Strategic Management

Major Bhargava R D
Executive Director
XHire HR Consulting LLP
Bangalore
 Strategic Management
Module 2
COMPETITIVE ADVANTAGE (12 HOURS)
 External Environment
 PESTEL Analysis,
 SWOT Analysis,
 Porter’s Five Forces Model,
 The Competitive Profile Matrix (CPM),
 Globalization and Industry Structure –
Resources, Capabilities and Competencies
 Value Chain Analysis – Core Competencies, Generic
Building Blocks of Competitive Advantage
 Distinctive Competencies - Avoiding Failures and
Sustaining Competitive Advantage
2
Strategic Management
Module 2
COMPETITIVE ADVANTAGE

Part I
External Environment

3
 Classification of
External Environment
 A firm’s External Environment can be divided into
Three parts: Operational
Environment

– Global/Local Environment
Industry
Environment
(Remote)
– Industry Environment Global/Remote
Environment

(Competitive Forces)
– Operating Environment
(Competitive Position)

 A firm’s strategic actions are influenced by the

changes taking place in all the three environments.
4
 Scope of
External Environment
• Global/Local Environment
Macro • (Remote)

• Industry Environment
• (Competitive Forces)
Micro • Operating Environment
• (Competitive Position)

5
 Components of
External Environment
(Remote Environment)

6
 Industry Environment
(Competitive Forces)
 How Competitive Forces Shape the Strategy
– Determinants of Entry
– Suppliers Behaviour
– Customers Behaviour
– New Entrants
– Substitutes
– Determinants of Rivalry

7
 Operating Environment
(Competitive/Task Environment)
 Competitive Position
– Suppliers
– Creditors
– Labour
 Customer Profile
– Geographic Location
– Demographic Characteristics
– Psychographic Characteristics
– Buyer Behavior
8
 The External Environment
A firm’s External Environment Creates:
● OPPORTUNITIES
– the opportunity to enter other global markets
● THREATS
– the possibility that additional regulations in its markets
will reduce opportunities
Collectively, Opportunities and Threats affect a firm’s
Strategic Actions.

9
De-Mystifying the External Environment

EXTERNAL
ENVIRONMENT
TO UNDERSTAND
INTERNAL
ENVIRONMENT FOR
UPDATING
KNOWLEDGE
VISION, MISSION,
AND STRATEGY FOR
EFFECTIVENESS

10
 External Environment - General
●The External Environment is Grouped into Seven
Environmental Segments:
1. Demographic
2. Economic
3. Political/Legal
4. Socio-Cultural
5. Technological
6. Global
7. Physical
●To successfully deal with uncertainty in the external
environment and achieve strategic competitiveness, firms
must be aware of and understand these segments.

11
 Characteristics of
External Environment
 External Environment is:
– Turbulent
– Complex
– Global
– Uncertain
– Ambiguous
– Incomplete
 Firms engage in external environmental analysis to better
understand and cope with their environments.
 This analysis has four parts:
Scanning, Monitoring, Assessing and Forecasting.

12
Managing External Environment

13
 External Environmental Analysis -
OPPORTUNITY
● Identifying opportunities and threats is an important
objective of studying the general environment.

● OPPORTUNITY is a condition in the general environment

that if exploited effectively, helps a company achieve strategic
competitiveness.

Example: Procter & Gamble (P&G) is reorienting beauty

products to better serve both men and women.

14
 External Environmental Analysis
THREAT
THREAT is a condition in the general
environment that may hinder a company’s
efforts to achieve Strategic Competitiveness.
Example: Computer manufacturing companies
are experiencing a severe external threat as
smart phones are expected to surpass
personal computer (PC) sales in the near
future.

15
 Resources For External Environmental Analysis
Firms use several sources to analyze the general environment:
 trade publications
 newspapers
 business publications
 academic research
 public polls
 trade shows
 suppliers
 customers
 employees
People in boundary-spanning positions can obtain a great deal of this type of
information.
Examples: salespersons, purchasing managers, public relations directors, and
customer service representatives, each of whom interacts with external
constituents

16
 External Environmental Analysis
Scanning

Scanning often Many firms use

Scanning: the study of reveals ambiguous, special software to
all segments in the incomplete, or reduce the trade-off
general environment; unconnected data and between an important
through scanning, firms information. missed event and
identify early signals of Environmental scanning
potential changes in the is challenging but false alarm rates.
general environment and critically important for Also, the Internet
detect changes that are firms, especially those provides significant
already underway competing in highly opportunities for
volatile environment. scanning.

17
 External Environmental Analysis
Monitoring

Effective monitoring
Monitoring: Analysts
requires the firm to
observe Scanning and
identify important
MEANINGFUL monitoring are
stakeholders and
environmental particularly important
understand its
changes to see if an when a firm competes
reputation among
important trend is in an industry with
these stakeholders as
emerging from among high technological
the foundation for
those spotted through uncertainty.
serving their unique
scanning
needs.

18
 EXTERNAL ENVIRONMENTAL ANALYSIS
Assessment

Assessing: Gathering and

Determining the organizing information
timing and INTERPRETATION IS is important, BUT
significance of the THE KEY. Even if appropriately
effects of formal assessment is interpreting that
environmental trends inadequate, the intelligence to
that have been appropriate determine if an
identified; specifying interpretation of that identified trend in the
the implications of the information is external environment
understanding important. is an Opportunity or
gathered in the Threat is
previous stages PARAMOUNT.

19
 Environmental Analysis
Forecasting

Forecasting:
feasibility projections
Technology trends are
developed for what
continually driving
might happen, and During an economic
product life cycles
how quickly, as a downturn, forecasting
shorter, which makes
result of the changes becomes more
forecasting demand
and trends detected difficult and more
for new technological
through scanning and important.
products that much
monitoring, both of
more challenging.
which focus on events
at a point in time

20
END OF PART I

21
 Next Session

 PESTEL Analysis
 Porter’s Five Forces Model
 SWOT Analysis

22
End of Session
Thank You!

23