Topic 2 - The Strategic Management Process

A. Strategic Formulation (Creating Strategies)

- Identify and analyze current: Mission, Objectives and Strategies
- Analyze internal and external environments: Organizational Resources and Capabilities
(strengths and weaknesses); Industry and External Environment (opportunities and threats)
- Revise mission and objectives, select new strategies: Corporate, Business and Functional
B. Strategy Implementation (Putting strategies into action)
- Implement strategies: Corporate Governance; Management Systems and practices; Strategic
Leadership
- Evaluate Results: Strategic Control; Renew Strategic Management Process

I. Analysis of Vision, Mission, Values and Objectives

VISION
- It is a picture of what the firm wants to be and, in broad terms, what it wants to ultimately
achieve.
- The vision statement articulates the deal description of an organization and gives shape to its
future. It points the firm in the direction of where it would like to be in the years to come.
- vision statements reflect a firm’s values and aspirations and are intended to capture the heart
and mind of each employee and, hopefully, many of its other stakeholders.
- A firm’s vision tends to be enduring while its mission change with new environmental conditions.
It should be short and concise to be easily remembered.

MISSION
- (Or the purpose of the organization)
- The vision is the foundation for the firm’s mission.
It is the organization’s reason for existence in society. It describes what the strategy or
underlying business model is trying to accomplish.
- Ask the questions like: “What are we moving to?” “What is our dream?” “What kind of difference
do we want to make in the world?” “What do we want to be known for?” When the mission is
clear and compelling, it is easier for an organization to rally resources and systems to pursue its
strategic intent.
- It specifies the businesses in which the firm intends to compete and the customers it intends to
serve.
Examples:
Mary Kay, Inc. - “To enrich women’s lives”
Starbucks - “To be the premier purveyor of the finest coffee in the
world while maintaining our uncompromising principles as we grow”.
Coca Cola - “To refresh the world…To inspire moments of optimism and
happiness…To create value and make a difference.
Procter & Gamble “We will provide branded products and services of superior
quality and value that improve the lives of the world’s consumers.

- HOW ABOUT OUR MISSION (CSU)?

- A mission statement should identify the purpose and philosophy of the organization in a way that
inspires the employees and external stakeholders. Stakeholders are the individuals and groups
– including customers, shareholders, suppliers, creditors, community groups, and others who
are directly affected by the organization and its strategic accomplishments.

An example of how stakeholders’ interest is reflected in the mission of a business firm:

Mission:
 - For Employees – We respect the individuality of each employee . . . creativity and productivity
are encouraged, valued, and rewarded.
- For Communities – We are committed to being caring and supportive corporate citizens within
the worldwide communities in which we operate.
- For Shareholders – We are dedicated to . . . performing in a manner that will enhance returns
on investments.
- For Customers – We are committed to providing superior value in our products and services
- For Suppliers – We think of our suppliers as partners who share our goal of . . . highest
quality.

Who are the stakeholders?

Stakeholders are the individuals, groups, and organizations that can affect the firm’s vision and mission,
are affected by the strategic outcomes achieved, and have enforceable claims on the firm’s
performance.
Figure 1.4 The Three Stakeholder Groups

People who are affected by a firm’s

Stakehold performance and who have claims
ers on its performance

Capital Market
Stakeholders
• Shareholders
• Major suppliers of capital
(e.g., banks)

Product Market
Stakeholders
• Primary customers
• Suppliers
• Host communities
• Unions

Organizational
Stakeholders
• Employees
• Managers
• Nonmanagers

Capital Market Shareholders

Shareholders and lenders both expect a firm to preserve and enhance the wealth they have entrusted to it.
The returns they expect are commensurate with the degree of risk they accept with those investments (i.e.,
lower returns are expected with low risk investments, while higher returns are expected with high-risk
investments).

Product Market Stakeholders

Customers, as stakeholders, demand reliable products at the lowest possible prices. Suppliers seek loyal
customers who are willing to pay the highest sustainable prices for the goods and services they receive.
Although all product market stakeholders are important, without customers, the other product market
stakeholders are of little value. Therefore, the firm must try to learn about and understand current and
potential customers.

Organizational Stakeholders
Employees—the firm’s organizational stakeholders—expect the firm to provide a dynamic, stimulating, and
rewarding work environment. Employees generally prefer to work for a company that is growing and in
which the employee can develop their skills, especially those skills required to be effective team members
and to meet or exceed global work standards. Workers who learn how to use new knowledge productively
are critical to organizational success. In a collective sense, the education and skills of a firm’s workforce are
competitive weapons affecting strategy implementation and firm performance
Strategic leaders are people located in different areas and levels of the firm using the strategic
management process to select strategic actions that help the firm achieve its vision and fulfill its mission.
Organizational culture refers to the complex set of ideologies, symbols, and core values that are shared
throughout the firm and that influence how the firm conducts business.

CORE VALUES
Behavior in and by organizations will always be affected in part by values, which are broad beliefs of
what is or is not appropriate. (We know what is good and most of us want to do good things but we do
not.)
- Core values are reflected in and shaped by organizational culture (the predominant value
system of the organization as a whole). In strategic management, the presence of strong core
values for an organization helps build institutional identity. It gives character to an organization
in the eyes of its employees and external stakeholders, and it backs up the mission statement.
Shared values help guide the behavior of the organization members in meaningful and
consistent ways.
Patagonia’s website for Job openings: “We’re especially interested in people who share our love of
outdoors, our passion for quality and our desire to make a difference.”

OBJECTIVES
Whereas a mission statement sets forth an official purpose for the organization, and the core values
describe appropriate standards of behavior for its accomplishment, operating objectives direct
activities toward key and specific performance results. These objectives are shorter-term targets
against which actual performance results can be measured as indicators of progress and continuous
improvement.
According to Peter Drucker (management consultant and author), the operating objectives of a
business might include the following:

 Profitability – producing at a net profit in business

 Market share – gaining and holding a specific market share (the portion of a market
controlled by a particular company or product)
 Human talent – recruiting and maintaining a high-quality workforce
 Financial health – acquiring capital, earning positive returns
 Cost-efficiency – using resources well to operate at low cost
 Product quality – producing high-quality goods or services
 Innovation – developing new product or processes
 Social responsibility – making a positive contribution to society

II. The External Environment – Analysis of Industry and Environment

A. Analysis of General Environment

General environment – it is composed of dimensions in the broader society that influence and industry
and the firms within it.
 Econom Sustaina
ic ble
Physical

Indust
Environme
ry
Demograp ntof New
eat Sociocultu
hic Power of Suppliers
Entrants ral
Power of Buyers
Product
Substitutes
Intensity of Rivalry

Competitor

Political/ Glob
Legal al

Technologi
cal

Figure 2.1 The External Environment

Table 2.1 The General Environment: Segments and Elements

Demographic segment • Population size • Ethnic mix

• Age structure • Income distribution
• Geographic distribution

Economic segment • Inflation rates • Personal savings rate

• Interest rates • Business savings rates
• Trade deficits or surpluses • Gross domestic product
• Budget deficits or surpluses

Political/Legal segment • Antitrust laws • Labor training laws

• Taxation laws • Educational philosophies and policies
• Deregulation philosophies

Sociocultural segment • Women in the workforce • Shifts in work and career preferences
• Workforce diversity • Shifts in preferences regarding product
• Attitudes about the quality of work life and service characteristics

Technological segment • Product innovations • Focus of private and government-

• Applications of knowledge supported R&D expenditures
• New communication technologies

Global segment • Important political events • Newly industrialized countries

• Critical global markets • Different cultural and institutional attributes

Sustainable physical • Energy consumption • Availability of water as a resource

environment segment • Practices used to develop energy sources • Producing environmentally friendly products
• Renewable energy efforts • Reacting to natural or man-made disasters
• Minimizing a firm’s environmental footprint

SEGMENTS:
1. The Demographic Segment
- is concerned with a population’s size, age structure, geographic distribution, ethnic mix, and
income distribution.
- Demographic segments are commonly analyzed on a global basis because of their potential
effects across countries’ borders and because many firms compete in global markets.
2. The Economic Segment
- refers to the nature and direction of the economy in which a firm competes or may compete
3. The Political/Legal Segment
 - is the arena in which organizations and interest groups compete for attention, resources, and a
voice in overseeing the body of laws and regulations guiding interactions among nations as well
as between firms and various local governmental agencies
- concerned with how organizations try to influence governments and how they try to understand
the influences (current and projected) of those governments on their competitive actions and
responses.
- Regulations formed in response to new national, regional, state, and/or local laws that are
legislated often influence a firm’s competitive actions and responses
4. The Sociocultural Segment
- concerned with a society’s attitudes and cultural values.
- Because attitudes and values form the cornerstone of a society, they often drive demographic,
economic, political/legal, and technological conditions and changes.
5. The Technological Segment
- includes the institutions and activities involved in creating new knowledge and translating that
knowledge into new outputs, products, processes, and materials.

6. The Global Segment

- includes relevant new global markets, existing markets that are changing, important international
political events, and critical cultural and institutional characteristics of global markets
7. The Sustainable Physical Environment Segment
- refers to potential and actual changes in the physical environment and business practices that
are intended to positively respond to those changes with the intent of creating a sustainable
environment.
- firms recognize that ecological, social, and economic systems interactively influence what
happens in this particular segment and that they are part of an interconnected global society

The Four Parts:

1. Scanning
- identifying early signals of environmental changes and trends and detect changes that are
already under way.
- critically important to the firms’ efforts to understand trends in the general environment and to
predict their implications
2. Monitoring
- detecting meaning through ongoing observations of environmental changes and trends
- analysts observe environmental changes to see if an important trend is emerging from among
those spotted through scanning
- Effective monitoring requires the firm to identify important stakeholders and understand its
reputation among these stakeholders as the foundation for serving their unique needs.
Scanning and monitoring are particularly important when a firm competes in an industry with high
technological uncertainty. Scanning and monitoring can provide the firm with information. These activities
also serve as a means of importing knowledge about markets and about how to successfully commercialize
the new technologies the firm has developed
3. Forecasting
- developing projections of anticipated outcomes based on monitored changes and trends
- analysts develop feasible projections of what might happen, and how quickly, as a result of the
events and trends detected through scanning and monitoring.
4. Assessing
- determining the timing and importance of environmental changes and trends to firm’s strategies
and their management.
- the intent of assessment is to specify the implications of that understanding

B. Analysis of Industry Environment

 An industry is a group of firms producing products that are close substitutes.
Industry environment – it is the set of factors that directly influences a firm and its competitive actions
and responses.
Compared with the general environment, the industry environment (measured primarily in the form of its
characteristics) has a more direct effect on the competitive actions and responses a firm takes to succeed.
An opportunity is a condition in the general environment that, if exploited effectively, helps a company
reach strategic competitiveness.
A threat is a condition in the general environment that may hinder a company’s efforts to achieve strategic
competitiveness.
Opportunities and Threats can be found among macro environmental factors such as technology,
government, social structures, population demographics, the global economy and the natural
environment. They can also include developments in the industry environment of resource suppliers,
competitors, and customers.

The critical issue in the external environment (according to Michael Porter, a scholar and consultant) is
the nature of rivalry and competition within the industry. He offers the five forces model as a framework
for competitive industry analysis.

The five strategic forces are:

1. Competitors – intensity of rivalry among firms within the industry.
2. New entrants – threats of new competitors entering the market.
3. Suppliers – bargaining power of suppliers.
4. Customers – bargaining power of customers.
5. Substitutes – threats of substitute products or services.
From his (Michael Porter) perspective, these competitive forces constitute the “industry structure.”
The strategic management challenge is to position an organization strategically within its industry,
taking into account the implications of forces that make it more or less attractive.

Porter’s Model of five strategic forces affecting industry competition:

New Entrants
Threat of potential new
competitors

Suppliers Industry Competition Customers

Bargaining power of Rivalry among competing Bargaining power of
suppliers firms buyers

Substitute Products
Threat of substitute
products or services

TO DO: Describe the attractiveness of the industry based on the 5 strategic forces.
1. Threat of New Entrants
- One reason new entrant poses such a threat is that they bring additional production capacity.
- Often, new entrants have a keen interest in gaining a large market share. As a result, new
competitors may force existing firms to be more efficient and to learn how to compete in new
dimensions
The likelihood that firms will enter an industry is a function of two factors: barriers to entry and the
retaliation expected from current industry participants
Barriers to Entry:
a. Economies of Scale are derived from incremental efficiency improvements through experience
as a firm grows larger. Therefore, the cost of producing each unit declines as the quantity of a
product produced during a given period increases.
b. Product Differentiation - greater levels of perceived product uniqueness creates customers
who consistently purchase a firm’s products
c. Capital Requirements - competing in a new industry requires a firm to have resources to
invest.
d. Switching costs are the one-time costs customers incur when they buy from a different supplier
e. Access to Distribution Channels - access to distribution channels can be a strong entry
barrier for new entrants, particularly in consumer nondurable goods industries (e.g., in grocery
stores where shelf space is limited) and in international markets
f. Cost Disadvantages - independent of Scale Sometimes, established competitors have cost
advantages that new entrants cannot duplicate.
g. Government Policy - through their decisions about issues such as the granting of licenses and
permits, governments can also control entry into an industry
Expected Retaliation companies seeking to enter an industry also anticipate the reactions of firms
in the industry. An expectation of swift and vigorous competitive responses reduces the likelihood of
entry. Vigorous retaliation can be expected when the existing firm has a major stake in the industry
(e.g., it has fixed assets with few, if any, alternative uses), when it has substantial resources, and
when industry growth is slow or constrained.
2. Bargaining Power of Suppliers
- Increasing prices and reducing the quality of their products are potential means suppliers use to
exert power over firms competing within an industry.
A supplier group is powerful when:
 It is dominated by a few large companies and is more concentrated than the industry to
which it sells.
 Satisfactory substitute products are not available to industry firms.
 Industry firms are not a significant customer for the supplier group.
 Suppliers’ goods are critical to buyers’ marketplace success.
 The effectiveness of suppliers’ products has created high switching costs for industry
 firms.
 It poses a credible threat to integrate forward into the buyers’ industry. Credibility is
enhanced when suppliers have substantial resources and provide a highly differentiated
product.

3. Bargaining Power of Buyers

- Firms seek to maximize the return on their invested capital. Alternatively, buyers (customers of
an industry or a firm) want to buy products at the lowest possible price— the point at which the
industry earns the lowest acceptable rate of return on its invested capital.
- To reduce their costs, buyers bargain for higher quality, greater levels of service, and lower
prices. These outcomes are achieved by encouraging competitive battles among the industry’s
firms.
Customers (buyer groups) are powerful when:
  They purchase a large portion of an industry’s total output.
 The sales of the product being purchased account for a significant portion of the seller’s
annual revenues.
 They could switch to another product at little, if any, cost.
 The industry’s products are undifferentiated or standardized, and the buyers pose a credible
threat if they were to integrate backward into the sellers’ industry.

4. Threat of Substitute Products

- Substitute products are goods or services from outside a given industry that perform similar or
the same functions as a product that the industry produces.
- In general, product substitutes present a strong threat to a firm when customers face few if any
switching costs and when the substitute product’s price is lower or its quality and performance
capabilities are equal to or greater than those of the competing product.
- Differentiating a product along dimensions that are valuable to customers (such as quality,
service after the sale, and location) reduces a substitute’s attractiveness.

5. Intensity of Rivalry among Competitors

- Because an industry’s firms are mutually dependent, actions taken by one company usually
invite responses.
- Competitive rivalry intensifies when a firm is challenged by a competitor’s actions or when a
company recognizes an opportunity to improve its market position.
a. Numerous or Equally Balanced Competitors - Intense rivalries are common in industries with
many companies. With multiple competitors, it is common for a few firms to believe they can act
without eliciting a response.
b. Slow Industry Growth - rivalry in no-growth or slow-growth markets becomes more intense as
firms battle to increase their market shares by attracting competitors’ customers.
c. High Fixed Costs or High Storage Costs - When fixed costs account for a large part of total
costs, companies try to maximize the use of their productive capacity. Doing so allows the firm
to spread costs across a larger volume of output.
d. Lack of Differentiation or Low Switching Costs - when buyers view products as commodities
(i.e., as products with few differentiated features or capabilities), rivalry intensifies. In these
instances, buyers’ purchasing decisions are based primarily on price and, to a lesser degree,
service.
e. High Strategic Stakes - Competitive rivalry is likely to be high when it is important for several of
the competitors to perform well in the market.
f. High Exit Barriers - Firms making this choice likely face high exit barriers, which include
economic, strategic, and emotional factors causing them to remain in an industry when the
profitability of doing so is questionable
Interpreting Industry Analyses

- Effective industry analyses are products of careful study and interpretation of data and
information from multiple sources. A wealth of industry-specific data is available for firms to
analyze for the purpose of better understanding an industry’s competitive realities.
- An unattractive industry has low entry barriers, suppliers and buyers with strong bargaining
positions, strong competitive threats from product substitutes, and intense rivalry among
competitors. These industry characteristics make it difficult for firms to achieve strategic
competitiveness and earn above-average returns.
- an attractive industry has high entry barriers, suppliers and buyers with little bargaining power,
few competitive threats from product substitutes, and relatively moderate rivalry
A strategic group is a set of firms emphasizing similar strategic dimensions and using a similar strategy.
The competition between firms within a strategic group is greater than the competition between a member
of a strategic group and companies outside that strategic group. Therefore, intra-strategic group
competition is more intense than is inter-strategic group competition
C. Competitor Analysis
 Competitor analysis - it is how companies gather and interpret information about their competitors.
- It focuses on each company against which a firm competes directly.
To analyze competitors, the firm should understanding the following:
- What drives the competitor, as shown by its future objectives
- What the competitor is doing and can do, as revealed by its current strategy
- What the competitor believes about the industry, as shown by its assumptions
- What the competitor’s capabilities are, as shown by its strengths and weaknesses

Knowledge about these four dimensions helps the firm prepare an anticipated response profile for each
competitor.
The results of an effective competitor analysis help a firm understand, interpret, and predict its competitors’
actions and responses. Understanding competitors’ actions and responses clearly contributes to the firm’s
ability to compete successfully within the industry
Competitor intelligence – it is the set of data and information the firm gathers to better understand
and anticipate competitors’ objectives, strategies, assumptions and capabilities.
In competitor analysis, the firm gathers intelligence not only about its competitors, but also regarding public
policies in countries around the world. Such intelligence facilitates an understanding of the strategic posture
of foreign competitors. Through effective competitive and public policy intelligence, the firm gains the
insights needed to make effective strategic decisions regarding how to compete against rivals.
When gathering competitive intelligence, firms must also pay attention to the complementors of its products
and strategy.
Complementors are companies or networks of companies that sell complementary goods or services that
are compatible with the focal firm’s good or service.
When a complementor’s good or service contributes to the functionality of a focal firm’s good or service, it
in turn creates additional value for that firm

Future Objectives
• How do our goals compare with
our competitors’ goals?
• Where will emphasis be placed in
the future?
• What is the attitude toward risk?

Current Strategy
• How are we currently competing?
• Does their strategy support Response
changes in the competitive • What will our competitors do in
structure? the future?
• Where do we hold an advantage
over our competitors?
Assumptions • How will this change our
• Do we assume the future will be volatile? relationship with our
• Are we operating under a status quo? competitors?
• What assumptions do our competitors
hold about the industry and
themselves?

Capabilities
• What are our strengths and weaknesses?
• How do we rate compared to
our competitors?

Figure 2.3 Competitor Analysis Components

III. The Internal Environment – Analysis of Organizational Resources and Capabilities
Resources - cover a spectrum of individual, social, and organizational phenomena. By themselves,
resources do not allow firms to create value for customers as the foundation for earning above-average
returns.
a. Tangible resources are assets that can be observed and quantified.
Table 3.1 Tangible Resources

Financial Resources • The firm’s capacity to borrow

• The firm’s ability to generate funds through internal operations

Organizational Resources • Formal reporting structures

Physical Resources • The sophistication of a firm’s plant and equipment and the
attrac- tiveness of its location
• Distribution facilities
• Product inventory

Technological Resources • Availability of technology-related resources such as

copyrights, patents, trademarks, and trade secrets

b. Intangible resources are assets that are rooted deeply in the firm’s history, accumulate over time,
and are relatively difficult for competitors to analyze and imitate.
Table 3.2 Intangible Resources

Human Resources • Knowledge

• Trust
• Skills
• Abilities to collaborate with others

Innovation Resources • Ideas

• Scientific capabilities
• Capacity to innovate

Reputational Resources • Brand name

• Perceptions of product quality, durability, and reliability
• Positive reputation with stakeholders such as suppliers and customers

Capabilities - The firm combines individual tangible and intangible resources to create capabilities. In
turn, capabilities are used to complete the organizational tasks required to produce, distribute, and
service the goods or services the firm provides to customers for the purpose of creating value for them.
Table 3.3 Example of Firms’ Capabilities

Functional Areas Capabilities Examples of Firms

Distribution • Effective use of logistics management techniques • Walmart

Human Resources • Motivating, empowering, and retaining employees • Microsoft

Management Information • Effective and efficient control of inventories through • Walmart

Systems point- of-purchase data collection methods

Marketing • Effective promotion of brand-name products • Procter & Gamble

• Effective customer service • Ralph Lauren Corp.
• Innovative merchandising • McKinsey & Co.
• Nordstrom Inc.
• Crate & Barrel

Management • Ability to envision the future of clothing • Hugo Boss

• Zara

Manufacturing • Design and production skills yielding reliable products • Komatsu

• Product and design quality • Witt Gas Technology
• Miniaturization of components and products • Sony
Research & Development • Innovative technology • Caterpillar
• Development of sophisticated elevator control solutions • Otis Elevator Co.
• Rapid transformation of technology into new products • Chaparral Steel
and processes • Thomson Consumer Electronics
• Digital technology

Core Competencies - are capabilities that serve as a source of competitive advantage for a firm over
its rivals. Core competencies distinguish a company competitively and reflect its personality. Core
competencies emerge over time through an organizational process of accumulating and learning how to
deploy different resources and capabilities.

Building Core Competencies

Two tools help firms identify their core competencies. The first consists of four specific criteria of
sustainable competitive advantage that can be used to determine which capabilities are core
competencies.
The second tool is the value chain analysis. Firms use this tool to select the value-creating
competencies that should be maintained, upgraded, or developed and those that should be outsourced.
The Four Criteria of Sustainable Competitive Advantage
Capabilities that are valuable, rare, costly to imitate, and non-substitutable are core competencies
In turn, core competencies can lead to competitive advantages for the firm over its rivals.
Capabilities failing to satisfy the four criteria are not core competencies, meaning that although every
core competence is a capability, not every capability is a core competence.
In slightly different words, for a capability to be a core competence, it must be valuable and unique from
a customer’s point of view. For a core competence to be a potential source of competitive advantage, it
must be inimitable and non-substitutable by competitors.

Table 3.4 The Four Criteria of Sustainable Competitive Advantage

Valuable Capabilities • Help a firm neutralize threats or exploit opportunities

Rare Capabilities • Are not possessed by many others

Costly-to-Imitate Capabilities • Historical: A unique and a valuable organizational culture

or brand name
• Ambiguous cause: The causes and uses of a competence
are unclear
• Social complexity: Interpersonal relationships, trust,
and friendship among managers, suppliers, and
customers
Nonsubstitutable Capabilities • No strategic equivalent

Valuable capabilities allow the firm to exploit opportunities or neutralize threats in its external
environment. By effectively using capabilities to exploit opportunities or neutralize threats, a firm creates
value for customers.

Rare capabilities are capabilities that few, if any, competitors possess. A key question to be answered
when evaluating this criterion is “how many rival firms possess these valuable capabilities?” Capabilities
possessed by many rivals are unlikely to become core competencies for any of the involved firms.

Capabilities that are costly to imitate are created because of one reason or a combination of three
reasons.
 First, a firm sometimes is able to develop capabilities because of unique historical conditions.
 A second condition of being costly to imitate occurs when the link between the firm’s core
competencies and its competitive advantage is causally ambiguous. In these instances,
competitors aren’t able to clearly understand how a firm uses its capabilities that are core
competencies as the foundation for competitive advantage.
 Social complexity is the third reason that capabilities can be costly to imitate. Social complexity
means that at least some, and frequently many, of the firm’s capabilities are the product of
complex social phenomena.
Non-substitutable capabilities are capabilities that do not have strategic equivalents. This final
criterion “is that there must be no strategically equivalent valuable resources that are themselves either
not rare or imitable

Value Chain Analysis

Value chain analysis allows the firm to understand the parts of its operations that create value and
those that do not. Understanding these issues is important because the firm earns above-average
returns only when the value it creates is greater than the costs incurred to create that value.
The value chain is a template that firms use to analyze their cost position and to
identify the multiple means that can be used to facilitate implementation of a chosen
strategy
Value chain activities are activities or tasks the firm completes in order to produce products and then
sell, distribute, and service those products in ways that create value for customers.

Support functions include the activities or tasks the firm completes in order to support the work being
done to produce, sell, distribute, and service the products the firm is producing.

Outsourcing is the purchase of a value-creating activity or a support function activity from an external
supplier

- The technique used is SWOT analysis – the internal analysis of organizational Strengths and
Weaknesses as well as the external analysis of environmental Opportunities and Threats.

The SWOT analysis begins with a systematic evaluation of the organization’s resources and
capabilities. A major goal is to identify core competencies in the form of special strengths that an
organization has or does exceptionally well in comparison with competitors. They are capabilities that
by virtue of being rare, costly to imitate, and non-substitutable, become viable sources of competitive
advantage. Core competencies may be found in special knowledge or expertise, superior technologies,
efficient manufacturing technologies, or unique product distribution systems, among many other
possibilities.

Organizational weaknesses must also be identified to gain a realistic perspective on the formulation of
strategies. The goal in strategy formulation is to create the strategies that build upon organizational
strengths and minimize the impact of weaknesses.

Internal Assessment of the Organization

What are our strengths? What are our weaknesses?

 Manufacturing efficiency?  Outdated facilities
 Skilled workforce?  Inadequate R&D?
 Good market share?  Obsolete technologies?
 Strong financing?  Weak management?
 Superior reputation?  Past planning failure

SWOT ANALYSIS

What are our opportunities? What are our threats?

 Possible new markets?  New competitors?
 Strong economy?  Shortage of resources?
 Weak market rivals?  Changing market tastes?
 Emerging technologies?  New regulations?
 Growth of existing market?  Substitute products?
External Assessment of the Environment