Strategic ManagementBHRM 31124

R.A.Ishanka ChathuraniLecturer (prob)Department of Human Resource ManagementFaculty of Commerce & Management StudiesUniversity of Kelaniya

Environment Scanning - I(External Environment)

2. Industries and Sectors• Industry is a group of firms producing the same principle of product or more broadly a group of firms producing products that are close substitutes for each otherEg: •It is useful for managers in any organization to understand the competitive forces acting on and between organizations in the same industry or sector since this determine the attractiveness of that industry

Cont… Industries and Sectors

Boundaries of an industry may be changing by convergence

Convergence is where previously separate industries being to overlap in terms of activities, technologies, products and customs◦Convergence are two type

Supply led Demand side

Cont… Industries and Sectors

Supply led – where organizations start to behave as though there are linkages between the separate industries or sectors

Eg:Demand side – where consumers

start to behave as though industries have converged

Eg:

Sources of competition Five forces framework helps identify the

sources of competition in an industry or sector

It must be used at the level of strategic business units level of the whole organization

Understand the connections between competitive forced and the key drivers in the macro environment is essential

The five forces are not independent of each other

Five forcesThreat of entry – forces that need to be

overcome by new entrants if they are to compete successfully ◦ Economic of scale◦ The capital requirement of entry◦ Access to supply or distribution channels◦ Customer or supplier loyalty◦ Experience◦ Expected retaliation◦ Legislation or government actions◦ Differentiation

Cont… Five forces

Threat of substitute – Substitutes reduce demand for a particular “class” of products as customers switch to the alterations.

Different forms of substitutions◦Product –for product substitutions◦Substitution of need◦Generic substitution

Cont… Five forces

Power of buyers◦Concentration of buyers◦Cost of switching◦Supplier being acquired by buyers

(Backward integration)

Cont… Five forces

Power of suppliers◦Concentration of suppliers◦Switching cost◦Suppliers competing directly with the

buyers (Forward integration)

Cont… Five forces

Competitive rivalry – Competitive rivals are organizations with similar products and services aimed at the same customer group

Factor affect the degree of competitive rivalry in an industry or sector◦ The extent to which competitors are in

balance◦ Industry growth rate◦ High fixed costs in an industry◦ High exit barrier to an industry◦ Differentiation

Interpreting Industry Analyses

Suppliers and buyers have strong positions

Low entry barriers

Strong threats from substitute products

Intense rivalry among competitors

Low profit potential

UnattractiveIndustry

Interpreting Industry Analyses

High entry barriers

Suppliers and buyers have weak positions

Few threats from substitute products

Moderate rivalry among competitors

High profit potential

AttractiveIndustry

3. Competitors and marketsAn industry or sector may be a

too general level to provide for a detailed understanding of competition ◦Strategic groups – Organizations

within an industry with similar strategic characteristics, following similar strategies or competing on similar base

◦Market segmentation – group of customers who have similar need that are different from customer needs in other parts of the market

Cont… Competitors and markets

Strategic customers – the person/s at which the strategy is primarily addressed because they have the most influence over which goods or services are purchased

Critical Success FactorsCritical success factors are those

product features that are particularly valued by a group of customers and therefore where the organization must excel to outperform competition

Examples for CSF◦ Threshold product features ◦ Reputation of a product◦ After sales service◦ Delivery reliability◦ Technical quality

External Factor Evaluation Matrix (EFM) EFM allows strategies to summarized

and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, technological and competitive information.

1. List key external; factors as identified in the external –audit process

2. Assign to each factor a weight that ranges from 0.0 to 1.0

3. Assign a 1 to 4 rating to each key external factor to indicate how effectively the firm’s current strategies respond to the factor,

Cont… External Factor Evaluation Matrix 4 = the response is superior3 = the response is above average2 = the response is average1 = the response is poor4. Multiply each factor’s weight by its

rating to determine a weighted score5.Sum the weighted scores for each

variable to determine the total weighted score for the organization

The average total weighted score is 2.5

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