Strategy is the long-term direction of an organisation, the scope of organisation's activities, gaining advantage over
competitors, addressing changes in the business environment, building on resources, capabilities and competencies
and values and expectations of stakeholders.
Benefits of Strategic Planning:
*A learning tool to create 'prepared minds'
*Encourages a long-term view
Minzberg's Fallacies of Formal/Rational strategic planning:
*Fallacy of prediction - prediction is possible
*Fallacy of detachments - that strategist can be detached from the subjects of their strategies
*Fallacy of formalization - that strategy making can be formalised into a systematic rational process
4 Aspects of good MISSION STATEMENTS:
1. Mission/business definition - what the company does.
Is it customer orientated or product orientated
2. Core purpose/vision - the company's reason for being
Idealistic motivation, timeless, guiding star
3. Values - what standards does the company uphold
Intrinsically embedded in culture, how employees conduct themselves
4. Future goal
Should stretch company to limit but be reachable.
The external environment - Porter (2008) five forces model. Purpose is to understand the forces that drive
profitability, not to determine whether an industry is attractive.
Bargaining power of suppliers - relative concentration of suppliers (market share), relative size of supplier (revenue,
margin), importance of market for suppliers, switching costs, differentiation, substitutes, threat of forward
Bargaining power of buyers - relative concentration of buyers, relative size of buyer and order size, buyer switching
costs (standard products), if the product is not important for them, threat of backward integration, price sensitivity
of buyers, B2B vs B2C.
Threat of substitutes - easily overlooked, as substitutes can be context-dependent, puts a ceiling on prices, costs of
switching, attractiveness of price-performance-trade-off (cost-price elasticity).
Threat of new entrants - entry barriers (economies of scale, buyer switching costs, pre-emption of assets,
government policy, importance of reputation, capital requirements to enter at MES).
Competitive Rivalry - intensity of competition (diversity and number of competitors, low industry growth, high exit
barriers), basis of competition (similar or different dimensions, price competition) Strategic Groups - firms who compete on same dimensions.
Strategic Blocks - coopetitors who have denser links with each other
Limitations of industry analyses models:
*information availability is questionable
*neglect company differences
PEST - analyses help you to identify macro-economic trends that may be major opportunities/threats in the future
Using PEST to enhance industry understanding (5 forces)
Political Eco- Social Technical
Competitive rivalry regulation. Open skies
Entry barriers arrangements
Price competition Possible new entrants, price
Buyer Power Buyers can