STRATEGIC MANAGEMENTSESSIONS & SEMINARS

November 1, 2011Session 7 - 8

Our goal? Learn about & practice all steps of strategic planning process

• Choose a company for which to formulate a strategic business plan• Identify / formulate:

- mission statement – framework w/in which strategy shall be crafted

- corporate vision – where do we want to be in # years - business aims -> specific objectives

• Scan the environment – carry out external, internal & industry analysis -> situational analysis

-> Internal analysis - core business & competencies, resources available, corp. structure, required inputs, corp. culture

=> IFAS (Internal Factor Analysis Summary)

Our goal? Practice all steps of strategic planning process

• Environment scanning cont’d:-> External analysis - PEST(LE) => EFAS (External Factor Analysis

Summary)

- Industry Analysis (task environment):-> Porter’s Five (Six) forces => Industry Matrix

- Situational Analysis – finding a strategic fit b/w external opportu- nities & internal strengths

- mitigating harmful effects of external threats due to internal weaknesses

=> SFAS (Strategic Factor Analysis Summary) => SWOT analysis

Strategic Management ModelExisting Existing business model

Mission, vision, goals, objectives, corp. values

SWOT => Strategic

choice

External analysis ->

opportunities, threats

Internal analysis -> strengths,

weaknessesFunctional-level strategies

Business-level strategies

Corporate-level strategies

Strategy implementation

Strategic Management Cycle

External factor analysis - Summary

Michael Porter’s 5 Forces

Industry analysis – Porter’s 5 (6?) forces

Threat of new entrants

• Barriers to entry:

- economies of scale- product differentiation- capital requirements- switching costs- access to distribution channels- cost disadvantages independent of size- government policy

Industry analysis – Porter’s 5 (6?) forces

Rivalry among existing firms

• Rivalry related to:

- number of competitors- rate of industry growth- produce or service characteristics- amount of fixed costs- capacity- height of exit barriers- diversity of rivals

Industry analysis – Porter’s 5 (6?) forces

Threat of substitute products (goods/services)

• Products - satisfy the very same need as their direct substitutes• Although they appear to be different• If switching costs are low => strong effect on an industry

Relative power of stakeholders

• Labor unions• Governments• Shareholders• Banks …

Industry analysis – Porter’s 5 (6?) forces

Bargaining power of buyers

• Buyers are powerful when:

- they purchase large proportion of seller’s products- they are capable of integrating backward- there are many alternative suppliers- switching to other suppliers is not costly- the product purchased is NOT important to the final quality/price of buyer’s products- the product purchased accounts for a substantial %age of buyer’s costs- they earn low profits

Industry analysis – Porter’s 5 (6?) forces

Bargaining power of suppliers

• Suppliers are powerful when:

- Suppliers’ industry is dominated by a few players selling to many buyers- Their products are unique- Their products have high switching costs- Substitutes are hardly available or not at all- They can integrate forward and compete directly w/current customers- The goods made/sold by them to buyers constitute only a small portion of suppliers’ total product portfolio

Industry analysis – Porter’s 5 (6?) forces

Air-travel industry

• Rivalry among industry players- Airbus vs. Boeing (vs. ATR, Tupolev)

• Threat of new entrants- severe regulations- large capital investment- sophisticated supplier and support industries- highly skilled labor- zero/negative profits during an extended start-up phase- China/Russia/Japan or … ? may encourage a subsidized entry into market

of their own national company

Air-travel industry

• Bargaining power of buyers

- limited # of traditional and low cost airlines; leasing companies=> considerable & growing power b/c of decreased # of orders for new aircraft

- they have low switching costs -> Boeing is willing & able to offer better price &/or service than Airbus to steal orders from Airbus

- low cost airlines – order aircraft w/basic equipment easily to be produced by either of 2 manufacturers

Air-travel industry

• Bargaining power of suppliers- engine manufacturers – crucial for aircraft manufacturers

- gradually undergoing consolidation - non-existent substitutes due to certification requirements (high reliability/efficiency)

=> strong bargaining power weakened by shrinking military market to which they also supply

• Threat of substitutes- high-speed trains (Germany, France) traveling between points falling into air-travel network => lower demand for air-travel alternative- automobile industry – cars, highway network in EU, comfort (A/C)- IT – e.g. skype conference calls => no need to meet physically in 1 place

Air-travel industry

• Relative power of stakeholders

- Banks – loans to aircraft manufacturers backed up by long-term contracts

w/airlines, governments, renting companies ……

- Suppliers, labor unions, international relations in the defense sector …