Corporate Planning

(Session 4)

Professor Dante “Klink” Ang II

GSM, Pamantasan ng Lungsod ng Maynila
3rd Trimester, SY 2010-2011
Agenda
 Lecture
 External environment

 Macroenvironmental analysis

 Case presentation
 Choosing a strategy

Thinking strategically
about a company’s
external environment
Form a strategic Identifying Select the best
vision of where promising strategy &
the company strategic options business model
needs to head for the company for the company

Thinking strategically
about a company’s
internal environment
 External environment

Economic GDP, inflation, forex, interest rates

Technological Inventions, technological advancements

Ecological Flora, fauna – sources of raw materials,

impact on the environment
Social Population, psychographics

Political & Legal Government structure, political

orientation, policies
Ethical Moral standards
Framework: Macroenvironment
General economic conditions

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Thinking strategically about
the macroenvironment
1. “What are the dominant economic
features of the industry in which the
company operates?

2. “What kinds of force are industry

members facing, and how strong is each
force?

3. “What are the forces driving changes in

the industry; what impact will these
changes have on competitive intensity &
profitability?
4. “What market positions do industry
rivals occupy – who is strongly
positioned & who is not?

5. “What strategic moves are rivals likely

to make next?

6. “What are the key factors for future

competitive success?

7. “Does the outlook for the industry

present the company with sufficiently
attractive prospects for profitability?”
1. What are the industry’s
dominant economic features?
 Market size & growth rate  Vertical integration

 Scope of competitive rivalry  Product innovation

 Number of rivals  Degree of product

differentiation
 Buyer needs & requirements
 Economies of scale
 Production capacity
 Learning & experience
 Pace of technological curve effects
change
2. What kinds of competing forces
are industry members facing?
 Framework: Michael Porter’s Five
Forces Model
1. Intensity of rivalry among competitors

2. Threat of new entrants

3. Threat of substitutes

4. Bargaining power of suppliers

5. Bargaining power of buyers

 Five Forces Model
Firms in other industries
offering substitute products

Competitive pressures coming from the attempts of companies

outside the industry to win buyers over to their products

Competitive Rivalry among Competitive

pressures competing sellers pressures
Suppliers of raw
stemming stemming
materials, parts, Competing pressures
from supplier from buyer
components, or created by jockeying for Buyers
bargaining bargaining
other resource better market position,
power & power &
inputs increased sales &
supplier- buyer-seller
seller market share & collaboration
collaboration competitive advantage

Competitive pressures coming from the threat of entry of new rivals

Potential new entrants

Using the Five Forces Model
1. “Identify the specific competitive
pressures associated with each of the
five forces.

2. “Evaluate how strong the pressures

comprising each of the five forces are
(fierce, strong, moderate to normal, or
weak).

3. “Determine whether the collective

strength of the five competitive forces is
conducive to earning attractive profits.”
Challenges to strategists

 Craft strategy that allows the company to

hold its own against rivals

 Strengthens the company’s standing with

buyers

 Delivers good profitability

 Produces competitive advantage

Rivalry is intense if …
 Existing players have to get market share from
competitors in order to expand
 Growth is slow or sluggish
 Number of competitors is increasing
 The industry is fragmented
 Strong outsiders acquire weak firms in the
industry
 There is no brand loyalty among customers
 What else?
Degrees of intensity of rivalry
 Cutthroat or brutal
 Characterized by protracted engagements, usage of
aggressive tactics that are “mutually destructive to
profitability”

 Fierce or strong
 Vigorous battle for market share, resulting in thin margins

 Moderate or normal
 Companies earn “acceptable profits”

 Weak
 Firms are satisfied with sales growth, market share – and
they rarely try to steal customers from each other.
Entry barriers: Affects intensity
of rivalry among existing players
 Existing players enjoy economies of scale
 Players have experience, enjoy learning-curve
effects, own key patents, & have partnerships
with best, cheapest suppliers
 Brand preference & customer loyalty
 Capital requirements high
 Access to distribution channels limited or
difficult
 Regulatory policies exist to make entry difficult
Threat of substitutes
 Strong when substitutes are readily
available & attractively priced

 Strong when buyers see comparable or

superior in quality, performance or other
key attributes

 Strong if there is low switching costs

Bargaining power of suppliers
 Low if the goods supplied are widely available commodities

 High if the items are in short supply

 High if there are only a few large suppliers

 And if you’re a “small” customer

 High if the switching cost is high

 High if the goods are cost-saving equipment, valuable, or

critical to production

 Low if the goods represent only a fraction of the cost of the

industry’s products

 Low if there is threat of backward integration

Bargaining power of buyers is
high when …
 Buyers’ switching costs is low

 When there are few customers or buyers

 Or when demand is weak

 Buyers are well informed about products, prices,

costs

 Buyers pose a threat of backward integration

 There is no urgency for buyers to buy

So what?
 Strategies must match competitive conditions
1. “Pursuing actions to shield the firm, as much
as possible, from the prevailing competitive
pressures.”

2. “Initiating actions calculated to produce

sustainable competitive advantage, thereby
shifting competition in the company’s favor,
putting added competitive pressure on rivals,
& perhaps even defining the business model
for the industry.”
 But do you know which competitive pressures
are dominantly affecting the industry players?
3. What factors are driving
industry change & what impacts
will they have?
 Driving forces
 “… Those that have the biggest influence on
what kinds of changes will take place in the
industry’s structure & competitive
environment.”

 Two-step analysis
 Identify the driving forces

 Assess their impact on the industry

Major determinants

 Concept: Not all driving forces are

created equal

 Look for three – maximum – that are

powerful enough as the major
determinants of why & how the industry
is changing
 Common driving forces
1. Growing popularity of 8. Entry or exit of major
the Internet players
2. Globalization 9. Diffusion of technology
3. Changes in long-term know-how
growth rates 10. Changes in costs,
4. Changes in buyers’ efficiencies
profile & their usage 11. Preference for
5. Product innovation differentiated products
6. Innovation, 12. Less uncertainty, lower
manufacturing risks
improvement 13. Relaxing of laws, rules
7. Market innovation 14. Societal changes

Are there others? What about growing use of

cell phones in the Philippines?
4. What market positions do
rivals occupy – who is strongly
positioned & who is not?
 Strategic group map
 Function: Clusters firms competing in a
particular industry

 For what purpose?

 As an analytical tool for comparing
market positions that firms occupy in an
industry
Creating a strategic group map
1. Identify competitive characteristics & use them as
variables in a two-dimensional map

 Price/quality range (high, medium, low)

 Geographic scope (local, regional, national, global)
 Degree of vertical integration (none, partial, full)
 Width of product line (wide, narrow)
 Use of distribution channels (one, some, all)
 Degree of services offered (no frills, limited, full)
 Can you think of others variables? What applies to
your industry?
2. Plot the firms on the map using the
variables chosen as the axes
 Selected variables should NOT be highly
correlated
 They should expose big differences in how
rivals position themselves to compete in the
market

3. Firms that fall in about the same strategy

space should be assigned to the same
strategic group
4. Draw circles around each strategic group
 The size of the circle is approximately
proportional to the group’s share of the total
industry sales revenues.
 Example: Automobiles
Porsche,
High
Jaguar,
BMW
Chrysler-
Benz

Price /
Quality Toyota, Ford, GM,
Hyundai, Isuzu, Nissan, etc.
Kia, Ssangyong,
Peugot, Smart,
etc.
Low Proton
Sarao

National Regional Global

Geographic Coverage
 Example: Airlines
Global PAL,
international
Geographic carriers
coverage Air
Philippines
Tiger Airways, Cebu
Asia
Air Asia Pacific

charter /
private
Asian
Spirit,
Philippines
SEAir

No frills Limited Full

Degree of services offered

 Example: Mass communications
Full
ABS-CBN,
Degree of NBN GMA Network
vertical MBC
integration Bulletin,
ABC 5, PDI,
Partial RPN 9 Star

Standard-
TMT
Today
Malaya,
None some Tribune,
tabloids some
tabloids

One Two With new media

Use of distribution channels

Use an analytical tool
 Best strategic variables: Use axes that
determine key mobility barriers in the
industry
 Select axes that do not move together
 Use variables that reflect the diversity of
strategies used in the industry
 Axes need not be continuous or monotonic
variables
 Map on industry using several combinations
of strategic dimensions that’s helpful to
analysis
Source: Competitive Strategy by M. Porter, Ch. 7
Analytical steps

 Indentify mobility barriers

 Indentify marginal groups

 Charting directions of strategic

movements

 Analyzing trends

 Predicting reactions
Source: Competitive Strategy by M. Porter, Ch. 7
5. What strategic moves are
rivals likely to make next?
 Monitor the “enemy”
 Look for developments that will give insights,
clues to their moves

 Good clues can be gleaned from

 How well a competitor is faring in the
marketplace
 Problems or weaknesses it needs to address
 How much pressure it’s in to improve financial
performance
6. What are the key factors for
future competitive success?
 Look for dominant characteristics

1. “On what basis do buyers of the industry

choose between the competing brands of
sellers?”

2. “… What resources & competitive

capabilities does a company need to be
competitively successful?”

3. “What short comings are almost certain to

put a company at a significant competitive
advantage?”
Common types of KSFs
 Technology related

 Manufacturing related

 Distribution related

 Marketing related

 Skills & capability related

 Other types
7. Does the outlook for the
industry present an attractive
opportunity?
 After analyzing the external environment,
does the industry outlook present the
company with sufficient prospects for …
 Profitability?

 Growth?

 Warning: Attractiveness of an industry is

relative. It’s the eye of the beholder.
Case presentation
For next class
 Read chapter 4 of text

 Group 4 case presentation

 Reminder: You should be making
progress on your paper. It’s worth 50%
of your grade.