Syllabus
External Environment
Porter’s Five Forces Model
Strategic Groups Competitive Changes during Industry Evolution
Globalization and Industry Structure
National Context and Competitive advantage Resources
Capabilities and competencies
Core competencies
Low cost and differentiation Generic Building Blocks of Competitive
Advantage Distinctive Competencies
Resources and Capabilities durability of competitive Advantage
Avoiding failures and sustaining competitive advantage
Case study.
Environment & its Nature
Environment literally means the surroundings, external objects, influences
or circumstances under which someone or something exists.
1. Complex
2. Dynamic
3. Impact
4. Relativity
5. Interdependence
6. Inter- Relatedness
7. Uncertainty
8. Totality of External Factors
Business Environment &
its Components
Business Environment is the aggregate of all conditions, events and
influence that surrounds and affect it.
1. Internal Environment
2. External Environment
Internal Environment
Its refers to factors existing within a business firm.
It is a controllable factors because the company has
control over the factor.
Factors of
Internal Environment
1. Financial Factors
2. Physical and Human Resources
3. Objectives of Business
4. Managerial Policies
5. Moral
6. Commitment of Human Resources
7. Work Environment
8. Company Image
9. Brand Equity
10. Labour Management Relationship.
11. Research & Development
12. Technological Capabilities
13. Promoters Vision
External Environment & its Factors
Its refers to the factors existing outside the business firm.
The external factors are large, beyond the control of the company.
(Economic Factor, Socio- Cultural Factor, Government and legal
Factors, Demographic Factors, Geo-Physical Factors, etc.)
1.Micro Factors
2.Macro Factors
Micro Factors
1. Suppliers
2. Customers
3. Competitors
4. Marketing Intermediaries
5. Public
Macro Factors
1. Political Factors
2. Socio- Cultural Factor
3. Legal Factors
4. Economic Factor
5. Technological Factors
6. Demographic Factors
7. Natural Factors
8. International Factors
Environmental Scanning
Environmental Scanning is the monitoring, evaluating, and
circulating of information from the external and internal
environments to key people within the corporation.
Its purpose is to identify strategic factors – those external and
internal elements that will determine the future of the corporation.
■The simplest way to conduct environmental scanning is through
SWOT analysis.
– External environment to identify possible opportunities
and threats
– Internal environment for strength and weaknesses.
EXTERNAL ENVIRONMENT
Societal / Remote
Environment
Economic
Socio-cultural Task / Operating Forces
Forces Environment
Governments Internal Suppliers
Environment
Special
Interest Employees/
Structure
Groups Labor Unions
Culture
Resources
Customers Competitors
Creditors Trade Association
Political-Legal Communities Technological
Forces Forces
Porter’s Five Force
Model
1. Rivalry inside the Industries
2. Threat of Substitutes
3. Buyer Power
4. Supplier Power
5. Threat of New Entrants
PORTER’S APPROACH TO INDUSTRY
ANALYSIS (5 Forces Model)
Industry
Environment
Competitive
Entry Barriers
rivalry
Substitute
Supplier power
availability
Buyer power
Potential
Entrants
Threat
Relative of New
Power Entrants
Of Unions,
Industry
Other Govt., etc
Competitors Bargaining
Stakeholder Power
Of Buyers Buyers
Rivalry Among
Suppliers Existing Firms
Bargaining
Power of Threat of
Suppliers Substitute
Products
Or Services
Substitutes
Threat of New Entrants
Entry Barriers
■It is an obstacle that makes it difficult for a company to enter an
industry.
or
■New comers
Some of the possible barriers are:
■Economics of Scale (BEP)
■Product Differentiation (Unique Features)
■Capital Requirements (Fund)
■Access to Distribution Channels (Logistics)
■Government Policy
■Brand Identity
■Cost disadvantages independent of size
■Switching Costs
Rivalry (Competition) Among Existing
Firms
According to Porter, intense rivalry is related to the
presence of several factors, including
■Number of Competitors
■Rate of Industry Growth
■Product or Service Characteristics
■Amount of Fixed Costs (Rent, Salary and Etc…)
■Production Capacity (Turnover)
■Height of exit barriers
■Diversity of rivals
■Switching Costs
Threat of Substitute Products or
Services
Substitute products are those products that appear to
be different but can satisfy the same need as another
product.
Ex: Sugar free is a substitute for sugar.
Bottles water is a substitute for a cola.
Bargaining Power of Buyers
■ A buyer purchases a large proportion of the seller’s product or
service. Ex. Oil filters purchased by a major auto maker.
■ Alternative suppliers are plentiful and the product is standard or
undifferentiated. Ex. Motorists can choose among many petrol retail
outlets.
■ Threat of backward Integration
■ Buyers Volume
■ Buyers Incentives
■ Substitutes available
■ Brand Identity
Bargaining Power of Suppliers
■ The supplier industry is dominated by a few
companies, but it sells to many. Ex. The petroleum
industry.
■ Substitutes are not readily available. Ex. Electricity.
■ Suppliers are able to integrate forward and compete
directly with their present customers. Ex. A
microprocessor producer like Intel can make PCs.
■ Less important buyers
INDUSTRY EVOLUTION
■ Fragmented Industry --- no firm has large market share and each firm serves
only a small piece of the total market in competition with others.
■ Consolidated industry --- dominated by a few large firms, each of which
struggles to differentiate its products from the competition.
Conti…
Industry Evolution
Categorizing international industries
■Multidomestic Industries
- Industry in which companies tailor their products to the specific needs of
consumers in a particular country.
- Retailing, Insurance, Banking
■Global Industries
- Industry in which companies manufacture and sell the same products, with
only minor adjustments made for individual countries around the world.
- Automobiles, Tyres, Television sets
Industry Evolution
1. Embryonic Industry
2. Growth Industry
3. Shakeout
4. Mature Industry
5. Decline
STRATEGIC GROUPS
■It is a set of business units or firms that “
pursue similar strategies with similar
resources”
■It is a category of firms based on a
common strategic orientation and a
combination of structure, culture, and
processes consistent with that strategy.
■Example : Pepsi & Coke
STRATEGIC GROUP TYPES
Types:
■Defenders – are companies with a limited product line that focus on
improving the efficiency of their existing operations.
■Prospectors – are companies with fairly broad product lines that focus on
product innovation and market opportunities.
■Analyzers – are corporations that operate in at least two different product-
market areas, one stable and one variable. In stable areas, efficiency is
emphasized. In the variable areas, innovation is emphasized.
■Reactors – are corporations that lack a consistent strategy-structure-culture
relationship.
Globalisation
It’s the shift towards a more integrated and
interdependent world economy.
Globalisation has two main components:
1.Globalisation of markets
2.Globalisation of Products
Reasons for
Globalisation
1. Increase & Expansion of Technology
2. Liberalisation of Cross-Border Trade
3. Resource Movement
4. Development of Services that support
International Business
5. Growing Consumer Pressures
6. Increased Global Competition
7. Changing Political Situations
8. Expanded Cross-National Cooperation
COMPETITIVE ADVANTAGE
■ Competitive advantage can be defined as “ anything that a firm does
especially well compared to rival (Challenging) firms”
Examples
1. Japan- Electronics companies
2. Germany- Chemical, Engineering Companies
3. US- Computer, Biotechnology
CAPABILITIES
Definition
Capabilities are the firm’s capacity to deploy(Set up) resources that
have been purposely integrated to achieve a desired end state.
Types of CAPABILITIES
1. Marketing Capability
2. Operations Capability
3. Financial Capability
4. Human Resource Capability
5. Information Management Capability
6. General Management Capability
Marketing Capability
1. Product
2. Price
3. Promotion
4. Place
5. Marketing Intelligence
Financial Capability
1. Sources of Fund
2. Usage of Funds
3. Management of Funds
Operations Capability
1. Production System
2. Research & Development
Human Resource
Capability
1. Personnel System
2. Industrial Relations
Information
Management Capability
1. Acquisition & Retention
2. Processing
3. Retrieval (Recovery) & Usage
4. Transmission & Dissemination
5. Integrative and Support System
General Management
Capability
1. General Management System
2. General Managers
3. External Relationship
4. Organizational Climate
Resource + Capability = Competencies
CORE COMPETENCIES
Core competencies are resources and capabilities that serve as a
source of a firm’s competitive advantage over rivals.
Building Core Competencies
Two tools
■1. Four specific criteria of sustainable competitive advantage.
a. Valuable Capabilities
b. Rare Capabilities
c. Costly-to-Imitate Capabilities
d. Non-substitutable Capabilities
■2. Value Chain Analysis
a.Primary Activities
b.Support Activities
Conti…
The Building Blocks of
Competitive Advantage
Four factors help a company build and sustain a
competitive advantage.
1) Superior efficiency
2) Superior quality
3) Innovation
4) Superior customer responsiveness
Superior
Superior Efficiency
Efficiency
The more efficient a company is, the fewer inputs
are required to produce a particular output.
The most common measure of efficiency for many
companies is employee efficiency.
Employee productivity refers to the output
produced per employee.
Employee productivity helps a company attain a
competitive advantage through a lower cost
structure.
Superior
Superior Quality
Quality
A product is said to have superior quality when
customers perceive that its attributes provide
them with higher utility than the attributes of
products sold by rivals.
When customers evaluate the quality of a
product, they commonly measure two attributes.
Quality as excellence: Product design and styling,
aesthetic appeal, features, and so on.
Quality as reliability: The product consistently
performs, its function well, and rarely, if ever, breaks
down.
Innovation
Innovation
Innovation refers to the act of creating new
products or processes. There are two main types
of innovation:
Product innovation is the development of products
that are new to the world or have superior attribute
to existing products (Apple developed the iPod,
iPhone, and iPad in the 2000s).
Process innovation is the development of a new
process for producing products and delivering them
to customers (Toyota’s lean production system
helped to boost employee productivity).
Superior
Superior Customer
Customer
Responsiveness
Responsiveness
To achieve superior customer responsiveness, a
company must be able to do a better job of
identifying and satisfying its customers’ needs.
A company needs to customize goods and
services to the unique demands of individual
customers or customer groups.
Customer response time is the time it takes for
the good to be delivered or a service to be
performed.
Avoiding Failures and
Sustaining Competitive
Advantage
• Competitive Advantage
• Inertia
• Continuous improvement &
learning
• Use Benchmarking
