Reasons why strategic plans fail
• Inability to predict environmental reaction
– What will competitors do
• Fighting brands
• Price wars
– Will government intervene
• Over-estimation of resource competence
– Can the staff, equipment, and processes handle the new
strategy
– Failure to develop new employee and management skills
• Failure to coordinate
– Reporting and control relationships not adequate
– Organizational structure not flexible enough

Reasons why strategic plans fail
• Failure to obtain senior management commitment
– Failure to get management involved right from the start
– Failure to obtain sufficient company resources to accomplish
task
• Failure to obtain employee commitment
– New strategy not well explained to employees
– No incentives given to workers to embrace the new strategy
• Under-estimation of time requirements
– No critical path analysis done
• Poor communications
– Insufficient information sharing among stakeholders
– Exclusion of stakeholders and delegates

Reasons why strategic plans fail
• Failure to follow the plan
– No follow through after initial planning
– No tracking of progress against plan
– No consequences for above
• Failure to manage change
– Inadequate understanding of the internal resistance to change
– Lack of vision on the relationships between processes,
technology and organization
• Failure to understand the customer
– Why do they buy
– Is there a real need for the product
– inadequate or incorrect marketing research

The Company
And its Environment

“It is not the strongest of the species
that survive, nor the most intelligent,
but the one most responsive to change”
- Charles Darwin

Environmental Analysis
• Must be well-organized, systematic, and supported by
sufficient resources (e.g., people, financial, information).
• Should be an ongoing effort.
• Can lead to better planning and decision making, should
be combined with the manager's intuition and judgment
to make the results of the analysis useful for planning
purposes.
• Perpetually analyzing data without making any decisions
is usually not worth the added expense.

Outcomes from External and
Internal Environmental Analyses
Examine opportunities
and threats
Examine unique
resources, capabilities,
and competencies
(sustainable competitive
advantage)

The Firm’s External
Environment
THE FIRM
Operating Environment (Global and Domestic)
•Competitors •Labor
•Suppliers
•Customers
Industry Environment (Global and Domestic)
•Entry barriers
•Supplier power
•Buyer power
•Substitute availability
•Competitive
rivalry
•Creditors
Remote Environment (Global and Domestic)
•Economic
•Social
•Political
•Technological
•Ecological

A Company’s Macroenvironment
COMPANY

Strategic Thinking & Analysis
Industry and Competitive conditions
•What are the industry’s dominant economic
features?
•What is competition like and how strong are the
competitive forces?
•What is causing the industry's competitive
structure and business environment to change?
•Which companies are the strongest/weakest
position?
•What strategic moves are rivals likely to make?
•What are the key factors for competitive success?
•Is the industry attractive and what are the
prospects for above-average profitability?
Company's own situation
•How well is the company’s present strategy
working?
•What are the company's strengths, weaknesses,
opportunities and threats?
•Are the company's prices and costs competitive
•How strong is the company’s competitive
positions?
•What strategic issues does the company face?
Strategic Options for
the Company
•Go with the present
strategy
•Make improvements
•Major strategic changes
Choose the
best Strategy
•3 tests

Economic Factors
• Concern the nature and direction of
economy in which a firm operates
• Types of factors
• General availability of credit
• Level of disposable income
• Propensity of people to spend
• Prime interest rates
• Inflation rates
• Trends in growth of gross national product

Industry’s key economic features
Economic Feature Strategic Importance
Market Size Small markets do not attract new competitors
Large markets attract competitors- acquire companies
Market growth rate Fast growth - new entry
Growth slowdown – increased rivalry and shake out of
weak competitors
Capacity surplus or
shortage
Surplus – price and profit 
Shortage – price & profit 
Industry profitability High profit attract new entrants
Depressed condition encourage exit
Entry/exit barriers High barriers protect positions and profits of existing
firms
Low barriers, existing firms vulnerable to new entry

Industry’s key economic features
Economic Feature Strategic Importance
Rapid technological
change
Raises risk factor, equipment and facilities may
become obsolete before they wear out
Capital requirement Big requirements create barrier to entry and exit, timing
becomes important
Economies of scale Increases volume and market share needed to be cost
competitive
Rapid product
innovation
Shortens life cycle
Increases risk- opportunities for rivals to bring out next-
generation products quicker

Social Factors
• Include beliefs, values, opinions, and
lifestyles of people
• Recent social trends
• Entry of large numbers of women into labor
market
• Accelerating interest of consumers and
employees in quality-of-life issues
• Shift in age distribution of population

Political Factors
• Legal and regulatory parameters within
which firms must operate
• Types of factors
– Trade decisions
– Antitrust laws
– Tax programs
– Minimum wage legislation
– Pollution and pricing policies
– Administrative redtape

Technological Factors
• Types of changes
• New products
• Improvements in existing products
• Manufacturing and marketing techniques
• Role of technological forecasting
• Foresees advancements and estimating their
impact on organization’s operations
• Alerts managers to impending challenges and
promising opportunities

Ecological Factors
• Relationships among human beings and other
living things and air, soil, and water
• Current concerns
• Global warming
• Loss of habitat and biodiversity
• Air, water, and land pollution
• Responsibilities of firms
• Eliminating toxic by-products of current manufacturing
processes
• Cleaning up prior environmental damage

Porter’s Five Forces
Suppliers
Substitutes
Industry Competitors
Rivalry Among
Existing Firms
Potential
Entrants
Buyers
Bargaining power
of suppliers
Threat of substitute
products or services
Bargaining power
of buyers
Threat of new entrants

Porter’s Five Forces
Force Effect
Bargaining Power of Suppliers  Threaten to raise prices or
reduce quality
Bargaining Power of Buyers  Bargain down prices
 Force higher quality
 Play firms off of each other
Threat of New Entrants  Keeps prices low
Threat of Substitute Products  Products with similar function
limit the prices firms can charge
Intensity of Rivalry  Price competition
 Advertising battles
 Increase consumer warranties
or service

Rivalry
• Numerous competitors-equal in size and
capability
• Slow industry Growth
• Undifferentiated products
• High fixed costs- use price cuts & other
competitive weapons
• Perishable products
• High profit potential
• High exit barriers
• Low switching costs

Rivalry
• Tactics of competitive rivalry
• Price competition
• Product introduction
• Wider selection of models / styles
• More & different features
• Higher quality
• Stronger brand image
• Bigger/better dealer network
• Better customer service
• Custom-made products
• Advertising slugfests

Four Basic Types of Competition
• Brand Competitors: market products that are similar in
features and benefits to the same customers at similar
prices
• Product Competitors: compete in the same product
class, but with products that are different in features,
benefits, and price
• Generic Competitors: market very different products
that solve the same problem or satisfy the same basic
need
• Total Budget Competitors: compete for the limited
financial resources of the same customers

Threat of New Entry--Entry Barriers
• Factors that make it difficult if not impossible for
other firms to enter a business
– Brand loyalty
– economies of scale
– product differentiation
– capital requirements
– switching costs
– access to distribution channels
– cost disadvantages independent of scale
– government policy

Threat of Substitute Products
• Products with similar function limit the
prices firms can charge
• Products with improving price/performance
tradeoffs relative to present industry
products

Powerful Supplier
1. Few suppliers
2. Differentiated products
3. No substitutes
4. Integration possibilities
5. Small buyer
6. High switching costs

Powerful Buyer
• Large purchases
• Low switching costs
• Undifferentiated products
• Small fraction of business
• Industry’s product is unimportant to quality of buyers’
products or services
• Industry’s product does not save buyer money
• It earns low profits, creating incentives to lower its costs
• Buyer has full information
• Integration possibilities

Complementors
• Complementors:
– Companies whose products are sold in
tandem with another company’s products.
– Increased supply of a complementary product
collaterally increases demand for the primary
product.

Characteristics of an Attractive
Industry
• Threat of new entry is low (high entry
barriers)
• buyer power is weak
• supplier power is weak
• no good substitutes exist
• rivalry is moderate