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Strategic Issue Assignment. Decisions about Business Definition Mission and Objectives. Managers’ Mental Models Beliefs and Understandings about: Macro Env . Industry Env . Appropriate Size and Diversity How to Organize. Decisions about Corporate Strategy and Diversification.

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Decisions about

Business Definition

Mission and Objectives

Managers’

Mental Models

Beliefs and

Understandings

about:

Macro Env.

Industry Env.

Appropriate Size

and Diversity

How to Organize

Decisions about

Corporate Strategy and Diversification

Activities,

Resources and Capabilities

Market Position

Performance and

Competitive

Advantage

Decisions about

Business Strategy

Decisions about

Organizational Structure and Implementation

Feedback (Reinforces or suggests changes in managers’ mental models)


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Decisions about Where and How to Compete

Corporate Level Strategy (Defines Scope: What industries should the firm compete in?)

Business Level Strategy (Defines Positioning: How will the firm compete?)

Functional Level Strategy (Maximizes resource productivity)


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Decisions about Where and How to Compete

Corporate Level Strategy (Defines Scope: What industries should the firm compete in?)

(None)

Business Level Strategy (Defines Positioning: How will the firm compete?)

Best Cost (Value for Low Price)

What are some of the key differentiators?

Functional Level Strategy (Maximizes resource productivity)

How do they do this?


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Define the Issue

Background and Boundaries of the Issue

How is this issue related to your firm’s value proposition?

What do customers want?

What do you offer relative to what they want?

Evidence

What are the relevant external facts?

(Consumers, Customers, Competitors, and the External Environment)

What do you already know?

What do you need to know?

Alternatives and Implications

Potential Impact (Strategic and Financial)


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Industry

Environment

Macro Environment

Sociocultural

Economic

Demographic

Buyers

Rivalry Among Firms

Competitor Analysis

Managing Task Env. Relationships

Potential

Entrants

Supplies

Other

Stakeholders

Substitute

Products

Political/Legal

Technological

Task

Environment


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What do you need to know?(External Analysis)

Macro Environment Factors

Economic

Technological

Political/Legal

Social/Cultural


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Economic Factors

The state of the macroeconomic environment determines the general

health and well-being of the economy. This in turn affects a

company’s ability to earn an adequate rate of return.

Examples: GDP trends, interest rates, money supply, inflation,

unemployment levels, wage/price controls, energy availability,

and costs, disposable and discretionary income.

Globally: Monetary and Fiscal policies, currency convertibility,

exchange rates, economic development, political economy


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Social/Cultural Factors

This category of factors describe the beliefs, values, attitudes,

opinions, and lifestyles of persons in the firm’s external

environment as developed from cultural, demographic, religious,

educational and ethnic conditioning.

Examples: Lifestyle changes, career expectations, age distribution,

regional shifts in population, birth rates, life expectancies,

growth rate in population, consumer activism, rate of family

formation.

Global: Human rights, literacy levels, language, social institutions,

skill level of the workforce


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Political/Legal Factors

These factors define the legal and regulatory parameters within

which a firm must operate.

Examples: Antitrust regulations, environmental protection, tax laws,

employment laws, stability of government, foreign trade protection

Global: Form of government, political ideology, protectionist

sentiment, terrorist activity, legal system, government’s attitude

toward foreign firms.


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Technological Factors

This factor deals with the general technological infrastructure, the

rate of change in technology, and those things impacting the

development and introduction of new technologies.

Examples: Total government spending for R&D, Total industry

spending for R&D, focus of technological efforts, patent protection,

new developments in technology transfer, productivity

improvements through automation.

Global: Regulations on technology transfer, information flow

infrastructure, patent and trademark protection.



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What do you need to know?Industry Boundaries and Substitutability

1. Helps firms to determine the relative attractiveness of different segments.

2. Helps firms to appropriately classify competitors into groups and determine

direct and indirect competitors.

3. Helps firms to predict behavior of individual firms in light of ability to deliver value.

Impending

Competitors

Small/Med players in growth mode

Large players in related markets

Invisible

Competitors

Large Players

from another industry

moving secretly into

the market

Immediate Competitors

Large Players, well established


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Industry AnalysisWhat do you need to know?

The Value of the Product/Service to Customers

The Bargaining Power of Firms Relative

to their Suppliers and Buyers

The Intensity of Competition

What’s driving change in the industry?

(e.g., Shifts in competition, macro factors, entry/exit of major players)


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Porter’s Five Forces Model

Threat of New Entrants

Bargaining Power of the

Suppliers

Inter-Firm

Rivalry

Bargaining Power of the

Buyers

Threat of Substitutes


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Porter’s Five Forces Model (Competitive Forces)

Who are the Buyers?

Factors impacting the bargaining power of the buyers:

Standardized industry product

Purchases are made in large volume

Number of buyers is small

Significant threat of backward integration

Switching costs are low

Buyers are well-informed about the seller’s costs

Bargaining Power of the

Buyers


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Porter’s Five Forces Model (Competitive Forces)

Factors impacting the bargaining power of the suppliers:

Product represents a significant % of purchaser’s final

product

Few suppliers

Unique product or input

Significant threat of forward integration

Supplied product is less expensive for the

purchaser to buy than make

Bargaining Power of the

Suppliers

Strong? Medium? Weak?


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Porter’s Five Forces Model (Competitive Forces)

Threat of New Entrants

Strong? Medium? Weak?

Why are New Entrants a threat?

Factors impacting the threat of New Entrants:

Economies of scale

Capital Requirements

Access to Distribution Channels

Other entry barriers (regulation)

Competitive retaliation

High industry profitability and growth


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Porter’s Five Forces Model (Competitive Forces)

What is a substitute? Why are substitute products a threat?

Factors impacting the threat of substitute products:

Price of available substitutes

Switching costs

Industry growth and demand

Comparability of substitute in terms of quality, performance,

other features

Threat of Substitutes

Strong? Medium? Weak?


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Porter’s Five Forces Model (Competitive Forces)

Factors impacting Inter-Firm Rivalry:

Concentration

Product Differentiation

Excess Capacity

Exit Barriers

Cost Conditions

Industry Life Cycle

# of equally balanced competitors

Inter-Firm

Rivalry

Strong? Medium? Weak?


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Porter’s Five Forces Model (Competitive Forces)

Relative Power of

other Stakeholders

Threat of New Entrants

Bargaining Power

of the

Suppliers

Inter-Firm

Rivalry

Bargaining Power of the

Buyers

Threat of Substitutes


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Relative Power of

Other Stakeholders

Governments (particularly overseas)

Special Interest Groups/Lobbyists

Local Communities

International Stakeholders (e.g., WTO, IMF, EU)

Trade Associations

Unions


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What do you need to know?Key Success Factors

Prerequisites for Success

What do

customers want?

How does the firm

survive competition?

Analysis of Demand

Who are the customers?

What do they want?

What drives competition?

What are the main

dimensions of competition?

How intense is competition?

How can the firm obtain superior performance?

KEY SUCCESS FACTORS


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Aerospace and Defense Industry Example


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Aerospace and Defense Industry: Broadly Defined

Key Segments

Military

Weapons

Commercial

Aircraft

Space

(Rockets and

Satellites)


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Aerospace Industry

Commercial Aircraft

Further Segmentation

Large

Commercial

Jets

($49 Billion)

Maintenance

Repair

and Overhaul

($36.4 Billion)

Business and

Regional Aircraft

($21.1 Billion)

Jet Engines

($33.1 Billion)

Civil Avionics

($11.2 Billion)

(Source: Standard and Poors

Nov. 2006)


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Economic Traits (2006) Commercial Aircraft

Market Size (Defense and Aerospace): $468 billion

Market Size (Commercial aircraft): $151 billion (slow growth)

Types of Distribution Channels: Few (mostly direct)

Economies of Scale: Present

Capital Requirements: Extremely High

Product Differentiation: High (needs explanation)

Presence of Vertical Integration: Yes (Boeing and Airbus also

produce jet engines)


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Industry Structural Characteristics (Commercial Aircraft)

Oligopoly Competition (Boeing/45% and Airbus/55%)

Concentration (Yes)

Economies of Scale (Present)

Product Differentiation* (High)

Barriers to Entry/Exit (Extremely High)


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Driving Forces: Commercial Aircraft

Driving Forces

Long-Term Airline Industry Profitability

Capacity Issues in Airline Industry

Fuel Prices

Air Traffic Forecasts

Price Pressure from Customers (Delta, Northwest, etc)

Globalization

Presence of Low Cost Air Carriers


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Key Success Factors: Commercial Aircraft

Key Success Factors

Excellence in R&D

Effective Production Utilization

Free Cash Flow

On-Time Delivery


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External

Environment

Macro

Industry

Operating

Company

Mission

and

Objectives

Strategic

Options

and

Choice

Desired?

Possible?

Internal

Environment

Resources

Current Strategy

Costs