ADVANCED

STRATEGIC MANAGEMENT AND

GLOBALIZATION
Muhammad Atiq (PhD)

The Environment
How do we analyse the macro environment of an organisation?

What is industry analysis and how do we go about it?

How do we identify our close and remote competitors and our

strategic customers?

Why environment is a source of both opportunities and threats?

Analysing Business Environment

Environment gives organisations their means of survival

Changes in the environment affect firms and they need to adapt the

environment

Environment is a source of both opportunities and threats

Therefore, it is imperative that corporate managers analyse their

business environments carefully in order to anticipate and influence

environmental changes

Analysing Business Environment

PESTEL

PESTEL
Understanding how these factors are changing now and how

they will change in future is vital to developing corporate strategy

These factors are inter-linked and drawing out their implications

for the firm is important

However, such analysis can produce a long and complex list

Therefore, key drivers for change are identified

Key Drivers for Change

They are environmental factors that are likely to have a

high impact on the success or failure of strategy

Key drivers vary by industry

Key drivers are then used in building alternative scenarios

for developing corporate strategy

Building Scenarios
Scenarios are detailed and plausible views of how the

business environment of an organisation might develop in the

future based on key drivers for change about which there is a
high level of uncertainty

Building scenarios helps prevent managers from closing their

minds about alternatives

Managers should evaluate and develop contingency plans for

each scenario

Building Scenarios
Typically better to have two or four scenarios, avoiding an

easy mid-point
Scenarios are especially useful where:

There are a limited number of key drivers

There is a high level of uncertainty about such influences
Outcomes could be radically different
Organisations have to make substantial commitments into
the future that may be highly inflexible and hard to reverse

Industry Analysis
Industry is a group of firms producing products or services

that are perceived by customers as meeting the same needs

Every industry comprises of market participants (firms

competing with one another, suppliers, customers, potential

entrants and firms producing substitutes)

Market participants engage in a continual struggle for a

share of industry profits

Industry Analysis
A firms profitability depends partly on the intensity of

competition and partly on the influence of market

participants
Industry analysis helps managers in:

Identifying opportunities to increase profits

Recognizing threats to existing profits
Deciding whether to enter or exit an industry

Industry Analysis
The most widely used framework for analysing industry

attractiveness is Porters five forces framework

Identifies the important factors affecting an industrys

profitability and helps strategists judge their relative

influence
The five forces at play in any industry are:
Threat of potential entrants

Threat of substitutes
Power of buyers
Power of suppliers
Competitive rivalry

Industry Analysis
Threat of potential entrants
New entrants increase competition, driving down prices and
profit
Threat of entry depends on the how easy it is to enter an

industry
Typical barriers to entry are:

Scale and experience

Access to supply and distribution channels
Expected retaliation
Legislation or government action
Differentiation

Industry Analysis
Threat of Substitutes
Substitutes reduce demand for a particular class of
products as customers switch to the alternatives
Offer similar benefit, but by a different process
The simple risk of substitution puts a cap on the prices that

can be charged in an industry

Therefore, two factors need to be considered:

Price/performance ratio
Extra-industry effects

Industry Analysis
Power of Buyers
The most immediate customers of the firm
Buyer power is high when there are:

Concentrated buyers
Low switching costs
Buyer competition threat (backward vertical integration)

Industry Analysis
Power of Suppliers
Those who supply the firm with the necessary inputs like
raw material, equipment, labour, fuel, finance etc.
Supplier power is high when there are:

Concentrated suppliers
High switching cost
Supplier competition threat (forward vertical
integration)

Industry Analysis
Competitive Rivalry
Organisations producing similar products aimed at the same

customer group are competitive rivals

The four forces discussed previously have a direct impact on

competitive rivalry in an industry

Besides the four forces, other factors affecting the intensity of

competition in an industry are:

Competitor balance
Industry growth rate
High fixed costs
High exit barriers
Low differentiation

Implications of Five Forces Analysis

Which industries should we enter or leave?

What influence can be exerted?
How are competitors differently affected?

Key Issues in Using the Five Forces

Framework
Defining the right industry
Determine whether industries are converging

Convergence is where previously separate industries begin to

overlap in terms of activities, technologies, products and

customers
Identify complementary products

Complementary products are worth more together than separately

Co-operation Vs. Antagonism

Industry Life Cycle

Competitors and Markets

Many industries contain a range of companies, each of which

has different capabilities and competes on different bases

Customers too can differ significantly in their needs and values

So we need to be mindful of two things:

With whom we are competing directly

In which market segment we are competing

We also need to know what are the critical success factors for
competing successfully in our chosen segment

Competitors and Markets

Strategic Groups
Organisations within an industry with similar strategic

characteristics, following similar strategies or competing

on similar bases.

These characteristics are different from those in other

strategic groups in the same industry or sector

Competitors and Markets

Characteristics for Identifying Strategic Groups
Scope of activities
Extent of product
diversity
Extent of geographic
coverage
Number of segments
served
Distribution channels

Resource commitment
Extent of branding
Marketing effort
Extent of vertical
integration
Product quality
Technological
leadership
Organisational size

Competitors and Markets

Benefits of Identifying Strategic Groups
Understanding competition

Analysis of strategic opportunities

Analysis of mobility barriers

Competitors and Markets

Market Segments
The concept of market segment focuses attention on

differences in customer needs

A market segment is a group of customers who have

similar needs that are different from customer needs in

other parts of the market

Competitors and Markets

Some bases of Market Segmentation

Competitors and Markets

Strategic Customer
Strategic customer is the person(s) at whom the strategy is

primarily addressed because they have the most influence over

which goods or services are purchased
Unless there is clarity on who the strategic customer is, managers

can end up analysing and targeting the wrong people

However, it does not mean that the needs and requirements of the

ultimate consumers are not important

It simply means that the requirements of strategic customers are of

paramount importance

Competitors and Markets

Critical Success Factors
Are those product features that are particularly valued by a group of

customers and, therefore, where the organisation must excel to

outperform competition
Case-in-Point: Current Account segment of banking sector in

Pakistan
Customers value branch network, customer service, free online

banking, free POs/DDs, free cheque books, free debit card, free
SMS banking, free business and cash insurance
Faysal Business First, HBL Freedom Account, NIB Saudagar

Account

Strategic Capability
Strategic capability is the resources and competences of an

organisation needed for it to survive and prosper

All companies in an industry compete in the same

environment, yet some are outperformers and some are

underperformers

Strategic capabilities distinguish one company from another

Strategic Capability
Organisations are not identical, but have different capabilities

It is difficult for one organisation to obtain or copy the capabilities of

another (Reason: Money + Tacit Knowledge)

Thus, an organisation achieves competitive advantage on the

basis of capabilities that its rivals do not have or have difficulty in

obtaining

This view is known as the resource-based view of strategy

Elements of Strategic Capability Explained

Resources
Anything which provides benefit to the organisation is an
organisational resource
Tangible vs. intangible resources
Physical resources, financial resources, human resources,

intellectual capital (brands, patents, copyrights etc)

Intellectual capital is a function of knowledge workers and the skills

they bring to their organisation

Competences: the skills and abilities by which resources are

deployed effectively through an organisations activities and

processes

Elements of Strategic Capability Explained

Threshold Capabilities
Those capabilities needed for an organisation to meet the

necessary requirements to compete in a given market

Unique Resources
Those resources that critically underpin competitive advantage and

that others cannot easily imitate or obtain

Core Competences
the skills and abilities by which resources are deployed through an

organisations activities and processes such as to achieve

competitive advantage in ways that others cannot imitate or obtain

Strategic Capability and Competitive Advantage

To survive and prosper, an organisation needs to address the

challenges of the environment

It must be capable of performing in terms of critical success factors
However, the strategic capability to do so is dependent on the

resources and competences it has

These must reach a threshold level in order for the organisation to

survive
Achieving competitive advantage requires organisation to have

strategic capability that the competitors find difficult to obtain or

imitate

Cost Efficiency
A key strategic capability is the management of cost efficiency
Customers benefit from cost efficiencies in terms of lower prices

or more product features for the same price

Cost efficiency could also be a basis for achieving competitive

advantage
If prices rise too high then customers will sacrifice value and opt

for lower prices

Therefore, appropriate level of value needs to be offered at an

acceptable price
Competitive rivalry also requires firms to focus on reducing costs

Cost Efficiency
Sources of Cost Efficiency
Economies of scale

Supply costs

Product/process design

Experience

Experience Curve
An organisation undertaking any activity develops

competences in this activity over time based on experience,

resulting in cost efficiencies

Experience curve suggests that:

Growth is not optional
Unit costs should decline year on year based on cumulative

experience
First mover advantage is important

Experience Curve

Capabilities for Achieving and Sustaining Competitive

Advantage
Strategic capability should be:

Valuable

Rare

Inimitable

Non-substitutable

Dynamic

Diagnosing Strategic Capability

The Value Chain
Managers need to understand which activities they undertake are

especially important for creating value for customers

A value chain describes the categories of activities within and

around an organisation, which together create a product or service

Consists of primary activities and support activities

A Typical Value Chain

The Value Chain

Primary activities are directly concerned with the creation or

delivery of a product and consist of:

Inbound logistics: activities concerned with receiving, storing and

distributing inputs to the product

Operations: the processes of transforming inputs into the final

product

Outbound logistics: collecting, storing and distributing the

product to customers

The Value Chain

Marketing and sales: activities concerened with making

customers aware of the product and enabling them to

purchase it

Service: activities that maintain or enhance the value of a

product after sale has been made, e.g. warranty,

installation, repair and spares

The Value Chain

Support activities help to improve the effectiveness or efficiency of

primary activities and consist of:

Procurement: the activities concerned with acquiring the various

resource inputs to the primary activities

Technology development: developing technologies and

technological know-how for different products and processes

Human resource management: activities involved in recruiting,

managing, training, developing and rewarding people within the

organisation
Infrastructure: the formal systems of planning, finance, quality

control, information management, structures and routines

The Value Chain

Analysing value chain can enable an organisation to determine its

own strengths and weaknesses by comparing itself with the

competitors value chains

Value chain analysis is helpful in determining the cost and value of

activities

Value chain analysis also helps in understanding which corporate

activities are providing the most value to the customers

Business-Level Strategy
What are the bases of achieving competitive advantage in

terms of routes on the strategy clock?

How to sustain the chosen bases of achieving competitive

advantage?

What is the relationship between competition and

collaboration?

Bases of Competitive Advantage

Competitive strategy is concerned with the basis on which a

business unit might achieve competitive advantage in its

market
In a competitive situation, customers make choices on the

basis of their perception of value-for-money

The strategy clock represents different positions in a market

where customers have different requirements in terms of

value-for-money
Cost and difficulty of imitation are strategic considerations

for all strategies on the clock

The Strategy Clock

Price-based Strategies (Routes 1 and 2)

Route 1 a no-frills strategy combines a low price, low

perceived product benefits and a focus on a pricesensitive market segment

Route 2 a low-price strategy seeks to achieve a lower

price than competitors whilst trying to maintain similar

perceived product benefits to those offered by
competitors

Price-based Strategies (Routes 1 and 2)

Price-sensitive customers may be unattractive to major

providers but offer an opportunity to others

Moreover, price-based strategies are adopted in situations

where buyers have high power and/or low switching costs

Such strategies also offer an opportunity to avoid major

competitors

Price-based Strategies (Routes 1 and 2)

However, price reduction is going to be followed by all

competitors leading to reduced margins for everyone

Low margins in turn lead to reduced resources available to

develop/innovate products
Hence, low cost in itself is not a basis for achieving

competitive advantage
Low cost can be a basis for advantage IF costs can be

reduced in ways which others cannot imitate easily

Price-based Strategies (Routes 1 and 2)

Possible ways of sustaining low cost advantage are:
achieving much greater sales volume than competitors or

cross-subsidising an SBU from elsewhere in the portfolio

Obtaining raw materials at lower prices than competitors or

undertaking production in areas where labour cost is low

Organisation specific capabilities deep rooted in the culture

and history of the organisation

Summing-up Price-based Strategies

We have adopted the strategy of flank attack. Flank attack is a

marketing strategy where those areas of the enemy are hit that
are easy to be captured. We are focusing on flank areas like
Charsadda, Parachinar, Hangu, Tal etc. They are backward and
underdeveloped areas. Such areas are mostly neglected by
MNCs, and even if they do send their representatives to such
areas, they cannot sell their medicines there because their
prices are high compared to us. Doctors in such areas need
such medicines that are of good quality but low-priced as
well. (Manager B at Bryon Pharmaceuticals, Peshawar)

The Hybrid Strategy (Route 3)

A hybrid strategy seeks simultaneously to achieve differentiation and a

price lower than that of competitors

Success depends on delivering enhanced benefits at low prices whilst

achieving sufficient margins for reinvestment in order to maintain and

develop bases of differentiation

This strategy can be advantageous when:

much greater sales volumes can be achieved than competitors

Entering a market where there are established competitors

Differentiation Strategy (Route 4)

Differentiation Strategy (Route 4)

A differentiation strategy seeks to provide product benefits

that are different from those of competitors and that are widely
valued by buyers

The aim is to achieve competitive advantage by offering better

products at the same price or enhancing margins by pricing

slightly higher

Differentiation Strategy (Route 4)

Success of this strategy is dependent on identifying critical

success factors and performing better at them in ways that

competitors cannot imitate easily

Identifying the strategic group an organisation belongs to, is

also essential for crafting a successful differentiation strategy

Differentiation Strategy (Route 4)

Difficulty of imitation is likely to come from core competencies

rather than tangible resources

By investing in intangible assets and creating switching

costs , a firm can sustain differentiation-based advantage

There should also be an emphasis on lowering the costs in

order to obtain better margins that can be reinvested in

further developing the brand

Summing-up Differentiation Strategy

We are number one in Europe and number four in Pakistan.

The majority of our products are research-based products. We

conduct large studies and enrich the data continuously. We
arrange seminars based on our studies and tell doctors the
success rates of our medicines. Therefore, our products are of
high quality and have superior efficacy. We are benefiting
society through the quality of our medicines. Society is getting
benefit in terms of high quality medicines and we are getting
benefit in the shape of increasing revenues.
(Manager C at Sanofi Pakistan)

Focused Differentiation (Route 5)

A focused differentiation strategy seeks to provide high

perceived product benefits justifying a substantial price

premium, usually to a niche

Growing a focused venture is very difficult because growth

means moving from route 5 to route 4

The above mentioned movement eventually means a lowering

of price as well as product benefits

Competition and Collaboration

Theory dictates that competitive advantage can always be achieved by

competing
In ideal conditions, kicking out the competitor out of the market will give

you competitive advantage

However, practical situation at hand in an industry may warrant inter-

organisational collaboration rather than pure competition

Inter-organisational collaboration may lead to the attainment of

competitive advantage or simply avoiding competition, thus creating

win-win scenario

Inter-organisational Collaboration
Collaboration is a process in which autonomous actors

interact through formal and informal negotiation, jointly

creating rules and structures governing their relationships
and ways to act and decide on the issues that brought
them together; it is a process involving shared norms and
mutually beneficial interactions (Thomson, 2001, p. 163)

Purposes of Inter-organisational Collaboration

Pressure Groups
Innovation/Entering New Markets
Sharing of resources
Creation of new knowledge
Reducing uncertainty
Reducing costs
Practising CSR

Strategic Directions and Corporate-Level Strategy

Analyze the choices of products and markets for an

organisation to enter or exit

Understand the role of corporate-level activities, decisions

and resources in adding value to the actual businesses

(SBUs)

Understand which businesses should corporate parents

cultivate and which should they divest

Strategic Directions and Corporate-Level Strategy

Value creation
Corporate
parenting

Portfolio
management

Diversification

Penetration
Consolidation
Development

Scope decisions

Strategic Directions
The Ansoffs matrix provides a simple way of generating four

basic alternative directions for strategic development

Market Penetration
An organisation takes increased share of its existing markets with

its existing product range

Builds on existing strategic capabilities and is the most obvious

strategic direction

Greater market share implies increased power vis--vis buyers and

suppliers, greater economies of scale and experience curve

benefits

Market Penetration
However, market penetration may exacerbate competitive rivalry as

others defend their share (consolidation) through waging price wars

and expensive marketing battles

Acquiring weak competitors can be effective in reducing industry

rivalry but that may invite the attention of competition regulators

TOTAL-PARCO and CHEVRON Pakistan

Consolidation
Consolidation refers to a strategy by which an organisation

focuses defensively on its current markets with current

products

It involves defending market share and downsizing or

divestment in a declining market

Hence, this strategy does not involve growing the company

Product Development
refers to a strategy by which an organisation delivers modified

or new products to existing markets

Incremental and radical product innovations

Product development is expensive and high-risk activity

because of:
Acquiring new strategic capabilities
Risk of delays and increased costs due to project complexity

Product Development
Successful product development requires the achievement of three

objectives:
maximise fit with customer requirements
minimise time to entry
control development costs

The attainment of these objectives requires co-ordination among

various functions of the firm

Collaboration with customers and suppliers is also required in

order to ensure fit with customer requirements and ensure

appropriate quality raw materials at minimum costs

Market Development
Is where existing products are offered in new markets
Market development might take three forms:
New segments
New users
New geographies

Market development strategies should be based on products

that meet the critical success factors of the new market
Simply off-loading existing products in new markets is bound
to fail

Diversification
A strategy that takes an organisation away from both its

existing markets and its existing products

Diversification is the most radical strategic direction and

increases the organisations scope

Diversification can be broadly classified as: related

diversification and unrelated diversification

Related Diversification
Corporate development beyond current products and

markets, but within the capabilities or value network of the

firm

Abbott Pharmaceuticals venture in to diagnostics

NBPs venture in to NAFA funds

Related Diversification
Related diversification can be further classified in to

vertical integration and horizontal integration

Vertical integration is backward or forward integration in to

adjacent activities in the value network

Horizontal integration is development in to activities which

are complementary to present activities

Related Diversification Options for a Manufacturer

Unrelated Diversification
Involves development of products or services beyond the

current capabilities and value network

Engro Corporation, Arif Habib Group

Singer companys venture in to manufacturing motor bikes

Such companies are often called conglomerates

Value-Adding Activities of Coporate Parents

Envisioning

Coaching and
facilitating

Providing central
services and
resources

Intervening

Value-Destroying Activities of Corporate Parents

Adding management costs

Adding bureaucratic complexity
Obscuring financial performance

The Directional Policy Matrix

Also known as GE-McKinsey matrix

This portfolio matrix positions SBUs according to how attractive the

relevant market is, in which they are operating and the competitive
strength of the SBU in that market

Market attractiveness can be determined from Porters five forces

framework or market growth rate

SBUs strength can be determined from strategy canvas or market

share

The Directional Policy Matrix

Strategy Guidelines based on the Directional

Matrix

The Directional Policy Matrix

The matrix suggests that the businesses with the highest

growth potential and the greatest strength are those in which

to invest for growth

This matrix also acknowledges the difficult middle ground as

compared to BCG matrix

Managers have to be carefully selective for the SBUs that

operate in the middle ground