STRATEGY AND POLICY

VISA NOTES

Warning!
This study is created from lecture notes and some online researches. The subjects in the study just cover the
teachers lectures given in the class, not all chapters content.

Included Chapters in This Study:

- Major Concepts
- BCHAP02
- External Analysis
- Internal Analysis

Other Chapters for Visa:

- BCHAP01
- Major Market Pressures

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Strategy and Policy Visa Notes Major Concepts

Strategic means long-term decisions. For example a football team doesnt play for a match, its purpose is
to win all matches to get the cup. On the other hand companies strategies can change I mean, companies sometimes
make some regulations and arrengements in the strategic management plans because of that everything is changing
in the world. The world is changing, competition is changing, competitors are changing and all these changes affect
strategic management process.

For strategic fit; there are a lot of environmental factors outside and a lot of realities like asset, field and
abilities inside the company, so what is the major aim? Major aim is there are some ingredients, inputs and there are
some factor affecting your operations, the problem is for strategic manager to make a kind of perfect combination of
external environment and internal realities together. This is called as strategic fit. Briefly; everything is changing, so
managers should do something internally, according to external changes.

Sustainable competitive advantage; companies should be sustainable that is the key point here. It is not for
short term, it is for long-term period. Because companies are devoloping themselves. They are doing investments for
new inventions. So you should make some researches and you should know about what they are planning or what
they are doing. For that reason sustainability is a very important point.

And one another important issue is, may be your supervisor, your boss will ask you about your performance,
permormance sometimes will be about montly sales, sometimes it will be about yearly performance of a product or
if you are a product manager or brand manager; it is very critical because you are a product manager for a specific
product in a company for example you are responsible for Elidor and here is another shampoo for example Wash
and Go or Clear and these two product have also managers and you are competing with these managers in the
same organization, may be you are friends in normal life but in the organization you are competitors; internal
competitors. And I am giving you 100 million lira budget for this year so, at the end of the year I am asking for
performance! And may be one of you will say: I increased my profitability and I have additional distribution channels
in Turkey or in the world and I started exporting our product. And the other friend; product manager will do a good
thing and he will generate additional 200 millon lira by using 100 million lira budget but may be other manager will
generate 20 million lira by using same budget, when we look your successes in percentages you will have for
example 22% and one of your friend will have 24% and other will have 30% profitability. You may think like that I
provide 22% profit to my company but sorry because the thing that is important is industry average and when we
analyze the industry average, it is 25%, and you are below the average, yes you got some profitability but it is not
enough because there are other managers who provide more benefits than you! So that above average return is
important.

Hypercompetition; can be defined as organizations' use of tactics to damage the competitive

advantage held by industry leaders. Hypercompetition typically occurs at a rapid pace. For example, let's
say that you own a fast-food restaurant and your items are priced slightly higher than a rival fast-food
chain. If you decide to adjust your prices to be closer to or lower than your rival, that is hypercompetition.

industrial-organizational (I/O) model of above- average returns

resource-based model of above-average returns

these models are for strategic competitiveness, and mission statement is one of the important
brief for these constructions because it gives opportunity for a company. What is the reason to make some
activities to do something in the sector? So mission statement is the firms reason to stay in the market.

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Strategy and Policy Visa Notes Major Concepts

Strategic intent; is your intention for the future, your strategic intent is a kind of first brief career
plan. I mean for example you wanted to be a computer engineer so you chose quantitave department in
your high school and when you prefer a university you picked good university in computer engineering and
may be after your graduation of the university you decided to go abroad to improve your computer skills.
On the other hand we need some organizational values, we should be talented engineer, very
hardworking, being an honest person for the organization, these are will up you in the organization.
Stakeholders and social responsibility, we all know these two concepts.
In the organization we should always be planned in long term and forward-looking, forget about past,
because past is past and it is just some kind of experiences for us. We should always be forward-looking and
visionary, because past is not a big input for us, it is just only some experiences, some kind of mistakes and some of
the sucesses, thats all.

Externally responsive, internally realistic; this is another important issue. The company has a lot of different studies
related to external factors, and then they are collecting all of the realities, all of the things but they are internally not
realistic. Because they dont have enough machinary, they dont have enough finance, man power. The company
should be both externally responsive and internally realistic.

Fits Internal Strengths to External Opportunities; opportunity is always waiting for you but it is not a kind of
automatic process to come and find you. You have to go and evaluate the opportunity, you have to do something
with your internal strengths. You should fit them to evaluate external opportunities.

Product-market positioning; you should have different levels of products for your customers. What do your
customers want from you? You should define your crowds and produce something that they want.

And big picture is always important, if you just focus on one thing, you may miss some opportunities. You should
always evaluate all things in big picture because big picture will create a big impact; major impact in the
performance. For example productivity; if you use less input and get less output that is okay for you but if you use
less input but get more output relatively your competitors that is much more better. Others are effectiveness and
efficiency; one of them is doing the things right the other one is doing right things. May be other one is rationality,
rantability. Major impact increases our productivity and efficiency.

During the strategic management process we are dealing with three different tools and these are commitments,
decisions and actions. Companies should do all these three things sequentially, properly and very effectively
otherwise they will have a problem in terms of strategic competitiveness, sustainable competitive advantages and
average returns. And sometimes companies decide very well, all the decisions may be fine but they are late to turn
these decisions in to the action. Action is necessary on the time. When you decide to reduce your price, if you are
late, you may lose your market share very easily so do things on the right time without waiting unnecessarily. Dont
let your competitors to do things before you do.

Strategic Management shooting at a moving target of co-alignment (Thompson, 1967)

Market is always changing and your competitors are very unstable, so my aim is to have a kind of proper decisions,

proper competitions, proper actions or strategies in a moving or changing structure.

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Strategy and Policy Visa Notes Major Concepts

What does this mean; selection of strategy is very critical process because
wrong strategy will direct you to wrong way

Do we have enough man power, do we have enough machinery, do we

have talented engineers, do we have finance, money to increase our
production, and if you have these things, you should have a clear
leadership and management because this will facilitate strategy
accomplishment.

Industrial Organization Model; is firstly started with outside of the company. Forget about internal realities like
capacity, financing etc. Firstly companies focus on industrial structure and attractiveness of the external
environment rather than internal characteristics of the firm. After that companies can look their internal strategies.
Everything is started with external environment because every company should firstly focus on general
environmental things; Is the company ready to deal with a crisis? and something like that.

The I/O or Industrial Company model adopts an external perspective to explain that forces outside of the
organization represent the dominate influences on a firms strategic actions. It starts with an assumption that forces
external to the company. It represents the dominant influences on a company's strategic actions. It determines the
appropriateness of strategies that are formulated and implemented in order for a company to earn above-average
returns. In short, the I/O model specifies that the choice of industries in which to compete has more influence on
company performance than the decisions made by managers inside their firm.

Based on its underlying assumptions, the I/O model prescribes a five-step process for companies to achieve above-
average returns,
1. External Environment; Study the external environment-general, industry and competitive-to determine the
characteristics of the external environment that will both determine and constrain the company's
strategic alternatives.
2. An Attractive Industry; Locate an industry with high potential for above-average returns
3. Strategy Formulation; Based on the characteristics of the industry, in which the company chooses to compete,
strategies that are linked with above-average returns should be selected. A model or framework that can
be used to assess the requirements and risks of these strategies
4. Assets and Skills; Acquire or develop the critical resources-skills and assets-needed to successfully implement
the strategy that has been selected.
5. Strategy Implementation; The I/O model indicates that above-average returns will accrue to companies that
successfully implement relevant strategic actions that enable the company to leverage its strengths
(skills and resources) to meet the demands or pressures and constraints of the industry in which they
have elected to compete.
6. Superior Returns; Maintain selected strategy in order to outperform industry rivals.

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Strategy and Policy Visa Notes Major Concepts

Resource-Based Model
After these we should focus on inside the firm;

The Resource-Based view focuses on developing or obtaining valuable resources and capabilities which are
difficult or impossible for rivals to imitate. Find something that your competitors dont have!

Resources; Identify firm resources. Study strengths and weaknesses relative to rivals.

Capability; Determine what firm capabilities allow it to do better than rivals.

Competitive Advantage; Determine how firms resources and capabilities may create competitive advantage.

An attractive industry; Locate an attractive industry.

Strategy Formulation and Implementation; Select strategy that best exploits resources and capabilities
relative to opportunities in environs.

Superior Returns; Maintain selected strategy in order to outperform industry rivals.

Resource based Model; this is basic strategy for companies because when they are planning their future, when they
are planning their next year, five years or ten years, they have to take considerations about some issues and this kind
of specific issues normally for time to time is important to focus on realities, facts because when you start to make
any competitive intention to have some strategic steps firstly you have to go and search that do you have enough
man power, logistic, technology, machinery, research and development. Because you are competing with other
companies using these kind of weapons. Your weapon will be your marketing, your high quality man power,
innovativeness of your company so firstly we are concantrating domestic or inside the business and we are going
and try to search attractiveness of industry, you should decide that this industry is good for us, this industry is
suitable for us. But for the industrial organization model, this is totally different firstly forget about the companies
assesments, companies assets, belongings and we are trying to search that, is there any availability for our company
and opportunity for company or strategic availability of any potential for investment for marketing for partnership
for making a global agreement to make a global partnership from our sides, so this is the opportunities and when
you see everything is okay, economy is doing well, interest rates are not fluctuating, is there any volatility in the
market in politics in economic. In every and in each answer is yes!!! it is suitable, then you are going and evaluating
your internal assets, internal belongings and values. Are you ready for export? Are you ready for competency?
Because when you are doing a business with an Italian company you should say that hey I have a good relation with
my government I can take necessary permission for our business or I have a good supply chain management I can get
necessary items from my suppliers. These show the companies competitiveness. On the other hand Italian company
may say: hey my engineering is very good, our research and development department is very good on the other
hand your export operations are not good but we are exporting over eighty countries so we can build a partnership. I
am giving you our export experiences or my export portfolio. And suddenly you will have a kind of export potential
by having this kind of partnership. And may be this Italian company may say that I have a good relation with
European union so I can open some doors for you in this area. That may be another benefit for the company. So both
parties present their abilities, their bargaining powers and then they will come together and they will get some
mutual benefits. So the environmental forces and company realities must fit perfectly but your companies abilities,
capacities, capabilities are not enough for doing right business with this opportunity so it is a kind of missing
opportunity and missing chance for your company.

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Strategy and Policy Visa Notes Major Concepts

Average return; this is a kind of non-negotiable term becouse for you for example if you are going and discuss with
your team members about any subject for example this will be human resource team, manufecturing team and
marketing team, your aim is having maximum output from your team, not manageble, acceptable or tolerable.
Acceptability is a different thing, it is a kind of red line, it is a kind of road border for you but if you pass this border if
you exit this border average, this is the measurement of success. Thats why companies normally use key
performance indicators because every and each organizational unit because we have to measure something
otherwise any other measurement about success how can we manage our business because If I ask a question how
is doing your marketing department and you said I have no idea about that I dont know may be at the end of the
year we will see. NO! Still when you have at the end of the year, evaluation of performance is monthly sometimes
weekly, sometimes quarterly, sometimes may be six monthly performance report must be on the table, otherwise it
would be too late to evaluate the year so we are using some key performance indicators. These key performance
indicators are like when you are driving a car for example there is a kind of indicator or display of the car, the speed
indicator and the gasoline indicator, heating or temperature indicator, water indicator so your eyes must be on these
indicators because when heating the engine, temperature is increasing there must be a problem in terms of the
engine and this is so harmful for your car. And when you exceed the speed this is dangerous for you because you will
make an accident, I mean this is the same logic in the company, you have some monitors and then this will be
sometimes ratios, for example acid test ratios, profitability ratios, performance ratios for the finacial side so this is
very important by using key performance indicators for the companies evaluation so the earning of the above
average return is the most important thing.

And we have the resource based model, in the capabilities, competitive advantages are our assets in the first row
then we are going to the outside to search that is there any attractive industry to invest or my industry keeps or
holding, protect their attractiveness or are they losing their interests for some industries and they are going as soon
as possible to any other industry. For example when Yaar Holding decided to make a new investment in terms of
the meat product, they had to find some investment money from banks or from the equities or from companies
shareholders but it is not possible at that time because there is a kind of turbulent times for the Turkish economy
recession and they are going to foreign investment like the Ko Holding. For example you know the World Bank. And
inside the World Bank, they normally keeps credit to countries and may be municipalities(belediyeler) at least but
not for private companies or private sector. But there is one department inside the World Bank that gives credits to
companies like Mercedes, Yaar Holding Simens etc. It is called IFC (International Finance Corporation) This
department gives credits to private sector companies all over the world. But you should have a nice investment
project but on the other hand it is not for small business. They dont accept below the 25 million US dollars project.
And required finance and required resources, for example Yaar Holding had two different tourism industry
investment. One of them is eme Altn Yunus, it is the holiday village and the other one is Marmaris Altn Yunus
Holiday Village but at that time when they decided to establish a new investment from this industry to another
industry, new attracting industry and their intention is they are losing their interests for the tourism industry and
they sold Marmaris Altn Yunus to Ko Holding and taking some amount of money, millions of US dollars and they are
coming and using that amount of money to establish a new meat production factory in zmir. So what does this
mean? It is a shift from tourism industry to food industry. Because food processing industry is more stable, more
income capacity than the tourism because tourism is very nice in this year and the following year it is terrible in
terms of the occupancy and tourism figure. But the food industry, it is a personal need, people should spend some
money for it. Attractiveness gives a lot of different new challanges for me to shift from one business to another
business.

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Strategy and Policy Visa Notes Major Concepts

When we say hypercompetition there are a lot opportunities and a lot competitors. If you want to be successful in
this area you should increase your global interdependency. I mean, for example you have a hotel, it is a kind of
unknown brand it is not famous so it is nothing for the international market when the tour operators directed their
yearly assignments of the groups or tourists to one country you should participate in, you should join this club
otherwise even you have some customers that is not efficent for profitability so you should join them because these
tour operators will sell your brand to customers because you are not famous, in tourism industry one year is good,
other year is disgusting so global interdependency is really important.

One other isssue is technology change, disruptive and perpetual technology change. This is important because
technology has developed day by day. Companies should do something, otherwise they will be collapsed by their
competitors. Everyday we see new developments for example there is a machine that measures heart beats but it is
more than one kg, nowadays google has made some development in health sector, may be they will make a chip
that will measure heart beat and your company will be behind this.

One another issue is agility it means in Turkish like eviklik, hz. When we think about huge companies like General
Motors, when they decide to change their strategy, it may take their ten years because it is difficult for a huge
organization but for small companies it would take less.

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Strategy and Policy Visa Notes Major Concepts

In mission statement three core elements should be included; these are product; it must be balanced. I mean for
example for Arelik, they are selling lots of products; television, washing machine, some kitchen gadgets. If we say all
these products, that will be so complex, so we can say that for their product; white goods!!! thats enough.

Second one is target market; what is your target market? as specific as, my target market is middle income
consumers; in terms of the demografic segmentation, income.

And last one is differentiating feature; this should be meaningful and realistic. Arelik says I want to be high-
premium white goods producers thats okay but where is the evidence, where is your evidence, it should be realistic
and meaningful.

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BCHAP02

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Strategy and Policy Visa Notes BCHAP02

An intended strategy is the strategy that an organization hopes to execute. Intended strategies are usually described
in detail within an organizations strategic plan. When a strategic plan is created for a new venture, it is called a
business plan. As an undergraduate student at Yale in 1965, Frederick Smith had to complete a business plan for a
proposed company as a class project. His plan described a delivery system that would gain efficiency by routing
packages through a central hub and then pass them to their destinations. A few years later, Smith started Federal
Express (FedEx), a company whose strategy closely followed the plan laid out in his class project. Today, Frederick
Smiths personal wealth has surpassed $2 billion, and FedEx ranks eighth among the Worlds Most Admired
Companies according to Fortune magazine. Certainly, Smiths intended strategy has worked out far better than even
he could have dreamed. Briefly the intended strategy is a strategy that you planned at the beginning of your work.

Emergent strategy has also played a role at Federal Express. An emergent strategy is an unplanned strategy that
arises in response to unexpected opportunities and challenges. Sometimes emergent strategies result in disasters. In
the mid-1980s, FedEx deviated from its intended strategys focus on package delivery to capitalize on an emerging
technology: facsimile (fax) machines. The firm developed a service called ZapMail that involved documents being
sent electronically via fax machines between FedEx offices and then being delivered to customers offices. FedEx
executives hoped that ZapMail would be a success because it reduced the delivery time of a document from
overnight to just a couple of hours. Unfortunately, however, the ZapMail system had many technical problems that
frustrated customers. Even worse, FedEx failed to anticipate that many businesses would simply purchase their own
fax machines. ZapMail was shut down before long, and FedEx lost hundreds of millions of dollars following its failed
emergent strategy. In retrospect, FedEx had made a costly mistake by venturing outside of the domain that was
central to its intended strategy: package delivery (Funding Universe).

Another example is about a washing machine brand in Turkey. They started in business Turkey and one day they
suddenly realized that their sales increased so much. That was interesting. What was the reason behind this. And
when they searched about this. They saw that a lot Turkish people started using the washing machine for making
ayran. That was also an emergent strategy example. The strategy of the company was not producing ayran machine
but after this event they started to produce.

A realized strategy is the strategy that an organization actually follows. Realized strategies are a product of a firms
intended strategy, the firms deliberate strategy, and its emergent strategy. In the case of FedEx, the intended
strategy devised by its founder many years agofast package delivery via a centralized hubremains a primary
driver of the firms realized strategy. An intended strategy is the plan at the beginning. A realized strategy is how it
worked out at the end.

Unrealized strategy; may be you invested a lot money but you are not at the point that you expect!

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Strategy and Policy Visa Notes BCHAP02

And briefly -->

The realized strategy may be very different from the intended strategy, and if so, it is termed as an emergent
strategy. The emergent strategy is a product of the interplays between your firms environment and the intended
strategy. When the environment renders the intended strategies redundant, new unplanned strategies emerge to
counter the environment and these are known as emergent strategies.

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If we have the mission statement, we should be careful about that because in your mission statement you should
have these four goals;

To Make a Profit

To Grow

To Offer Quality Products and Customer Support

To Create a Great Place to Work

because this is an equation and a formula. The four goals are closely interrelated. One cannot exist without the
others. In order for ROLM to profit, (ROLM is a corporation) it must offer quality products and customer support. In
order to grow, it must profit. And, in order to develop quality products and customer support, ROLM must maintain
a work environment leads to creativity and productivity

One important issue is if we are intending to have some fundemantal intentions like grow, making profit etc. firstly
we have some obligations for stockholders, because stockholders are expecting some money from the investment
in the end ofthe year; dividend payment.

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Strategy and Policy Visa Notes BCHAP02

The scope of a business usually covers several departments and covers a lot of different areas, depending on the
company. For example, many corporations own several businesses and companies, meaning the corporation's
business scope is quite large and potentially covers multiple products and markets. Smaller businesses, such as
family-owned stores, have a smaller business scope as they are focused primarily on acquiring goods wholesale and
selling those goods on to consumers at retail prices. May be one product is not doing well for this year for example
your tourism industry is not doing well this year but your food industry is doing well and compensate your lose
easily.

And you must know sources of competitive advantages, otherwise If I ask your company what is your sources of
competitive advantages; is it your man power quality? Is it yours motivated engineers? Is it yours high technology?
Where do sources come from? For example for IKEA, everybody; youngs and olds can build easily their sofas or any
other things that they get from IKEA, because IKEA provides a really good guide for them. Their competitive
advantages comes from their making things easier.

And view of the future, how do you approach for companies future? Its not just your dream! Every individual in the
company should have same excitement for the future, Otherwise it will be just your dream, not others.

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Everything is started with financial goals...

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EXTERNAL ANALYSIS

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Strategy and Policy Visa Notes External Analysis

Through an integrated understanding of the external and internal environments, firms gain the information they
need to understand the present and predict the future.

The general environment is composed of elements in the broader society that influence an industry and the firms
within it. These elements can be grouped into six environmental segments: demographic, economic, political/legal,
sociocultural, technological, and global. Firms cannot directly control the general environments segments and
elements. Accordingly, successful companies gather the types and amounts of data and information that are
required to understand each segment and its implications so that appropriate strategies can be selected and used.

The industry environment is the set of factorsthe threat of new entrants, suppliers, buyers, product substitutes,
and the intensity of rivalry among compititorsthat directly influences a firm and its competitive actions and
responses. In total, the interactions among these five factors determine an industrys profit potential. The challenge
is to locate a position within an industry where a firm can favorably influence those factors or where it can
successfully defend against their influence. The greater a firms capacity to favorably influence its industry
environment, the greater is the likelihood that the firm will earn above-average returns.

How companies gather and interpret information about their competitors is called competitor analysis.
Understanding the firms compititor environment complements the insights provided by studying the general and
industry environments.

In combination, the results of the three analyses that are used to understand the external environment influence
the development of the firms strategic intent, strategic mission, and strategic actions. Analysis of the general
environment is focused on the future; analysis of the industry environment is focused on understanding the factors
and conditions influencing a firms profitability; and analysis of competitors is focused on predicting the dynamics of
compititors actions, responses, and intentions. Although we discuss each analysis separately, performance improves
when the firm integrates the insights gained analysis of the general environment, the industry environment, and the
compititor environment.

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Strategy and Policy Visa Notes External Analysis

There are four components of the external environmental analysis: scanning, monitoring, forecasting, and assessing.

Scanning entails the study of all segments in the general environment. Firms use the scanning process to either
detect early warning signals regarding potential changes or to detect changes that are already underway. In most
cases, information and data being collected or observed are ambiguous, incomplete, and appear to be unconnected.
Scanning is most important in highly volatile environments, and the scanning system should fit the organizational
context (e.g., scanning systems designed for volatile environments are not suitable for firms competing in a stable
environment).

Teaching Note: Scanning may signal a future change in the needs and lifestyles of baby boomers as they
approach retirement age. This may not only provide opportunities for financial institutions as they prepare
for an increase in the number of retirees, but also may provide opportunities for packagers and marketers of
retirement communities and other products specifically targeted to this segment.

The Internet provides significant opportunities to obtain information. For example, Amazon.com records significant
information about individuals visiting its website, particularly if a purchase is made. Amazon then welcomes the
individual by name when s/he visits the website again. It even sends messages to the individual about specials and
new products similar to that purchased in previous visits. Additionally, many websites and advertisers on the
Internet obtain information surreptitiously from those who visit their sites via the use of cookies.

For example when Kipa established their first store in zmir inside the campus of the Aegean University, it was only
one branches, one store but and they are not intending to have chain like Migros or Tansa, but suddenly a foreign
company came and gave advises to Kipa. And they said hey! the store is very interesting and very well designed and I
will give some recommendations because I am a well-known company. This company came and made some alliances
with Kipa and suddenly Kipa became a very big competitor for Tansa, Migros and other store chains. But previously
they dont have this kind of intentions. If you see any early signal for the potential changes and trends in the market
this will be a very important input for your strategic plan.

Monitoring represents a process whereby analysts observe environmental changes (over time) to see if, in fact, an
important trend begins to emerge.

The critical issue in monitoring is that analysts be able to detect meaning from the data and information collected
during the scanning process. (Remind students that this data is generally ambiguous, incomplete and unconnected.)
For example, in the United States, middle class African Americans are growing in number and wealth and are
pursuing investment options, an opportunity in the economic segment that companies in the financial planning
sector could monitor.

Effective monitoring requires the firm to identify important stakeholders. Because the importance of different
stakeholders can vary over a firms life cycle, careful attention must be given to the firms needs and its stakeholder
groups over time. Scanning and monitoring can also provide information about successfully commercializing new
technologies.

For another example, we talked about some of the scanning activities and some of the early warnings but early
warnings always not necessarily will make any change in general enviroment, sometimes it is stable, sometimes it is
inbalanced in the economy and they are waiting for right time to emerge. If there is a early signal three months ago
and companies go and negotiate with banks for investment credits, for qualified engineers, may be companies go
and

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Strategy and Policy Visa Notes External Analysis

transfer their CFO from other companies so there are some changes. What happened in the industry? You will see
these with monitoring. And if you see this kind of monitoring now it is time to have some forecasting activities;

The next step is for analysts to take the information and data gathered during the scanning and monitoring phases
and attempt to project forward. Forecasting represents the process where analysts develop feasible projections of
what might happenand how quicklyas a result of the changes and trends detected through scanning and
monitoring. Because of uncertainty, forecasting events and outcomes accurately is a challenging task.

Assessing represents the step in the external analysis process where all of the other steps come together. The
objective of assessing is to determine the timing and significance of the effects of changes and trends in the
environment on the strategic management of a firm. Getting the strategy right will depend on the accuracy of the
assessment.

Teaching Note: It is good to alert students to the fact that a major challenge for managers and firms
engaging in the process of external analysis is to recognize biases and assumptions that may affect the
analysis process. This is important, because these may limit the accuracy of forecasts and assessments. For
example, managers may choose to disregard certain information, thus missing critical indicators of future
environmental changes. Or, past experiences may prejudice the ways that opportunities or threats are
perceivedif they are perceived at all. One solution might be to solicit multiple inputs so a single source is
not able to manipulate the information and to seek frequent feedback regarding the accuracy or usefulness
of forecasts and assessments.

The economic segment centers on the economic conditions within which organizations operate. It includes elements
such as interest rates, inflation rates, gross domestic product, unemployment rates, levels of disposable income, and
the general growth or decline of the economy. The economic crisis of the late 2000s has had a tremendous negative
effect on a vast array of organizations. Rising unemployment discouraged consumers from purchasing expensive,
nonessential goods such as automobiles and television sets. Bank failures during the economic crisis led to a
dramatic tightening of credit markets. This dealt a huge blow to home builders, for example, who saw demand for
new houses plummet because mortgages were extremely difficult to obtain.

Examples of several key trends representing economic factors in the general environment are illustrated below.
The unemployment rate is the percentage of the labor force actively lookin for employment within the last four
weeks. During the Great Depression of the 1930s, the United States suffered through an unemployment rate of
approximately 25%.

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Strategy and Policy Visa Notes External Analysis

Housing starts in an economic indicator that measures the number of houses, apartments, and condos on which new
construction has been started. Because construction involves a wide array of industriesconcrete, steel, wood,
drywall, plumbing, banks, and many othershousing starts are a carefully watched measure of economic conditions.

Gross domestic product (GDP) refers to the market value of goods and services within a country produced in a given
time period and serves as a rough indicator of a countrys standard of living. The United States has a much larger
GDP than China, but China has enjoyed a much higher rate of GDP growth in recent years.

The Federal Reserve System (commonly referred to as The Fed) is the United States central banking system. The
Fed attempts to strengthen the economy through its decisions, such as setting short-term interest rates.

Discretionary income refers to the amount of money individuals have to spend after all necessary bills are paid. As
discretionary income increases, firms such as boutique clothing retailers that sell nonessential goods and services are
more likely to prosper.

Some businesses, however, actually prospered during the crisis. Retailers that offer deep discounts, such as Dollar
General and Walmart, enjoyed an increase in their customer base as consumers sought to find ways to economize.
Similarly, restaurants such as Subway that charge relatively low prices gained customers, while high-end restaurants
such as Ruths Chris Steak House worked hard to retain their clientele.

For others; pestel analysis visit (http://open.lib.umn.edu/strategicmanagement/chapter/3-3-evaluating-the-general-

environment/ )

Economies of Scale: Refers to the total size of an industry and the level of concentration within that industry. A large
industry dominated by a few high volume competitors is going to be harder for a new entrant to enter than an
industry with a large number of small to medium competitors.

A Differentiated Product: Refers to tangible product differences with either your product or your services that your
customers value. Are products in your industry seen as a commodity, interchangeable, or do unique differences
between products?

Capital Requirenments: Refers to the total up front capital investment required for another organization to setup in
competition with you. The more start-up capital that is required the less likely additional competitors will enter the
market. If limited capital is required then additional new entrants could be expected.

Switching Costs: Refers to any cost incurred by your customers to switch to another or a new competitor.

Distribution Network: Refers to the ease with which a new entrant could gain access to distribute their products or
services. You will have developed methods to distribute your products to your customers, the harder it is for new
entrants to replicate this distribution system the less likely new entrants are to enter and remain in your industry.
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Absolute Cost Advantage: Refers to the cost of producing your product or service. Do you have a good location, long
term arrangements for access to raw materials or unique production or distribution system that makes it hard for
anyone to compete with you?

Legal and Government Created Barriers: Refers to a government regulation or policy which prevents or prohibits
others from entering your industry. If a permit or licence is required this will make it less likely that you will have
new competitors in your industry. Commercial fishing, logging and mining, banking and insurance are a few
examples where in some countries regulation will act as a barrier to entry.

Expected Retaliation: Refers to the response existing competitors may take to the emergence of a new competitor.
Types of retaliation include dropping prices, offering increased incentives to buy, offering additional service for the
same price. The greater the profitability of an industry the more likely retaliatory action will be.

The analysis of the strategic groups in an industry can offer important insights to executives. Strategic groups are
sets of firms that follow similar strategies to one another. More specifically, a strategic group consists of a set of

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industry competitors that have similar characteristics to one another but differ in important ways from the members
of other groups.

Understanding the nature of strategic groups within an industry is important for at least three reasons. First,
emphasizing the members of a firms group is helpful because these firms are usually its closest rivals. When
assessing their firms performance and considering strategic moves, the other members of a group are often the
best referents for executives to consider. In some cases, one or more strategic groups in the industry are irrelevant.
Subway, for example, does not need to worry about competing for customers with the likes of Ruths Chris Steak
House and P. F. Changs. This is partly because firms confront mobility barriers that make it difficult or illogical for a
particular firm to change groups over time. Because Subway is unlikely to offer a gourmet steak as well as the
experience offered by fine-dining outlets, they can largely ignore the actions taken by firms in that restaurant
industry strategic group.

(Mobility barriers are difficulties of moving the company from one strategic group to another.)

Second, the strategies pursued by firms within other strategic groups highlight alternative paths to success. A firm
may be able to borrow an idea from another strategic group and use this idea to improve its situation. During the
recession of the late 2000s, midquality restaurant chains such as Applebees and Chilis used a variety of promotions
such as coupons and meal combinations to try to attract budget-conscious consumers. Firms such as Subway and
Quiznos that already offered low-priced meals still had an inherent price advantage over Applebees and Chilis,
however: There is no tipping expected at the former restaurants, but there is at the latter. It must have been
tempting to executives at Applebees and Chilis to try to expand their appeal to budget-conscious consumers by
experimenting with operating formats that do not involve tipping.

Third, the analysis of strategic groups can reveal gaps in the industry that represent untapped opportunities. Within
the restaurant business, for example, it appears that no national chain offers both very high-quality meals and a very
diverse menu. Perhaps the firm that comes the closest to filling this niche is the Cheesecake Factory, a chain of
approximately 150 outlets whose menu includes more than 200 lunch, dinner, and dessert items. Ruths Chris Steak
House already offers very high quality food; its executives could consider moving the firm toward offering a very
diverse menu as well. This would involve considerable risk, however. Perhaps no national chain offers both very high
quality meals and a very diverse menu because doing so is extremely difficult. Nevertheless, examining the strategic
groups in an industry with an eye toward untapped opportunities offers executives a chance to consider novel ideas.

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Some other subjects in the class:

red ocean strategy; a lot competition; The concept is quite simple to understand. The Red Ocean is where every
industry is today. There is a defined market, defined competitors and a typical way to run a business in any specific
industry. The researchers called this the Red Ocean, analogous to a shark infested ocean where the sharks are
fighting each other for the same prey.

blue ocean strategy; everything is peaceful, fair competition, a gentleman agreement between companies. The Blue
Ocean, on the other hand, is calm, smooth, with lots of food and little or no competition. This is where everyone
would like to be and it is possible for you to have a Blue Ocean.

order fulfillment: is defined as the steps involved in receiving, processing and delivering orders to end customers.

VUCA: Volatility is the quality of being subject to frequent, rapid and significant change. In a volatile market, for
example, the prices of commodities can rise or fall considerably in a short period of time, and the direction of a trend
may reverse suddenly. Uncertainty is a component of that situation, in which events and outcomes are
unpredictable. Complexity involves a multiplicity of issues and factors, some of which may be intricately
interconnected. Ambiguity is manifested in a lack of clarity and the difficulty of understanding exactly what the
situation is.

INTERNAL ANALYSIS

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For criteria is VUCA, remember from last chapter.

So lets start with the ongoing observation inside the organization. Managers eyes must be on the departments and
the inside the departments and divisions every time, so may be there will be a media report in business newspapers
about you or about your industry. Problems or success stories always on the table of managers. And one another
important issue is MBWA so this is another important critical talent for the successful managers. This is
management by walking around and it is a critical concept, so what does this mean? You will see some of the
general directors or CEOs, they will come and have a seek in their room and then looking some of their reports and
checking some of the financial or production related reports and then opening their computers or may be TVs
watching some news related to commodity markets or the other issues and thats all. And they are completing their
working day and leaving from the office. But human see some of the other managers they spend only one hour or
work not more than two hours in the morning, having a brief from the staff and then controlling some of the
necessary reports or having some executive summaries reading and they stop and going meeting or lunch with
another companies director or with a bank manager or visiting another companies side or visiting any other
industries. May be he is going to see whether there is a kind of development related things to him businesses.
Because if he is not in the playground, he will lose this game.

In the brainstorming; it is very valuable asset for the company because you will have an engineering department
with ten engineers and these engineers are very experienced and young engineers but there is one specific engineer
may be the new comer, newly graduated engineer and may be these new engineers creativity, performance are
better than the other remaining engineers. But you have to do something, to touch these people and stimulate this
creativity and increase their motivation, increase their self confidence otherwise it is a kind of potential inside the
engineer but it is not a kind of stimulation to take this potential into the real area. So brainstorming is nice
opportunity for everyone

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Retreats; I am talking to you and giving some arguments and information to you and may be you have some doubts
or walls in your mind my aim is breaking down your walls in your mind by giving additional information. You can
easily say we cannot increase the prices because competition is very strong but I am giving you some information
that you ignore and I am breaking down your walls in your mind.

Task forces; for example sometimes we are creating small groups thats are solution groups. There is a problem
about quality of the product and here I am putting the product on the table and say a lot of customer complaining
about the product so we have to solve this problem and this is a special small group just focus on product and forget
about all their responsibilities may be I am a product manager I am leaving my position may be for two months and
concentrating on the problem.

In-house facilitator or external consultants; In some companies there are some external consultants. These people
walk around in work place and observe workers. For example after they observe workers for two days they go and
say hey if you do your job like this that would be better for you, you can produce more with this position. These
people are dont know workers personally they just observe and give some recommendations to them. And some of
the organization have in-house facilitator, their job is not production planning, their job is not marketing planning,
their job is just seeing and watching the process and when you have some specific problems when you operating the
project , they are coming and giving some advises to you, thats why these kind of people are not directly related
with daily operations.

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In here above we see examples of capabilities; these are some examples of companies capabilities. For example
Wal-Mart has efficient distribution channels and has good information systems, so they are capable of these two
areas; distribution and information system area.

Value Chain Analysis; It is a kind of chain constitutes starting with the supplier to the final consumer. And we have
two points from the raw material suppliers to the final user we have a lot of activities. These are; production,
marketing, distribution, logistics, research, and development, innovation and other activities. So what is the
importance for us? All these functions are cost resources or cost generators. And what is the importance for the
strategic management for today here is a kind of invisible wall because market will have a price impose to you, they
say hundred dollar is my accepted prices, if you exceed this hundred dollar I reject you, if you exceed hundred dollars
you have to say additional things about the product differentiation. If you dont have this kind of differentiation now,
go back immediately and have some necessary actions to reduce your cost step by using your raw material supply
prices, logistic prices otherwise you are out of getting. Value chain is a strategic tool for todays manager watching
one by one all the departmental operations and saying hey there is a potential reduce our cost because we are
purchasing this product here and instead of this company we purchase this product here we can do more savings
than before.

Inside the value chain we have two different parts primary activities it is core activities for example for any company
producing something may have a manufacturing or assembling montage or the other type of operations

Primary activities involved with:

A products physical creation

A products sale and distribution to buyers

The products service after the sale

These kind of activities never lose their importance or critical role within the framework of the total organization
because we have to produce, we have to sell and we have to after sale services.

Support activities

Provide the support necessary for the primary activities to take place

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Inbound Logistics: the receiving and warehousing of raw materials, and their distribution to manufacturing as they
are required.

Operations: the processes of transforming inputs into finished products and services.

Outbound Logistics: the warehousing and distribution of finished goods.

Marketing & Sales: the identification of customer needs and the generation of sales.

Service: the support of customers after the products and services are sold to them.

These primary activities are supported by:

The infrastructure of firm: organizational structure, control systems, company culture, etc.

Human resource management: employee recruiting, hiring, training, development, and compensation.

Technology development: technologies to support value-creating activities.

Procurement: purchasing inputs such as materials, supplies, and equipment.

The firms margin or profit then depends on its effectiveness in performing these activities efficiently, so that the
amount that customer is willing to pay for the products exceeds the cost of the activities in the value chain. It is in
these activities that a firm has the opportunity to generate superior value. A competitive advantage may be achieved
by reconfiguring the value chain to provide lower cost or better differentiation.

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A firm may specialize in one or more value chain activities and outsource the rest. The extent to which a firm
performs upstream and downstream activities is described by its degree of vertical integration.

A through value chain analysis can illuminate the business system to facilitate outsourcing decisions. To decide which
activities to outsource, managers must understand the firms strengths and weaknesses in each activity, both in
terms ofcost and ablity to differentiate. Managers may consider the following when selecting activities to outsource:

* Whether the activity can be performed cheaper or better by suppliers.

* Whether the activity is one of the firms core competencies from which stems a cost advantage or product
differentiation.

* The risk of performing the activity in-house. If the activity relies on fast-changing technology or the product
is sold in a rapidly-changing market, it may be advantegous to outsource the activity in order to maintain flexibility
and avoid the risk of investing in specialized assets.

* Whether the outsourcing of an activity can result in business process improvements such as reduced lead
time, higher flexibility, reduced inventory, etc.

---------------------------------END OF THE STUDY MY DEAR FRIENDS :)------------------------------

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