Strategic Management Course PDF

Strategic Management Licence d’exellence Pr. Oudmine Imane Introduction Successful organizations have found that a strategic management process helps them achieve their goals within a dynamic and competitive environment. Strategic management is a comprehensive process designed for firms to b...

Strategic Management Licence d’exellence Pr. Oudmine Imane Introduction Successful organizations have found that a strategic management process helps them achieve their goals within a dynamic and competitive environment. Strategic management is a comprehensive process designed for firms to best use their resources and capabilities to provide superior firm performance. Analysis of the external, competitive, and internal environments help shape the strategies that a firm pursues to be successful. Strategies are broad goals that, as accomplished, help the organization move forward toward its vision. Strategy formation goes back to ancient times, particularly used in warfare. Although not perfect, the strategic management process creates a framework for an organization to look outside of itself and set a course for success. Navigating the Path to Organizational Excellence Section 1: Introduction to Strategic Management Strategic Management is the holistic and dynamic process through which organizations formulate, implement, and evaluate strategies to achieve their long-term objectives and gain a sustainable competitive advantage in a constantly evolving business environment. It serves as the compass that guides an organization's decision-making, resource allocation, and actions, ensuring alignment with its vision, mission, and core values. In this comprehensive exploration, we will delve deep into the multifaceted dimensions of Strategic Management, examining its key elements, models, and methodologies, and elucidating its profound impact on the success and survival of modern enterprises. 1- history of the strategy concept The word “strategy” has its origin in the Greek word “strategos” meaning “the art of a general” and referring to the “army” and “the art ofleading”. The Greek verb “stratego” means to “plan the destruction of one’s enemies through effective use of resources” (Bracker, 1980, 219). Later many leading theoreticians of war strategy theoreticians, for example the Prussian general Clausewitz, used the concept of strategy when referring to the long-term goals of a nation and its ability to win wars instead of winning single battles. However, it was only after the World War II when the idea of a business strategy (or business policy as it first used to be called) and a bit later also the idea of strategic management were introduced. The goal of the business strategy was to achieve competitive advantage i.e. to outperform the rivals. According to Ansoff (1965), the rise of business strategy research was triggered by rapid changes in the business environments. Especially the increasing role of science and innovations contributed to rapid technological changes. In the more competitive environment, the firms were forced to react or, in fact, to pro- act to the maneuvers of the rivals (see Bracker, 1980). Strategic management often borrows lessons as well as metaphors from classic military strategy. For example, major business decisions are often categorized as “strategic” while more minor decisions (such as small changes in price or the opening of a new location) are Strategic Management-Pr. Oudmine Page 1 referred to as “tactical” decisions. Here are a few select examples of classic military strategies that hold insights for strategic decisions today. Tableau 1 Classic Military Strategy 1532 Machiavelli’s book The Prince offers clever recipes for success to government leaders. Some of the book’s suggestions are quite devious, and the word Machiavellian comes to refer to acts of deceit and manipulation. 1775 The American Revolutionary War between the United States and Great Britain begins. Weaker American forces win the war in part by relying on nontraditional tactics such as guerrilla warfare and the strategic targeting of British officers. They also depend on help from the French navy, illustrating the potential value of strategic alliances 1815 Napoleon’s defeat at Waterloo demonstrates how spreading resources too thin can result in defeat of even one of the most famed militaries of all time. 1865 The American Civil War ends. Historians consider the Confederacy to have had better generals, but the Union possessed greater resources. Sometimes good strategies simply cannot overcome a stronger adversary. 1944 Following a series of deceptions designed to confuse and fool German forces, the Allies launch the D-Day invasion in an effort to liberate Europe from Nazi control. The historical evolution of strategic management has been a complex and dynamic journey marked by significant developments and influential thinkers. This evolution can be understood as a narrative that unfolds over time: Early Foundations (1950s-1960s): The roots of strategic management can be traced back to the mid-20th century when scholars and practitioners began to explore the concepts of long- term planning and corporate strategy. Early contributors such as Peter Drucker and Igor Ansoff laid the groundwork for future developments in the field. Rise of Corporate Planning (1960s-1970s): During this era, corporate planning departments became prevalent in large organizations. These departments focused on long-term forecasting, setting objectives, and evaluating performance. The Boston Consulting Group's BCG Matrix, introduced by Bruce Henderson, offered a framework for analyzing an organization's portfolio of businesses. Competitive Strategy and Industry Analysis (1970s-1980s): The 1970s marked a pivotal moment with the emergence of Michael Porter's work. Porter's "Five Forces" framework and his book "Competitive Strategy" emphasized the significance of competitive strategy and industry analysis in shaping an organization's success. Strategy became synonymous with competitive advantage. Strategic Management-Pr. Oudmine Page 2 Strategy as a Process (1980s-1990s): The 1980s and 1990s saw the evolution of strategic management into a systematic process. Scholars and practitioners emphasized that strategy should be developed through a structured process that includes environmental scanning, strategy formulation, implementation, and evaluation. It was recognized as an ongoing, iterative cycle rather than a one-time plan. Resource-Based View and Core Competencies (1990s-2000s): The Resource-Based View (RBV) gained prominence during this period. Scholars like Jay Barney and C.K. Prahalad argued that an organization's unique resources and capabilities could provide a sustainable competitive advantage. Prahalad and Gary Hamel introduced the concept of "core competencies," highlighting the importance of focusing on strengths and distinctive capabilities. Evolution in a Dynamic Environment (2000s-Present): The 21st century has brought new challenges characterized by rapid technological advancements and globalization. Concepts like dynamic capabilities, open innovation, and strategic agility have gained importance as organizations seek to respond to change more effectively. Strategy has become more adaptable and dynamic. Beyond Profit: Sustainability and Social Responsibility: Recent years have witnessed a growing emphasis on sustainability and corporate social responsibility (CSR) within the field of strategic management. Organizations are increasingly integrating environmental and social considerations into their strategic planning processes, recognizing that societal and environmental impacts matter alongside financial performance. Technology and Data-Driven Strategies: The digital age has brought about a new era of data-driven decision-making and technology-driven strategies. Concepts like big data analytics, artificial intelligence, and machine learning have influenced how organizations formulate and execute their strategies, enabling more precise and informed choices. Strategy Execution and Implementation: While strategy formulation has traditionally received significant attention, recent developments emphasize the importance of effective strategy execution and implementation. Scholars and practitioners recognize that a well- formulated strategy is only valuable if it can be successfully put into action. Execution has become a critical aspect of strategic management. Globalization and International Strategy: As organizations expand their operations globally, international strategy and cross-border considerations have become integral to strategic management. Concepts such as multinational corporations, global supply chains, and cross- cultural management play a vital role in shaping international strategies. 2- Defining startegy and Strategic Management At its core, Strategic Management is a systematic approach to charting the future course of an organization. It involves setting clear goals and objectives, analyzing internal and external factors, making informed choices, and executing plans that facilitate the organization's movement towards its envisioned future state. This discipline encapsulates a wide array of managerial activities and encompasses both the formulation and execution of strategies. Strategic Management-Pr. Oudmine Page 3 Defining strategy is not simple. Strategy is a complex concept that involves many different processes and activities within an organization. It involves goals and objectives that an organization needs to achieve to be successful in the marketplace. The development of these goals, however, requires a strategic management process to be done correctly and thoroughly. A strategy is typically a higher level, broad goal, without a lot of specifics. It is long-term in nature. It provides the direction that an organization wants to move toward to be more successful. New or revised strategies may be developed as a result of changes in the business environment, such as what happened during the COVID-19 pandemic. Firms also routinely revise or create new strategies, often annually, by assessing and reacting to external and competitive forces and to maximize organizational performance. By identifying their resources and capabilities, firms attempt to deploy these through strategies that will give them a competitive advantage, so consumers will buy their product or service instead of a competitor’s. 3- Types of startegy  Intended strategy An intended strategy is the strategy that an organization hopes to execute. Intended strategies are usually described in detail within an organization’s strategic plan. When a strategic plan is created for a new venture, it is called a business plan. As an undergraduate student at Yale in 1965, Frederick Smith had to complete a business plan for a proposed company as a class project. His plan described a delivery system that would gain efficiency by routing packages through a central hub and then pass them to their destinations. A few years later, Smith started Federal Express (Funding Universe, n.d.), a company whose strategy closely followed the plan laid out in his class project. FedEx has achieved a ranking among the World’s Most Admired Companies according to Fortune magazine. Certainly, Smith’s intended strategy has worked out far better than even he could have dreamed (Donahoe, 2011; Memphis Business Journal, 2011). Strategic Management-Pr. Oudmine Page 4  Emergent strategy Emergent strategy is an action model coined by author Henry Mintzberg that describes a business strategy that develops over time as a business balances its goals with changing circumstances. These strategies emerge after a business carries out a set of actions repeatedly to develop a pattern in its habits. Emergent strategy differs from deliberate strategy in business because the pattern of an emergent strategy is by definition unintended. Here are examples of unforeseen circumstances that can prompt emergent strategies:  Market changes: An unexpected change in a company's market or industry, like an unexpected increase in demand, can lead to emergent strategies as a company works to address these changes.  Economic changes: Fluctuations in the economy can also prompt emergent strategies.  New ideas: In some situations, an emergent strategy can result from an employee suggesting a new procedure. Why use Why use emergent strategy? An emergent strategy can be a natural result of a company adopting processes to address changing circumstances. When organizations embrace emergent strategy, they can use the power of change to guide their plans, visions and decisions, rather than a specified business strategy. This can allow businesses to adopt new and innovative processes through trial and error. While emergent strategies can be unpredictable, they can give companies an opportunity to better meet the needs of consumers and adapt to new situations. The ability to adapt through the use of emergent strategies can help businesses weather financial hardship and discover new applications for their products. Here are the advantages to using emergent strategy in business:  Practicality: Adopting emergent strategies can allow companies to put their resources toward processes that can be more effective than a company's deliberate strategies.  Learning: An emergent strategy offers companies a chance to learn from the strategy and its results. If an emergent strategy is successful, a company can formally add the strategy to its strategic plan.  Opportunity: The freedom to use and analyze emergent strategies in a company can give companies the opportunity to grow as a result of an emergent strategy.  Flexibility: Emergent strategy can allow companies to more flexibly approach changes in an industry or economy.  Creativity: The ability to create and learn from emergent strategies can help companies use creativity to address new problems with innovative solutions.  Improved culture: Emergent strategy in business can result in a more positive workplace culture as a result of increased creativity and flexibility in the business's strategies. Strategic Management-Pr. Oudmine Page 5  Realized/ unrealized strategy A realized strategy is the strategy that an organization actually follows. Realized strategies are a product of a firm’s intended strategy (i.e., what the firm planned to do), the firm’s deliberate strategy (i.e., the parts of the intended strategy that the firm continues to pursue over time), and its emergent strategy (i.e., what the firm did in reaction to unexpected opportunities and challenges). An unrealized strategy refers to the abandoned parts of the intended strategy.  Imposed strategy Strategy may be imposed on the organisation. Government policies may have an impact on the strategy; Recession and threat of a takeover may force a strategy of cost cutting and retrenchment. Technological developments may cause an organisation to develop new products to replace the ones that have become obsolete.  Opportunistic Strategy Strategies may come about in or entrepreneurial ways. An organisation may take advantage of changes in the environment or recognise new skills in an opportunistic manner. Alternatively, a firm may be set up by an entrepreneur because of an opportunity in the market place. Key Takeaway Most organizations create intended strategies that they hope to follow to be successful. Over time, however, changes in an organization’s situation give rise to new opportunities and challenges. Organizations respond to these changes using emergent strategies. Realized strategies are a product of both intended and realized strategies. 4- Levels of strategy Strategy can be defined as the effective path to achieving organizational goals and objectives in the best possible way. In organizations, there exist three levels of strategy namely corporate level, business level, and functional level. All levels of strategies have a significant role in achieving the overall targets of the organization. In a simple sense, the functional level strategy helps business-level strategy and business to corporate-level strategy and corporate to achieve vision and mission – they all are linked and managers need to carefully set strategies at each level. Strategic Management-Pr. Oudmine Page 6 The three levels of strategy are:  Corporate level strategy  Business level strategy  Functional/Operational level strategy Strategy Level 1: The Corporate Level Corporate level strategy is the uppermost level of strategy made by top-level management which sets the overall direction of the organization. It addresses the question of what business are we in? Corporate-level strategic management seeks to answer the following questions:  What are the purposes of the organization?  What image should the organization project?  What are the ideals and philosophies of the organization?  What is the organization's business or businesses?  How can the organization's resources be best utilised to fulfill the corporate purposes? Creating and understanding a corporate-level strategy is particularly important for organizations that have multiple lines of business. For example, if one arm of the business manufactures a product and another arm sells that product, we will have a separate business unit strategy for each—but one single corporate-level strategy that describes why those two arms are important, and how those businesses interact for the good of the organization. Strategic Management-Pr. Oudmine Page 7 Small and large multinational corporations can both benefit from corporate strategy. Corporate strategy in a multi-business organization is concerned with geographic coverage, diversity of products/services or business units, and resource distribution to various segments or units of the firm. As the organizational parent, the corporate headquarters works with diverse products and business units as children. These business units are coordinated at the corporate level so that the company as a whole succeeds as a family. As a result, it was determined that corporate-level strategy is linked to an organization’s total scope and development. Its constant goal is to bring value to various product lines and enterprises. For making an effective corporate strategy the manager can go for its four different types such as stability strategy, expansion strategy, retrenchment strategy, and mixed strategy. Stability Strategy The stability strategy is a strategy that tries to keep an organization’s existing activities going without making any significant changes in direction. Maintaining existing products, markets, and operations is a priority. A stability strategy can be beneficial in the short term, but it can be harmful if used for an extended period of time. Expansion/Growth Strategy The growth strategy aims to increase sales, assets, profits, or a combination of the three. It allows businesses to take advantage of the growth curve and lower the per-unit cost of products sold, resulting in higher profitability. Due to the increased availability of financial resources, organizational procedures, and external links, larger organizations tend to endure longer than smaller companies. Retrenchment Strategy Both stability and expansion strategies are in aggressive nature but retrenchment is a defensive nature of strategy. A retrenchment strategy is a business approach that tries to diminish a company’s size or diversity. It also entails cutting costs in order to maintain financial stability. It is used to limit the diversity of the company’s operations or to reduce the overall scale of the company’s operations. A retrenchment plan entails exiting specific markets or discontinuing specific products or services. Combination/Mixed strategy When an organization operates in a variety of environments, separate strategic business units and products follow a combination strategy. In other words, a firm is said to be implementing a combination strategy if it uses stability, expansion, and retrenchment strategies in its many strategic business units at the same time. It is primarily used to solve a variety of environmental issues. Strategic Management-Pr. Oudmine Page 8 Strategy Level 2: The Business Unit Level Business level strategies are formulated for specific strategic business units and relate to a distinct product- market area. It involves defining the competitive position of a strategic business unit. The business level strategy formulation is based upon the generic strategies of overallcost leadership, differentiation, and focus. For example, your firm may choose overall cost leadership as a strategy to be pursued in its steel business, differentiation in its tea business, and focus in its automobile business. The business level strategies are decided upon by the heads of strategic business units and their teams in light of the specific nature of the industry in which they operate. The following points must be kept in mind while making strategies at the SBU level:  Production line of SBUS.  Market for SBUS.  The strategy to gain a competitive edge in the market.  The strategy must be lined with the company objectives. Having a strategy at the business unit level allows you to weigh the costs and benefits of each business unit and to decide where you should spend your resources. Depending on the progress towards your goals and your analysis of the market, you may even decide it’s time to divest or sell some of your business units so you can focus on the areas that are most important to achieving your company’s corporate strategy. Strategic Management-Pr. Oudmine Page 9 It could be a distinct business or product such as Samsung selling smartphones, cameras, TVs, microwaves, refrigerators, etc. The corporate strategy is followed by a business-level strategy. As a result, there should be a clear link between SBU and business strategy. Every distinct SBU requires different strategies to compete in the market. A manager can usually go for a cost leadership strategy, differentiation strategy, and focus strategy in order to get a competitive advantage against competitors. In other words, these are the types of business-level strategy, they are: Cost Leadership/Cost Reduction Strategy The cost leadership/cost reduction strategy is a step in producing goods or services with attributes that customers find acceptable at a lower cost than competitors. This strategy typically involves selling standardized goods or services to the industry’s cost- conscious clients. Cost leaders focus on lowering their costs in comparison to their rivals. Differentiation Strategy The differentiation strategy is an endeavor to produce goods or services that buyers perceive as unique (at a reasonable cost). Differentiators, unlike cost leaders, target clients for whom Strategic Management-Pr. Oudmine Page 10 value is created in a way that sets the firm’s offerings apart from the competition. As a result, product innovation is crucial to a differentiation strategy’s success. Focus/Niche Strategy The focus/niche strategy entails producing goods or services that cater to the needs of a specific competitive segment. Firms use their core capabilities to fulfill the demands of a certain industry segment, a different segment of a product line, a different geographic market, or a specific customer group when they use a focus strategy. Strategy Level 3: The Functional Level Functional strategy involves decision-making about particular functional sections like;* production, marketing, personnel, finance, etc. Decisions the functional level are often described as 'tactical' decisions. Whereas corporate and business strategies are concerned with "doing the right things", functional strategy emphasises on "doing things right. These decisions are, however, guided by overall strategic considerations and must be consistent with the framework of business strategy. Thus, for example, marketing policy decisions should provide guidelines for marketing management in accordance with the chosen strategy providing the overall direction of business. For example, the marketing strategy for a tea business which is following the differentiation strategy may translate into launching and selling a wide variety of tea variants through company-owned retail outlets. This may result in the distribution objective of opening 25 retail outlets in a city; and producing 15 varieties of tea may be the objective for the production department. The realization of the functional strategies in the form of quantifiable and measurable objectives will result in the achievement of business level strategies as well. There are a few things to consider as you work on your functional strategies: 1.Understand that this level has the most detailed measures and projects. Measures help you answer the question, “How are we doing toward meeting a particular objective?” Projects (or initiatives) help you answer, “What are the key actions we can take to support our objectives?” While you’ll have measures and projects at every level of your strategy, they should be extremely detailed at the functional level. 2. Make sure the goals in your functional strategy align with the goals at the corporate level. Corporate goals are set by the most senior members of your organization, and those goals drive decision making. You’ll gain support from the top level of executives if your projects and goals align with their goals. You’ll also be able to see how the work you are doing contributes to the overall success of the company. Key Takeaway Corporate Level Strategy:  Defines the business areas in which your firm will operate. Strategic Management-Pr. Oudmine Page 11   Involves integrating and managing the diverse businesses and realizing synergy at the corporate level.  Top management team is responsible. Business Level Strategy:  Involves defining the competitive position of a strategic business unit  Decided upon by the heads of strategic business units and their teams. Functional Level Strategy:  Formulated by the functional heads along with their teams.  Involve setting up short-term functional objectives. 5- Understanding the Strategic Management Process Strategic management is a process that involves building a careful understanding of how the world is changing, as well as a knowledge of how those changes might affect a particular firm. CEOs, such as late Apple founder Steve Jobs, must be able to carefully manage the Strategic Management-Pr. Oudmine Page 12 possible actions that their firms might take to deal with changes that occur in their environment. Environmental and internal scanning is the next stage in the process. Managers must constantly scan the external environment for trends and events that affect the overall economy, and they must monitor changes in the particular industry in which the firm operates. For example, Apple’s decision to create the iPhone demonstrates its ability to interpret that traditional industry boundaries that distinguished the cellular phone industry and the computer industry were beginning to blur. At the same time, firms must evaluate their own resources to understand how they might react to changes in the environment. For example, intellectual property is a vital resource for Apple. Between 2008 and 2010, Apple filed more than 350 cases with the US Patent and Trademark Office to protect its use of such terms as apple, pod, and safari (Apple Inc.). Key Components of Strategic Management 1. Strategic Planning: Strategic Management commences with strategic planning, which involves defining the organization's mission, vision, and values. The mission statement articulates the organization's purpose and reason for existence, while the vision statement paints a vivid picture of what it aspires to become in the future. Values provide the ethical and cultural framework within which decisions are made. 2. Environmental Analysis: Understanding the external environment is crucial for Strategic Management. Organizations must conduct extensive analyses, such as PESTEL (Political, Economic, Sociocultural, Technological, Environmental, and Legal), Porter's Five Forces, and SWOT (Strengths, Weaknesses, Opportunities, Threats), to gain insights into factors that can affect their operations and strategies. 3. Formulation of Strategies: Once the organization has a clear understanding of its internal strengths and weaknesses and the external opportunities and threats, it can begin the process of strategy formulation. This step involves choosing the most suitable strategies to achieve its objectives. Common strategies include cost leadership, differentiation, focus, and diversification. 4. Resource Allocation: Strategic Management involves allocating resources efficiently to implement chosen strategies. This includes allocating financial, human, and technological resources to various projects and initiatives in alignment with the organization's strategic priorities. 5. Strategy Implementation: Successful strategies require effective execution. Strategy implementation involves translating strategic plans into action by aligning the organization's structure, systems, processes, and culture with its strategic goals. It often involves setting clear action plans, establishing key performance indicators (KPIs), and monitoring progress. 6. Monitoring and Evaluation: Continuous monitoring and evaluation are essential to Strategic Management. Organizations must track their performance against predetermined objectives and make adjustments as necessary. The Balanced Scorecard and other performance measurement tools help in this regard. 7. Adaptation and Change: The business environment is dynamic, and Strategic Management recognizes the need for adaptation and change. Organizations must be Strategic Management-Pr. Oudmine Page 13  flexible and responsive to shifts in the external landscape and emerging opportunities or threats. The Strategic Management Process The Strategic Management process is typically depicted as a cyclical model, emphasizing the iterative nature of strategy development and execution. This process can be broken down into several interconnected stages: Stage 1: Setting Objectives and Mission Strategic Management begins with the establishment of clear, measurable objectives and a well-defined mission statement. Objectives provide specific targets that guide decision- making and performance evaluation, while the mission statement outlines the organization's fundamental purpose and values. Stage 2: Environmental Analysis The next step involves conducting a comprehensive analysis of the external and internal environment. This analysis informs the organization about current market conditions, competitive forces, regulatory changes, and internal strengths and weaknesses. Key tools for environmental analysis include SWOT analysis, PESTEL analysis, and Porter's Five Forces analysis. Stage 3: Strategy Formulation With a thorough understanding of the internal and external landscape, organizations proceed to strategy formulation. This stage involves identifying potential strategies to achieve the defined objectives. Strategies can be categorized into different types, such as corporate-level, business-level, and functional-level strategies. Corporate-level strategies deal with the organization's overall direction and scope, including decisions related to diversification, mergers and acquisitions, and portfolio management. Business-level strategies focus on how the organization competes within a specific industry or market segment, including choices related to cost leadership, differentiation, and focus. Functional-level strategies pertain to specific areas within the organization, such as marketing, operations, and human resources. Stage 4: Resource Allocation Once strategies are formulated, resource allocation becomes a critical consideration. Organizations must allocate financial, human, and other resources to support the chosen strategies. Resource allocation decisions should align with the organization's priorities and strategic goals. Stage 5: Strategy Implementation Strategic Management-Pr. Oudmine Page 14 Strategy implementation is where the rubber meets the road. Organizations translate their strategic plans into actionable initiatives. This involves establishing clear action plans, assigning responsibilities, and aligning the organization's structure, processes, and culture with the chosen strategies. Effective communication and leadership are crucial during this stage. Stage 6: Monitoring and Control Continuous monitoring and control are essential to ensure that the implemented strategies are on track and delivering the intended results. Key performance indicators (KPIs) and benchmarks are established to measure progress. Organizations use various performance management tools, such as the Balanced Scorecard, to track performance against objectives and make adjustments as needed. Stage 7: Evaluation and Feedback Evaluation is an ongoing process in Strategic Management. Organizations assess the effectiveness of their strategies and make adjustments based on feedback and changing circumstances. This may involve revising objectives, modifying strategies, or reallocating resources to better align with evolving priorities. Stage 8: Adaptation and Change Finally, Strategic Management recognizes the need for adaptability and responsiveness. Organizations must be agile and open to change in response to shifts in the business environment. This might involve pivoting to new strategies, entering new markets, or discontinuing initiatives that are no longer viable. The Significance of Strategic Management Strategic Management plays a pivotal role in the success and sustainability of organizations in today's complex and competitive business landscape. Here are some key reasons why it is of paramount importance: 1. Competitive Advantage: Strategic Management helps organizations identify and leverage their unique strengths and capabilities to gain a competitive advantage in the market. Whether through cost leadership, product differentiation, or other strategies, organizations can position themselves for success. 2. Adaptation to Change: In a rapidly changing business environment, organizations that engage in Strategic Management are better equipped to adapt to emerging trends, technological advancements, and shifting consumer preferences. 3. Resource Allocation: Efficient resource allocation is a fundamental aspect of Strategic Management. It ensures that an organization's limited resources are channeled towards initiatives that align with its strategic goals, maximizing return on investment. 4. Alignment with Mission and Vision: Strategic Management helps organizations stay true to their mission and vision. By regularly evaluating strategies and performance against these guiding principles, organizations can maintain a clear sense of purpose. Strategic Management-Pr. Oudmine Page 15  5. Risk Mitigation: Through thorough environmental analysis and scenario planning, Strategic Management enables organizations to identify potential risks and develop strategies to mitigate them. This proactive approach reduces the impact of unforeseen challenges. 6. Innovation and Growth: Strategic Management encourages innovation and growth by guiding organizations in exploring new markets, technologies, and business models. It promotes a forward-looking mindset. 7. Improved Decision-Making: The systematic approach of Strategic Management enhances decision-making by providing a structured framework for evaluating options and their potential outcomes. 8. Sustainability: Strategic Management includes considerations of sustainability and corporate social responsibility. It encourages organizations to make ethical and environmentally responsible choices in their strategies. 9. Organizational Alignment: Successful Strategic Management requires alignment throughout the organization. It fosters a shared understanding of goals and priorities among employees, promoting unity of purpose. Challenges in Strategic Management While Strategic Management offers numerous benefits, it is not without challenges and complexities: 1. Uncertainty: The business environment is inherently uncertain, making it challenging to predict future trends and outcomes accurately. 2. Resistance to Change: Employees and stakeholders may resist changes associated with new strategies, requiring effective change management. 3. Information Overload: Gathering and analyzing vast amounts of data for environmental scanning can be overwhelming. 4. Competitive Intensity: The intensity of competition in many industries requires constant strategic innovation to stay ahead. 5. Globalization: Organizations operating in the global arena must navigate diverse cultural, regulatory, and economic environments. 6. Ethical Dilemmas: Balancing profitability with ethical considerations can pose ethical dilemmas in decision-making. 7. Strategic Drift: Organizations may drift away from their strategic objectives over time if they do not regularly review and adapt their strategies. Importance of Strategic Management Strategic management is the compass that guides organizations in their pursuit of success. It is a multifaceted discipline that encapsulates a range of processes, from defining an organization's mission to formulating and implementing strategies, all the way to evaluating and adapting to changing circumstances. In today's complex and dynamic business landscape, the importance of strategic management cannot be overstated. At the heart of strategic management lies the process of setting objectives and defining an organization's mission, vision, and values. This initial step is not just a theoretical exercise; it Strategic Management-Pr. Oudmine Page 16 is the foundation upon which the entire strategic management process is built. Without a clear sense of purpose, organizations risk drifting aimlessly in a sea of uncertainty. Vision is a forward-looking statement that describes the desired future state or the long-term aspirations of the organization. It provides a compelling and inspirational image of what the organization aims to become. Mission is a concise statement that defines the fundamental purpose and scope of the organization. It outlines what the organization does, for whom, and why it does it. A mission statement helps employees, stakeholders, and customers understand the core business of the organization. Objectives are specific, measurable, and time-bound goals that an organization sets to achieve its mission and vision. They serve as the building blocks of the strategic plan and provide a clear path to realizing the long-term vision. Objectives are often categorized into financial, customer, internal processes, and learning and growth perspectives. Company values represent the fundamental beliefs, principles, and ethics that guide the behavior and decisions of the organization. They reflect the organizational culture and help in making consistent choices and actions. Values are important in establishing the organization's identity and fostering a positive work environment. One of the core values of strategic management is alignment. It ensures that every facet of an organization, from its structure and processes to its culture and resource allocation, is in harmony with its strategic goals. This alignment enhances efficiency and effectiveness, enabling organizations to channel their efforts toward achieving their strategic objectives. Strategic management also provides organizations with the tools to gain a competitive advantage. By identifying their unique strengths and capabilities, organizations can develop strategies that set them apart from their competitors. Whether through cost leadership, product differentiation, or other strategies, they can position themselves for success in the market. Moreover, strategic management equips organizations to adapt to change effectively. In a rapidly evolving business environment, adaptability is a crucial attribute. Organizations that Strategic Management-Pr. Oudmine Page 17 engage in strategic management are better prepared to respond to emerging trends, technological advancements, and shifting consumer preferences. It promotes agility and flexibility, allowing organizations to navigate uncertainty with confidence. Efficient resource allocation is another fundamental aspect of strategic management. It ensures that an organization's limited resources—financial, human, and technological—are directed toward initiatives that align with its strategic goals. This careful allocation maximizes return on investment and minimizes wastage. Furthermore, strategic management helps organizations mitigate risks. Through thorough environmental analysis and scenario planning, organizations can identify potential threats and develop strategies to counteract them. This proactive approach reduces the impact of unforeseen challenges, enhancing an organization's resilience. Innovation and growth are also fostered by strategic management. It encourages organizations to explore new markets, technologies, and business models. By promoting a forward-looking mindset, it empowers organizations to continuously seek opportunities for expansion and improvement. The systematic approach of strategic management improves decision-making. It provides a structured framework for evaluating options and their potential outcomes. This discipline reduces the likelihood of ad-hoc decisions and ensures that choices are made based on a clear understanding of their implications. Moreover, strategic management encourages sustainability and corporate social responsibility. It guides organizations to make ethical and environmentally responsible choices in their strategies, recognizing the importance of long-term sustainability over short- term gains. Successful strategic management requires alignment throughout the organization. It fosters a shared understanding of goals and priorities among employees, promoting unity of purpose and reducing internal conflicts. This alignment contributes to a more harmonious and efficient workplace. Furthermore, strategic management establishes key performance indicators (KPIs) and metrics for measuring progress toward strategic goals. This facilitates regular performance evaluations, enabling organizations to course-correct as needed. It ensures that the organization remains on track and focused on its objectives. For organizations looking to expand globally, strategic management offers a structured approach to assessing international markets, risks, and opportunities. It provides the necessary framework for making informed decisions about international business expansion. Additionally, strategic management emphasizes customer-centricity. By focusing on customer needs and preferences in their strategies, organizations can improve customer satisfaction and loyalty, which can ultimately lead to increased market share and profitability. Strategic Management-Pr. Oudmine Page 18 Lastly, it guides organizations in ethical decision-making. Strategic management frameworks often include considerations of ethics and social responsibility, guiding organizations to make principled decisions that benefit both society and the bottom line. This ethical approach helps organizations build trust and goodwill, which can be valuable assets in the long run. Section 2 : External Analysis There are two parts or levels - Environmental analysis of the ‘far’ or ;macro’ environment affecting all firms, and the industry analysis of the ‘near’ or ‘micros’ environment which is much more specific. The macro-environment represents forces that affect all firms across all industries. Benefits of external analysis include : Increasing managerial awareness of environmental changes. Increasing understanding of the context in which industries and markets function. Increasing understanding of multinational settings. Improving resource allocation decisions. Facilitating risk management. Focusing attention on the primary influences on strategic change. 1- Industry Analysis in Strategic Management An industry consists of a group of firms offering products or services that are close substitutes for each other. The products satisfy the same basic consumer needs. According to Thompson and Strickland, an industry is a group of firms whose products have so many of the same attributes that they compete for the same buyers. Byars, Rue and Zahra defined industry as a group of companies that offer products, goods or services that satisfy similar customers needs. For example, laundry bar soap and detergent powder are close substitutes for each other. The soap manufacturers are in the same basic industry as the companies that manufacture detergent powder. Both of these products serve the same consumer need – the need of washing clothes. In the realm of strategic management, industry analysis stands as a foundational pillar upon which organizations build their competitive strategies. It is the art of dissecting the external environment in which a business operates, understanding its dynamics, and discerning the opportunities and threats that can profoundly affect its success. Industry analysis begins with a profound acknowledgment of the reality that organizations do not exist in isolation; they are part of larger ecosystems. To comprehend their place in this ecosystem, businesses meticulously examine their industry, which consists of Strategic Management-Pr. Oudmine Page 19 competitors, suppliers, customers, regulatory bodies, and other stakeholders. This thorough scrutiny enables organizations to craft strategies that are responsive to external forces. One of the foremost reasons for conducting industry analysis is to gain insights into the competitive landscape. Within every industry, a dynamic interplay of rivalries unfolds. Competitive forces shape the industry's attractiveness and profitability. This is where Michael Porter's Five Forces framework comes into play. It systematically dissects the forces of rivalry among existing competitors, the bargaining power of buyers and suppliers, the threat of new entrants, and the threat of substitute products or services. By assessing these forces, organizations can gauge the intensity of competition and identify potential areas of advantage. Necessity of Industry Analysis Industry environment influences a company’s business operations tremendously. Thus, it is absolutely essential for a company to fit its strategy to its industry environment. If it becomes very difficult or impossible to do it, the company must reshape the industry’s environment to its advantage by adopting appropriate strategy. No organizations can expect good strategy-making without a detailed analysis of industry environment. That is why, it is widely recognized that good strategy-making should be preceded by good industry and competitive analysis. Industry analysis provides necessary information about the industry’s situations. From this analysis, managers can obtain information regarding many industry-related issues such as the following:  Economic features of the industry like market size, number of customers and sellers, technology, nature of standardization of product, market growth potential, prospect of making profit etc.  Strength of competition and competitive pressures.  Major driving forces in the industry that cause pressures for change.  Financial and competitive positions of the competitors in the marketplace.  Strategies undertaken by the competitors.  Industry’s key success factors such as design in garments industry.  Attractiveness of the industry in terms of growth prospect, degree of uncertainty in the future. Furthermore, industry analysis is an invaluable tool for understanding the broader market trends and forces that can influence an organization's performance. Macroeconomic factors, such as economic cycles, inflation rates, and interest rates, can significantly impact an industry's dynamics. Sociocultural shifts, technological advancements, and regulatory changes can reshape market conditions. An organization that fails to grasp these trends may find itself ill-prepared to navigate the changing tides of its industry. Market segmentation, another crucial aspect of industry analysis, helps organizations identify distinct customer groups within an industry. By dividing the market into segments based on demographics, psychographics, or other factors, organizations can tailor their strategies to meet the unique needs and preferences of different customer segments. This Strategic Management-Pr. Oudmine Page 20 not only enhances customer satisfaction but also opens up opportunities for niche or focused strategies. Understanding the life cycle of an industry is paramount in crafting effective strategies. Industries typically go through stages, including introduction, growth, maturity, and decline. Recognizing where an industry resides in this life cycle informs decisions on resource allocation, pricing strategies, and product development. In a growing industry, for instance, organizations may focus on rapid expansion and market share, while in a mature industry, they may emphasize cost reduction and efficiency. Moreover, industry analysis aids organizations in assessing their relative competitive position. Through benchmarking and comparative analysis, businesses can gauge how they stack up against their peers. This awareness can drive strategies for differentiation, cost leadership, or niche specialization. Industry analysis is not merely a one-time exercise but an ongoing process. The business environment is in constant flux, and organizations must continuously monitor and adapt to changes. Regular environmental scanning helps organizations stay agile and responsive to emerging threats and opportunities. With these data, managers can achieve several purposes: 1 1. Identifying and selecting the company’s arena by defining its industry and served markets. 2. Identifying business opportunities and uncovering niche markets. 3. Providing a benchmark for evaluating the company relative to the competitors and, based on it, developing skills and capabilities necessary for success. 4. Shortening the company’s response time to competitors’ moves. 5. Restricting or preempting competitors’ moves. 6. Encouraging organizational development through frequent interactions among the executives during the analysis. 7. Helping the company to gain a competitive advantage through identifying any area where the company holds a significant advantage over its rivals. 8. Enhancing organizational learning by exposing managers to the ideas land actions of their competitors. 9. Providing invaluable insights into the industry and competition, which help managers identify appropriate strategy and implement strategy successfully. Preparing an Industry Analysis Plan Industry analysis provides information about the industry situations that help strategy- makers concentrate on strategic thinking and predicting the future of the industry. An insight about the overall industry situations facilitates effective and pragmatic strategy- making. On the basis of the above analyses, managers can prepare a document containing all the information related to the competitive forces in the industry. Below is given a sample format for jotting down the information in a document form Strategic Management-Pr. Oudmine Page 21 After making an analysis of the industry environment, managers have no reason to suffer from complacency. They cannot really make winning strategy unless they gather information regarding the company’s internal situations and the general macroenvironmental factors. In the industry analysis, managers look at the industry-specific macroenvironmental factors only. This analysis provides only industry-related external opportunities and threats. But they cannot know about the general opportunities and threats that arise from the general economic environment, political and legal environment, social and cultural environment, natural environment and demographic environment. 2- PESTEL Analysis in Strategic Management: Navigating the Complex Business Environment The broader business environment is paramount to an organization's success. A PESTEL analysis, which examines the political, economic, sociocultural, technological, environmental, and legal factors shaping this environment, is a powerful tool that helps organizations navigate the complex landscape they operate in. Strategic Management-Pr. Oudmine Page 22 The PESTLE Analysis provides you with a framework that enables you to investigate your external environment by asking questions for each factor and discussing the likely impli- cations. These are the types of questions you would ask: 1. What are the key political factors? 2. What are the important economic factors? 3. What cultural aspects are most important? 4. What technological innovations are likely to occur? 5. What current and impending legislation may affect the industry? 6. What are the environmental considerations? How you categorize each issue raised is not important when using the PESTLE technique because the aim of this tool is simply to identify as many factors as possible. For exam- ple, whether you classify an impending government regulation as a Political or Legal issue is not important. The only thing that matters is that it is identified as potentially having an impact on your organization. There are several common variations of the PESTLE Analysis, with some using more fac- tors and some using fewer than the six considered by PESTLE. Strategic Management-Pr. Oudmine Page 23 The most common variations are shown in the diagram above. The important thing to note is that these are all just variations of the one analysis tool; the underlying method is the same in all cases. ETPS—Economic, Technical, Political, and Social STEP—Strategic Trend Evaluation Process STEPE—Social, Technological, Economic, Political, and Ecological PEST—Political, Economic, Social, and Technological STEEPLE—Social, Technological, Economic, Ethical, Political, Legal, and En- vironmental PESTLIED—Political, Economic, Social, Technological, Legal, International, Environmental, and Demographic STEEPLED—Social, Technological, Economic, Environmental, Political, Legal, Educational, and Demographic. Political Factors: Political factors encompass government policies, regulations, and stability. They have a profound impact on businesses, as policies can either create opportunities or pose significant challenges. For instance, changes in tax laws can influence financial planning, while shifts in trade agreements can affect supply chains. PESTEL analysis enables organizations to anticipate potential political disruptions and adapt their strategies accordingly. It also guides organizations in lobbying efforts and public policy advocacy to influence favorable political outcomes. Strategic Management-Pr. Oudmine Page 24 It is always advisable to keep abreast of potential policy changes in any government because even where the political situation is relatively stable there may be changes in policy at the highest level and these can have serious implications. This may result in changes in government priorities, which in turn can result in new ini- tiatives being introduced as well as changes to trade regulations or taxation. These can include changes in:  Employment laws  Consumer protection laws  Environmental regulations  Taxation regulations  Trade restrictions or reforms  Health and safety requirements. Economic Factors: Economic factors encompass the broader economic conditions in which an organization operates. These conditions include factors such as inflation rates, exchange rates, interest rates, and overall economic growth. Understanding these economic forces is essential for strategic decision-making. Economic downturns, for example, can impact consumer spending patterns, necessitating adjustments in pricing and product offerings. Strategic Management-Pr. Oudmine Page 25 These issues include: assessing potential changes to an economy’s inflation rate, taxes, interest rates, exchange rates, trading regulations, and excise duties. In terms of your operational efficiency you would also need to consider such factors as unemployment, skills levels, availability of expertise, wage patterns, working practices, and labor cost trends. When trying to determine the economic viability of a market you would also look at such issues as the current cost of living for your target market as well as the availability of credit or finance. Sociocultural Factors: Sociocultural factors relate to societal values, beliefs, lifestyles, and demographic trends. These factors shape consumer preferences, buying behaviors, and market demand. A PESTEL analysis helps organizations recognize shifts in social attitudes and behaviors that may influence their products or services. For instance, changing attitudes toward sustainability have prompted organizations to adopt more environmentally friendly practices and offerings. Sociocultural awareness also informs marketing strategies and product positioning. Strategic Management-Pr. Oudmine Page 26 Social factors that need to be considered are those that have an impact on your market. These include:  Age distribution  Population growth rate  Employment levels  Income statistics  Education and career trends  Religious beliefs  Cultural and social conventions. Technological Factors: In today's rapidly evolving technological landscape, keeping pace with technological advancements is essential. Technological factors encompass innovations, research and development, and the adoption of new technologies within an industry. A PESTEL analysis guides organizations in assessing the technological trends that may impact their competitive position. It helps identify opportunities for innovation, automation, and digital transformation. Failing to adapt to technological changes can leave organizations at a disadvantage in a technology-driven world. Strategic Management-Pr. Oudmine Page 27 Technological factors can be broadly divided into two areas: manufacture and infrastruc- ture. By exploiting opportunities to update or alter their production an organization can gain market share, thereby attaining a strong competitive advantage. Such activities include:  Automation  Improved quality of parts and end product  Incentives  Significant cost savings  Use of outsourcing to control costs and offer greater flexibility Technological advances have also allowed organizations much greater freedom of choice when deciding how best to manage their operations. For example, knowledge-based sys- tems have enabled management to make better and more informed decisions in real- time. The rapid growth in networking capabilities, both in terms of being more reliable and having extensive coverage internationally, has allowed organizations to streamline their workflow and eliminate operational bottlenecks. Organizations that fail to keep up with technological advances leave opportunities for a smaller producer or new entrant to enter their market and erode their leadership status. Environmental Factors: Environmental factors involve sustainability, climate change, and ecological considerations. Organizations are increasingly under pressure to adopt environmentally responsible practices. Strategic Management-Pr. Oudmine Page 28 The issues surrounding environmental protection have become increasingly important in recent years as the implications of under-regulated economic activity are seen today. This has become more significant with globalization as the impact of an organization’s actions may be felt outside of its native country and may incur unquantifiable financial penalties. Other environmental factors are those that relate to the weather, climate, and geographical location. Legal Factors: Legal factors encompass laws, regulations, and legal constraints that affect business operations. These can include labor laws, intellectual property rights, health and safety regulations, and industry-specific compliance requirements. This analysis helps organizations stay compliant with changing legal standards, avoid costly legal disputes, and ensure that their strategies align with prevailing legal frameworks. It also aids in identifying potential legal barriers or opportunities in new markets. Strategic Management-Pr. Oudmine Page 29 The list of legal factors that should be considered includes current and impending legislation that may affect the industry in areas such as employment, competition, and health and safety. Anticipated changes in legislation in the main trading partner countries should also be investigated. Recent years have seen a significant rise in the number of regulatory bodies that have been set up to monitor organizations’ observance of legislation relating to all areas of operations, including consumer protection, employee welfare, waste disposal, and how their earnings and investments will be taxed. There are also the trading restrictions, quotas, and excise duties to consider. All these factors affect the way in which an organization functions and have cost im- plications that need to be taken into account when formulating business strategy. In conclusion, PESTEL analysis is a pivotal tool in strategic management, offering organizations a comprehensive view of the external factors shaping their business environment. It empowers organizations to make informed decisions, proactively adapt to change, and identify opportunities for growth and innovation. In a world marked by increasing complexity and uncertainty, PESTEL analysis is the compass that guides organizations through the intricate terrain of the business landscape. It enables them to develop strategies that are not only resilient but also responsive to the multifaceted challenges and opportunities of the modern business world. To maximize the benefit of the PESTLE Analysis it should be used on a regular basis within an organization to enable the identification of any trends. The impact of a certain external factor may have more severe consequences for a particular division or department and the PESTLE technique can help clarify why change is needed and identify potential options. As with all techniques there are advantages and disadvantages to using it to help plan organizational strategy. Advantages  Provides a simple and easy-to-use framework for your analysis.  Involves cross-functional skills and expertise.  Helps to reduce the impact and effects of potential threats to your organization.  Aids and encourages the development of strategic thinking within your organization.  Provides a mechanism that enables your organization to identify and exploit new opportunities.  Enables you to assess implications of entering new markets both nationally and globally. Disadvantages × Users can oversimplify the information that is used for making decisions. × The process has to be conducted regularly to be effective and often organizations do not make this investment. Strategic Management-Pr. Oudmine Page 30  × Users must not succumb to ‘paralysis by analysis’ where they gather too much information and forget that the objective of this tool is the identification of issues so that action can be taken. × Organizations often restrict who is involved due to time and cost considerations. This limits the technique’s effectiveness as a key perspective may be missing from the discussions. × Users’ access to quality external information is often restricted because of the cost and time needed to collate it. × Assumptions often form the basis for most of the data used, making any decision made based on such data subjective. This analysis technique should be used in conjunction with other tools such as a SWOT and other strategy tools. The objective of using the PESTLE Analysis is to ensure that you have identified the important implications for your organization and that nothing key has been overlooked. 3- Porter's Five Forces Model Understanding and analyzing the competitive forces at play within an industry is crucial for organizations seeking to formulate effective strategies. The model of the Five Competitive Forces was developed by Michael E. Porter in his book Competitive Strategy: Techniques for Analyzing Industries and Competitors“ in 1980. Since that time it has become an important tool for analyzing an organizations industry structure in strategic processes. Strategic Management-Pr. Oudmine Page 31 Porters model is based on the insight that a corporate strategy should meet the opportunities and threats in the organizations external environment. Especially, competitive strategy should base on and understanding of industry structures and the way they change. Porter has identified five competitive forces that shape every industry and every market. These forces determine the intensity of competition and hence the profitability and attractiveness of an industry. The objective of corporate strategy should be to modify these competitive forces in a way that improves the position of the organization. Porters model supports analysis of the driving forces in an industry. Based on the information derived from the Five Forces Analysis, management can decide how to influence or to exploit particular characteristics of their industry. 1. Rivalry Among Existing Competitors: The first force, "Rivalry Among Existing Competitors," delves into the intensity of competition within an industry. It's the heart of the model. In highly competitive industries, organizations face pressures to continuously innovate, reduce prices, and improve product quality to gain or maintain market share. Understanding the competitive landscape helps organizations assess the challenges they face and make informed decisions on their competitive strategies, whether it's through differentiation, cost leadership, or niche focus. This force describes the intensity of competition between existing players (companies) in an industry. High competitive pressure results in pressure on prices, margins, and hence, on profitability for every single company in the industry. Competition between existing players is likely to be high when :  There are many players of about the same size,  Players have similar strategies Strategic Management-Pr. Oudmine Page 32   There is not much differentiation between players and their products, hence, there is much price competition  Low market growth rates (growth of a particular company is possible only at the expense of a competitor),  Barriers for exit are high (e.g. expensive and highly specialized equipment) 2. Bargaining Power of Buyers: The second force, the "Bargaining Power of Buyers," centers on the influence customers have in the market. Buyers with high bargaining power can demand lower prices, better quality, or additional services. By analyzing this force, organizations can tailor their marketing and pricing strategies to meet customer expectations while safeguarding profitability. It also encourages organizations to build strong customer relationships and enhance brand loyalty. Similarly, the bargaining power of customers determines how much customers can impose pressure on margins and volumes. Customers bargaining power is likely to be high when :  They buy large volumes, there is a concentration of buyers,  The supplying industry comprises a large number of small operators  The supplying industry operates with high fixed costs,  The product is undifferentiated and can be replaces by substitutes,  Switching to an alternative product is relatively simple and is not related to high costs,  Customers have low margins and are price-sensitive,  Customers could produce the product themselves,  The product is not of strategical importance for the customer,  The customer knows about the production costs of the product  There is the possibility for the customer integrating backwards. 3. Bargaining Power of Suppliers: The third force, the "Bargaining Power of Suppliers," focuses on the influence suppliers wield. Suppliers with high bargaining power can raise prices or limit the supply of critical inputs, affecting an organization's cost structure and competitiveness. Organizations can mitigate this threat by diversifying suppliers, forming strategic partnerships, or developing in-house capabilities. Recognizing supplier power prompts organizations to ensure the reliability and stability of their supply chains. The term 'suppliers' comprises all sources for inputs that are needed in order to provide goods or services. Supplier bargaining power is likely to be high when:  The market is dominated by a few large suppliers rather than a fragmented source of supply,  There are no substitutes for the particular input,  The suppliers customers are fragmented, so their bargaining power is low,  The switching costs from one supplier to another are high, Strategic Management-Pr. Oudmine Page 33   There is the possibility of the supplier integrating forwards in order to obtain higher prices and margins. This threat is especially high when :  The buying industry has a higher profitability than the supplying industry,  Forward integration provides economies of scale for the supplier,  The buying industry hinders the supplying industry in their development (e.g. reluctance to accept new releases of products),  The buying industry has low barriers to entry. In such situations, the buying industry often faces a high pressure on margins from their suppliers. The relationship to powerful suppliers can potentially reduce strategic options for the organization. 4. Threat of New Entrants: The fourth force, the "Threat of New Entrants," addresses the ease with which new competitors can enter an industry. Industries with low barriers to entry are more susceptible to new entrants, potentially intensifying competition. Conversely, high barriers, such as significant capital requirements or complex regulatory hurdles, deter new players. Understanding this force helps organizations assess their vulnerability and develop strategies to fortify their market position, such as through proprietary technologies or economies of scale. The competition in an industry will be the higher, the easier it is for other companies to enter this industry. In such a situation, new entrants could change major determinants of the market environment (e.g. market shares, prices, customer loyalty) at any time. There is always a latent pressure for reaction and adjustment for existing players in this industry. The threat of new entries will depend on the extent to which there are barriers to entry. These are typically :  Economies of scale (minimum size requirements for profitable operations),  High initial investments and fixed costs,  Cost advantages of existing players due to experience curve effects of operation with fully depreciated assets,  Brand loyalty of customers  Protected intellectual property like patents, licenses etc,  Scarcity of important resources, e.g. qualified expert staff  Access to raw materials is controlled by existing players,  Distribution channels are controlled by existing players,  Existing players have close customer relations, e.g. from long-term service contracts,  High switching costs for customers  Legislation and government action 5. Threat of Substitute Products or Services: The fifth force, the "Threat of Substitute Products or Services," scrutinizes the availability of alternatives that can fulfill the same customer needs. The presence of close substitutes can limit an organization's pricing power. Organizations must identify potential substitutes and Strategic Management-Pr. Oudmine Page 34 assess their appeal to customers. This awareness prompts innovation and differentiation strategies to make their products or services unique and less substitutable. A threat from substitutes exists if there are alternative products with lower prices of better performance parameters for the same purpose. They could potentially attract a significant proportion of market volume and hence reduce the potential sales volume for existing players. This category also relates to complementary products. Similarly to the threat of new entrants, the treat of substitutes is determined by factors like  Brand loyalty of customers,  Close customer relationships,  Switching costs for customers,  The relative price for performance of substitutes,  Current trends. Figure Porter’s Five Forces Graphic Design (Tulchinskaya, 2019) Strategic Implications of Porter’s Model Porter’s Five Forces Model reveals most important strategic clues in an industry’s competitive environment. These are strength of each of the five forces, nature of the competitive pressures of each force, and the overall structure of competition in the industry. Profit margins for all competing firms become thin if the suppliers and buyers have considerable bargaining leverage, competition among sellers is strong, low entry barriers Strategic Management-Pr. Oudmine Page 35 allow companies to enter easily into the industry, and competition from substitutes is strong. The opposite happens when the competitive forces are not collectively strong. Porter argues that the stronger each of these forces is, the more limited is the ability of established companies to raise prices and earn greater profits. A strong competitive force can be regarded as a threat since it depresses profits. A weak competitive force can be viewed as an opportunity, for it allows a company to earn greater profits. The strength of the five forces may change through time as industry conditions change. The manager’s task is to study how changes in the five forcesgive rise to new opportunities and threats. His/her next task is to formulate appropriate strategic responses. Manager’s strategy-makingtask becomes easier when he/she can gauge the competitive insights from the analysis of the five forces. The information from the analysis of five forces helps managers formulate winning strategy that can ensure the company a sustainable competitive advantage. Porter’s Model has major drawbacks as a tool for industry analysis. It can be used for analyzing only the degree of competition in the industry. It cannot explore such factors as the influential economic factors in the industry that are relevant to managerial strategy- making. It also fails to identify the driving forces – major causes of changing industry conditions. It is also difficult to assess, with this model, the competitive position of rivals and their likely strategic moves, and overall industry attractiveness. 4- Thompson and Strickland’s Seven Factors Model The model for industry and competitive analysis proposed by Thompson and Strickland has been able to overcome the drawbacks of Porter’s Model. It seems to be comprehensive. It touches on all the relevant issues in an industry that need to be analyzed for assessing the overall industry situations, including the degree of competition in the industry. The seven factors of the Thompson and Strickland are as follows: 1  Industry’s dominant economic features.  Main sources of competitive pressure and the strengths of the competitive forces.  Driving forces.  Market position of the rival companies.  Competitor’s strategic moves.  Industry’s key success factors.  Industry’s overall attractiveness and profitability prospects. An analysis of these factors reveals competitive structure of the industry. Let’s discuss the factors one by one. The information generated through the analysis of these factors would build understanding of a firm’s surrounding environment and form the basis for matching strategy to changing industry conditions and competitive forces. Factor-1: Dominant Economic Features of the Industry An industry’s economic features are important because their implications for strategy making are great. Economic features of an industry generally include: Market size; scope of competitive rivalry (local, regional etc); market growth rate and position; stage in life cycle Strategic Management-Pr. Oudmine Page 36 (early development, rapid growth and takeoff, decline and decay etc); number of companies in industry; number of customers; extent of backward linkage or forward linkage (i.e., degree of vertical integration in the industry); ease of entry into the industry; ease of exit from the industry; types of distribution channels; level of differentiation of competitors’ products; technology/innovation; opportunities to realize economies of scale by the companies; capacity utilization; and industry profitability. An industry’s economic features are relevant to managerial strategy making in various ways. Here are some examples. The strategic importance of ‘market size’ is that small markets do not usually attract big competitors but big markets do it. The strategic importance of ‘entry barriers’ is that high barriers protect market position and profits of existing firms and low barriers invite more and more potential competitors to enter into the industry. Similarly, big capital requirements create barriers to entry of potential competitors. Factor-2: Main Sources of Competitive pressures An important component of industry analysis is sources of competitive pressures and the strengths of each competitive force. An understanding of the competitive character of the industry helps managers develop successful strategy. Thompson and his colleague suggested the use of Michael Porter’s Five Forces Model for the analysis of competitive pressures and the strength of each force of competition. They are of the view that the state of competition in an industry is a composite of five competitive forces identified by Porter. Factor-3: Driving Forces Economic characteristics say a very little about the ways in which the environment may be changing because of new developments in the industry. New developments take place in the industry because important forces are always driving the competitors, customers and suppliers to alter their actions. These forces in the industry are the major underlying causes of changing competitive conditions in the industry. These are called driving forces. The most common driving forces are changes in the long-term industry growth rate, changes in buyer demographics, product innovation, technological change, marketing innovation, entry or exit of major firms, diffusion of technical know-how, increasing globalization of the industry, changes in cost and efficiency, emerging buyer preferences, government policy changes, changing attitudes and life-styles etc. Early detection of driving forces is possible through systematically and regularly scanning the industry environment as well as other external factors. Known as Environmental Scanning, this qualitative technique of investigating into external factors involves itself in monitoring and studying current events, constructing scenarios and identifies the driving forces. Many large companies employ environmental scanning on a continuous basis such as Coca-Cola, Motorola, Shell Oil, etc. There may be many forces of change in an industry but in reality all do not qualify as ‘driving forces’. Managers need to carefully evaluate the forces so that they can intelligently separate the major changes from the minor changes. This would help mangers formulate sound strategy. Strategic Management-Pr. Oudmine Page 37 Factor-4: Market Position of Competitors Market position of competitors in the industry has a bearing on the overall competition in the industry. Therefore, the strengths of competitive forces need to be analyzed. Such analysis is important to discover the main sources of competitive pressures and how strong they are. Attempt is made to study the market position of rival companies. One technique for revealing the competitive (market) positions of industry participants is strategic group mapping. It is most useful when an industry has so many competitors that it is not practical to examine each one in depth. Strategic group mapping endeavors to determine the strategic group for a product of a company. So, naturally, the question arises: What is a strategic group? Strategic Group: Companies in an industry often differ with respect to several factors: distribution channels, market segments, quality of products, technological leadership, customer service, pricing policy, advertisement policy and promotion policy, etc. As a result, some companies follow the same basic strategy and follow a different strategy than that of companies in other groups. These groups are known as strategic groups. The competitors that pursue similar strategic approaches and have similar positions in the market constitute a strategic group. For instance, although Maruti car is in the automobile industry, it is not a competitor of Civic Honda. Subaru is not competing with Mercedes-Benz. Figure shows two main strategic groups - Proprietary Group, and Generic Group - in the pharmaceutical industry Figure 1 wo strategic groups in the pharmaceutical industry. Companies in the same strategic group can resemble one another in any of several ways:  comparable product line breadth  using same kind of distribution channels  offering buyers similar services and tech assistance  using essentially the same product attributes Strategic Management-Pr. Oudmine Page 38   depending on identical technological approaches or  selling in the same price/quality range. Proprietary group (companies) members are characterized by heavy R&D spending and high prices. They focus on developing new proprietary blockbuster products. They pursue a high risk/high return strategy. Generic group members focus on the manufacture of generic products – low cost copies of products previously patented by the proprietary group (now patents have expired). They are characterized by low R&D spending and an emphasis on price competition. They pursue a low-risk, low-return strategy. The implications of strategic groups are: b. A company’s closest competitors are those in its strategic groups, not those in other strategic groups. A major threat to a company’s profitability can come from within its own strategic group. c. Porter’s five-forces can all vary in intensity among different strategic groups within the same industry. Procedure for Constructing A Strategic Group Map Thompson and Strickland suggested the following procedure for the construction of a strategic group map: a. Identify the competitive characteristics that differentiate firms in the industry (variables: price, quality range, geographical coverage, degree of vertical integration, product line breadth, use of distribution channels, degree of service offered) b. Plot the firms on a two-variable map using pairs of these differentiating characteristics. c. Assign firms in that fall in about the same strategy space to the same strategic group. d. Draw circles around each strategic group, making the circles proportional to the size of the group’s respective share of total industry sales revenues. The closer the strategic groups are to each other on the map, the stronger the competition among the member companies. The next closest competitors are in the immediately adjacent groups. Factor -5: Strategic Moves of the Competitors Strategic moves refer to strategic steps or actions undertaken by a company. Every company must be informed of the strategic moves of the competitors. Information about the competitors’ strategic moves can be obtained through an analysis of their moves in a systematic way. The analysis involves (i) identifying competitors’ strategies, (ii) analyzing the strategies, (iii) watching the actions of the competitors, (iv) understanding their strengths Strategic Management-Pr. Oudmine Page 39 and weaknesses, and (v) anticipating what moves they will make next. After scouting the competitors’ strategic moves, managers can decide about the appropriate counter-moves. They can plan their own actions to defeat the competitors. It is simply impossible to outcompete a competitor without monitoring their actions and predicting their future moves. Managers of a company can gather information about the strategies of competitors by: a. Examining what the competitors are doing in the marketplace; b. Monitoring what the management of the competing companies is saying about their plans; c. Considering competitors’ geographical market arena, strategic intent, market share objective and willingness to take risks; d. Trying to understand whether competitors’ recent moves are offensive or defensive; e. Directly visiting the competitors’ offices to get information about prices, wage and salary levels, introduction of new products, etc.; f. Pumping competitors’ representatives at trade shows/exhibitions/ trade fairs; and g. Searching through garbage dumpsters outside competitors’ offices (may be considered unethical, although not illegal). Factor-6: Industry’s Key Success Factors There are certain factors in every industry that determine a product’s success in the market. These may include attributes of the product, resources of the company, competitive capabilities etc. these factors are called ‘key success factors’ (KSF). A sound strategy incorporates industry key success factors. They are prerequisites for industry success. That is why, all firms in the industry must pay close attention to the KSF. For example, KSF in the juice industry include: full utilization of juice- producing capacity (to lower down costs), strong network of middlemen (to have a wider distribution of products over a region or the country), unique flavor and taste, etc. Even packaging can be a success factor if the juice is targeted to young groups. Key success factors usually vary from industry to industry. The variations occur mainly because of changes in the driving forces and competitive conditions in the industry. This warrants that the managers of companies need to give careful attention to identifying the major KSF and avoid the minor ones. Factor-7: Industry Attractiveness Strategy-makers in a company must be able to give answer to the question: “Is the industry attractive and what are its prospects for above- average profitability?” In order to answer to this question, strategists review the overall industry situation and develop reasoned conclusions about the relative attractiveness or unattractiveness of the industry. The factors that they usually analyze for assessing industry attractiveness include: Strategic Management-Pr. Oudmine Page 40  a. industry’s growth potential b. favorable or unfavorable impact by the prevailing driving forces c. competitive position of the company in the industry d. potential entry or exit of major firms e. stability and/ or dependability of demand f. possibility of competitive forces becoming stronger or weaker g. severity of problems/issues confronting the industry as a whole h. degrees of risk and uncertainty in the industry’s future. Section 3 : Internal Analysis 1- SWOT Analysis in Strategic Management: A Holistic View of Organizational Strategy SWOT analysis stands as a versatile and indispensable tool for organizations seeking to formulate effective strategies. SWOT is a popular 4-box strategy analysis and strategy development model. The acronym SWOT is derived from :  Strengths  Weaknesses  Opportunities  Threats. SWOT has been around for decades and could lay claim to being the most widely used strategy tool in modern times. It is used by industry, commerce, charitable and voluntary organisations. In higher education, SWOT is often a key part of business studies and MBAs. If you have ever applied for a business bank loan, it is likely that the bank would want to see a SWOT analysis or something similar. Strengths: Strengths encompass the internal attributes and resources that give an organization a competitive advantage or unique capabilities. These are the qualities or assets that an organization can leverage to achieve its strategic objectives. Strengths could be in the form of strong brand recognition, proprietary technology, talented workforce, efficient processes, or a loyal customer base. Identifying and harnessing these strengths enables organizations to build on their existing advantages, differentiate themselves in the market, and seize opportunities. Weaknesses: Weaknesses, on the other hand, are the internal shortcomings, limitations, or vulnerabilities that hinder an organization's performance or competitiveness. They may include inadequate resources, outdated technology, inefficient processes, or a lack of expertise in specific areas. Acknowledging weaknesses is the first step toward addressing them. By identifying and addressing weaknesses, organizations can minimize potential roadblocks, improve internal operations, and enhance their overall strategic position. Opportunities: Opportunities are external factors or favorable conditions in the business environment that an organization can exploit to its advantage. These could be emerging Strategic Management-Pr. Oudmine Page 41  market trends, shifts in customer preferences, untapped market segments, or advancements in technology. Recognizing opportunities is essential for organizations to make informed strategic choices. It empowers them to align their strategies with market dynamics, tap into growth areas, and position themselves favorably in the competitive landscape. Threats: Threats encompass external factors or challenges in the business environment that pose risks to an organization's performance and competitiveness. These may include factors such as intense competition, economic downturns, regulatory changes, or disruptive technologies. Identifying threats is crucial for organizations to develop contingency plans and risk mitigation strategies. It enables them to prepare for potential challenges, adapt to changing circumstances, and safeguard their strategic objectives. Advantages SWOT has many advantages, a few of which are :  It is easy to understand — a simple diagram and no mathematics.  It is applicable to many levels in an organisation — from anindividual, a team, a business unit or division, up to the corporate strategy.  It can be applied at many different depths from quick and easy, to highly detailed.  With proper use, it can be linked to corporate objectives and to strategy deployment.  Being highly visual, it is easy to communicate. Disadvantages — Despite its popularity and the advantages above, SWOT has several disadvantages : × It is tempting to undertake SWOT analysis using qualitative or subjective (anecdotal or hearsay) rather than quantitative data. × Issues are easily expressed as broad generalisations rather than specifics. × Easily biased by perceptions, personality types and preferences. × Data collection, evaluation, and decision-making are easily confused. × It is often drawn incorrectly; this has an impact especially when the underlying principles are ignored. × The surrounding method is often ignored (or worse, being unaware that there is a surrounding method). Strategic Management-Pr. Oudmine Page 42  Figure The SWOT Process Some key points on SWOT  Too much detail should be avoided. Keep each variable short.  Many variables may be relative rather than absolute and therefore will require some judgement.  Do not ignore ‘soft’ facts (e.g. organizational culture, leadership skills, etc).  Prioritise and combine variables.  Be realistic in its assessment.  SWOT is not strategy. It only provides a platform for planning for the future. How are the Results of a SWOT Analysis Used? SWOT analysis is a subjective assessment of data that is organized into a four- dimensional SWOT matrix, similar to a basic two-heading list of pros and cons. Strategic Management-Pr. Oudmine Page 43  Strengths Weaknesses what the unit does very where functions are well internally performed internally less than preferred Opportunities S&O: Pursue opportunities W-O: Overcome weaknesses potentially favorable that are a good fit with the to pursue opportunities external conditions for program’s strengths. the unit Threats S-T: Identify ways the W-T: Establish a defensive potentially unfavorable program can use its plan to prevent the external conditions for the strengths to reduce its program’s weaknesses from unit vulnerability to external making it highly susceptible threats. to external threats. 2- Resource-Based View (RBV) The Resource-Based View (RBV) framework is a powerful lens through which organizations can understand and harness their internal strengths to achieve sustainable competitive advantage. Unlike traditional strategies that focus on external market conditions, RBV shifts the spotlight inward, emphasizing the strategic significance of an organization's unique resources and capabilities. The Core Concepts of RBV: At its core, RBV argues that the source of competitive advantage lies within the organization itself. It posits that not all resources are created equal; some are more valuable, rare, and difficult to imitate or substitute than others. These resources, often referred to as "strategic assets," can provide a sustainable competitive advantage when leveraged effectively. Identifying Strategic Resources: RBV encourages organizations to conduct a thorough internal audit to identify their strategic resources. These resources can take various forms, including:  Physical Resources: Tangible assets like state-of-the-art equipment, manufacturing facilities, or prime real estate locations can provide a competitive edge.  Human Capital: A skilled and motivated workforce, visionary leadership, and a culture of innovation are invaluable strategic resources.  Intellectual Property: Patents, copyrights, trademarks, and proprietary technologies can offer protection against competitors.  Brand Equity: A strong brand, built on trust and customer loyalty, can command premium prices and market share.  Reputation: An organization's reputation for quality, reliability, or ethical business practices can be a powerful resource. Strategic Management-Pr. Oudmine Page 44   Networks and Relationships: Strategic alliances, partnerships, and industry connections can open doors to new opportunities. The VRIO Framework: T