaction.“
• "Basic Principles" which are...

"Respect for the individual. The Three Joys (buying,

selling and creating).“
• A set of Management Policies based on the above
Session 2
Hierarchy of strategic
intent
 Strategic intent
• Strategic intent is an obsession with an
organisation: an obsession by having
ambitions that may even be out of proportion
to their resources and capabilities. This
obsession is to win at all levels of the
organisation while sustaining that obsession in
the quest for global leadership.
• Involves Vision, Mission, Business Definition
and Goals & Objectives
23
 Concept of stretch, leverage and fit
• Stretch is "a misfit between resources and aspirations"
• Leverage refers to concentrating, accumulating, complementing,
conserving, and recovering resources in such a manner that meagre
resource base is stretched to meet the aspirations that an organisation
dares to have.
• Fit means positioning the firm by matching its organisational resources
to its environment.
G. Hamel and C. K. Prahalad: "Strategy as Stretch and Leverage" Harvard Business Review, Mar - April 1993, pp. 75 - 84.

24
 Vision
• A vision is more dreamt of than it is. Vision Statement is permanent
statement of a company. Vision is future aspirations that lead to an
inspiration. It defines the very purpose of existence of a company.

• The vision of a company is a direction for action for employees. The

essence of a vision is forward looking view of what an organisation wishes
to become.

• Kotter (1990) defines it as a "description of something (an organization, a corporate

culture, a business, a technology, an activity) in the future".

• El-Namaki (1992) considers it as a "mental perception of the kind of environment an

individual, or an organization, aspires to create within a broad time horizon and the
underlying conditions for the actualization of this perception".

• Miller and Dess (1996) view it simply as the "category of intentions that are broad,
all-inclusive, and forward thinking".

25
 Core ideology and envisioned future

• The core ideology defines the enduring character of an

organisation that remains unchangeable as it passes
through the vicissitudes of vectors such as technology,
competition or management fads.
• The envisioned future too consists of two components: a
10 - to - 30 years audacious goal and vivid description of
what it will be like to achieve that goal.

26
 Characteristics of a Vision Statement

• Inspiring and exhilarating.

• It represents, a discontinuity, a step, a jump ahead to dream what it is
to be.
• Creation of common identity and share sense of purpose.
• Competitive, original and unique and practical.
• Foster risk taking and experimentation.
• Foster long term thinking.

• A vision is a statement about what your organization wants to become.

• It should resonate with all members of the organization and help them
feel proud, excited, and part of something much bigger than
themselves.
• A vision should stretch the organization’s capabilities and image of
itself. It gives shape and direction to the organization’s future.
• Visions range in length from a couple of words to several pages.
• Shorter vision statements is recommended because people will tend to
remember their shorter organizational vision.

27
 Vision Statement
• Vision Statement Samples:

• "Year after year, Westin and its people will be regarded as the best and
most sought after hotel and resort management group in North America."
(Westin Hotels)
• "To be recognized and respected as one of the premier associations of HR
Professionals." (HR Association of Greater Detroit)

• Vision Statement of “TATA STEEL”

“TATA Steel enters the new millennium with the confidence of learning,
knowledge based and happy organisation. We will establish ourselves as a
supplier of choice by delighting our customers with our service and
products. In the coming decade, we will become the most cost
competitive steel plant and so serve the community and the nation”.

• Vision Statement of Farm Fresh Produce

• “We help the families of Main Town live happier and healthier lives by
providing the freshest, tastiest and most nutritious local produce: From
local farms to your table in under 24 hours.”

28
 Developing a Vision Statement
• The vision statement includes vivid description of the organization as it
effectively carries out its operations.
• Developing a vision statement can be quick culture-specific, i.e.,
participants may use methods ranging from highly analytical and
rational to highly creative and divergent, e.g., focused discussions,
divergent experiences around daydreams, sharing stories, etc.
Therefore, visit with the participants how they might like to arrive at
description of their organizational vision.
• Developing the vision can be the most enjoyable part of planning, but
the part where time easily gets away from you
• Note that originally, the vision was a compelling description of the state
and function of the organization once it had implemented the strategic
plan, i.e., a very attractive image toward which the organization was
attracted and guided by the strategic plan. Recently, the vision has
become more of a motivational tool, too often including highly idealistic
phrasing and activities which the organization cannot realistically aspire.

29
 Strategic Vision
• Strategic Vision is a road map showing the route a company intends to
take in developing and strengthening the business. It defines Company’s
destination and provides rational for going there. It culminates in to a
Mission Statement. Strategic Vision points an Organisation in a particular
direction, charts a strategic path to follow for future and moulds the
organisation’s identity.
• Strategic Vision is different from Mission Statement: Strategic Vision
deals with where we are going, where as Mission Statement deals with
Company’s present business scope and purpose.
• A company Mission is guided by the buyer’s needs it seeks to satisfy, the
customer groups and market segments it is endeavouring to serve, and
the resources and technologies that it is deploying in trying to please
customers and achieve a Market and Industry position.

30
 Example of Strategic Vision
• “The San Antonio Express News” developed this Strategic
Vision,
• "EXPAND” our customer base and enhance the franchise by
pursuing multimedia opportunities.
• “DELIVER” an award-winning level of journalistic excellence,
building public interest, trust and pride.
• “PROVIDE” vigorous community leadership and support.
• “INSTILL” an environment of internal and external excellence
in customer service.
• “EMPOWER” and recognize each employee's unique
contribution.
• “ACHIEVE” the highest standards of quality.
• “IMPROVE” financial strength and profitability."

31
• Macy's: "Our vision is to operate Macy's and
Bloomingdale's as dynamic national brands
while focusing on the customer offering in
each store location."
• Microsoft: "A personal computer in every
home running Microsoft software."
• Toyota: "To become the most successful and
respected lift truck company in the U.S."
 Microsoft
Vision
• Global diversity and inclusion is an integral and inherent part of
our culture, fueling our business growth while allowing us to
attract, develop, and retain this best talent, to be more innovative
in the products and services we develop, in the way we solve
problems, and in the way we serve the needs of an increasingly
global and diverse customer and partner base.
Mission Statement
• The Microsoft mission regarding global diversity and inclusion is to
create an environment that helps Microsoft capitalize on the
diversity of its people and the inclusion of ideas and solutions to
meet the needs of its increasingly global and diverse customer
base.
 IT PSC
Mission Statement
• Our purpose is to provide unique and value added professional services in
the technology industry. Furthermore, do so with a very high level of
customer service and security and with our customers best interest in mind
at all times. In the process of doing this, educate our customers and create
synergy between our two companies. Through education, strategy,
customer service, excellent work, and fair compensation, create customer
loyalty.
Vision Statement
• To build a customer service oriented professional services company that
specializes in IT consulting. Specifically managed services and sales force
automation. Our focus will always be on strategy, education, and customer
satisfaction. As business people first and IT consultants second, create value
for our clients. Create slow and consistent growth. Build long-term
relationships with both our clients and team members.
 Coca Cola
Our Mission
• Our Roadmap starts with our mission, which is enduring. It declares our purpose as a company and
serves as the standard against which we weigh our actions and decisions.
• To refresh the world...
• To inspire moments of optimism and happiness...
• To create value and make a difference.
Our Vision
• Our vision serves as the framework for our Roadmap and guides every aspect of our business by
describing what we need to accomplish in order to continue achieving sustainable, quality growth.
• People: Be a great place to work where people are inspired to be the best they can be.
• Portfolio: Bring to the world a portfolio of quality beverage brands that anticipate and satisfy
people's desires and needs.
• Partners: Nurture a winning network of customers and suppliers, together we create mutual,
enduring value.Planet: Be a responsible citizen that makes a difference by helping build and
support sustainable communities.
• Profit: Maximize long-term return to shareowners while being mindful of our overall
responsibilities.
• Productivity: Be a highly effective, lean and fast-moving organization.
 PepsiCo
Our Mission and Vision
• At PepsiCo, we believe being a responsible corporate citizen is not only the right
thing to do, but the right thing to do for our business.
Our Mission
• Our mission is to be the world's premier consumer products company focused on
convenient foods and beverages. We seek to produce financial rewards to investors
even as we provide opportunities for growth and enrichment to our employees, our
business partners and the communities in which we operate. And in everything we
do, we strive for honesty, fairness and integrity.
Our Vision
• PepsiCo's responsibility is to continually improve all aspects of the world in which we
operate – environmental, social, economic – creating a better tomorrow than today.
• Our vision is put into action through programmes and a focus on environmental
stewardship, activities to benefit society and a commitment to build shareholder
value by making PepsiCo a truly sustainable company.
 Avon
Avon's Vision
• To be the company that best understands and satisfies the product, service and self-fulfillment needs of women—
globally.
Avon's Mission
• Avon's mission is focused on six core aspirations the company continually strives to achieve:
• Leader in global beauty: Build a unique portfolio of beauty and related brands, striving to surpass competitors in
quality, innovation, and value, and elevating Avon's image to become the world's most trusted beauty company.
Learn more about Avon's brands.
• Women's choice for buying: Become the shopping destination for women, providing a personal, high-touch
experience that helps create lifelong customer relationships. Learn more about customer engagement at Avon.
• Premier direct-selling company: Expand Avon's presence in direct selling, empowering women to achieve economic
independence by offering a superior earnings opportunity as well as recognition, service and support, making it easy
and rewarding to be affiliated with Avon. Learn more about how Avon empowers women.
• Most admired company: Deliver superior returns to shareholders by pursuing new growth opportunities while
maintaining a commitment to be a responsible, ethical company and a global corporate citizen that is held as a model
of success. Learn more about recognition Avon has received.
• Best place to work: Elevate the company's leadership, including its high standards, respect for diversity, and
commitment to helping Associates achieve their highest potential in a positive work environment. Read about
Associate engagement, workplace safetyand diversity at Avon.
• To have the largest foundation dedicated to women's causes: Be a committed global champion for the health and
well-being of women through philanthropic efforts, with a focus on breast cancer, domestic violence and women's
empowerment.Read more about Avon's global philanthropy.
 Mission
• Thompson (1997) defines mission as the "essential
purpose of the organization, concerning particularly why
it is in existence, the nature of the business(es) it is in,
and the customers it seeks to serve and satisfy".
• Hunger and Wheelen (1999) say that mission is the
"purpose or reason for the organization's existence".
J. L. Thompson: Strategic Management: Awareness and Change, (3rd ed.) (London: International Thomson
Business Press) 1997, p.6; J. D. Hunger & T. L. Wheelen: Strategic Management, (Reading, Mass.: Addison
Wesley Longman), 1999, p. 10.

38
 Mission Statement
• Mission of a company is expressed it terms of products and
geographical scope. It includes a methodology of attaining the
desired goal in vision. It defines the competitive strength of a
company and it emanates from corporate vision and strategic
posture of a company.
• Thus the mission of a business is a statement, a build-up
philosophy of its current and future expected position with
regards to its products, market leadership.
• Mission is statement which defines the role of organisation
plays in a society.
• The corporate mission is growth ambition of the firm. 39
 Characteristics of mission statements

• It should be feasible
• It should be precise
• It should be clear
• It should be motivating
• It should be distinctive
• It should include major components of strategy
• It should indicate how objectives are to be accomplished

40
 Vision & Mission
Vision Mission
A Vision Statement describes the desired A Mission Statement defines the
future position of the company. company's business, its objectives and its
approach to reach those objectives.
Elements of Mission and Vision Statements are often combined to provide a statement
of the company's purposes, goals and values. However, sometimes the two terms are
used interchangeably.
The development process requires managers to:
• Clearly identify the corporate culture, values, strategy and view of the future by
interviewing employees, suppliers and customers
• Address the commitment the firm has to its key stakeholders, including customers,
employees, shareholders and communities
• Ensure that the objectives are measurable, the approach is actionable, and the
vision is achievable
• Communicate the message in clear, simple and precise language
• Develop buy-in and support throughout the organization
 Values
• Values are traits or qualities that are considered worthwhile;
they represent an individual’s highest priorities and deeply held
driving forces. (Values are also known as core values and as
governing values; they all refer to the same sentiment.)
• Value statements are grounded in values and define how
people want to behave with each other in the organization.
They are statements about how the organization will value
customers, suppliers, and the internal community. Value
statements describe actions which are the living enactment of
the fundamental values held by most individuals within the
organization.

42
 Values
• The values of each of the individuals in your workplace, along
with their experience, upbringing, and so on, held together to
form your corporate culture. The values of your senior leaders
are especially important in the development of your culture.
These leaders have a lot of power in your organization to set
the course and environment and they have selected the staff
for your workplace.

• If you think about your own life, your values form the
cornerstones for all you do and accomplish. They define
where you spend your time, if you are truly living your values.
Each of you makes choices in life according to your most
important four – ten values. It is necessary to take the time to
identify what is most important to you and to your
organization.

43
 Developing a Values Statement
• Values represent the core priorities in the organization’s
culture, including what drives members’ priorities and how
they truly act in the organization, etc. Values are increasingly
important in strategic planning. They often drive the intent
and direction for “organic” planners.

• Developing a values statement can be quick culture-specific,

i.e., participants may use methods ranging from highly
analytical and rational to highly creative and divergent, e.g.,
focused discussions, divergent experiences around
daydreams, sharing stories, etc. Therefore, visit with the
participants how they might like to arrive at description of
their organizational values.

• Establish four to six core values from which the organization

would like to operate. Consider values of customers,
shareholders, employees and the community.

44
 Developing a Values Statement
• Notice any differences between the organization’s preferred
values and its true values (the values actually reflected by
members’ behaviours in the organization). Record each
preferred value on a flash card, then have each member
“rank” the values with 1, 2, or 3 in terms of the priority
needed by the organization with 3 indicating the value is
very important to the organization and 1 is least important.
Then go through the cards again to rank how people think
the values are actually being enacted in the organization
with 3 indicating the values are fully enacted and 1
indicating the value is hardly reflected at all. Then address
discrepancies where a value is highly preferred (ranked with
a 3), but hardly enacted (ranked with a 1).

• Incorporate into the strategic plan, actions to align actual

behaviours with preferred behaviours.

45
 Samples of Values and Value Statements
• "To preserve and improve human life." (Merck)
• At Merck, "corporate conduct is inseparable from the conduct of individual
employees in the performance of their work. Every Merck employee is
responsible for adhering to business practices that are in accordance with
the letter and spirit of the applicable laws and with ethical principles that
reflect the highest standards of corporate and individual behaviour...
• "At Merck, we are committed to the highest standards of ethics and
integrity. We are responsible to our customers, to Merck employees and
their families, to the environments we inhabit, and to the societies we
serve worldwide. In discharging our responsibilities, we do not take
professional or ethical shortcuts. Our interactions with all segments of
society must reflect the high standards we profess."
• Patriot Ledger (SouthofBoston.com): "We have a total commitment to
these values, shaping the way we do business for our employees, our
customers and our company.
• Our employees are the most valued assets of our company, essential
participants with a shared responsibility in fulfilling our mission.
• We recognize that the quality, motivation and performance of our
employees are the key factors in achieving our success.

46
• What is our business?
 Abells’ three dimensions for defining a business of a
watch company

Customer functions:
Utility / ornamental

Alternative technologies:
Mechanical / quartz
technology

Customer groups:
children, men or
women

Based on: D.F. Abell: Defining the Business: The Starting Point of Strategic Planning Englewood Cliffs, N.J. Prentice-Hall, 1980

48
 Business model
• Business model could be defined as “a
representation of a firm's underlying core logic
and strategic choices for creating and
capturing value within a value network.”

Shafer, Scott M. & Smith, H. Jeff & Linder, Jane C., 2005. "The power of business models," Business Horizons, Elsevier, vol. 48(3), pages 199-207

49
 Goals and objectives
• Goals denote what an organisation hopes to accomplish
in a future period of time. They represent the future
state or outcome of effort put in now.
• Objectives are the ends that state specifically how the
goals shall be achieved. They are concrete and specific in
contrast to goals that are generalised.

50
 Role of objectives
• Objectives define the organisation's
relationship with its environment
• Objectives help an organisation pursue its
vision and mission
• Objectives provide the basis for strategic
decision-making
• Objectives provide the standards for
performance appraisal

51
 Characteristics of objectives
• Objectives should be understandable
• Objectives should be concrete and specific
• Objectives should be related to a time frame
• Objectives should be measurable and controllable
• Objectives should be challenging
• Different objectives should correlate with each other
• Objectives should be set within constraints

52
 Issues in objective setting
• Specificity
• Multiplicity
• Periodicity
• Verifiability
• Reality
• Quality

53
 Factors for objective setting
• The forces in the environment
• Realities of enterprise' resources and internal
power relationships
• The value system of the top executive
• Awareness by the management

54
 The balanced scorecard model
How do we look to shareholders?

Financial Perspective
Objectives Targets

Customer Perspective Internal Process Perspective

Vision & Strategy
Objectives Targets Objectives Targets

Learning / Innovation
Perspective
Objectives Targets

Based on R.S. Kaplan & D.P. Norton: The Strategy-focused orientation: How Balanced Scorecard
Companies Thrive in the New Business Environment Boston: Harvard Business School Publishing, 2000
and R.S. Kaplan & D. P. Norton: The Balanced Scorecard: Translating Strategies into Action Boston:
Harvard Business School Press, 1996.

55
 Critical success factors and key performance
indicators
• Critical success factors are crucial for organisational
success. When strategists consciously look for such
factors and take them into consideration for strategic
management, they are likely to be more successful,
putting in relatively less efforts.
• Key performance indicators are the metrics or measures
in terms of which the critical success factors are
evaluated.

56
Session 3
Environmental appraisal
 Learning objectives
• Describe the concept of environment in the context of
strategic management
• Explain the process of SWOT analysis
• Name, describe, and exemplify eight environmental
sectors
• Describe the process of environmental scanning
• Prepare Environmental Threats and Opportunities Profile
(ETOP) for an organization

58
 Concept of environment
• The environment of any organisation is "the
aggregate of all conditions, events and
influences that surround and affect it."
K. Davis, The Challenge of Business, (New York, N.Y.: McGraw-Hill, 1975),p.43

59
 Characteristics of environment
• Environment is complex
• Environment is dynamic
• Environment is multi-faceted
• Environment has a far-reaching impact

60
 Internal environment
• The internal environment refers to all factors within an
organisation that impact strengths or cause weaknesses of a
strategic nature.
 Strength is an inherent capacity which an organisation can use to gain
strategic advantage. Examples of strength are: good reputation among
customers, resources, assets, people, experience, knowledge, data, and
capabilities.
 Weakness is an inherent limitation or constraint which creates strategic
disadvantages. Examples of weakness are: gaps in capabilities, financial
deadlines, low morale, and overdependence on a single product line.

61
 External environment
• The external environment includes all the factors outside
the organisation which provide opportunities or pose
threats to the organisation.
 Opportunity is a favourable condition in the organisation's environment which
enables it to consolidate and strengthen its position. Examples of opportunity
are: economic boom, favourable demographic shifts, arrival of new
technologies, loosening of regulations, favourable global influences, and
unfulfilled customer needs.
 Threat is an unfavourable condition in the organisation's environment which
creates a risk for, or causes damage to, the organisation. Examples of threat are:
economic downturn, demographic shifts, new competitors, unexpected shifts in
consumer tastes, demanding new regulations, unfavourable political or
legislative, new technology, and loss of key staff.

62
 Technique of SWOT analysis
• Setting the objectives of the organization or its unit
• Identifying strengths, weaknesses, opportunities, and threats
• Asking four questions
– How do we maximise our strengths?
– How do we minimise our weaknesses?
– How do we capitalise on the opportunities in our external
environment?
– How do we protect ourselves from threats in our external
environment?
• Recommending strategies that will optimise the answers from the
four questions

63
The business environment of an organisation

GENERAL ENVIRONMENT

ORGANIZATION

RELEVANT
ENVIRONMENT

66
 Eight sectors of the business environment

• Economic
• International
• Market
• Political
• Regulatory
• Socio-cultural
• Supplier
• Technological

67
 Factors in environmental scanning

• Events are important and specific occurrences taking

place in different environmental sectors.
• Trends are the general tendencies or the courses of
action along which events take place.
• Issues are the current concerns that arise in response to
events and trends.
• Expectations are the demands made by interested
groups in the light of their concern for issues.

68
 Approaches to environmental scanning

• Systematic approach
• Ad hoc approach
• Processed-form approach

69
 Sources of information for environmental
scanning
• Documentary or secondary sources
• Mass media
• Internal sources
• External agencies
• Formal studies
• Spying and surveillance

70
 Factors affecting environmental appraisal

• Strategist-related factors
• Organisation-related factors
• Environment-related factors

71
Identifying high priority environmental issues

Impact on Business
__________________________________________________________
Probability High Medium Low
of impact
----------------------------------------------------------------------------------
High Critical High priority Low priority
Medium
High priority High priority Low priority

Low To be watched Low priority Low priority

---------------------------------------------------------------

Source: Adapted from the William R.Boulton: Business Policy: The Art of Strategic Management (New York:
Macmillan Publishing Co., 1984) p.120.

72
 Environmental threats and opportunities
profile (ETOP)

Environmental Nature of impact Impact of each sector

Sectors

Economic
International
Market
Political
Regulatory
Socio-cultural
Supplier
Technological

73
Analysing the nature of competition
Macro-environment: PESTLE analysis

Political • Actions by local/national administrations and political parties and by international bodies
(UN, WTO)

• Factors affecting consumer spending power: economic growth, unemployment, inflation,

Economic interest rates

• Supply, demand, price for key inputs: oil, metals, labour

Social/cultural • Social, demographic, and consumer trends:

Technological • Deployment of information, manufacturing and marketing technologies

Legal
• National and supra-national laws
• Business regulations, minimum wages, restrictions on monopolies, mergers

Environmental
• Global warming, pollution, diseases
• Strongly linked to other PESTLE factors
Judging whether two related products come
from the same industry
• Are inputs and product technologies similar?
• Are competitors mostly the same?
• Do firms look to the same resources as the basis
of competitive advantage, and have broadly
similar value chains?
• Is there significant overlap between the
different products’ customers and end-users?
Firms in an industry also share a ‘recipe’:
– Shared mental model; ‘rules of the game’
– Common routines
 Strategic groups
• Sub-groups within an industry:
– Each has its own style of competitive behaviour
– Each has its own recipe, rules of the game
• Mobility barriers between groups
• Can be defined by combination of:
– Scope of firm’s activity: size, geographic coverage
– Resource commitment: investment growth, R&D
• Competition most intense within groups...
• ...but may exist between groups
– especially if mobility barriers low
Strategic groups in the fashion industry
The Industry Life Cycle
Typical features of phases in the industry
life cycle
Introduction Growth Maturity Decline
 Industry life cycle
• A simplification of reality – lots of exceptions
– Maturity without decline – cyclical fluctuations
– Mature industries that rejuvenate
• Crucial change is from growth to maturity:
– FROM differentiation on innovation, functionality
– TO cost advantage
• Moves through life cycle often triggered by
changes in PESTLE factors
The six forces model
 Supplier power
• If strong, suppliers can charge high prices and take the profits from
the industry
• Weak if:
– Many suppliers (even if they are large)
– Few switching costs
• Strong if:
– Few suppliers / higher switching costs
– Inputs vital to quality of finished product
– Little prospect of backward integration by firms in industry, or of new
entrants
– Credible threat of forward integration
– Fewer substitutes
• Supplier groups exert differing degrees of power
 Buyer power
• If strong, firms in industry will face limits on prices and may be
forced to incur high costs
• Factors similar to supplier power – in reverse
– High if buyers have many firms to choose from or if products undifferentiated
(e.g. Concentration – Walmart)
– Switching costs very important – can give small buyer power over large firm
– Backward Integration
– Products are undifferntiated
• Buyer power reduced if:
– Information lacking
• Factors determining product quality
• Producer reliability
– Product cost small in relation to total
• Economic situation may affect buyers willingness to exert power
 Threat of substitution
• Customers may switch if alternative products
available at competitive prices
– industry must provide value for money
• Substitute products ≠ competitors’ products
– Are products from a different industry
• Not all products have realistic substitutes
• Three types of substitute:
– Carry out same function as product/service
– Fulfil similar psychological need
– Compete for same spending power
 Threat of new entrants
• If barriers to entry low, new firms enter, competition intensifies, profits fall
• Apparent barriers to entry based on size (first mover?):
– Capital outlay
– Supply side economies of scale
– Demand side benefits of scale
– Threat of retaliation by incumbents
• These do not work against determined, confident, well-funded entrants
• Established brands and intellectual resources may deter entrants – price cuts,
expensive advertising campaigns - but can be circumvented
• Strong relationships with distributors, or control of key inputs or locations, can
be strong barriers
• Slow industry growth
• High barriers to exit
• Restrictive Government policies (patents…)
 Complementors
• Firms that are not…
– Competitors in industry
– Suppliers or customers with whom firms in industry need a
contractual relationship
• …but which can influence:
– Level of demand for product/service
– Purchasers’ choices between competitors
• Powerful if few substitutes for their services
– Can raise prices or limit supply
• Will only use power if they have a reason to...
– See industry as threat
– Need to ensure return on sunk costs
– Wish to avoid new investment
• ...or no reason not to!
 Competitive rivalry
• Strength in other five forces intensifies
competitive rivalry:
– Price wars and heavy discounting
– Expensive advertising and promotion battles
– Commitments to investment, product
development
– Litigation
• Firms compete away profits
• Margins decline or fluctuate wildly
 Effect of concentration on rivalry
• Theoretically, concentrated industries...
– Monopolies
– Oligopolies
• ...are on average less intensively competitive than
fragmented ones:
– Monopolistic competition
• But there are many exceptions:
– Fragmented industries with little rivalry
– Concentrated industries where rivalry fierce
• Concentration influenced by economies of scale
 Increasing returns and hypercompetiton

• Most industries show diminishing returns to scale:

– Increasingly difficult to find good inputs and people
– Increasing cost of finding extra customers
– Unit profits decline as organization grows
• Some hi-tech industries have increasing returns to
scale:
– High up-front costs, low unit production cost
– Network effects
• Increasing returns may lead to hypercompetition:
– Frequent disruption, rapid change, high uncertainty
 Collaboration and co-opetition
• Co-opetition – collaboration with competitors:
– Sharing high up-front costs and risks
– Combining knowledge and capabilities
– Competing on production and marketing
• Benefits of collaboration:
– Keep prices high, focus on defined market, avoid waste
of resources on defensive mechanisms
• Game theory shows how it is often rational to
cheat one’s collaborators
– But in long-term relationships, collaboration pays
The prisoner’s dilemma
CORE CURRICULUM
Forces Governing Competition in an Industry
CORE CURRICULUM
Profitability of
Selected
U.S. Industries
CORE CURRICULUM
Factors Affecting the Threat of New Entrants
into an Industry
CORE CURRICULUM
Factors Affecting the Bargaining
Power of Suppliers
CORE CURRICULUM
Factors Affecting the Bargaining
Power of Buyers
CORE CURRICULUM
Factors Affecting the Threat of Substitutes
CORE CURRICULUM
Factors Affecting Rivalry among Competitors
CORE CURRICULUM
Factors Affecting Complements
CORE CURRICULUM
Possible Responses to Threats to Profitability
CORE CURRICULUM
Six-Step Process for
Analyzing an Industry
CORE CURRICULUM
Some Possible Sources of Industry Information