Transcript Strategic Issue Assignment

Strategic Issue Assignment
Decisions about
Business Definition
Mission and
Objectives
Managers’
Mental Models
Beliefs and
Understandings
about:
Macro Env.
Industry Env.
Appropriate Size
and Diversity
How to Organize
Decisions about
Corporate Strategy
and Diversification
Decisions about
Business Strategy
Activities,
Resources
and
Capabilities
Market
Position
Performance
and
Competitive
Advantage
Decisions about
Organizational
Structure and
Implementation
Feedback (Reinforces or suggests changes in managers’ mental models)
Decisions about Where and How to Compete
Corporate Level Strategy (Defines Scope: What industries should the firm compete in?)
Business Level Strategy (Defines Positioning: How will the firm compete?)
Functional Level Strategy (Maximizes resource productivity)
Decisions about Where and How to Compete
Corporate Level Strategy (Defines Scope: What industries should the firm compete in?)
(None)
Business Level Strategy (Defines Positioning: How will the firm compete?)
Best Cost (Value for Low Price)
What are some of the key differentiators?
Functional Level Strategy (Maximizes resource productivity)
How do they do this?
Define the Issue
Background and Boundaries of the Issue
How is this issue related to your firm’s value proposition?
What do customers want?
What do you offer relative to what they want?
Evidence
What are the relevant external facts?
(Consumers, Customers, Competitors, and the External Environment)
What do you already know?
What do you need to know?
Alternatives and Implications
Potential Impact (Strategic and Financial)
Macro Environment
Sociocultural
Economic
Demographic
Buyers
Rivalry Among Firms
Supplies
Competitor Analysis
Potential
Entrants
Managing Task Env.
Relationships
Substitute
Products
Task
Environment
Political/Legal
Other
Stakeholders
Technological
Industry
Environment
What do you need to know?
(External Analysis)
Macro Environment Factors
Economic
Technological
Political/Legal
Social/Cultural
Economic Factors
The state of the macroeconomic environment determines the general
health and well-being of the economy. This in turn affects a
company’s ability to earn an adequate rate of return.
Examples: GDP trends, interest rates, money supply, inflation,
unemployment levels, wage/price controls, energy availability,
and costs, disposable and discretionary income.
Globally: Monetary and Fiscal policies, currency convertibility,
exchange rates, economic development, political economy
Social/Cultural Factors
This category of factors describe the beliefs, values, attitudes,
opinions, and lifestyles of persons in the firm’s external
environment as developed from cultural, demographic, religious,
educational and ethnic conditioning.
Examples: Lifestyle changes, career expectations, age distribution,
regional shifts in population, birth rates, life expectancies,
growth rate in population, consumer activism, rate of family
formation.
Global: Human rights, literacy levels, language, social institutions,
skill level of the workforce
Political/Legal Factors
These factors define the legal and regulatory parameters within
which a firm must operate.
Examples: Antitrust regulations, environmental protection, tax laws,
employment laws, stability of government, foreign trade protection
Global: Form of government, political ideology, protectionist
sentiment, terrorist activity, legal system, government’s attitude
toward foreign firms.
Technological Factors
This factor deals with the general technological infrastructure, the
rate of change in technology, and those things impacting the
development and introduction of new technologies.
Examples: Total government spending for R&D, Total industry
spending for R&D, focus of technological efforts, patent protection,
new developments in technology transfer, productivity
improvements through automation.
Global: Regulations on technology transfer, information flow
infrastructure, patent and trademark protection.
Industry Analysis
What do you need to know?
Industry Boundaries and Substitutability
1. Helps firms to determine the relative attractiveness of different segments.
2. Helps firms to appropriately classify competitors into groups and determine
direct and indirect competitors.
3. Helps firms to predict behavior of individual firms in light of ability to deliver value.
Invisible
Competitors
Large Players
from another industry
moving secretly into
the market
Impending
Competitors
Small/Med players in
growth mode
Large players in related
markets
Immediate Competitors
Large Players, well established
Industry Analysis
What do you need to know?
The Value of the Product/Service to Customers
The Bargaining Power of Firms Relative
to their Suppliers and Buyers
The Intensity of Competition
What’s driving change in the industry?
(e.g., Shifts in competition, macro factors, entry/exit of major
players)
Porter’s Five Forces Model
Threat of New Entrants
Bargaining Power of the
Suppliers
Inter-Firm
Rivalry
Threat of Substitutes
Bargaining Power of the
Buyers
Porter’s Five Forces Model (Competitive Forces)
Who are the Buyers?
Factors impacting the bargaining power of the buyers:
Standardized industry product
Purchases are made in large volume
Number of buyers is small
Significant threat of backward integration
Switching costs are low
Buyers are well-informed about the seller’s costs
Bargaining Power of the
Buyers
Porter’s Five Forces Model (Competitive Forces)
Factors impacting the bargaining power of the suppliers:
Bargaining Power of the
Suppliers
Strong? Medium? Weak?
Product represents a significant % of purchaser’s final
product
Few suppliers
Unique product or input
Significant threat of forward integration
Supplied product is less expensive for the
purchaser to buy than make
Porter’s Five Forces Model (Competitive Forces)
Threat of New Entrants
Strong? Medium? Weak?
Why are New Entrants a threat?
Factors impacting the threat of New Entrants:
Economies of scale
Capital Requirements
Access to Distribution Channels
Other entry barriers (regulation)
Competitive retaliation
High industry profitability and growth
Porter’s Five Forces Model (Competitive Forces)
What is a substitute? Why are substitute products a threat?
Factors impacting the threat of substitute products:
Price of available substitutes
Switching costs
Industry growth and demand
Comparability of substitute in terms of quality, performance,
other features
Threat of Substitutes
Strong? Medium? Weak?
Porter’s Five Forces Model (Competitive Forces)
Factors impacting Inter-Firm Rivalry:
Concentration
Product Differentiation
Excess Capacity
Exit Barriers
Cost Conditions
Industry Life Cycle
# of equally balanced competitors
Inter-Firm
Rivalry
Strong? Medium? Weak?
Porter’s Five Forces Model (Competitive Forces)
Relative Power of
other Stakeholders
Threat of New Entrants
Bargaining Power
of the
Suppliers
Inter-Firm
Rivalry
Threat of Substitutes
Bargaining Power of the
Buyers
Relative Power of
Other Stakeholders
Governments (particularly overseas)
Special Interest Groups/Lobbyists
Local Communities
International Stakeholders (e.g., WTO, IMF, EU)
Trade Associations
Unions
What do you need to know?
Key Success Factors
Prerequisites for Success
What do
customers
want?
How does the firm
survive competition?
What drives competition?
What are the main
dimensions of competition?
How intense is competition?
How can the firm obtain
superior performance?
Analysis of Demand
Who are the
customers?
What do they want?
KEY SUCCESS FACTORS
Aerospace and Defense
Industry Example
Aerospace and Defense Industry: Broadly Defined
Key Segments
Military
Weapons
Commercial
Aircraft
Space
(Rockets and
Satellites)
Aerospace Industry
Commercial Aircraft
Maintenance
Repair
and Overhaul
($36.4 Billion)
Jet Engines
($33.1 Billion)
Further Segmentation
Large
Commercial
Jets
($49 Billion)
Business and
Regional Aircraft
($21.1 Billion)
Civil Avionics
($11.2 Billion)
(Source: Standard and Poors
Nov. 2006)
Economic Traits (2006)
Commercial Aircraft
Market Size (Defense and Aerospace): $468 billion
Market Size (Commercial aircraft): $151 billion (slow growth)
Types of Distribution Channels: Few (mostly direct)
Economies of Scale: Present
Capital Requirements: Extremely High
Product Differentiation: High (needs explanation)
Presence of Vertical Integration: Yes (Boeing and Airbus also
produce jet engines)
Industry Structural Characteristics
(Commercial Aircraft)
Oligopoly Competition (Boeing/45% and Airbus/55%)
Concentration (Yes)
Economies of Scale (Present)
Product Differentiation* (High)
Barriers to Entry/Exit (Extremely High)
Driving Forces: Commercial Aircraft
Driving Forces
Long-Term Airline Industry Profitability
Capacity Issues in Airline Industry
Fuel Prices
Air Traffic Forecasts
Price Pressure from Customers (Delta, Northwest, etc)
Globalization
Presence of Low Cost Air Carriers
Key Success Factors: Commercial Aircraft
Key Success Factors
Excellence in R&D
Effective Production Utilization
Free Cash Flow
On-Time Delivery
External
Environment
Macro
Industry
Operating
Company
Mission
and
Objectives
Desired?
Possible?
Internal
Environment
Resources
Current Strategy
Costs
Strategic
Options
and
Choice