Strategic Management complete course...

1. JahanUniversity
BachelorofBusinessAdministration
Departmentof BusinessAdministration
Subject: Strategic Management
Lecture# Sixth
Lecturer: Hijratullah Tahir
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2. Objectives of the lecture
After completion of this lecture students will be able to know:
1. Describe the nature and purpose of an external assessment
2. Identify and discuss 10 external forces that must be examined in
formulating strategies
3. Explain Porter’s Five Forces Model
4. Discuss forecasting tools and techniques.
5. Explain how to develop and use an (EFE) Matrix.
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3. Outline of the lecture
Topic 1: Nature and Purpose of an external assessment
Topic 2: Identify and discuss 10 external forces that must be
examined in the formulating strategies
Topic 3: Porter’s Five Forces Model
Topic 4: Discuss forecasting tools and techniques
Topic 5: Explain how to develop and use an (EFE) Matrix.
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4. The Purpose and Nature External Audit
• Purpose, develop a finite list of opportunities that could benefit a firm
as well as threats that should be avoided.
• The external audit is not aimed at developing an exhaustive list of
every possible factor that could influence the business;
• Firms should be able to respond either offensively or defensively to the
factors by formulating strategies that take advantage of external
opportunities or that minimize the impact of potential threats.
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5. Key Internal Forces
External forces can be divided into five broad categories:
1. economic forces;
2. Social, cultural, demographic, and natural environment forces;
3. Political, governmental, and legal forces;
4. Technological forces; and
5. Competitive forces.
Relationships among these forces and an organization.
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6. The Industrial Organization View
• Strategic planning advocates that external (industry) factors are more
important than internal ones for gaining and sustaining competitive
advantage.
• Michael Porter, contend that organizational performance will be
primarily determined by industry forces
• which focuses on analyzing external forces and industry variables as a
basis for getting and keeping competitive advantage.
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7. Economic Forces
• Economic factors have a direct impact on the potential attractiveness
of various strategies.
• For example, high underemployment (minimum wage-type
employment)
• Industrial Average is high, corporate profits are high, dividend
increases are up sharply, commodity prices are up sharply, especially
food, which is contributing to rising inflation fears.
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8. Social, Cultural, Demographic and Environmental
• Above forces, impact strategic decisions on all products, services,
markets, and customers.
• All industries are being staggered and challenged by the
opportunities and threats arising from theses forces.
• In every way, Afghanistan is much different today than it was
yesterday, and tomorrow promises even greater changes.
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9. Political, Governmental, and Legal Forces
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• Political issues have higher impact on Strategic Decisions.
• Today’s world of instant tweeting and emailing.
• Politician boost their interested sector.
• Elections and Political stance of political parties also have impact.
• Changes in patent laws, antitrust legislation, tax rates, and lobbying
activities can affect firms significantly.
• The increasing global interdependence among economies, markets, Govt.

10. Technological Forces
• A variety of new technologies such as the Internet of Things, 3D printing,
the cloud, mobile devices, biotech, analytics, auto tech, robotics, and
artificial intelligence have impact on strategic-planning decisions.
• Mobile technologies and applications to better determine customer
trends and employing advanced analytics
• Data analytics business is that sales of hardware, software, and services
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11. Competitive Forces
• Identifying rival firms and determining their strengths, weaknesses,
capabilities, opportunities, threats, objectives, and strategies.
• George Salk stated, “If you’re not faster than your competitor, you’re in a
tenuous position, and if you’re only half as fast, you’re terminal.”
• Collecting and evaluating information on competitors is essential for
successful strategy formulation.
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12. Porter’s Five- Forces Model
• Former CEO of PepsiCo “Nothing focuses the mind better than the constant
sight of a competitor that wants to wipe you off the map.”
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13. 1. Rivalry Among Competing Firms
• Successful firms, have competitive advantage over rival firms.
• Changes in on firm strategy cause countermoves in other firms strategy
like; such as lowering prices, enhancing quality, extending warranties,
and increasing advertising.
• As rivalry among competing firms intensifies, industry profits decline,
and industry becomes inherently unattractive.
• Increase marketing and production
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14. 2. Potential Entry of New Competitors
• Barriers; economies of scale quickly, gain technology and specialized
know-how, lack of experience, strong customer loyalty, strong brand
preferences
• Despite barriers; new firms enter with higher- quality products, lower
prices, and substantial marketing resources.
• Strategists job, monitor new entry and do a counter attack as needed
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15. 3. Potential Development of Substitute Products
• In many industries, firms are in close competition with producers of
substitute products in other industries.
• Substitute products puts a ceiling on the price that can be charged
before consumers will switch to the substitute product
• For Example; Producers of eyeglasses and contact lenses
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16. 4. Bargaining Power of Suppliers
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• Affects the intensity of competition in an industry, especially when
there are few suppliers.
• Both suppliers and producers are interested to assist each other with
reasonable prices, improved quality, enhancing long-term profitability.
• Firms may pursue a backward integration strategy to gain control or
ownership of suppliers.

17. 5. Bargaining Power of Consumer
• When customers; buy in volume then affect intensity of competition in
an industry.
• Rival firms may offer extended warranties or special services to gain
customer loyalty.
• Bargaining power are higher when the products being undifferentiated.
• consumers often can negotiate selling price, warranty coverage, etc.
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18. Forecasting Tools and Techniques
• Forecasts are educated assumptions about future trends and events.
• Forecasting is a complex activity because of factors such as
technological innovation, cultural changes, new products, improved
services, stronger competitors, shifts in government priorities, etc.
• Techniques are;
1. Making Assumptions
2. Business Analytics
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19. The External Factor Evaluation Matrix
Summarize and evaluate External Factors; Five steps are;
1. List 20 key external factors; both opportunities and threats,
2. Assign to each factor a weight that ranges from 0.0 (not imp.) to 1.0 (V Imp.)
3. Assign a rating between 1 and 4 to each key external factor
4. Multiply each factor’s weight by its rating to determine a weighted score.
5. Sum the weighted scores for each variable to determine the total weighted
score for the organization.
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20. The Competitive Profile Matrix
• Identifies a firm’s major competitors and its particular S&W
• The weights and total weighted scores, both CPM & EFE have the same
meaning. While, CPM include both internal and external issues;
• Ratings refer to strengths and weaknesses, where; 4= major strength, 3
= minor strength, 2 = minor weakness, and 1 = major weakness.
• CPM, the ratings and total weighted scores for rival and sample firms c.
• CPM analysis provides important internal strategic information.
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21. Conclusion
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• Increasing turbulence in markets and industries around the world.
• Provide framework for collecting and evaluating external forces.
• Firms need to anticipated emerging opportunities and threats.
• Firms not taking advantage of e-commerce and social media networks
are technologically falling behind.
• A major responsibility of strategists to conduct external audit.
• Porter’s Five Forces, EFE Matrix and CPM Matrix.

22. References
1. Strategic Management Concepts and Cases Sixteen Edition by
Fred R. David.
2. Fundamental of Business Management Process by Marlon
Dumas and Jan Mandelling.
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