PAN African e-Network Project

Diploma in Business Management

Strategic Management
Session - 3

Vivek Singh Tomar

1

Module Outcome
Familiarity with Michael Porters value chain Model
Understanding of Strategic analysis tools and techniques
Explain the importance of analyzing and understanding the firms
external environment.
Define and describe the general environment and the industry
environment.
Discuss the four activities of the external environmental analysis
process.
Name and describe the general environments six segments.

Understanding of various external environmental influences on

businesses through PESTLE framework
Internal environmental analysis and determination of firms
strengths and weaknesses
Use of ETOP and its significance

Module 3 (Strategic Analysis) Part-1

Michael Porter Value Chain Model

Environmental analysis and
dealing with uncertainty
PESTLE framework
Environmental Threat and
Opportunity Profile (ETOP)

Competitive Scope and Value Chain

How a firm can actually create

and sustain a competitive
advantage in its industry

Two Basic Types

Cost leadership
Differentiation

Value Chain
Identify which activities contributing to cost
leadership and differentiation
Analyze the source of competitive
advantage

Value Chain

Primary Activities
Inbound Logistics
Receiving, storing, and disseminating inputs.
E.g., warehousing, inventory control

Operations
Transforming inputs into the final product form

Primary Activities
Outbound Logistics
Collecting, storing and distributing the product to
buyers

Marketing and Sales

Providing a means and incentive which allow
buyers to purchase the product

Service
Providing service to enhance or maintain the
value of the product

Primary Activity Focus by Industry

Industry

Inbound
Logistics

Distributor

Restaurant
Corporate
Lending
Xerox

Operations

Outbound Marketing
Logistics & Sales

Service

X
X

NA
X
X

Support Activities
Procurement
Function of purchasing inputs used in the value
chain

Technology Development

Support Activities
Human Resource Management
Firm Infrastructure
planning, finance, accounting, legal, etc.

Competitive Scope
Four scopes may affect value chain
Ex. The value chain serves
minicomputer requires extensive
sales assistance, less hardware
performance different from what
serves small business

Competitive Scope
Segment Scope
Differences required to serve different
product or buyer segment

Vertical Scope
Division of activities between a firm and
its suppliers, channels, and buyers

Competitive Scope
Geographic Scope
Different geographic areas

Industry Scope
Interrelationships among business units

The External Environment and its

Analysis

The External
Environment

Analysis of the External

Environments
General environment
Focused on the future

Industry environment
Focused on factors and conditions influencing a firms
profitability within an industry

Competitor environment
Focused on predicting the dynamics of competitors
actions, responses and intentions

The General Environment: Segments and Elements

What is PESTLE Analysis?

This analysis is essential for an
organization before beginning its
marketing process
Consists of internal environment and
external environment

Break up of PESTLE
Political Factors
Economic Factors
Socio Cultural Factors
Technological Factors
Legal Factors
Environmental (Physical) Factors

Political Factors
This is the most important influence on the
regulation of any business.
How stable is the political environment?
Influence the Government Policy / Law on your
business
Governments position on Marketing Ethics
Governments policy on the economy
Governments view on culture under religion

Political Factors - Contd.

Political System is responsible for Law Making.
Immediate laws which affect any business in
general are Central Excise, Sales Tax/ VAT,
Corporate Income Tax, Personal Income Tax &
Service Tax
Environmental Protection Law
Controls if any on Marketing Strategies
Like Marketing / Advertising of Cigarettes,
Tobacco, Alcohol etc.

Political Factors - Contd..

Control on Pricing
like sugar, drugs etc.

Government Policies on the Economy

Role of Public Sector
Role of Private Sector
Role of Joint Sector

Economic Factors
Government outlook towards
Bank Financing
Interest Rates
Exchange Rate Mechanism
Incentives for Exports
Restrictions for Imports
Inflation
Labour Policies

Economic Factors - Contd.

Level of Government Spending
Avenues for Capital Creation
Size of the Capital Market
Role of the Regulator
Type of the Instruments
Nature of the Investors

Economic Factors - Contd.

Business Cycles
Monsoon
Energy Availability
Cost of Energy

Socio-Cultural Factors

Demographics
Distribution of Income
Social Mobility
Life Style Changes
Consumerism
Educational Levels

Socio-Cultural Factors - Contd.

Demographics & Distribution of Income
Division of population - Male / Female
Age Group of the Population
Disposable Family Income
Disposable Income in the hands of the different
Age Groups
Education Level of the Age Groups

Social Cultural Factors - Contd.

Life Style Changes & Consumerism
Attitude to living
Different Age Groups
In tune with available disposable income
Thrust on taking care of present needs by
spending than saving for the future.
Joint living and nuclear families
Availability of various media tools
Reach of the media to the population

Technological Factors
Advantage of Technology
In terms of Economies of Scale

New Discoveries & Innovations

Speed & Cost of Technology Transfer
Rate of Obsolescence

Other Factors

Judicial System
Insurance System
Banking System
Regulatory System
Infra Structure
Communication
Transportation

Role of PESTLE
Helps Assess the market including
Competitors from the stand point of a
Particular Business.
PESTLE is relevant for any type of
Business large, small & medium.

Opportunities and Threats

Opportunity
A condition in the general environment that if
exploited, helps a company achieve strategic
competitiveness

Threat
A condition in the general environment that may
hinder a companys efforts to achieve strategic
competitiveness

External Environmental Analysis

A continuous process which includes
Scanning for early signals of potential
changes and trends in the general environment

Monitoring changes to see if a trend emerges from

among those spotted by scanning

Forecasting projections of outcomes based on

monitored changes and trends

Assessing the timing and significance of changes

and trends on the strategic management of the firm

ENVIRONMENTAL
THREAT
AND
OPPORTUNITY PROFILE

ETOP ANALYSIS
PEST ANALYSIS

SWOT ANALYSIS

WHY ETOP??
o Helps organization to identify O-T
o To consolidate and strengthen organizations position
o Provides the strategists of which sectors have a favourable
impact on the organization.
o Organization knows where its stands with respect to its
environment.
o Helps in formulating appropriate strategy

ETOP ANALYSIS

Technological factors:

Economic factors:

General economic
condition.

Rate of inflation.

Interest rate/Exchange rate.

Source of technology.

Technological development.

Impact of technology.

ETOP ANALYSIS

Socio cultural factors :

Environmental factors:

o Demographic characteristics.

o Weather change

o Social attitudes.

o Climatic change.

o Education level , awareness, and

consciousness of rights.

o Demand related factors.

o Suppliers related factors.

ETOP ANALYSIS

Political factors :
o Political system.

Legal factors :
o Policies related to licensing ,
monopolies.

o Political structure , its goals

and stability.

o Policies related to export and

import.

o Government policies , degree

of intervention

o Policies related to distribution and

pricing.

FACTORS

COULD INCLUDE

Political

international trade, taxation policy

Economic

interest rates, exchange rates, national

income, inflation, unemployment,
Stock Market

Social

ageing population, attitudes to work,

income distribution

Technological

innovation, new product development,

rate of technological obsolescence

Environmental

global warming, environmental issues

Legal

competition law, health and safety,

employment law

THREAT MATRIX
HIGH

or s
j
a
M eat
r
h
T

e
at
r
e s
od eat
M hr
T

ATTRACTIVENESS

LOW

e
at
r
e s
od eat
M hr
T

HIGH

or s
n
i
M eat
r
Th

LOW

PROBABILITY OF OCCURENCE

OPPURINITY MATRIX
HIGH

ry ive
e
V ct
tra
t
a

ATTRACTIVENESS

LOW

y
el
t
ra ive
e
t
od rac
M tt
A

HIGH

y
el
t
ra tive
e
od trac
M t
A

ss ive
e
L ct
tr a
t
A

LOW

PROBABILITY OF OCCURENCE

PREPARING ETOP
o Dividing the environment in
different sector.
o Analyzing the impact of each
sector on the organization.
o Subdividing each environmental
sector into sub factor.
o Impact of each sub sector on
organization in form of a
statement.

ETOP: Pros and Cons

Cons

Pros
o

Help to determine the key factor of

threats and opportunities.

It doesnt show the interaction

between the factors.

Good tool to qualify the factors

related to companys strategy.

It cant reflect the dynamic

environment.

Can consider many factors for each

special case.

Its a subjective analysis tool.

Case study : MILLIPORE

About Millipore
Millipore is a multinational, high technology bioscience company that
provides technologies, tools and services for the development and
production of new therapeutic drugs. The company, headquartered in
Bedford, Mass., serves the worldwide life science research, biotechnology
and pharmaceutical industries.
Mission and Vision
Millipore exists to provide technology, tools and services for the
development and production of new therapies and drugs that will enable
people to live longer, healthier lives. Our vision is to become the partner of
choice for critical tools, technology and services used in the discovery,
development and manufacture of new therapeutic compounds.

MILLIPORE PRODUCT LINE

1. Life science.
2. Drug discovery.
3. Sample preparations.
4. Lab water.
5. Process development.
6. Bio production.
7. Process monitoring.

Factors

Impact of each Sector

Economic

Fluctuation in exchange rate

Increasing rate of inflation
Worsening economic conditions

Technological

Strong R&D program

Market Leaders
Better solution providers
New Intergral-2008

Political

No significant change.

Legal

Following FCPA (Foreign corrupt

practices act).
Strict IPR laws - No poaching

Socio cultural

No significance change.

E
T
O
P
O
F
M
I
L
L
I
P
O
R
E

Factors
Competitive

Demand related

Governmental policies

Impact of each sector

Competition particularly from
low priced products .

Downfall in demand due to low

priced products .
Containment of rising healthcare cost.

No excise duty only vat for

product manufactured in India.

E
T
O
P
O
F
M
I
L
L
I
P
O
R
E

OPPORTUNITY MATRIX
EB and CB

Provide customized protocol support.

Market leaders brand value and brand

Dedicated service team.(Toll Free numbers).

awareness.
Special offers with OEMs.(Agilent).

Large installation base.

Saturation point of market is far away

New low budget product lines.

New markets are opening

THREAT MATRIX
Competition particularly from low priced

IPR laws are not so strong in INDIA.

products.

Switching over form process patent to product

Concentration majorly on big Fishes.

patent
Patent law not well defined

Expensive products.

Lack of geographical division (remote areas).

Bad rapport with customers (unsatisfied

Poor dealer network.

customer).

Low investment in marketing.

Analysis of the
Internal
Environment

Competitive Advantage
Firms achieve strategic competitiveness and
earn above-average returns when their core
competencies are effectively:
Acquired.
Bundled.
Leveraged.

Over time, the benefits of any value-creating

strategy can be duplicated by competitors.

Competitive Advantage (contd)

Sustainability of a competitive advantage
is a function of:
The rate of core competence obsolescence
due to environmental changes.
The availability of substitutes for the core
competence.
The difficulty competitors have in duplicating
or imitating the core competence.

Internal Analyses Outcomes

Unique resources,
capabilities, and
competencies
(required for
sustainable
competitive
advantage)

By studying the internal environment, firms

identify what they can do

The Context of Internal Analysis

Global Economy
Traditional sources of advantages can be overcome by
competitors international strategies and by the flow of
resources throughout the global economy.

Global Mind-Set
The ability to study an internal environment in ways that
are not dependent on the assumptions of a single
country, culture, or context.

Analysis Outcome
Understanding how to leverage the firms bundle of
heterogeneous resources and capabilities.

Components of Internal Analysis Leading to

Competitive Advantage and
Strategic Competitiveness

Creating Value
By exploiting their core competencies or competitive
advantages, firms create value.
Value is measured by:
Product performance characteristics
Product attributes for which customers are willing to pay

Firms create value by innovatively bundling and

leveraging their resources and capabilities.
Superior value Above-average returns

Creating Competitive Advantage

Core competencies, in combination with productmarket positions, are the firms most important
sources of competitive advantage.
Core competencies of a firm, in addition to its
analysis of its general, industry, and competitor
environments, should drive its selection of
strategies.

The Challenge of Internal Analysis

Strategic decisions in terms of the firms
resources, capabilities, and core competencies:
Are non-routine.
Have ethical implications.
Significantly influence the firms ability to earn aboveaverage returns.

The Challenge of Internal Analysis

(contd)
To develop and use core competencies,
managers must have:
Courage
Self-confidence
Integrity
The capacity to deal with uncertainty and complexity
A willingness to hold people (and themselves)
accountable for their work

Conditions Affecting Managerial Decisions about Resources,

Capabilities, and Core Competencies

Source: Adapted from R. Amit & P. J. H. Schoemaker, 1993, Strategic

assets and organizational rent, Strategic Management Journal, 14: 33.

Resources, Capabilities and Core Competencies

Discovering Core
Competencies

Core
Competencies
Capabilities

Resources
Tangible
Intangible

Resources
Are the source of a firms
capabilities.
Are broad in scope.
Cover a spectrum of individual,
social and organizational
phenomena.
Alone, do not yield a competitive
advantage.

Resources
Resources
Are a firms assets,
including people and the
value of its brand name.
Represent inputs into a
firms production process,
such as:

Capital equipment
Skills of employees
Brand names
Financial resources
Talented managers

Types of Resources
Tangible resources
Financial resources
Physical resources
Technological resources
Organizational resources

Intangible resources
Human resources
Innovation resources
Reputation resources

Tangible Resources
Financial Resources

Organizational Resources

Physical Resources

Technological Resources

The firms borrowing capacity

The firms ability to generate internal
funds
The firms formal reporting structure
and its formal planning, controlling, and
coordinating systems
Sophistication and location of a firms
plant and equipment
Access to raw materials
Stock of technology, such as patents,
trademarks, copyrights, and trade
secrets

Sources: Adapted from J. B. Barney, 1991, Firm resources and sustained competitive advantage, Journal of
Management, 17: 101; R. M. Grant, 1991, Contemporary Strategy Analysis, Cambridge, U.K.: Blackwell Business, 100
102.

Intangible Resources
Human Resources

Knowledge
Trust
Managerial capabilities
Organizational routines
Innovation Resources
Ideas
Scientific capabilities
Capacity to innovate
Reputational Resources
Reputation with customers
Brand name
Perceptions of product quality, durability,
and reliability
Reputation with suppliers
For efficient, effective, supportive, and
mutually beneficial interactions and
relationships
Sources: Adapted from R. Hall, 1992, The strategic analysis of intangible resources, Strategic Management Journal,
13: 136139; R. M. Grant, 1991, Contemporary Strategy Analysis, Cambridge, U.K.: Blackwell Business, 101104.

Resources, Capabilities and Core

Competencies
Discovering Core
Competencies

Core
Competencies
Capabilities
Resources
Tangible
Intangible

Capabilities
Represent the capacity to deploy
resources that have been purposely
integrated to achieve a desired end
state
Emerge over time through complex
interactions among tangible and
intangible resources
Often are based on developing,
carrying and exchanging information
and knowledge through the firms
human capital

Resources, Capabilities and Core Competencies

Discovering Core
Competencies

Capabilities (contd)
The foundation of many capabilities
lies in:

Core
Competencies
Capabilities
Resources
Tangible
Intangible

The unique skills and knowledge of a

firms employees
The functional expertise of those
employees

Capabilities are often developed in

specific functional areas or as part of
a functional area.

Examples of Firms Capabilities

Functional Areas
Distribution
Human resources
Management
information systems
Marketing

Management
Manufacturing

Research &
development

Capabilities
Effective use of logistics management techniques
Motivating, empowering, and retaining employees
Effective and efficient control of inventories through
point-of-purchase data collection methods
Effective promotion of brand-name products
Effective customer service
Innovative merchandising
Ability to envision the future of clothing
Effective organizational structure
Design and production skills yielding reliable products
Product and design quality
Miniaturization of components and products
Innovative technology
Development of sophisticated elevator control solutions
Rapid transformation of technology into new products and
processes
Digital technology

Resources, Capabilities and Core

Competencies
Discovering Core
Competencies

Core
Competencies

Four criteria for determining

strategic capabilities:
Value
Rarity
Costly-to-imitate

Capabilities
Resources
Tangible
Intangible

Nonsubstitutability

Resources, Capabilities and Core Competencies

Discovering Core
Competencies

Core
Competencies
Capabilities
Resources
Tangible
Intangible

Core Competencies
Resources and capabilities that are the
sources of a firms competitive advantage:
Distinguish a company competitively and
reflect its personality.
Emerge over time through an
organizational process of accumulating
and learning how to deploy different
resources and capabilities.

Resources, Capabilities and Core Competencies

Discovering Core
Competencies

Core Competencies
Activities that a firm performs especially
well compared to competitors.

Core
Competencies
Capabilities
Resources
Tangible
Intangible

Activities through which the firm adds

unique value to its goods or services over
a long period of time.

Building Core Competencies

Discovering Core
Competencies

Four Criteria of
Sustainable
Advantages

Valuable
Rare
Costly to imitate
Nonsubstitutable

Four Criteria of Sustainable

Competitive Advantage
Valuable capabilities
Rare capabilities
Costly to imitate
Nonsubstituable

The Four Criteria of Sustainable Competitive Advantage

Valuable Capabilities

Help a firm neutralize threats or

exploit opportunities

Rare Capabilities

Are not possessed by many

others

Costly-to-Imitate Capabilities

Historical: A unique and a

valuable organizational culture or
brand name

Ambiguous cause: The causes

and uses of a competence are
unclear

Social complexity:
Interpersonal relationships, trust,
and friendship among managers,
suppliers, and customers

Building Sustainable Competitive Advantage

Discovering Core
Competencies

Help a firm neutralize threats or

exploit opportunities.

Four Criteria of
Sustainable
Advantages

Valuable
Rare
Costly to imitate
Nonsubstitutable

Valuable capabilities

Rare capabilities
Are not possessed by many
others.

Building Sustainable Competitive Advantage

Discovering Core
Competencies

Four Criteria of
Sustainable
Advantages

Costly-to-Imitate Capabilities
Historical
A unique and a valuable
organizational culture or brand name

Ambiguous cause
The causes and uses of a
competence are unclear

Social complexity

Valuable
Rare
Costly to Imitate
Nonsubstitutable

Interpersonal relationships, trust, and

friendship among managers,
suppliers, and customers

Building Sustainable Competitive Advantage

Discovering Core
Competencies

Nonsubstitutable Capabilities
No strategic equivalent
Firm-specific knowledge
Organizational culture

Four Criteria of
Sustainable
Advantages

Valuable
Rare
Costly to imitate
Nonsubstitutable

Superior execution of the chosen

business model

Outcomes from Combinations of the

Criteria for Sustainable
Competitive Advantage

Thank You
Please forward your query
To: vstomar@amity.edu