Strategic ManagementBy Devansh Mehta

M.PHARM.(PHARMACOLOGY)M.B.A.(Pharmaceutical Marketing and Hospital Administration)

B.PharmacyContact No.:+91-8171552727

Environmental Threat and Opportunity Profile (ЕТОР)!

• The Environmental factors are quite complex and it may be difficult for strategy managers to classify them into neat categories to interpret them as opportunities and threats. A matrix of comparison is drawn where one item or factor is compared with other items after which the scores arrived at are added and ranked for each factor and total weight age score calculated for prioritizing each of the factors.

• This is achieved by brainstorming. And finally the strategy manger uses his judgment to place various environmental issues in clear perspective to create the environmental threat and opportunity profile.

• Although the technique of dividing various environmental factors into specific sectors and evaluating them as opportunities and threats is suggested by some authors, it must be carefully noted that each sector is not exclusive of the other.

• Each of the major factors pertaining to a particular sector of environment may be divided into sub-sectors and their effects studied. The field force analysis goes hand in glove with ETOP, as here also the contribution with regard to opportunities and threats posed by the environment is also a necessary part of study.

ETOP Preparation:

• The preparation of ETOP involves dividing the environment into different sectors and then analyzing the impact of each sector on the organization. A comprehensive ETOP requires subdividing each environmental sector into sub factors and then the impact of each sub factor on the organization is described in the form of a statement.

• A summary ETOP may only show the major factors for the sake of simplicity. The table 1 provides an example of an ETOP prepared for an established company, which is in the Two Wheeler industry.

• The main business of the company is in Motor Bike manufacturing for the domestic and exports markets. This example relates to a hypothetical company but the illustration is realistic based n the current Indian business environment.

Environmental Sectors Impact of each sectorSocial (↑) Customer preference for motorbike, which

are fashionable, easy to ride and durable.Political (→) No significant factor.Economic (↑) Growing affluence among urban

consumers; Exports potential high.Regulatory (↑) Two Wheeler industry a thrust area for

exports.Market (↑) Industry growth rate is 10 to 12 percent per

year, For motorbike growth rate is 40 percent, largely Unsaturated demand.

Supplier (↑) Mostly ancillaries and associated companies supply parts and components, REP licenses for imported raw materials available.

Technological (↑) Technological up gradation of industry in progress. Import of machinery under OGL list possible.

• As shown in the table motorbike manufacturing is an attractive proposition due to the many opportunities operating in the environment. The company-can capitalize on the burgeoning demand by taking advantage of the various government policies and concessions. It can also take advantage of the high exports potential that already exists.• Since the company is an established manufacturer of motorbike, it

has a favorable supplier as well as technological environment. But contrast the implications of this ETOP for a new manufacturer who is planning to enter this industry.

• Though the market environment would still be favorable, much would depend on the extent to which the company is able to ensure the supply of raw materials and components, and have access to the latest technology and have the facilities to use it. The preparation of an ETOP provides a clear picture for organization to formulate strategies to take advantage of the opportunities and counter the threats in its environment.

1. Issue Selection:Focus on issues, which have been selected, should not be missed since there is a likelihood of arriving at incorrect priorities. Some of the impotent issues may be those related to market share, competitive pricing, customer preferences, technological changes, economic policies, competitive trends, etc.

2. Accuracy of Data:Data should be collected from good sources otherwise the entire process of environmental scanning may go waste. The relevance, importance, manageability, variability and low cost of data are some of the important factors, Which must be kept in focus.

3. Impact Studies:Impact studies should be conducted focusing on the various opportunities and threats and the critical issues selected. It may include study of probable effects on the company’s strengths and weaknesses, operating and remote environment, competitive position, accomplishment of mission and vision etc. Efforts should be taken to make assessments more objective wherever possible.

4. Flexibility in Operations:There are number of uncertainties exist in a business situation and so a company can be greatly benefited buy devising proactive and flexible strategies in their plans, structures, strategy etc. The optimum level of flexibility should be maintained.

The strategic managers should keep focus on the following dimensions,

Some of the key elements for increasing the flexibility are as follows:

(a) The strategy for flexibility must be stated to enable managers adopt it during unique situations.(b) Strategies must be reviewed and changed if required.(c) Exceptions to decided strategies must be handled beforehand. This would enable managers to violate strategies when it is necessary.(d) Flexibility may be quite costly for an organization in terms of changes and compressed plans; however, it is equally important for companies to meet urgent challenges.

• Strategy is a game plan for action i.e. the way of doing something. It usually includes the formulation of • Goal and set of Action plansFor achievement of goal under competitive environment and against competitive forces Strategy is the• firm’s response and pattern of responsesTowards outside forces. The organizational goals as stated during planning stage are to be achieved under• Threats and opportunities conditions created by outsideforces.

• Environmental Scanning:• The study of all components of external environment is termed

asenvironmental scanning. Through scanning a firm can be aware of:• 1.Early signals of potential changes.• 2.Changes which are already going on.• 3.Strategies of Competitors.• 4.Counter strategies to be adopted

• Competitive and market analysis is also important part of strategy formulation. A successful analysis of competitive and market analysis help organization to develop its own “Sustainable Competitive Advantage”

which prove to be a “Distinctive Competence” (DC) or• Uniqueness over competitors and market• Once the above objectives / steps are completed the

role of H.R. began to acquire and develop the personnel of organization to achieve the D.C. through integrative efforts of different departments.

Industry Analysis

• A particular industry is said to be a market where various firms are pursuing their strategies to compete with similar offerings and enjoying their own market share, product acceptability, competitive position, brand loyalties, and profitability are theresults of their strategies and competitors strategies.. A continuous watch over the market ismust to grow, sustain, and survive in the dynamic environment. • There are two basic aims behind strategic industry analysis:• 1.Analysis of relevant industry, its components, degree and nature of comp

etitiveness i.e. opportunities & threats.• 2.Analysis of available internal resources, competencies, strengths and

weakness.

The environments of industry to industry is quit different. A firm operating in a particular industry generally has following environment components:

FIRMMicro Environment

Major Environment

• The Mega Environment:• Consists of following:• -Demographic• -Political• -Legal• -Social• -Cultural• -Economic

• 2. The Micro Environment or Immediate Environment:• There is a very thin linedifference between the firm and its micro

environment. Within micro environment there may be different industries consisting of various competitors.For Exp: Within cement industry there are various competing firm, the immediate or microenvironment of cement industry may consists of firms’ manufacturing and marketing steel,iron bricks, etc. If a firm of cement industry lower down its prices the iron and steel industrywill automatically be affected likewise the micro environment of Tea industry is coffee andsugar industry

• The Competitive Environment of an Industry refers to the various external forces whichmake a particular Industry – Attractive or Unattractive. Industry Attractiveness refers toProfit Potentials and Growth Potential. The most common tool to analyze the Industry isPorter’s 5 Forces Model

Strategic Management Process:

Analysis of Internal Environment for Strength and WeaknessExternal Environment for Opportunities and Threats

Formulation and Statement of Vision, Mission 

The ultimate goalsObjective Market to Compete Strategies & Competencies to develop Policies and major Actions Implementation of best fit organization structure, resources, culture and operation control. Evaluation &Control Developing counter strategies if necessary.

SAP Analysis:

• Internal assessment of the firm is critical for developing • successful business and better strategies. • Internal analysis began with the identification of • organization’s resources allocations. • Resources allocation convert financial resources into organizational, Human and Physical

resources and ultimately into the ability to interact and compete in the market. • Successful market interaction generates great financial resources which are again

converted into Human and other Physical resources with greater abilities to fight in the market.

• This is like a chain reaction of firm’s internal resources to generate and re-generates greater amount of financial, physical, Human (tangible resources) and better capabilities to compete in the market with added strength

• SAP is the process by which firm’s resources and capabilities of key functional areas areexamined to determine its strengths and weaknesses.

SAP Analysis

Steps involved in Developing Firms SAP

Step 1: Identification of Strategic Internal factors and Value Activities

Step 2: How do these activities and factors fit with current situation and firms past history

Favorable Unfavorable

StrengthWeakness

How do these strengths and weaknesses canBe utilized to compete in market

How do these Strength and WeaknessesCompare with capabilities and resources of the main

competitors

Provide an EdgeOver competitors

Necessary Skill and OtherRequirements

Necessary Skill and Other Requirements are not Possible

Competitive Advantage Basic Business Requirements Competitive Disadvantage

Necessary Inputs available for Strategy Formulation

Value Chain Analysis

• Value Chain Analysis is a useful tool for working out how you can create the greatest possible value for your customers.

• Value Chain Analysis is a three-step process:• Activity Analysis: First, you identify the activities you undertake to deliver

your product or service;• Value Analysis: Second, for each activity, you think through what you would

do to add the greatest value for your customer; and• Evaluation and Planning: Thirdly, you evaluate whether it is worth making

changes, and then plan for action.

• Step 1 – Activity Analysis• The first step to take is to brainstorm the activities that you, your team or your company undertakes that

in some way contribute towards your customer's experience.• At an organizational level, this will include the step-by-step business processes that you use to serve the

customer. These will include marketing of your products or services; sales and order-taking; operational processes; delivery; support; and so on (this may also involve many other steps or processes specific to your industry).

• At a personal or team level, it will involve the step-by-step flow of work that you carry out.• But this will also involve other things as well. For example:• How you recruit people with the skills to give the best service.• How you motivate yourself or your team to perform well.• How you keep up-to-date with the most efficient and effective techniques.• How you select and develop the technologies that give you the edge.• How you get feedback from your customer on how you're doing, and how you can improve further.

• Step 2 – Value Analysis• Now, for each activity you've identified, list the "Value Factors" – the things that your

customers' value in the way that each activity is conducted.• For example, if you're thinking about a telephone order-taking process, your customer will

value a quick answer to his or her call; a polite manner; efficient taking of order details; fast and knowledgeable answering of questions; and an efficient and quick resolution to any problems that arise.

• If you're thinking about delivery of a professional service, your customer will most likely value an accurate and correct solution; a solution based on completely up-to-date information; a solution that is clearly expressed and easily actionable; and so on.

• Next to each activity you've identified, write down these Value Factors.• And next to these, write down what needs to be done or changed to provide great value

for each Value Factor.

• Step 3 – Evaluate Changes and Plan for Action• By the time you've completed your Value Analysis, you'll probably be fired up for action:

you'll have generated plenty of ideas for increasing the value you deliver to customers. And if you could deliver all of these, your service could be fabulous!

• Now be a bit careful at this stage: you could easily fritter your energy away on a hundred different jobs, and never really complete any of them.

• So firstly, pick out the quick, easy, cheap wins – go for some of these, as this will improve your team's spirits no end.

• Then screen the more difficult changes. Some may be impractical. Others will deliver only marginal improvements, but at great cost. Drop these.

• And then prioritize the remaining tasks and plan to tackle them in an achievable, step-by-step way that delivers steady improvement at the same time that it keeps your team's enthusiasm going.

BCG Growth – Share Matrix

• BCG Matrix is a portfolio planning model developed By Bruce Henderson of the Boston Consulting Group in early 1970’s.

Star

Cash Cow Dogs

?Mark

Relative Market Share

High Low

Market GrowthRate

High

Low

GE / McKinsey Matrix

• In consulting assignment with GE Electricals, McKinsey developed GE Nine Cell matrix for proper Business Understanding and Deliverables

The GE Nine Cell matrix is similar to BCG matrix in that it maps strategic business units on a grid of the industry and the SBU’s position in IndustryThe GE matrix generalizes the axes as Industry attractiveness and Business unit Strength where as BCG matrix uses the market growth rate as a proxy for Industry attractiveness and relative market share as a proxy for strength of the business unit

Industry Attractiness

• The vertical axis of the GE / Mckinsey matrix is industry attractiness which is determined by following factors• Market Growth Rate• Market Size• Demand Variability• Industry profitability• Industry rivalry• Global opportunity• Macroenvironmental factors

Business Unit Strength

• The horizontal axis of the GE matrix is the strength of the business unit• Market share• Growth in market share• Brand Equity• Distribution channel access• Production capacity• Profit margin relative to competitors

Hofer’s Model

• Dan Schendel and Charles Hofer developed a strategic Management model, incorporating both planning and control functions• The model consist of several basic steps; • Goal Formulation• Environmental analysis• Strategy Formulation• Strategy Evaluation• Strategy Implementation• Strategic Control