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Universidad Autònoma de Barcelona – ADE – Tomislav Rimac
Tomislav Rimac – Fall 2012
Escola Superior de Comerç Internacional - UPF
INTERNATIONAL MANAGEMENT Lecture 7: Organizational Strategy
Tomislav Rimac – Fall 2013
Universitat Autònoma de Barcelona – ADE in English – 3 rd^ year
STRATEGIC MANAGEMENT I Presentation 4a: Exploring The External Environment –
Macro And Industry Dynamics - Part 1
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 1
Explain the importance of the external context for
strategy and firm performance
Learn how to use Five Force Framework to analyze
an industry attractiveness
3 Learn how to use SWOT analysis
4 Learn how to use PESTEL analysis
5 Value curve and sustainability
6 CAGE model and ADDING value scorecard
Objectives
Universidad Autònoma de Barcelona – ADE – Tomislav Rimac
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 2
1. INDUSTRY COMPETITION
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 3
An internal analysis
is just half of what is
needed to build
strategy
The SWOT and more
complicated
frameworks help us
understand the full
picture
Internal
Strengths
Weaknesses
Capabilities
Relationships
Etc.
External Context of Strategy
Universidad Autònoma de Barcelona – ADE – Tomislav Rimac
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 6
What macro environmental
conditions will have a
material effect on our
ability to implement our
strategy successfully?
How stable are these
characteristics?
What is our
firm’s industry?
What are the
characteristics of
the industry?
Key Questions to Ask Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 7
t countries
customer needs
policies
scope economies
competitors
customer needs
technological
standards
experience
manufacturing
and marketing
regulations
efficiencies
Markets Costs Governments Competition
logistics
opportunities
- High R&D costs
- Transferable
marketing
approaches
Source: Adapted from M.E. Porter, Competition in Global industries (Boston: Harvard Business School Press, 1986);
G. Yip, “Global Strategy in a World of Nations, “ Sloan Management review 31:1 (1989), 29- 40
Pressures Favoring Industry Globalization
Universidad Autònoma de Barcelona – ADE – Tomislav Rimac
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 8 Industry :
A group of firms producing products (goods and/or services)
that are similar to each other
Theories of industry competition
Perfect competition (rarely observed) - All firms sell an identical
product; Firms are price takers - they cannot control the market price of
their product; Firms have a relatively small market share; Buyers have
complete information about the product being sold and the prices charged
by each firm; The industry is characterized by freedom of entry and exit
Industrial organization (IO) economics model - industry
structure determines strategy and firm performance (SCP
model)
Defining Industry Competition Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 9
Monopoly Duopoly Fragmented
Industry Fragmentation and Concentration
Universidad Autònoma de Barcelona – ADE – Tomislav Rimac
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 12
Competitive intelligence is a
method whereby firms are
able to gather information
about their competitors
Competitive Intelligence
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 13
2. THE FIVE FORCES FRAMEWORK
Universidad Autònoma de Barcelona – ADE – Tomislav Rimac
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 14 The Five Forces Framework
“Translated” and extended from the SCP model in 1980 by
Michael Porter
A key proposition:
The focal firm’s performance critically depends on the
degree of competitiveness of the five forces within an
industry
The stronger and more competitive these forces are, the
less likely the focal firm is able to earn above-average
return, and vice versa
The Five Forces Framework Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 15 The Five Forces Framework
Universidad Autònoma de Barcelona – ADE – Tomislav Rimac
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 18
Barriers to Entry
Strong brands
Proprietary
technology
Start-up costs
Etc.,
Barriers to Exit
Few other
opportunities
Sunk investments
Etc.,
In addition to entry
and exit barriers,
many factors drive
rivalry such as
History of price
wars
Level of fixed costs
Industry
concentration
Market growth
Etc.
Causes of Rivalry Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 19
Threat of Little scale-based low-cost advantages
potential entry (economies of scale)
Little non-scale-based advantages
Inadequate product proliferation
Insufficient product differentiation
Little fear of retaliation
No government policy banning or discouraging entry
The Five Forces Framework
Universidad Autònoma de Barcelona – ADE – Tomislav Rimac
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 20
Bargaining power • A small number of suppliers
of suppliers • Suppliers provide unique, differentiated products
- Focal firm is not an important customer of suppliers
- Suppliers are willing and able to vertically integrate forward The Five Forces Framework Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 21
When firms in the
supply industry can
dictate terms, they can
extract greater profits
Diamond supply
Percent
DeBeers
Others
Diamond
Retailers
Supplier Power
Universidad Autònoma de Barcelona – ADE – Tomislav Rimac
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 24
Threat of • Substitutes superior to existing products in quality and
of substitutes quality and function
- Switching costs to use substitutes are low The Five Forces Framework Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 25
Soft drinks
Coke Pepsi
Movie rentals
Block buster
Hollywood video
Bottled water^ Cable TV
Threat of Substitutes
Universidad Autònoma de Barcelona – ADE – Tomislav Rimac
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 26
Any factor that makes it more
attractive for suppliers to supply an
industry on favorable terms or that
makes it more attractive for buyers to
purchase products or services from an
industry at prices higher than it would
pay absent the complementor
Complementor:
Hot dogs
Buns
More sales
Three Examples
Music
MPS player
More attractive offering
Delta
plane
orders
American
Airlines
plane orders
Lower costs from Boeing
Impact of Complementor Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 27 Not all industries are equal in terms of their potential profitability The task for strategists is to assess the opportunities (O) and threats (T) underlying each competitive force affecting an industry, and then estimate the likely profit potential of the industry The challenge is to stake out a position that is strong and defensible relative to the five forces The Five Forces Framework
Universidad Autònoma de Barcelona – ADE – Tomislav Rimac
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 30 Example Of The Five Forces Framework - Nike
Source: shazeeye.com
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 31 http://www.youtube.com/watch?v=mYF2_FBCvXw – interview with Michael Porter Summary
Universidad Autònoma de Barcelona – ADE – Tomislav Rimac
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 32
3. SWOT ANALYSIS
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 33
SWOT Analysis is a simple but useful framework for
analyzing your organization's strengths and weaknesses,
and the opportunities and threats that you face
It helps you focus on your strengths, minimize threats,
and take the greatest possible advantage of
opportunities available to you
Used in a business context, a SWOT Analysis helps you
carve a sustainable niche in your market
SWOT Analysis
Universidad Autònoma de Barcelona – ADE – Tomislav Rimac
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 36 The real benefit of this technique are realized when one understands that the organization is not supposed to run after every lucrative and attractive opportunities; rather a fit between the inherent strengths and external opportunities is to be struck SWOT analysis can be utilized for a number of tasks such as strategic planning, competitor evaluation, market and business development and research reports SWOT Analysis Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 37 What advantages does your organization have? What do you do better than anyone else? What unique or lowest-cost resources can you draw upon that others can't? What do people in your market see as your strengths? What factors mean that you "get the sale"? What is your organization's unique selling proposition Strengths
Universidad Autònoma de Barcelona – ADE – Tomislav Rimac
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 38 What could you improve? What should you avoid? What are people in your market likely to see as weaknesses? What factors lose you sales? Weaknesses Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 39 What good opportunities can you spot? What interesting trends are you aware of? Useful opportunities can come from such things as:
Changes in technology and markets on both a broad and
narrow scale
Changes in government policy related to your field
Changes in social patterns, population profiles, lifestyle
changes, and so on
Local events
Opportunities
