BMG 521

The Strategy
Strategic Management
Landscape
UNIT 3

TUTORIAL 3
 The Strategy
Landscape
Unit Objectives

By the end of this unit, you should be able to:

1.Define environmental landscapes and their key ingredients.

2.Explain the terms and concepts that are used in describing the constituent
elements of business environment.
3.Identify and explain the link between the ‘strategy equation’ and the ‘strategy
landscape’.
4.Discuss the relationships between an organisation and its environments
 The Strategy Landscape
Any organisation - governmental, social or a business
organisation is not an isolated island existing in a vacuum.
It exists in a society and is therefore part of that society.
The organisation is also part of an industry. It influences the
industry and at the same time is influenced by the industry.

The larger the organisation, the

greater is the impact.
 The Environment
The external and internal environment can be
two-fold – if it just includes the organisation
itself and the general external environment,
or
even three- fold if it includes the general, the
industry and the organisational environment
Environmental Landscape
 The Broad Environment

1. Sociocultural Forces
2. Economic Forces
3. Technological Forces
4. Political/Legal Forces
 THE BROAD ENVIRONMENT
socio-cultural technological
forces forces

THE TASK ENVIRONMENT

competitors THE ORGANIZATION financial

intermediaries
owners/board of directors
suppliers managers employees
customers

unions local communities

government activists

economic political/legal
forces forces
Elements of environmental
analysis
 General External Environment

Technological
Change
Specific Demographic
International Entry Trends
Events

Complementors Rivalry

Focal
Firm

Buyers Industry Substitutes

Legal/Political Suppliers Cultural

Conditions Trends
Economic
Climate
 PEST Analysis
PEST Analysis stands for
i. Political,
ii. Economic,
iii. Social and
iv. Technological factors
It is a broad framework or a checklist to help
managers understand the macro environment in
which their business operates
 Key PEST Factors
Political/Legal Factors
Global Political Institutions Economic Factors
Regional Integration Cost of Production
Government Legislation Currency Exchange Rates
Political Risk Cost of Capital

Social/Demography Factors
Social Change Technological Factors
Global Convergence Global Technology Scanning and
Technology Clusters
The Knowledge-Based Economy
The Spread of the Internet
 The Global Economy
Key Forces That Affect Virtually All Organizations

1. Economic Growth
2. Interest Rates
3. Availability of Credit
4. Inflation Rates
5. Foreign Exchange Rates
6. Foreign Trade Balances
 Vision

What the organization

wants to be in the future?
- Within the industry
- Within the country
- Globally
 Vision

Agreement on the basic

vision for which the firm
strives to achieve in the long
run is critically important to
the firm’s success.
 Products or
Services Markets
Customers

Mission Technology
Employees Components

Survival,
Growth,
Public Profits
Image
Self-Concept Philosophy
 Effective Missions

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 Vision

Clear Business
Vision

Comprehensive
Mission Statement
 Vision

“What do we want to
become in the future?”
 Mission Statements

“What is our business?”

“How to achieve our
mission?”
 Mission Statements

Reveal what an
organization wants to be
and whom it wants to serve
 Mission Statements

•Enduring statement of purpose

•Distinguishes one firm from
another
•Declares the firm’s reason for
being
 Mission Statements
Also referred to as:

•Creed statement
•Statement of purpose
•Statement of philosophy
•Statement of business principles
 Importance of Mission
Benefits from a strong mission

Unanimity of Purpose

Resource Allocation
Mission
Organizational Climate

Focal Point for Work

Structure
 Mission Statements

Essential for effectively establishing

objectives and formulating strategies
 VISION & MISSION

VISION

VISION = PICTURE ABOUT THE FUTURE OR TARGET TO BE

ACHIEVED
MISSION = HOW TO ACHIEVE THIS TARGET
Developing Vision & Mission

Clear mission is needed

before alternative
strategies can be
formulated and
implemented
 Goals

These goals should give the

organisation a clear sense of
direction, so as to guide its
efforts and direct its
energies over an extended
period of time.
 Objectives

Objectives give the precise steps that

need to be followed in order to achieve
the goals of the organisation (in the
case of the outdoor club, climbing a
particular mountain). Objectives are
normally specific, time based,
quantitative and able to be measured.
 Goals vs. Objectives
The terms ‘goals’ and ‘objectives’ are sometimes used
interchangeably. It is useful however to make a
distinction between the two.
Goals should be seen as being concerned with the
long-term, and with establishing the end point(s) that
the organisation seeks to achieve.
Objectives detail the intermediate steps along the way
to achieving such goals. It is helpful to make this
distinction between end points and intermediate
steps, since they serve different organisational
purposes.
 Strategies
Usually, there are many different
pathways that can be taken in reaching
a given goal.
These pathways correspond to the
different strategy options, and the mix
of action and behaviour choices that
face the organisation will vary
considerably
The Strategy Landscape
 Policies
Having chosen a particular pathway or
strategy, it is necessary to establish
rules and guidelines in order to keep
moving along safely.
These rules and guidelines are the
policies adopted by the organisation in
support of a particular strategy and the
goal to which it leads.
 Missions, Goals, Strategies,
and Objectives……e.g.
A Clothing Manufacturer:
Its mission may be to provide the highest quality leather goods in East
Asia.
The main goal could be to achieve market dominance in men’s leather
fashion coats in California.
Good strategy involves concentrating on a mix of options including:
establishing a market presence through a buy-out (acquisition) of a
competitor, upgrading and expanding the product range within a tightly
focused niche, providing different styles and varieties of leather coats,
concentrating on quality control factors, in order to sustain very high
product standards.
In the case of the competitor acquisition strategy, the objectives to be
met may include: identifying prospective acquisitions, establish funding
for the purchase, and attaining the purchase within predefined measures
of time and budget.
 Missions, Goals, Strategies,
and Objectives…e.g.
A Steel Maker:
The mission may be to develop and provide the best available
steel for fabrication or engineering purposes.
The goal could be to establish a foothold in the specialist
stainless steel market in Japan by the mid-2010s.
The key strategy may be to upgrade its technology and the
range and variety of rolling and forming machinery, so as to
meet specialist user needs in Japan.
The objectives may include installing and bringing on-line a
new reduction furnace; installing a new plating and finishing
process; and opening a sales initiative in selected industrial
sites to promote the new technology behind the product.
Again, all of these must take effect within time and budget
guidelines.
 Missions, Goals, Strategies,
and Objectives….e.g.
A Toy Maker:

For a toy maker the mission may be to develop an industry

reputation, as the best quality manufacturer in the soft toy
sector of the industry. The intermediate goal is to establish
and secure a viable distribution network in Germany and
Eastern Europe by 2008. For the toy maker, good strategy
involves gaining extra exposure at international toy fairs;
concentrating on building up the percentage of future orders
as a proportion of production; implementing a rigid cost
control regime. In turn, the objectives could be to reduce the
level of product flaws and customer returns to less than .001%
for any given line; to ensure all products reach the maximum
rather than the minimum levels of consumer safety set by
government
Mission, Goal, Objectives

Ideally, these statements on mission, goal and

objective should be written down and
documented. In this way they can be circulated
throughout the organisation and become a
formal part of how the organisation thinks and
behaves.
 The organisation life cycle and
environmental linkages
Organisations, like individuals, start small and those that
survive grow in size and complexity over time. As
organisations grow in size and/or age, their relationships with
their environment also changes.
For example, as they grow in size, their range of activities and
points of contact with their environment increases. Specialist
groups of personnel are developed to deal with the
environment, such as marketing and sales staff.
As the life cycle progresses, dealing with the environment in an
intelligent and satisfactory way becomes more and more the
direct concern of management.
Stable Incremental Flux Global
 Organisation-
environment fit
This refers to how well the organisation matches and
integrates with its environment.
A good fit means that the organisation has been able to strike
a favourable balance between its needs and the demands
and constraints of its environmental landscape. Remember
that there are two environments with which an organisation
must deal.
In the industry environment, a good fit depends mostly on the
company having logistically sound and profitable trading
relationships with its suppliers and consumers.
In the general environment, a good fit depends on how
favourably the many aspects of the state’s fiscal and monetary
policy treat the special needs of the company or industry in
question.
 Organisation-environment
boundary

This concept has to do with the interface

between the organisation and its external
environment. Much of the activity between
an organisation and its external
environment has to do with the gathering
and dissemination of information from
external sources for redistribution and use
within the organisation.
 The Organisation and Rates of
Environmental Change
It is important to recognise and remember
that no organisation’s environment
remains constant. In fact, the one constant
factor that organisations have to deal with
is the constancy of change itself.
Environments change at different rates and
in different mixes and combinations:
sometimes slowly, sometimes quickly and
sometimes as a mix of the two.
 Technological examples
include:
- The development of the petrol/diesel internal combustion engine;
- The development of the transistor that has given birth to solid-
state electronics and the information revolution;
- The discovery of the double helix form of the human genome and
the implication of this for direct intervention in the genetic
inheritance process.
- Development of Lithium ION Battery technology for Hybrid vehicle
(HV)
- Development of Electric Motor for Electric Vehicle (EV)
- Development of Solid State battery
- Development of Hidrogen technology
 Political/social examples
include:

- The advent of OPEC and the change in

ownership and control of world energy
supplies;
- The collapse of communist hegemony in
Eastern Europe;
- The destruction of the New York Trade
Centre towers.
 Global Political and Legal Forces
Among the most significant determinants of organizational
success
Governments provide and enforce the rules by which
organizations operate
Level of interference from government varies from country
to country and industry to industry
The worldwide trend is towards deregulation and
privatization
In the U.S., significant political/legal influence comes from:
lawmakers, regulatory agencies, revenue collection agencies,
courts
 Technological Change
Inventions--new ideas or technologies discovered in the
laboratory
Innovations--inventions that can be replicated reliably on a
meaningful scale (new products or processes)
Basic innovation--impacts much more than one product
category or industry

“Technology is human knowledge about products

and services and the way they are made
and delivered”
 The Task Environment
Customers : existing and potential
Suppliers : of labor, materials, equipment, money
Competitors : that battle for customers and attention
Government agencies and administrators : that influence business
practices, costs and opportunities
Communities : that are dependent on businesses for jobs, economic
activity
Activist groups : that influence business practices
Unions : that provide workers in some industries and influence costs
Financial intermediaries : that provide capital and oversight
The Industry Environment
The future direction and success of a company is shaped in
great detail by:
its linkages and relationships with those who control, or
contribute in an influential way to the management and
supply of its inputs, and those who shape the consumption
pattern and process of its outputs.
These relationships are formed around both the internal and
external components of the organisation’s product/service life
cycle.
The nature, and direction of the competitive forces with which
it has to contend.
The Environmental Landscape

The concept of ENVIRONMENT is

generally used in strategic
management and planning to describe
all those factors and conditions that
can be considered as external to the
organisation.
 Industry Analysis
• originally developed to spot anti-competitive conditions
for anti-trust purposes

• came to be used to assess the possibilities for

above normal profits for firms within an industry

• Porter’s Five Forces Model was developed from

this economic tradition

The Structure – Conduct – Performance Model

 Industry Analysis
Porter’s Five Forces Model

Entry

Industry
Buyers Rivalry
Focal
Firm

Threat
Suppliers Substitutes

Higher Threat Lower Average Profits

Strategic Planning
 Porter’s Five Forces Model
Threat of Entry

• if firms can easily enter the industry, any above

normal profits will be bid away quickly
• barriers to entry lower the threat of entry
• barriers to entry make an industry more attractive
• this is true whether the focal firm is
already in the industry or thinking about
entering
 Porter’s Five Forces Model
Threat of Entry
Barriers to Entry:
• economies of scale : firm that can’t produce the minimum
efficient scale will be at a disadvantage
• product differentiation : entrants are forced to overcome
customer loyalties to existing products
• cost advantages independent of scale : incumbents may
have learning advantages, etc.
• government policies : governments may impose trade
restrictions and/or grant monopolies
 Porter’s Five Forces Model
Threat of Rivalry
• high rivalry means firms compete vigorously—and
compete away above average profits
Industry conditions that facilitate rivalry:
• large numbers of competitors
• slow or declining growth
• high fixed costs and/or high storage costs
• low product differentiation
• industry capacity added in large increments
 Porter’s Five Forces Model
Threat of Substitutes

• substitutes fill the same need but in a different way

- Coke and Pepsi are rivals, milk is a

substitute for both

• substitutes create a price ceiling because consumers

switch to the substitute if prices rise

• substitutes will likely come from outside the

industry—be sure to look
 Porter’s Five Forces Model
Threat of Suppliers

• powerful suppliers can ‘squeeze’ (lower profits)

the focal firm
Industry conditions that facilitate supplier power:
• small number of firms in supplier’s industry
• highly differentiated product
• lack of close substitutes for suppliers’ products
• supplier could integrate forward
• focal firm is an insignificant customer of supplier
 Porter’s Five Forces Model

Threat of Buyers
• powerful buyers can ‘squeeze’ (lower profits)
the focal firm by demanding lower prices and/or
higher levels of quality and service
Industry conditions that facilitate buyer power:
• small number of buyers for focal firm’s output

• lack of a differentiated product

• the product is significant to the buyer

 Porter’s Five Forces Model
Threat of Buyers

Industry conditions that facilitate buyer power:

• buyers operate in a competitive market—they are
not earning above normal profits

• buyers can vertically integrate backwards

• many small buyers can be united around an issue

to act as a block

Example: Monsanto’s Life Sciences Strategy

 Porter’s Five Forces Model

Entry

Industry
Buyers Rivalry
Focal
Firm

Threat
Suppliers Substitutes

If all threats are high expect normal profits

If all threats are low expect above normal profits

Most industries are somewhere between the extremes
 General External Environment
Technological
Change
Specific Demographic
International PDA’s & Trends
Events Cell Phones

European Union Ban on Hispanic Population Growth

Hormone-Treated U.S. Beef
Focal
Firm
Changing Policy toward Oil
Exploration on Public Lands Changing Image of SUV’s
Rising
Interest
Legal/Political Rates Cultural
Conditions Trends
Economic
Climate
 The Organisation in Its External
Environment

Stability
This condition describes the degree to which the facts, rules,
and events of the industry and societal environments change.
Recent decades have seen a rapid rollover in such definitions
as organisations seek to both define and redefine the purpose
of their organisation as well as to find an answer to the
question ‘What business are we in?’
As indicated in previous Units, the answer is increasingly being
sought from, and shaped by, the sum of the players’ individual
determinations
 Certainty
This condition refers to the degree or accuracy to
which organisations can forecast the repetitious
occurrence of behaviour and events.
It also reflects the degree of obscurity in the
cause/effect continuum.
Rapid and variable patterns and cycles of change ripple
across most landscapes and the effect of this has been
to contract the extent to which the future can be
accurately predicted and anticipated.
 Complexity
This condition refers to the number of time/event
horizons and the amount of significant and affective
variables with which the organisation needs to deal.
The modern landscape is complex, heterogeneous,
and interactive both between the direct competitors
as well as between those that participate and
contribute through their place in the extended value
chains that thread their ways into and out of the
environment.
 Homogeneity
This condition refers to the mix of actors
and events with which the organisation
deals. Low levels characterise those
industry landscapes where the products are
simple and mostly unprocessed with little
‘value added.’ However, as each successive
link is added to the Value Chain, this
homogeneity becomes more complex.
 THE MALAYSIAN
SCENARIO
Malaysia is generally regarded as one of the
most successful non-western countries to
have achieved a relatively smooth
transition to modern economic growth
over the last century or so. Since the late
nineteenth century it has been a major
supplier of primary products to the
industrialized countries; tin, rubber, palm
oil, timber, oil, liquified natural gas, etc.
 THE MALAYSIAN SCENARIO
However, since about 1970 the leading sector in
development has been a range of export-
oriented manufacturing industries such as
textiles, electrical and electronic goods, rubber
products etc. Government policy has generally
accorded a central role to foreign capital, while
at the same time working towards more
substantial participation for domestic, especially
‘bumiputera’, capital and enterprise.
 THE MALAYSIAN SCENARIO
By 1990 the country had largely met the criteria
for a Newly-Industrialized Country (NIC) status
(30 percent of exports to consist of
manufactured goods). While the Asian economic
crisis of 1997-98 slowed growth temporarily, the
current plan, titled Vision 2020, aims to achieve
"a fully developed industrialized economy by
that date.
 NEW ECONOMIC POLICY
The main aim of the NEP was a restructuring of the Malaysian economy over two
decades, 1970-90 with the following aims:
to redistribute corporate equity so that the bumiputera share would rise from
around 2 percent to 30 percent. The share of other Malaysians would increase
marginally from 35 to 40 percent, while that of foreigners would fall from 63
percent to 30 percent.
to eliminate the close link between race and economic function (a legacy of the
colonial era) and restructure employment so that that the ‘bumiputera’ share in
each sector would reflect more accurately their proportion of the total
population (roughly 55 percent). In 1970 this group had about two-thirds of jobs
in the primary sector where incomes were generally lowest, but only 30 percent
in the secondary sector. In high-income middle class occupations (e.g.
professions, management) the share was only 13 percent.
To eradicate poverty irrespective of race. In 1970 just under half of all households
in Peninsular Malaysia had incomes below the official poverty line. Malays
accounted for about 75 percent of these.
 The New Development Policy

Positive action to promote bumiputera interests did not end with the
NEP in 1990, this was followed in 1991 by the New Development Policy
(NDP), which emphasized assistance only to "Bumiputera with potential,
commitment and good track records" rather than the previous blanket
measures to redistribute wealth and employment. In turn the NDP was
part of a longer-term program known as Vision 2020. The aim here is to
turn Malaysia into a fully industrialized country and to quadruple per
capita income by the year 2020. This will require the country to
continue ascending the technological "ladder" from low- to high-tech
types of industrial production, with a corresponding increase in the
intensity of capital investment and greater retention of value-added (i.e.
the value added to raw materials in the production process) by
Malaysian producers.
 Bank Negara Malaysia
(Central Bank of Malaysia)
Bank Negara Malaysia which is the central bank of the country was established on 26
January 1959, under the Central Bank of Malaya Ordinance 1958, with the following
objectives:

• To issue currency and keep reserves safeguarding the value of the

currency;
• To act as a banker and financial adviser to the Government;
• To promote monetary stability and a sound financial structure; and
• To influence the credit situation to the advantage of the country.
 Population of Malaysia
Total Population 25.347 million
Total Male Population 12.865 million
Total Female Population 12.483 million

(There were 103.1 males: 100 females)

Population Distribution
The distribution of the population based on age was as follows:

AGE (yrs) (%)

0 - 4 10.8
5- 14 21.6
15- 24 18.1
25 - 59 42.5
60 or over 07.0
100.00
Source:http://www.statistics.gov.my/index.php(date accessed: August 28, 2008).
Note: About 50% of the Malaysian population is below 24 years of age.
THANK YOU

S/i