1. Chapter 1
1. Describe the steps of the strategic management process.
The full set of commitments, decisions, and actions required for a firm to achieve strategic
competitiveness and earn above-average returns
The strategic management process means defining the organization's strategy. It is also
defined as the process by which managers make a choice of a set of strategies for the
organization that will enable it to achieve better performance.
Strategic management is a continuous process that appraises the business and industries in
which the organization is involved; appraises it's competitors; and fixes goals to meet all the
present and future competitor's and then reassesses each strategy.
Strategic management process has following four steps:
1. Environmental Scanning- Environmental scanning refers to a process of collecting,
scrutinizing and providing information for strategic purposes. It helps in analyzing the
internal and external factors influencing an organization. After executing the environmental
analysis process, management should evaluate it on a continuous basis and strive to improve
2. Strategy Formulation- Strategy formulation is the process of deciding best course of action
for accomplishing organizational objectives and hence achieving organizational purpose.
After conducting environment scanning, managers formulate corporate, business and
3. Strategy Implementation- Strategy implementation implies making the strategy work as
intended or putting the organization's chosen strategy into action. Strategy implementation
includes designing the organization's structure, distributing resources, developing decision
making process, and managing human resources.
4. Strategy Evaluation- Strategy evaluation is the final step of strategy management process.
The key strategy evaluation activities are: appraising internal and external factors that are the
root of present strategies, measuring performance, and taking remedial / corrective actions.
Evaluation makes sure that the organizational strategy as well as it's implementation meets
the organizational objectives.
2. What is globalisation? What are the benefits and risks for an organisation operating in
a global marketplace?
Globalisation is the increasing economic interdependence among countries and their
organizations as reflected in the flow of goods and services, financial capital, and knowledge
across country borders.
2. 1. Access to new customers
2. Lowering Cost e.g. Offshoring
1. Political Risks
2. Economic Risks
3. Cultural Risks
3. What are some of the effects that technology and technological changes have on the
Technology is significantly altering the nature of competition and enabling unstable
* Technology diffusion & disruptive technologies
* Information age
* Increasing knowledge intensity
4. Describe the industrial organisation (I/O) model of strategy.
Specifies that the industry or segment of an industry in which a company chooses to compete
have a stronger influence on performance than do the choices managers make inside their
1) Study the external environment, (general, industry, and competitor), especially the
2) Locate the industry with high potential for above-average returns
3) Identify the strategy called for by the attractive to earn above-average returns
4) Develop or acquire assets and skills needed to implement the strategy
5) Use the firms strengths (its developed or acquired assets and skills) to implement the
strategy the model challenges firms to find the most attractive industry in which to compete
-Most firms are assumed to have similar valuable resources that are mobile across
companies, their performance generally can be increased only when they operate in the
industry with the highest profit industry structural characteristics. Must imitate each other.
5. Describe and discuss the resource-based model of above-average returns.
Assumes that each org is a collection of unique resources and capabilities
3. -the uniqueness of its resources and capabilities is the basis of a firm’s strategy and its ability
to earn above-average returns
1) identify the firms resources. Study its strengths and weaknesses compared with those of
2) determine the firms capabilities. what do the capabilities allow the firm to do better than
3) determine the potential of the firms resources and capabilities in terms of a competitive
4) Locate an attractive industry
5) Select a strategy that best allows the firm to utilize the firm its resources and capabilities
relative to opportunities in the external environment
6) Differences in firms performances across time are due primarily to their unique resources
and capabilities rather than structural characteristics.
6. Identify and describe the three major parts of the external environment.
The external environment has three major parts. The first is the general environment, which
includes elements in the broader society that affect industries and their firms. The second is
the industry environment, involving factors that influence a firm, its competitive actions and
responses, and the industry's profit potential (determined by the threat of entry, suppliers,
buyers, product substitutes and the intensity of rivalry among competitors). The competitor
environment is the third part of the external environment and comprises each major
competitor's future objectives, current strategy, assumptions and capabilities.
7. What are the four components of the external environmental analysis? Describe the
purpose of each of these stages.
External environmental analysis involves looking into the environment within which the
organization operates and identifying the opportunities and threats that are evident within
that business environment. The analysis composes of four components;
Scanning: This is the process of looking into any early signals that mark the existence of
emerging trends and environmental changes. Once these are identified the organization then
moves on to the next step.
Monitoring: Once the trends and environmental changes are identified, monitoring helps in
identifying what they could mean to the organization and its activities. This is done through
constant observation of the various patterns and changes that take place in relation to the
4. Forecasting: Once the trends and environmental changes have been singled out and
monitored over time, forecasting is applied as the organization articulates the outcome that
could be experienced within both the organization and the business environment.
Assessing: Finally, the organization analyzes these probable outcomes with focus being on
the possible influence they could have on the organization's predetermined strategies.
Once the environmental scanning is done, it is then up to the management to come up with
possible measures to counter identified threats or take advantage of any opportunities that
have presented themselves.
8. What are some of the sources of information that can be used to analyse the general
Several sources can be used to analyse the general environment, including a wide variety
of websites, printed materials, trade shows and suppliers, customers and employees of
public-sector organisations. Google and other search engines are now very widely used for
this purpose. People in 'boundary-spanning' positions can therefore easily obtain much
information. Sales people, purchasing managers, public relations directors and customer
service representatives, each of whom interacts with external constituents, are examples of
individuals in boundary-spanning positions.
9. Identify and describe the six segments of general environment analysis.
(1) The demographic segment encompasses items such as population size, age structure,
ethnic mix and income distribution.
(2) The economic segment includes analysis of inflation rates, interest rates, savings rates,
budget and trade deficits/surpluses, and gross domestic product.
(3) The political/legal segment analyses tax laws, labour laws, business philosophies and
(4) The socio-cultural segment studies work force diversity, attitudes about work life,
product preferences and environmental concerns.
(5) The technological segment includes studies of product and process innovations,
applications of knowledge and focus of R&D expenditures.
(6) The global segment observes political events, changes in global markets and the
development of newly industrialised countries.
10. Identify the five competitive forces and explain how they determine industry profit
5. (1) Threat of new entrants: New entrants increase production capacity in an industry, which
results in lower profits for all firms unless demand is increasing. Firms erect barriers to entry
to diminish the threat of new entrants.
(2) Bargaining power of suppliers: Suppliers with high power can increase prices of inputs.
If firms are unable to pass along price increases to customers, then profits diminish.
(3) Bargaining power of buyers: When buyers have high power, they attempt to force prices
down, increase quality and increase service levels, thus driving profits down.
(4) Threat of substitutes: Powerful substitutes place an upper limit on prices firms can
charge, limiting industry profits.
(5) Intensity of rivalry: This is often based on product price, which limits profits.
11.The five forces of competition model
1. Threat of new entrants
2. Bargaining powers of suppliers
3. Bargaining power of buyers
4. Threat of substitute products
5. Rivalry among competing firms
12. Do competitive advantages last forever? Explain your answer.
• No competitive advantage lasts forever.
• Over time, rivals use their own unique resources, capabilities and core competencies to
duplicate a firm's ability to create value for customers.
• With globalization, sustainable competitive advantage is especially challenging.
13.Explain the role of innovation in a firm's competitive advantage.
Innovation has historically been important for economic development and company
profitability, but, currently, it is particularly crucial in terms of intensity, speed and scale of
development as well as diffusion of knowledge and technologies. The enhanced competition
has made innovation increasingly important in all types of markets. Incremental
improvements in products and processes are no longer enough to sustain a competitive
advantage in many industries. Innovative capabilities have become unavoidable in order to
14.Describe the importance of internal analysis to the strategic success of a firm.
6. In today's global competition, the traditional sources of competitive advantage (e.g. labour
costs, capital costs and raw materials) are much less effective. Rather, modern firms should
see themselves as a bundle of heterogeneous resources, capabilities and core competencies
that can be used to create an exclusive market position. Therefore, a firm must understand its
own capabilities and how they lead to core competencies, as well as those of competitors.
This understanding is generated through an internal analysis.
15.How do firms create value? How is value measured?
• By innovatively bundling and leveraging their resources and capabilities and by exploiting
their core competencies or competitive advantages, firms create value.
• Value is measured by:
- product performance characteristics
- product attributes for which customers are willing to pay.
Superior value > Above-average returns
16.How can managers deal with conditions affecting decisions about resources,
capabilities and core competencies?
-by making judgments, adapt or change the environment
-Developing new core competencies
Judgement is required when making decisions related to these conditions. Judgement is the
capability of making successful decisions when there is no obviously correct model or rule
or when relevant data are unreliable or incomplete. In this type of situation, decision makers
must be aware of possible cognitive biases. For example, overconfidence can often lower
value when a correct decision is not obvious, such as when determining whether an internal
resource is a strength or weakness.
17.Firms' relationships with customers are characterised by three dimensions. What are
these dimensions? Briefly describe each.
Reach - Access and connection to customers
Richness- depth and detail of two way flow of information between firm and customer
Affiliation -facilitating useful interactions with customers
18. Name the basis and example for consumer segmentation for consumer markets?
7. Within consumer markets, segmentation can occur along the dimensions of;
(1) demographic factors (age, income, sex, etc.),
(2) socio-economic factors (social class, stage in the family life cycle),
(3) geographic factors (cultural, regional and national differences),
(4) psychological factors (lifestyle, personality traits),
(5) consumption patterns (heavy, moderate and light users), and
(6) perceptual factors (benefit segmentation, perceptual mapping).
Within industrial markets, segmentation can occur along the dimensions of;
(1) end-use segments (identified by Standard Industry Code category),
(2) product segments (based on technological differences or production economics),
(3) geographic segments (defined by boundaries between countries or by regional differences
(4) common buying factor segments (cut across product market and geographic segments),
(5) customer size segments.
19.When employing a cost leadership strategy, which factors allow a firm to earn above-
average returns in spite of strong competitive forces?
A firm focuses on a niche market, adding value by leveraging value chain activities that
allow value creation through the cost leadership strategy.
• Competitive advantage: low cost
• Competitive scope: narrow industry segment
Rivalry: Having a low-cost position serves as a valuable defence against rivals. Because of
the cost leader's advantageous position, rivals hesitate to compete on the basis of price.
Buyers: The cost leadership strategy also provides protection against the power of customers.
Powerful customers can drive prices lower, but they are not likely to be driven below that of
the next most efficient industry competitor.
Suppliers: The cost leadership strategy also allows a firm to better absorb any cost increases
forced on it by powerful suppliers.
8. Entrants: The cost leadership strategy also discourages new entrants because the new entrant
must be willing to accept no better than average returns until it gains the experience required
to approach the cost leader's efficiency.
Substitutes: For substitutes to be used, they must not only perform a similar function but also
be cheaper than the cost leader's product.
20.Describe a cost leadership strategy and its risks.
• An integrated set of actions taken to produce goods or services with features that are
acceptable to customers at the lowest cost, relative to that of competitors with features that
are acceptable to customers.
- are relatively standardised
- have features acceptable to many customers
- offer the lowest competitive price.
In a cost leadership strategy, the producer seeks to offer products with acceptable features to
customers at the lowest competitive price. One risk of a cost leadership strategy is that the
firm's investment in manufacturing equipment may be made obsolete through technological
innovations by competitors. Additionally, a firm with a cost leadership strategy may focus on
cost reduction at the expense of trying to understand customers' needs and/or competitive
concerns. Finally, competitors may be able to imitate a cost leader's competitive advantages
in their own unique strategic actions.
21.Five Business Level Strategies
1. Cost Leadership
3. Focused Cost Leadership
4. Focused Differentiation
5. Integrated Cost leadership/Differentiation
22.Define and differentiate competitive rivalry, competitive behaviour and competitive
Competitive rivalry is the ongoing set of competitive actions and competitive responses that
occur between competitors as they manoeuvre for an advantageous market position.
9. Competitive behaviour is the set of competitive actions and competitive responses the firm
takes to build or defend its competitive advantages and to improve its market position.
Competitive dynamics is the total set of actions and responses taken by all firms competing
within a market.
23.What is competitor analysis? What determines the extent to which firms are
Competitor Analysis used to help firms understand and predicts its competitor's future
A firm studies competitors
* future objectives
* Assumptions and Capabilities
High Market Commonality
High Resource Similarity
24.Define market commonality? What are the characteristics of competition and rivalry
when firms engage in multi-market competition?
- the number of markets with which a firm and a competitor are jointly involved
- degree of importance of the individual markets to each competitors
A firm with greater multimarket contact is less likely to initiate an attack, but more likely to
respond aggressively when attacked.
Market Commonality (Driver) firm is more likely to attack the rival with whom it has low
market commonality than the one with whom it competes in multiple markets.
25.What are the advantages and disadvantages of being a first mover, second mover and
A first mover can gain a competitive advantage and customer loyalty by being the first in the
market, and they are often high performers. However, first movers also take more risks.
Second movers can also gain a competitive advantage and earn (at least) average returns
because they imitate first movers without taking on the same risk. This is especially true for
those that are larger and faster. In fact, some second movers may gain significant market
share and outperform first movers. They do so when they carefully observe the market's
reaction and are able to improve the first mover's product and correct its mistakes. However,
10. the more time required for the second mover to respond, the higher the probability that the
first mover will enjoy strong performance gains.
Late movers, those that respond a long time after the original action was taken, tend to be
lower performers and much less effective.
26.What factors contribute to the likelihood of a response to a competitive action?
The probability of a response by a competitor to a competitive action is based partially on the
extent to which the competitor is dependent on the particular market in which the action was
taken. In addition, the probability of response is based on the type of action, the reputation of
the firm taking the strategic action (the expectation of success) and the resources available to
the competitor contemplating response.