Strategic Management CH-4
Strategic Management CH-4
Strategic Management CH-4
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• What is environment?
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The Process of Performing an
External Audit
The process of performing an external audit
must involve as many managers and
employees as possible. As emphasized the
involvement in the strategic-management
process can lead to understanding and
commitment from organizational members.
Individuals appreciate having the opportunity
to contribute ideas and to gain a better
understanding of their firms’ industry,
competitors, and markets.
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A prioritized list of these factors could be
obtained by requesting that all managers
rank the factors identified, from 1 for the
most important opportunity/threat to 20
for the least important opportunity/threat.
These key external factors can vary over
time and by industry. Relationships with
suppliers or distributors are often a critical
success factor.
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Characteristics of Environment
Environment is complex. The environment
includes many factors, events conditions, &
influences emerging from various sources.
• Environment is dynamic ,the environment is
continuously changing in nature
Environment is multifaceted
The shape and character of an environment relies on
the perception of the observer. Different observers
perceive changes in the environment or new
development differently.
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Environment has a far – reaching
impact
• Environment has a significant
impact on organizations.
• The growth & profitability of the
organization relies mainly on
environment in which it carries out
its operation
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Major component of an organization’s
external environment
A. Social ,cultural & demographic
environmental forces
• These factors have a major impact on products,
services, markets, and customers
What are opportunities & threats of organizations?
Lifestyle
Number of marriage
Cultures
Demographics
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B. Technological forces
Technological changes & discoveries are
having a dramatic impact on organizations
Technological forces represent major
opportunities & threats that must be
considered in formulating strategies
What are technological opportunities
& threats for firms?
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C. Economic forces
Economic factors have a direct impact on the
potential attractiveness of varies strategies.
What are opportunities & threats for
organizations?
• Interest rates price fluctuation
• Inflation rates
• Unemployment trend Tax rates
• Import/export factors GDP trend
• productivity levels
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D. Political, governmental, & legal
forces
Political, governmental, & legal forces can
represent key opportunities or threats for both
small and large organizations.
What are opportunities & threats on firms?
• Import/ export restrictions,
• International investment restriction
• Exchange control restriction
• Local & state elections
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A model of the macro-environment(based on Fahey
&Narayanan,1986 )
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Political factors
Sociological factors
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Competitive advantage Strategy
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Competitive Analysis: Porter’s
Five-Forces Model
Porter’s Five-Forces Model of competitive
analysis is a widely used approach for
developing strategies in many industries.
It is an assessment of the strengths and
weaknesses of current and potential
competitors
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According to Porter, the nature of
competitiveness in a given industry can be
viewed as a composite of five forces:
1.Rivalry among competing firms
2. Potential entry of new competitors
3.Potential development of substitute products
4. Bargaining power of suppliers
5. Bargaining power of consumers
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Potential entry of competitors
Whenever new firms easily
enter into particular
industry, the intensity of
competitiveness among
firms increases
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• Substitute products are those products that
are produced by the competitor industry
and which perform similar function as that
of products produced by the other industry
• The existence of substitute goods prevents
the competitors’ from charging high prices
and if there is a raise in the price of any
substitute good then the customer’s
preference, any loyalty shifts toward the
relatively substituted products
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Sources of External Information
A wealth of strategic information is available
to organizations from both published and
unpublished sources.
Unpublished sources include:
customer surveys,
market research,
speeches at professional and shareholders’ meetings,
television programs,
interviews, and
conversations with stakeholders.
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Published sources of strategic information includes :
periodicals,
journals,
reports,
government documents,
abstracts,
books,
newspapers, and
manuals.
The Internet and others has made it easier for firms to
gather, assimilate, and evaluate information.
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Forecasting Tools and Techniques
Forecasts are educated assumptions about future trends
and events.
Forecasting is a complex activity because of factors
such as technological innovation, cultural changes, new
products, improved services, stronger competitors,
shifts in government priorities, changing social values,
unstable economic conditions, and unforeseen events.
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Cont….
Forecasting tools can be broadly categorized into two groups: quantitative
decisions.
rather than numerical analysis. This type of forecasting relies upon the knowledge
outcomes.
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No forecast is perfect, and some forecasts are even wildly
inaccurate. This fact accents the need for strategists to devote
sufficient time and effort to study the underlying bases for
published forecasts and to develop internal forecasts of their
own.