Unit 3: Strategic Analysis LH 12

Concept, the general environment; scanning, monitoring and forecasting

the environment, Scenario planning, PEST analysis; The competitive
environment- Porter’s Five Forces Framework, the value net, strategic
groups, hyper competition, Internal environment analysis value-chain-
analysis, evaluating Value chain, SWOT analysis; concept of internal
environment, the resource-based view of strategy- resources,
competencies, core competencies and distinctive capabilities;
identifying sustainable competitive advantage, criticism of resource-
based view, knowledge management.
Business and its environment
Business refers to the human activities related with satiisfying the customers
needs through production and distribution of goods and services with the
aim of profit making. It operates in dynamic environment. Business
establish, operate and grow in the society which is surrounded by
environmental components.
Environment refers to all the aggregates conditions, components, events,
forces arround us that affect a business.
Business environment is the set of all the conditions and events that are
directly or indirectly affects to the business organization. Business
environment is the sum total of environmental factors which provides an
atmosphere of business. It is formed by internal and external factors.
 Nature of Business Environment
1. Complex: Unpredictability
2. Dynamic: contineously changing
3. Multi-faceted: Oppertunity for one firm and at the same time it may
threat for another business firm
4. Far-reaching impact: Long and future impact
5. Aggregate of factors: Includes all conditions, elements, events and
trends
6. Symbiotic: not ony environment affect the business but also
business also affect the environment in some cases
Business System
Components of Business Environment
The copmponents of business environment can be classified into two
broad categories.
1. Internal environment (Micro environment)
2. External environment (Macro environmet)
Internal environment: Internal environment refers to all conditions,
elements and forces within the organization that affects directly to the
business organization. Those elements can be controlled by the
organization. It provides the information strenths and weeknesses of the
business. The components of internal environment consists of:
The components of internal environment consists of:

1. Goals, Policies and Strategies

2. Organizational Structure
3. Owner and shareholders
4. Organizational resources
5. Organizational culture
6. Human resources
7. unions
External environment
The external environment refers to the conditions and elements outside
the organization that can affect the organiztional performence. It is
beyond the contröl business organization. It provides the infomation
about oppertunities and threats of the business organiztion.
1. Task/ operating environment
2. General/ remote/ macro environmet
Task environment
Task environment consists of specific groups or organization that influence on
organizational outcomes. These groups remain outside the organization but have
directly influuence on the day- to- day activities of business. For examples:
1. Customers
2. Suppliers and Allies
3. Competitors
4. Financial institutions
5. Labour unions
6. Media
7. Pressuure groups
General environment (Macro environment)
General environment refers to the all external conditions and elements that
affect business activities oforganization. These elements remain outside the
organization and out of the controll of the orgazation. For examples:
1. Political- legal environment
2. Economic environment
3. Socio- cultural environment
4. Technological environment
5. Physical/ Natural environment
6. Global environment
Political environment
1. Political idoloogy
• Democratic: power at the people
• Totalitrian: power at the centralized or government
2. Constitution
3. Political parties
4. Government and its organs
• Legislative
• Executive
• Judiciary
• Other constitutional body
Legal Environment
1. Constitution
2. Business laws
3. Court of law
4. Law administrators
Socio- cultural Environment
5. Attitudes
6. Beliefs
7. Religion
8. Language
9. Education
10. Famiily structure and social organiztion
Technological Environment
1. Level of technology
2. Pace of technological change
3. Technology transfor
4. Research and development budget
Economical Environment
1. Economic systems
• Free market economy
• Centrally planned economy
• Mixed economy
2. Economic policies
• Monitory policy
• Fiscal policy
• Industrial policy
Cont.......
3. Economic conditions
• Gross domestic product (GDP)
• Inflation
• Emploment indicator
• Balance of payment
• Income distribution
• Business sycle
4. Economic integration
Cont.....
Physical/ natural environment  Global environment
Energy consumption Relevant global market
Environment policy International political events
Comlaince of environmental law Degree of regional and global
Natural resources integrestion
Cont....
• Environment scannning is the process by which organizations
monitors their relevant environment to identify oppertunities and
threats.
Types of environmental Scanning
1. Concentric scanning: Specific environmental components are only
analized. For example: economic components are only analized.
2. Comprehensive scanning: All components of environment are
analyzed. For example: internal as well as external components are
analyzed.
Pocess of Enviornment Scanning

•Study of Forces and Nature of the

Environment
•Determine the Sources of Information
•Select the Scanning Method
•Scan and Assess the Trend
Cont........
• Study of Forces and Nature of • Determine the Sources of
the Environment Information
Internal forces Mass media: TV, Radio and Internet
External forces Internal sources: Manegerial
profiles, Financial information
External agencies: Consumers,
Suuppliers, and other stakeholdeers
Formal studies: Research and other
academic program
Cont....
• Select the Scanning Method • Scan and Assess the Trend
Delphi method
Executive opinion Micro study of the environment
Intution Signal of potential change
Scenario analysis Detect the changes and trend of
Trends the environment
Custome value profile
Approaches to environmental scanning
• Systematic approach: systematic and continuously collecting the
information from internal and external enviroonment.

• Ad- hoc approach: not continuous process to collect the information.

Useful at the time emergency, or specific projects
• Processed form approach: information c0llected from internal and
external sources are used after processing them.
Environmental Analysis
• Environmental analysis is an
ongoing process of monitoring
the environment.
 Scenario Planning
• Scenario Planning, also called Scenario Thinking or
Scenario Analysis, is a method used in the strategic
planning process to help businesses make flexible
long-term plans.
• Scenario is consistent view of what the future is
likely to be. It is no related to predicting the future,
rather it attempts to describe what is possible in the
future.
 Activities in Scenario Planning
1. Developing a new business worldview
2. Summarizing future alternatives and future trends
3. To find contradictory situations different from experience with
predictable growth
4. Helping managers to create their own views
5. Building new set of scenarios
 Strategic Group
• Strategic group refers to the group of firms in an industry following
the same or a similar strategy along the stratey dimensions. An
industry could have only one strategic group if all the firms followed
essentially same strategy. By Porter
• A strategic group is a set of business units or firms that ´pursue similar
strategies with similar resources.`` Weelen and Hunger
 Dimensions of similar strategic group
• Products or services
• Geographical coverage
• Technological leadership
• Vertical integration
• Product or service quality
• R&D capability
• Cost position
• Size of organization
 Hyper Competition
A situation in which there is a lot of very strong
competition between companies, markets are
changing very quickly, and it is easy to enter a
new market, so that it is not possible for one
company to keep a competitive advantage for a
long time.
 The value Net Model
• In the Value Net Model, there are four 'players' that are identified as
being important to the operation of the business. If you can
understand all four of these players, and how they interact with both
your business and with each other, you will be poised or self-
composed and controlled to make better strategic decisions.
• Add value and build mutually beneficial relationships with customers,
suppliers, competitors and complementors in the industry using the
Value Net Model.
Customers – The people who buy your product or service.
Suppliers – These provide your organization with the
resources you need to produce a saleable product. (Keep in
mind that suppliers can be outside organizations, or your own
employees.)
Competitors – Competitors take a share of your target market
by offering a similar product or service. 
Complementors – These are other players who provide a
product or service that can be linked to your own to make
both offerings more attractive to your customers.
 Evaluating the Value Chain Analysis
Companies conduct value chain analysis by looking at every production step required to create a
product. The overall goal is to deliver maximum value for the least possible total cost.
There are many advantages of value chain analysis, which all result in a company's ability to
understand and optimize the activities that lead to its competitive advantage and high profit
levels. The primary goal is to create or strengthen a competitive advantage. Through analyzing
the five primary value chain activities, a company can ensure that the value it's creating exceeds
the cost to create that value.

The disadvantage of value chain analysis is that it forces a company to break into segments, and
there is the possibility of losing the big picture in the details. The pitfall of conducting this type of
analysis is that sometimes a company's overall strategy and vision is lost when its operations are
broken down into segments.
Creating efficiencies in each of a company's value chain activities is important, however, the value
chain doesn't do a good job of linking each activity in the chain together. It's possible to lose sight
of how the activities relate to each other.
 Concept of Resources
Resources may be defined as the sum of assets (both tangible and intangible)
that an organization uses to perfom the activities effectively. Resources provide
the input in the production process. Resources provide the streangh and
oppertunities of the organization.
Type of Resources
• Available resources: The resources that are currently available in the
organization. For example: physical, human, financial and intellectual.
• Threshold resources: That are minimum resources required to withstand
competition.
• Unique resources: That are valuable, non-substitutable, costly to imitate and
rare.
 Core competency
Core competencies are resources and capabilities that serve as a source
of competative advantages for a firm over its rivals. –By Hitt, Ireland
and Hoskisson
It is the sum of competencies that is widespread within the
organization. It is something that the organization can do exceedingly
well over the competitors. It is the most important source of
competative advantages. It should be evaluated on the basis of
valuable, rareness, costly imitability and uniqueness.
 Core compentencies and distinctive
compentencies
• Core competencies help the firm achieve a competitive
advantage when the firm’s core competencies are different
from those held by competitors.
• Core competencies enable a firm to complete activities
effectively.
• Distinctive competencies provide products to customers that
are superior to those provided by competitors.
 Compentence, core compentence and
distinctive compentence
• A competence is the product of organizational learning and
experience and represents real proficiency in performing an internal
activity
•A core competence is a well-performed
internal activity central (not peripheral or incidental) to a company’s
competitiveness and profitability
• A distinctive competence is a competitively valuable activity a
company performs better than its rivals
 Resource-based view of strategy
• The resource-based view (RBV) is a managerial framework used to determine the
strategic resources with the potential to deliver comparative advantage to a firm.
These resources can be exploited by the firm in order to achieve sustainable
competitive advantage.
• The RBV focuses managerial attention on the firm's internal resources in an effort
to identify those assets, capabilities and competencies with the potential to
deliver superior competitive advantages.
• RBV focuses attention on an organization's internal resources as a means of
organizing processes and obtaining a competitive advantage. Barney stated that
for resources to hold potential as sources of sustainable competitive advantage,
they should be valuable, rare, imperfectly imitable and not substitutable (now
generally known as VRIN criteria). The resource-based view suggests that
organizations must develop unique, firm-specific core competencies that will
allow them to outperform competitors by doing things differently.
Identifying Sustainable Competative
Advantages
Define Mission, Goals,
Strategy

Strength and Weakness

Analysis

Identifying Unique
Identifing core
Resources
Compentencies
Macth Uniqu Resources
with Core compentencies

Sustainable Competatitve Advantages

 Criticism of resource-based view
• Critique 1: no managerial implications. According to Priem & Butler (2001),
the resource-based view misses managerial implications or operational
validity. The resource-based view explains that managers have to develop
and obtain strategic resources that meet the criteria valuable, rareness, non-
imitable an non-substitutional (VRIN criteria) and how an appropriate
organization can be developed.
• Critique 2: infinite regress. According to Priem & Butler (2001) and Collins
(1994), the resource-based view entails infinite regress (which can never
come to end). Firms who have a capability which they can put in practice
best, can be overtaken by a firm that can develop that capability better than
firm who is best in practice (Collins 1994) calls this second-order capabilities.
Critique 3: The applicability is too limited. The article of
Kraaijenbrink et. Al. (2010) works out the criticism on the
applicability of the resource-based view. He argues that the
resource-based view does not apply to smaller firms.
Critique 4: The resource- based view does not adopt the
dynamic environment. It is beyond external factors of the
organization.
 Strategic Advantages
Strategy is a long term direction and scope of
organization. Advantage is performing something
better than the competitors and benifiting from them.
So, strategic advantage is the capabilities of an
organization outperfom its key competitors over a long
period of time. If unique resources are deployed for
creating core competency that builds the capabilities
which beats the competitors.
 Knowledge Management
• Knowledge management (KM) is the process of creating, sharing,
using and managing the knowledge and information of an
organization. It refers to a multidisciplinary approach to achieving
organizational objectives by making the best use of knowledge.
• Strategy management is designed to identify, capture, structure,
value, leverage, and share an organization's intellectual assets to
enhance its performance and competitiveness. It is based on two
critical activities: (1) capture and documentation of individual explicit
and tacit knowledge (unwritten and unspoken and integral
knowledge), and (2) its dissemination within the organization.