Strategic Management PDF

STRATEGIC MANAGEMENT 1. The products of competing companies are greatly differentiated Five Forces Analysis considers the 2. Competitors are not aggressive in interactions among the competitors in takin...

STRATEGIC MANAGEMENT 1. The products of competing companies are greatly differentiated Five Forces Analysis considers the 2. Competitors are not aggressive in interactions among the competitors in taking the market share of other industry an industry, potential new entrants to the members industry, substitutes for the industry’s 3. The switching costs for buyers are high offerings, suppliers to the industry, and the 4. The consumers' demand is rapidly industry’s buyers (Porter, 1979). increasing 5. There are few, but there are more than The Rivalry among Competitors in an five competing sellers Industry: The competitors in an industry are firms The Threat of Potential New Entrants to that produce similar products or services. an Industry Competitors use a variety of moves such New entrants refer to the new competitors as advertising, new offerings, and price joining an industry. They will bring new cuts to try to outmaneuver one another to products, services, and capacities to an retain existing buyers and to attract new industry that can erode the profits of ones. established companies and gain market The intensity of rivalry among existing share if barriers to entry are considerably companies in an industry is determined by weak. The intensity of the threats will be the affected by the presence of the following following factors: barriers: 1. Number of competing companies 1. Strict government policy 2. Rate of industry growth 2. Substantial capital requirements 3. Characteristics of the products or 3. Economies of scale. services 4. High cost of product differentiation 4. Amount of fixed cost 5. High switching cost 5. Increasing capacity 6. Difficulty in accessing distribution 6. Diversity of rivals channels Rivalry among competing companies is The Threat of Substitutes for an considered strong when the following Industry’s Offerings signs A substitute product can pose a great are manifested: threat in an industry environment if the 1. The consumers' demand is falling following factors are present. 2. Sellers have excess capacity or 1. The price of a substitute products is production substantially lower 3. The switching costs for buyers are 2. The preferences and tastes of relatively low customers easily change 4. Rivals located in different geographic 3. The quality of substitute products has markets have different strategies dramatically improves 5. Competitors constantly improve their 4. The switching cost is low market performance 5. The product differentiation is hardly 6. The number of competitors is increasing noticeable On the other hand, rivalry is considered The power of suppliers in an Industry weak under the following situations: Suppliers provide inputs that the firms in an industry need to create the goods and services that they in turn sell to their The limitations of Five Forces Analysis buyers. A variety of supplies is important Porter’s Five Forces Analysis assumes to companies, including raw materials, competition is a zero-sum game, where financial resources, and labor. The profit potential is fixed, and firms gain intensity of the threat of the bargaining profit at the expense of rivals, suppliers, or power of suppliers is strong if the following buyers. However, in some cases, factors are true: collaboration can increase overall profit for 1. The product or service is unique all involved. This collaborative aspect is a 2. The switching cost is very high limitation of the Five Forces framework, as 3. The suppliers in an industry are few, but it tends to downplay the potential for the sales volume is high mutual gains. 4. Substitute products are not readily available on the market 1. Internal Firm Analysis & Competitive 5. The supplier is capable of forward Advantage integration ​ Internal assessment helps firms The Power of an Industry’s Buyer understand their position relative to A buyer has a strong and magnified competitors. bargaining power in an industry. The ​ Firms must evaluate their threat of its bargaining power is strong if resources and capabilities to gain the following factors exist: a competitive edge. 1. The buyer has the potential for ​ Competitive advantage can be backwards integration temporary or sustained, depending 2. The cost of switching suppliers is on how easily rivals can imitate minimal valuable resources. 3. The buyer purchases a large portion of the seller’s product or services 4. There are several suppliers available in 2. Resource-Based View (RBV) & VRIO the market Framework 5. The product represents a high percentage of the buyer’s cost ​ The Resource-Based View (RBV) assesses tangible and intangible Interpreting the Five Forces: resources for strategic advantage. Porter’s Five Forces tool assesses ​ Tangible resources: Physical industry competition by ranking forces as assets like property, equipment, Strong/High, Moderate/Medium, or and cash. Weak/Low. Strong forces indicate high ​ Intangible resources: Knowledge, competition and low profit potential, brand reputation, leadership, making the industry less attractive. Weak intellectual property. forces suggest higher profitability and a desirable market. A mix of strong and weak forces means some profit potential, The VRIO Framework determines if a but competition may reduce it. Companies resource provides competitive advantage use this analysis to decide whether to by analyzing: enter a market and develop competitive strategies. Value – Does it add value to customers? Rareness – Is it scarce in the market? Imitability – Can competitors easily copy it? 5. BCG Growth-Share Matrix Organization – Is the firm structured to A portfolio analysis tool that categorizes leverage it? business units/products based on market growth rate and market share: Stars: High market share & high growth. Cash Cows: High market share & low 3. Intellectual Property & Competitive growth. Edge Question Marks: Low market share & Protecting unique creations gives firms an high growth. advantage over competitors. Dogs: Low market share & low growth. Types of Intellectual Property: Helps firms prioritize investments and Patents: Protect inventions from imitation divestitures. for a set period. Trademarks: Establish brand identity 6. SWOT Analysis through symbols, phrases, or logos. A structured framework to assess internal Copyrights: Safeguard artistic and literary (strengths & weaknesses) and external works. (opportunities & threats) factors. Trade Secrets: Maintain secrecy over Strengths: Unique assets, brand business formulas, designs, and reputation, financial stability. processes. Weaknesses: Operational inefficiencies, weak market presence. 4. Value Chain Analysis Opportunities: Market expansion, Developed by Michael Porter, a value favorable policies. chain examines how a firm adds value Threats: Competitor actions, economic through its business activities. downturns. Primary Activities (Direct value creation): 1. Inbound logistics – Receiving and managing raw materials. 2. Operations – Converting inputs into products. 3. Outbound logistics – Delivering products to customers. 4. Marketing & Sales – Promoting and selling products. 5. Service – Customer support, maintenance, and returns. Support Activities (Enhance efficiency of primary activities): 1. Procurement – Sourcing materials. 2. Technological Development – R&D and innovation. 3. Human Resources (HR) Management – Hiring and training employees. 4. Infrastructure – Finance, planning, and organizational structure.