How does business risk fit into the management process

The Strategic ManagementProcess The Strategic Management Process Internal Environment External Environment Acquisitions & Restructuring Corporate Governance & Control Structure Strategic

Business Risk

How Does Business Risk Fit Into

The Management Process?

The Strategic Management

Process

The Strategic Management

Process

Internal Environment

External Environment

Acquisitions &

Restructuring

Corporate Governance & Control Structure

Strategic Leadership

• Rapid technological changes

• Rapid technology diffusions

blurring, such as

• Computers

• Telecommunications

21st Century Competitive Landscape

The global economy is

changing

• People, goods, services and

ideas move freely across

geographic boundaries

• New opportunities emerge

in multiple global markets

• Markets and industries

become more

internationalized

Traditional sources of competitive advantage

no longer guarantee success

New keys to success include:

Alternative Models of Superior Returns

Resource-Based

Model

Industrial Organization

Model The External Environment

An Attractive Industry Strategy Implementation

Stakeholders: Groups who are affected by a firm’s

performance and who have claims on its wealth

The firm must maintain

performance at an adequate level in

order to maintain the participation

of key stakeholders

Organizational

Employees Managers Non-Managers

Firm

Capital Market

Stock market/Investors Debt suppliers/Banks

Product Market

Primary Customers

Suppliers

TABLE 1.1 The General Environment: Segments and Elements

Competitor Analysis

• Gathering and interpreting

information about all of the

companies that the firm

competes against.

• Understanding the firm’s

competitor environment

complements the insights

provided by studying the

general and industry

environments.

Analysis of the External Environments

– Focused on predicting the dynamics of

competitors’ actions, responses and intentions

Opportunities and Threats

– A condition in the general

environment that may hinder

a company’s efforts to

achieve strategic

competitiveness.

FIGURE1.2 The Five Forces of Competition Model

Competitor Analysis Components

The Context of Internal Analysis

• Analysis Outcome

– Understanding how to leverage the firm’s bundle of heterogeneous resources and capabilities.

© 2007 Thomson/South- 3–15

FIGURE3.1 Components of Internal Analysis Leading to Competitive

Advantage and Strategic Competitiveness

The Challenge of Internal Analysis

• Strategic decisions in terms of the firm’s

resources, capabilities, and core

competencies:

– Are non-routine.

– Have ethical implications.

– Significantly influence the firm’s ability to earn above-average returns.

© 2007 Thomson/South- 3–17

The Challenge of Internal Analysis

(cont’d)

• To develop and use core competencies,

managers must have:

FIGURE3.2 Conditions Affecting Managerial Decisions about Resources,

Capabilities, and Core Competencies

© 2007 Thomson/South- 3–19

TABLE 3.1 Tangible Resources

Financial Resources • The firm’s borrowing capacity

• The firm’s ability to generate internal funds

Organizational Resources • The firm’s formal reporting

structure and its formal planning, controlling, and coordinating systems

Physical Resources • Sophistication and location of a

firm’s plant and equipment

• Access to raw materials

Technological Resources • Stock of technology, such as

patents, trademarks, copyrights, and trade secrets

Sources: Adapted from J B Barney, 1991, Firm resources and sustained competitive advantage, Journal of Management, 17: 101; R

M Grant, 1991, Contemporary Strategy Analysis, Cambridge, U.K.: Blackwell Business, 100–102.

TABLE 3.2 Intangible Resources

Human Resources • Knowledge

• Reputation with suppliers

• For efficient, effective, supportive, and mutually beneficial interactions and

© 2007 Thomson/South- 3–21

TABLE 3.3 Examples of Firms’ Capabilities

Functional Areas Capabilities

Distribution Effective use of logistics management techniques

Human resources Motivating, empowering, and retaining employees

Management Effective and efficient control of inventories through

information systems point-of-purchase data collection methods

Marketing Effective promotion of brand-name products

Effective customer service Innovative merchandising Management Ability to envision the future of clothing

Effective organizational structure Manufacturing Design and production skills yielding reliable products

Product and design quality Miniaturization of components and products Research & Innovative technology

development Development of sophisticated elevator control solutions

Rapid transformation of technology into new products and processes Digital technology

Value Chain Analysis

• Allows the firm to understand the parts of its operations that create value and those that do not.

• A template that firms use to:

– Understand their cost position.

– Identify multiple means that might be used to

facilitate implementation of a chosen

business-level strategy.

© 2007 Thomson/South- 3–23

Value Chain Analysis (cont’d)

• Primary activities involved with:

– A product’s physical creation

– A product’s sale and distribution to buyers

– The product’s service after the sale

• Support Activities

– Provide the assistance necessary for the primary activities to take place.

The Basic Value

Chain

© 2007 Thomson/South- 3–25

What Are the Firm’s Strengths, Weaknesses,

Opportunities and Threats

• S W O T represents the first letter in

well-being

© 2007 Thomson/South- 3–27

Identifying Resource Strengths and Competitive Capabilities

enhances its competitiveness

– Valuable competencies or know-how

– Valuable physical assets

– Valuable human assets

– Valuable organizational assets

– Valuable intangible assets

– Important competitive capabilities

– An attribute that places a company in

a position of market advantage

– Alliances or cooperative ventures

SWOT Analysis What to Look For

• Falling behind in R&D

line

• Serving additional customer groups

• Costly new regulations

• Vulnerability to

business cycle

• Growing leverage of customers or suppliers