Concepts Of Strategic Management

1. Concepts Of Strategic Management The study of strategic management Ibrahim Elbeltagi

2. Strategic management Definition • Strategic management is that set of managerial decisions and actions that determines the long-run performance of a corporation. • Strategic management includes: • Environmental scanning (both external and internal). • Strategy implementation. • Evaluation and control. Ibrahim Elbeltagi

3. How has strategic management evolved • Strategic management within a firm generally evolves through four sequential phases: • Basic financial planning. • Forecast-based planning. • Externally oriented planning (strategic planning). • Strategic management. Ibrahim Elbeltagi

4. Initiation of strategy: Triggering events • A triggering event is something that stimulates a change in strategy. Some of the possible triggering events are: • New CEO. • Intervention by an external institution. • Threat of a changing in ownership. • Management’s recognition of a performance gap. Ibrahim Elbeltagi

5. External Assessment • “If you're not faster than your competitor, you’re in a tenuous position, and if you’re only half as fast, you’re terminal.” • —George Salk— Ibrahim Elbeltagi

6. External Assessment (Cont’d) • “The idea is to concentrate our strength against our competitor’s relative weakness.” • —Bruce Henderson— Ibrahim Elbeltagi

7. External Assessment (Cont’d) • External Strategic-Management Audit • Industry analysis • Environmental scanning Ibrahim Elbeltagi

8. External Assessment (Cont’d) • External audit: • Focuses on identifying & evaluating events beyond the immediate control of the firm Ibrahim Elbeltagi

9. External Assessment (Cont’d) • External audit focuses on: • Increased foreign competition • Population shifts • Demographics (e.g., aging population) • Information technology Ibrahim Elbeltagi

10. External Assessment (Cont’d) • External audit reveals: • Key opportunities • Key threats • Managers then formulate strategies: • Take advantage of opportunities • Avoid/reduce impact of threats Ibrahim Elbeltagi

11. External Assessment (Cont’d) • External Audit • Aimed at identifying key variables that offer actionable responses Ibrahim Elbeltagi

12. External Assessment (Cont’d) • Key External Forces • Five (5) broad categories: • Economic forces • Social, cultural, demographic, & environmental forces Ibrahim Elbeltagi

13. External Assessment (Cont’d) • Key External Forces (Cont’d) • Five (5) broad categories: • Political, governmental, & legal forces • Technological forces • Competitive forces Ibrahim Elbeltagi

14. External Assessment (Cont’d) Competitors Suppliers Distributors Creditors Customers Employees Communities Managers Stockholders Labor Unions Special Interest Groups Products • Competitors • Suppliers • Distributors • Creditors • Customers • Employees • Communities • Managers • Stockholders • Labor Unions • Special Interest Groups • Products • Services OPURTUNITIES &threats Key external forces Ibrahim Elbeltagi

15. External Assessment (Cont’d) • Process of External Audit: • Involve as many managers & employees as possible • Gather competitive intelligence • Information about social, demographic, cultural, environmental, etc. • Monitor sources of information (key magazines, articles, etc.) • Utilization of Internet • Suppliers, distributors, customers as sources of information Ibrahim Elbeltagi

16. External Assessment (Cont’d) Key External Factors: Vary over time & Vary by industry • Process of External Audit: • Involve as many managers & employees as possible • Gather competitive intelligence • Information about social, demographic, cultural, environmental, etc. • Monitor sources of information (key magazines, articles, etc.) • Utilization of Internet • Suppliers, distributors, customers as sources of information Ibrahim Elbeltagi

17. External Assessment (Cont’d) Key External Factors: • Important to achieving long-term objectives • Measurable • Applicable to all competing firms • Hierarchical • Process of External Audit: • Involve as many managers & employees as possible • Gather competitive intelligence • Information about social, demographic, cultural, environmental, etc. • Monitor sources of information (key magazines, articles, etc.) • Utilization of Internet • Suppliers, distributors, customers as sources of information Ibrahim Elbeltagi

18. External Assessment (Cont’d) • Examples of Key External Factors: • Market share • Breadth of competing products • World economies • Proprietary & key account advantages • Price competitiveness • Technological advancements • Interest rates Ibrahim Elbeltagi

19. Economic Forces • Monitor Key Economic Variables: • Availability of credit • Level of disposable income • Interest rates • Inflation rates • Money market rates • Government budget deficits • Gross domestic product trend • Consumption patterns Ibrahim Elbeltagi

20. Economic Forces (Cont’d) • Monitor Key Economic Variables: (Cont’d) • Unemployment trends • Worker productivity levels • Value of the dollar in world markets • Stock market trends • Foreign countries’ economic conditions • Import/export factors • Demand shifts for goods/services • Income differences by region/customer Ibrahim Elbeltagi

21. Economic Forces (Cont’d) • Monitor Key Economic Variables: (Cont’d) • Price fluctuations • Exportation of labor & capital • Monetary policies • Fiscal policies • Tax rates • ECC policies • OPEC policies • LDC policies Ibrahim Elbeltagi

22. Social & Environmental Forces • Social, cultural, demographic, and environmental changes: • Major impact on: • Products • Services • Markets • Customers Ibrahim Elbeltagi

23. Social & Environmental Forces • World population > 6 billion • U.K. population < 60 million • Great potential for domestic production expansion to other markets • Domestic only is a risky strategy Ibrahim Elbeltagi

24. Country 1998 2050 % Increase Asia 3.6 b 5.3 b 47.22 Africa 749 m 1.8 b 140.32 Latin America 504 m 809 m 60.52 Europe 628 m 729 m 16.08 North America 305 m 392 m 28.52 Oceania 30 m 46 m 53.33 Social & Environmental Forces Ibrahim Elbeltagi

25. Social & Environmental Forces • E-commerce Perspective • Question: • “Is the Internet Revolution Bypassing Poor, Minorities?” • Answer: • Yes! Ibrahim Elbeltagi

26. Social & Environmental Forces • Internet revolution is widening the gap between rich & poor • 42% U.S. households have personal computers • 80% of them are in households w/family income > $75,000 Ibrahim Elbeltagi

27. Social & Environmental Forces • Internet usage lowest (3%) among Americans earning $10K or less • 26.7% of White Americans use Internet at home compared to 9.2% Blacks & 8.8% of Hispanics • 90% shares of common stock of American companies held by the wealthiest 10% of Americans Ibrahim Elbeltagi

28. Social & Environmental Forces • Key social, cultural, demographic, & environmental variables: • Childbearing rates • Number of special-interest groups • Number of marriages • Number of divorces • Number of births • Number of deaths • Immigration & emigration rates Ibrahim Elbeltagi

29. Social & Environmental Forces • Key social, cultural, demographic, & environmental variables: (Cont’d) • Life expectancy rates • Per capita income • Attitudes toward business • Average disposable income • Buying habits • Ethical concerns • Attitudes toward saving Ibrahim Elbeltagi

30. Social & Environmental Forces • Key social, cultural, demographic, & environmental variables: (Cont’d) • Racial equality • Average level of education • Government regulation • Attitudes toward customer service • Attitudes toward product quality • Energy conservation • Social responsibility Ibrahim Elbeltagi

31. Social & Environmental Forces • Key social, cultural, demographic, & environmental variables: (Cont’d) • Value placed on leisure time • Recycling • Waste management • Air & water pollution • Ozone depletion • Endangered species Ibrahim Elbeltagi

32. Political, Govt., & Legal Forces • Government Regulation • Key opportunities & key threats • Antitrust legislation (Microsoft) • Tax rates • Lobbying efforts • Patent laws Ibrahim Elbeltagi

33. Political, Govt., & Legal Forces • Increasing Global Interdependence • Impact of political variables • Formulation of strategies • Implementation of strategies Ibrahim Elbeltagi

34. Political, Govt., & Legal Forces • Increasing Global Interdependence • Strategists in a global economy • Forecast political climates • Legalistic skills • Diverse world cultures Ibrahim Elbeltagi

35. Political, Govt., & Legal Forces • Globalization of Industry • Worldwide trend toward similar consumption patterns • Global buyers & sellers • E-commerce • Instant transmission of money & information across continents Ibrahim Elbeltagi

36. Political, Govt., & Legal Forces • Key Political, govt., & legal variables: • Government regulation/deregulation • Tax law changes • Special tariffs • Political Action Committees (PACs) • Voter participation rates • Number of patents • Changes in patent laws Ibrahim Elbeltagi

37. Political, Govt., & Legal Forces • Key Political, govt., & legal variables: (Cont’d) • Environmental protection laws • Equal employment legislation • Level of government subsidies • Antitrust legislation/enforcement • Sino-American relationships • Russian-American relationships • European-American relationships Ibrahim Elbeltagi

38. Political, Govt., & Legal Forces • Key Political, govt., & legal variables:(Cont’d) • Ethnic minorities relationships • Import-export regulations • Monetary policy • Political conditions in other countries • Government budgets • World oil, currency, & labor markets • Location and severity of terrorist activities Ibrahim Elbeltagi

39. Technological Forces • Technological Change • Dramatic effect on business • Fiber optics • Biometrics • EFT • Computer engineering • Superconductivity advancements Ibrahim Elbeltagi

40. Technological Forces (Cont’d) • Internet impact on opportunities & threats: • Altering life cycles of products • Increasing speed of distribution • Creating new products & services • Erasing limitations of traditional geographic markets Ibrahim Elbeltagi

41. Technological Forces (Cont’d) • Internet impact on opportunities & threats: (Cont’d) • Altering economies of scale • Changing entry barriers • Redefining relationships • Industries & suppliers, creditors, customers, and competitors Ibrahim Elbeltagi

42. Technological Forces (Cont’d) • Capitalizing on Information Technology (IT) • Chief Information Officer (CIO) • Chief Technology Officer (CTO) Ibrahim Elbeltagi

43. Competitive Forces • External Audit & Competing Firms • Identifying rival firms • Strengths • Weaknesses • Capabilities • Opportunities • Threats • Objectives • Strategies Ibrahim Elbeltagi

44. Competitive Forces • Competitor Information • Sources: • Moody’s Manuals • Standard Corporation Descriptions • Value Line Investment Surveys • Dun’s Business Rankings • Standard & Poor’s Industry Surveys • Industry Week • Forbes, Fortune, Business Week Ibrahim Elbeltagi

45. Competitive Forces • Most competitive firms in America • Seven Characteristics • Market share matters • Understand what business you are in • Broke or not, fix it • Innovate or evaporate Ibrahim Elbeltagi

46. Competitive Analysis: Porter’s Five-Forces Model Potential development of substitute products Rivalry among competing firms Bargaining power of suppliers Bargaining power of consumers Potential entry of new competitors Ibrahim Elbeltagi

47. Global Challenge • Differences U.S. and MNCs • Affect strategic management: • Language • Culture • Politics • Economy • Government interference • Labor relations • Trade barriers Ibrahim Elbeltagi

48. Reference • For more details about this lecture see Chapter 3 in: • Strategic Management: Concepts and Cases, 9/eFred David    Ibrahim Elbeltagi