Posted: September 20th, 2023

Strategic Management

Strategic Management

Strategic management is the process of planning, implementing and evaluating the actions and decisions that a firm takes to achieve its goals and objectives. Strategic management involves analyzing the external and internal environments of the firm, formulating strategies at different levels, and executing them effectively.

In this blog post, we will introduce some of the key concepts and tools of strategic management, such as external environment scanning, five force model, internal environment analysis, business level strategy, competitors analysis, corporate level strategy, acquisition and restructuring, and game theory. We will also provide some examples and sources for further reading.

External Environment Scanning

External environment scanning is the surveillance of a firm’s external environment to predict environmental changes and detect changes already underway. External environment scanning helps the firm to identify opportunities and threats, as well as to assess its strengths and weaknesses relative to its competitors.

One of the tools for external environment scanning is PESTLE analysis, which stands for Political, Economic, Sociocultural, Technological, Legal, and Environmental factors. PESTLE analysis provides a comprehensive overview of the macro-environmental forces that affect a firm’s strategy. For example, a firm operating in the healthcare industry may use PESTLE analysis to examine the impact of government policies, demographic trends, technological innovations, legal regulations, and environmental issues on its business.

Another tool for external environment scanning is Porter’s five forces model of industry competition, which examines the competitive forces that shape an industry’s profitability. Porter’s five forces are:

– Industry rivalry: The intensity of competition among existing firms in the industry. High rivalry reduces the profit potential for all firms because customers have more choices and can bargain for lower prices.
– Threat of new entrants: The ease or difficulty of new firms entering the industry. High entry barriers protect the incumbent firms from new competitors and allow them to charge higher prices.
– Bargaining power of suppliers: The ability of suppliers to influence the prices and terms of trade with the firms in the industry. High supplier power reduces the profit margin for the firms because they have to pay more for their inputs or accept lower quality or service.
– Bargaining power of buyers: The ability of buyers to influence the prices and terms of trade with the firms in the industry. High buyer power reduces the profit margin for the firms because they have to lower their prices or offer more value or service to attract and retain customers.
– Threat of substitutes: The extent to which alternative products or services can satisfy the same needs or wants as the products or services offered by the firms in the industry. High threat of substitutes reduces the demand and price for the products or services of the firms because customers can switch to cheaper or better alternatives.

By using Porter’s five forces model, a firm can identify its most attractive and unattractive segments within an industry, as well as its strategic position relative to its rivals.

Internal Environment Analysis

Internal environment analysis is the assessment of a firm’s resources, capabilities, core competencies, value chain activities, and performance. Internal environment analysis helps.

Strategic Management: How to Analyze the External and Internal Environment

Strategic management is the process of formulating, implementing and evaluating the strategies that a firm uses to achieve its goals and objectives. Strategic management involves analyzing both the external and internal environment of the firm, and choosing the best course of action to gain a competitive advantage in the industry.

One of the tools for analyzing the external environment is the PESTLE analysis, which stands for Political, Economic, Sociocultural, Technological, Legal and Environmental factors. PESTLE analysis helps to identify the opportunities and threats that a firm faces in its macro environment, and how it can adapt to them. For example, a firm may consider the following questions when conducting a PESTLE analysis:

– Political: What are the political stability, regulations, trade policies and tax policies in the countries where the firm operates or plans to enter?
– Economic: What are the economic growth, inflation, exchange rates, interest rates and consumer spending patterns in the markets where the firm operates or plans to enter?
– Sociocultural: What are the demographics, values, beliefs, lifestyles, preferences and trends of the customers and potential customers of the firm?
– Technological: What are the innovations, developments, disruptions and changes in the technologies that affect the firm’s products, services, processes and operations?
– Legal: What are the laws, regulations, standards and norms that govern the firm’s activities, such as intellectual property rights, consumer protection, environmental protection and labor rights?
– Environmental: What are the natural resources, climate change, pollution and sustainability issues that affect the firm’s activities and stakeholders?

Another tool for analyzing the external environment is Porter’s five forces model, which examines the competitive forces that shape an industry. Porter’s five forces model helps to identify the attractiveness and profitability of an industry, and how a firm can position itself to gain a competitive edge. The five forces are:

– Industry rivalry: How intense is the competition among existing firms in the industry? How do they compete on price, quality, innovation, customer service and differentiation?
– Threat of new entrants: How easy or difficult is it for new firms to enter the industry? What are the barriers to entry, such as economies of scale, product differentiation, capital requirements, access to distribution channels and government regulations?
– Bargaining power of buyers: How powerful are the buyers or customers of the industry? How many buyers are there, how large are their orders, how price-sensitive are they, how loyal are they and how much information do they have?
– Bargaining power of suppliers: How powerful are the suppliers or vendors of the industry? How many suppliers are there, how unique are their products or services, how switching costs are there for buyers and how dependent are they on the industry?
– Threat of substitutes: How likely are customers to switch to alternative products or services that meet their needs? How similar are these substitutes in terms of price, quality, performance and availability?

For analyzing the internal environment of a firm, one of the tools is SWOT analysis,
which stands for Strengths, Weaknesses, Opportunities and Threats. SWOT analysis helps to identify
the internal capabilities and limitations of a firm,
and how it can leverage its strengths,
overcome its weaknesses,
exploit its opportunities
and mitigate its threats.
For example,
a firm may consider
the following questions
when conducting
a SWOT analysis:

– Strengths: What are
the core competencies,
resources,
skills
and advantages
that give
the firm
a competitive edge
in
the industry?
– Weaknesses: What are
the gaps,
deficiencies,
vulnerabilities
and disadvantages
that hinder
the firm’s performance
and competitiveness?
– Opportunities: What are
the favorable trends,
changes,
events
and situations
in
the external environment
that create
potential growth,
profitability
and expansion
for
the firm?
– Threats: What are
the unfavorable trends,
changes,
events
and situations
in
the external environment
that pose
potential risks,
challenges
and losses
for
the firm?

By using these tools,
a firm can conduct a comprehensive analysis of its external and internal environment,
and formulate effective strategies that align with its vision,
mission,
goals
and objectives.

Works Cited

“8.5: A Firm’s Micro Environment- Porter’s Five Forces.” Business LibreTexts. 2021. https://biz.libretexts.org/Bookshelves/Management/Principles_of_Management_%28OpenStax%29/08%3A_Strategic_Analysis_-_Understanding_a_Firms_Competitive_Environment/8.05%3A_A_Firm’s_Micro_Environment-_Porter’s_Five_Forces.

“Internal and External Analysis in Strategic Management (SWOT and PESTLE).” PESTLE Analysis. 2020. https://pestleanalysis.com/internal-and-external-analysis-in-strategic-management/.

“Strategic Management (All Notes) – External Analysis.” Studocu. 2022. https://www.studocu.com/en-us/document/towson-university/strategic-management/strategic-management-all-notes/41736926.

“What is External Environment Analysis.” Commerce Mates. 2020. https://commercemates.com/methods-techniques-external-environment-analysis/.

Strategic Management: How to Analyze the External and Internal Environment

Strategic management is the process of formulating, implementing and evaluating the strategies that a firm uses to achieve its goals and objectives. Strategic management involves analyzing both the external and internal environment of the firm, and choosing the best course of action to gain a competitive advantage in the industry.

One of the tools for analyzing the external environment is the PESTLE analysis, which stands for Political, Economic, Sociocultural, Technological, Legal and Environmental factors. PESTLE analysis helps to identify the opportunities and threats that a firm faces in its macro environment, and how it can adapt to them. For example, a firm may consider the following questions when conducting a PESTLE analysis:

– Political: What are the political stability, regulations, trade policies and tax policies in the countries where the firm operates or plans to enter?
– Economic: What are the economic growth, inflation, exchange rates, interest rates and consumer spending patterns in the markets where the firm operates or plans to enter?
– Sociocultural: What are the demographics, values, beliefs, lifestyles, preferences and trends of the customers and potential customers of the firm?
– Technological: What are the innovations, developments, disruptions and changes in the technologies that affect the firm’s products, services, processes and operations?
– Legal: What are the laws, regulations, standards and norms that govern the firm’s activities, such as intellectual property rights, consumer protection, environmental protection and labor rights?
– Environmental: What are the natural resources, climate change, pollution and sustainability issues that affect the firm’s activities and stakeholders?

Another tool for analyzing the external environment is Porter’s five forces model, which examines the competitive forces that shape an industry. Porter’s five forces model helps to identify the attractiveness and profitability of an industry, and how a firm can position itself to gain a competitive edge. The five forces are:

– Industry rivalry: How intense is the competition among existing firms in the industry? How do they compete on price, quality, innovation, customer service and differentiation?
– Threat of new entrants: How easy or difficult is it for new firms to enter the industry? What are the barriers to entry, such as economies of scale, product differentiation, capital requirements, access to distribution channels and government regulations?
– Bargaining power of buyers: How powerful are the buyers or customers of the industry? How many buyers are there, how large are their orders, how price-sensitive are they, how loyal are they and how much information do they have?
– Bargaining power of suppliers: How powerful are the suppliers or vendors of the industry? How many suppliers are there, how unique are their products or services, how switching costs are there for buyers and how dependent are they on the industry?
– Threat of substitutes: How likely are customers to switch to alternative products or services that meet their needs? How similar are these substitutes in terms of price, quality, performance and availability?

For analyzing the internal environment of a firm,
one of
the tools
is SWOT analysis,
which stands
for Strengths,
Weaknesses,
Opportunities
and Threats.
SWOT analysis helps
to identify
the internal capabilities
and limitations
of a firm,
and how it can leverage its strengths,
overcome its weaknesses,
exploit its opportunities
and mitigate its threats.
For example,
a firm may consider
the following questions
when conducting
a SWOT analysis:

– Strengths: What are
the core competencies,
resources,
skills
and advantages
that give
the firm
a competitive edge
in
the industry?
– Weaknesses: What are
the gaps,
deficiencies,
vulnerabilities
and disadvantages
that hinder
the firm’s performance
and competitiveness?
– Opportunities: What are
the favorable trends,
changes,
events
and situations
in
the external environment
that create
potential growth,
profitability
and expansion
for
the firm?
– Threats: What are
the unfavorable trends,
changes,
events
and situations
in
the external environment
that pose
potential risks,
challenges
and losses
for
the firm?

By using these tools,
a firm can conduct a comprehensive analysis of its external and internal environment,
and formulate effective strategies that align with its vision,
mission,
goals
and objectives.

To illustrate how these tools can be applied in real-world scenarios,
here are some examples of strategic management in different companies:

Tesla – Playing the long game

Tesla is a company that produces electric vehicles (EVs) and renewable energy solutions. Tesla’s vision is to accelerate the world’s transition to sustainable energy. Tesla’s mission is to create products that combine performance, innovation and environmental benefits.

Tesla’s business strategy is based on playing the long game. Tesla does not focus on short-term profits or market share. Instead, Tesla invests heavily in research and development, innovation and customer experience. Tesla aims to create a loyal fan base and a strong brand reputation. Tesla also leverages its strengths in technology, design and engineering to create products that are superior to its competitors.

Tesla’s external analysis reveals that the company faces opportunities and threats in the EV and renewable energy industry. Some of the opportunities are:

– Growing demand for EVs and renewable energy solutions due to environmental awareness, government incentives and lower costs
– Increasing innovation and differentiation in the EV and renewable energy market due to technological advancements, customer preferences and new entrants
– Expanding into new markets and segments such as China, India, Europe and commercial vehicles

Some of the threats are:

– Intense competition from established automakers and new entrants in the EV and renewable energy market
– Regulatory uncertainty and legal challenges in different countries and regions
– High capital requirements and operational costs for developing, producing and delivering EVs and renewable energy solutions

Tesla’s internal analysis reveals that the company has strengths and weaknesses in its capabilities and resources. Some of the strengths are:

– Strong brand image and customer loyalty due to product quality, innovation and social responsibility
– High level of vertical integration and control over the value chain from battery production to vehicle delivery
– Ability to attract and retain talented employees, partners and investors who share Tesla’s vision and mission

Some of the weaknesses are:

– Negative cash flow and profitability due to high R&D, production and marketing expenses
– Reliance on a single product line (EVs) and a single revenue stream (vehicle sales)
– Limited production capacity and distribution network compared to competitors

Based on its external and internal analysis,
Tesla’s business strategy is to pursue a differentiation strategy.
Tesla seeks to offer products that are unique,
innovative
and superior
to its competitors
in terms of performance,
design,
technology
and environmental impact.
Tesla also seeks to create value for its customers,
suppliers
and stakeholders
by providing a high-quality customer experience,
a sustainable business model
and a positive social impact.

Airbnb – Forgetting all about scalability

Airbnb is a company that operates an online platform for people to rent out their properties or spare rooms to travelers. Airbnb’s vision is to create a world where anyone can belong anywhere. Airbnb’s mission is to connect people through unique travel experiences.

Airbnb’s business strategy is based on forgetting all about scalability. Airbnb does not focus on maximizing its growth or market share. Instead, Airbnb invests heavily in building trust, community and diversity. Airbnb aims to create a loyal user base and a strong brand reputation. Airbnb also leverages its strengths in technology, design and network effects to create products that are superior to its competitors.

Airbnb’s external analysis reveals that the company faces opportunities and threats in the online travel industry. Some of the opportunities are:

– Growing demand for online travel services due to digitalization, globalization and personalization
– Increasing innovation and differentiation in the online travel market due to technological advancements, customer preferences and new entrants
– Expanding into new markets and segments such as emerging economies, business travelers and experiences

Some of the threats are:

– Intense competition from established players and new entrants in the online travel market
– Regulatory uncertainty and legal challenges in different countries and regions
– High dependence on external factors such as economic conditions, political stability and health risks

Airbnb’s internal analysis reveals that the company has strengths and weaknesses in its capabilities and resources. Some of the strengths are:

– Strong brand image and customer loyalty due to product quality, innovation and social responsibility
– High level of network effects and user-generated content that enhance the value proposition of Airbnb’s platform
– Ability to attract and retain talented employees, partners and investors who share Airbnb’s vision and mission

Some of the weaknesses are:

– Negative cash flow and profitability due to high operational costs, commissions and taxes
– Reliance on a single product line (accommodation) and a single revenue stream (service fees)
– Limited control over the quality, safety and legality of the listings on Airbnb’s platform

Based on its external
and internal analysis,
Airbnb’s business strategy is to pursue a niche strategy.
Airbnb seeks to offer products that are unique,
innovative
and superior
to its competitors
in terms of variety,
authenticity,
community
and belonging.
Airbnb also seeks to create value for its users,
hosts
and stakeholders
by providing a high-quality user experience,
a flexible business model
and a positive social impact.

Works Cited

“Cascade Strategy.” The 7 Best Business Strategy Examples I’ve Ever Seen. 2023. https://www.cascade.app/blog/the-5-best-business-strategies-ive-ever-seen.

“HBS Online.” 3 Business Strategy Examples to Inspire Your Own. 2020. https://online.hbs.edu/blog/post/business-strategy-examples.

“Investopedia.” What Is Strategic Management? 2023. https://www.investopedia.com/terms/s

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