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Strategic Management

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Strategic Management ­ MGT603
VU
Lesson 10
TECHNOLOGICAL FORCES
Revolutionary technological forces:
Profound impact on organizations
Internet
Semiconductors
XML (extensible markup lang.) technologies
UWB (ultra wideband wireless) communications
Revolutionary technological changes and discoveries such as superconductivity, computer engineering,
thinking computers, robotics, unemployed factories, miracle drugs, space communications, space
manufacturing, lasers, cloning, satellite networks, fiber optics, biometrics, and electronic funds transfer are
having a dramatic impact on organizations. Superconductivity advancements alone, which increase the
power of electrical products by lowering resistance to current, are revolutionizing business operations,
especially in the transportation, utility, health care, electrical, and computer industries.
The Internet is acting as a national and even global economic engine that is spurring productivity, a critical
factor in a country's ability to improve living standards. The Internet is saving companies billions of dollars
in distribution and transaction costs from direct sales to self-service systems. For example, the familiar
Hypertext Markup Language (HTML) is being replaced by Extensible Markup Language (XML). XML is a
programming language based on "tags" whereby a number represents a price, an invoice, a date, a zip code,
or whatever. XML is forcing companies to make a major strategic decision in terms of whether to open
their information to the world in the form of catalogs, inventories, prices and specifications, or attempt to
hold their data closely to preserve some perceived advantage. XML is reshaping industries, reducing prices,
accelerating global trade, and revolutionizing all commerce. Microsoft has reoriented most of its software
development around XML, replacing HTML.
Ultra-wideband (UWB) wireless communications that sends information on tiny wave pulses may soon
replace continuous radio waves, allowing ever-smaller devices to do vastly more powerful wireless
communications. The Federal Communications Commission (FCC) is slow to approve UWB in fear of its
disrupting existing wireless communication, but UWB technology pioneered by Time Domain of
Huntsville, Alabama, has the potential to permanently change the way all individuals and businesses
communicate worldwide.
Internet changes the nature of opportunities and threats
Alters life cycle of products
Increases speed of distribution
Creates new products and services
Eases limitations of geographic markets
Alters economies of scale
Changes entry barriers
The Internet is changing the very nature of opportunities and threats by altering the life cycles of products,
increasing the speed of distribution, creating new products and services, erasing limitations of traditional
geographic markets, and changing the historical trade-off between production standardization and
flexibility. The Internet is altering economies of scale, changing entry barriers, and redefining the
relationship between industries and various suppliers, creditors, customers, and competitors.
Capitalizing on Information Technology (IT)
Chief Information Officer (CIO)
Chief Technology Officer (CTO)
To effectively capitalize on information technology, a number of organizations are establishing two new
positions in their firms: chief information officer (CIO) and chief technology officer (CTO). This trend reflects the
growing importance of information technology in strategic management. A CIO and CTO work together to
ensure that information needed to formulate, implement, and evaluate strategies is available where and
when it is needed. These persons are responsible for developing, maintaining, and updating a company's
information database. The CIO is more a manager, managing the overall external-audit process; the CTO is
more a technician, focusing on technical issues such as data acquisition, data processing, decision support
systems, and software and hardware acquisition.
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Strategic Management ­ MGT603
VU
Technology-based issues:
Underlie nearly every strategic decision
Technological forces represent major opportunities and threats that must be considered in formulating
strategies. Technological advancements dramatically can affect organizations' products, services, markets,
suppliers, distributors, competitors, customers, manufacturing processes, marketing practices, and
competitive position. Technological advancements can create new markets, result in a proliferation of new
and improved products, change the relative competitive cost positions in an industry, and render existing
products and services obsolete. Technological changes can reduce or eliminate cost barriers between
businesses, create shorter production runs, create shortages in technical skills, and result in changing values
and expectations of employees, managers, and customers. Technological advancements can create new
competitive advantages that are more powerful than existing advantages. No company or industry today is
insulated against emerging technological developments. In high-tech industries identification and evaluation
of key technological opportunities and threats can be the most important part of the external strategic-
management audit.
Organizations that traditionally have limited technology expenditures to what they can fund after meeting
marketing and financial requirements urgently need a reversal in thinking. The pace of technological change
is increasing and literally wiping out businesses every day. An emerging consensus holds that technology
management is one of the key responsibilities of strategists. Firms should pursue strategies that take
advantage of technological opportunities to achieve sustainable, competitive advantages in the marketplace.
Technology-based issues will underlie nearly every important decision that strategists make. Crucial to those
decisions will be the ability to approach technology planning analytically and strategically. . . . Technology
can be planned and managed using formal techniques similar to those used in business and capital
investment planning. An effective technology strategy is built on a penetrating analysis of technology
opportunities and threats, and an assessment of the relative importance of these factors to overall corporate
strategy.
In practice, critical decisions about technology too often are delegated to lower organizational levels or are
made without an understanding of their strategic implications. Many strategists spend countless hours
determining market share, positioning products in terms of features and price, forecasting sales and market
size, and monitoring distributors; yet too often technology does not receive the same respect:
The impact of this oversight is devastating. Firms not managing technology to ensure their futures may
eventually find their futures managed by technology. Technology's impact reaches far beyond the "high-
tech" companies. Although some industries may appear to be relatively technology-insensitive in terms of
products and market requirements, they are not immune from the impact of technology; companies in
smokestack as well as service industries must carefully monitor emerging technological opportunities and
threats.
Not all sectors of the economy are affected equally by technological developments. The communications,
electronics, aeronautics, and pharmaceutical industries are much more volatile than the textile, forestry, and
metals industries. For strategists in industries affected by rapid technological change, identifying and
evaluating technological opportunities and threats can represent the most important part of an external
audit.
Some technological advancements expected soon in the computer and medical Industry are computers that
recognize handwriting; voice-controlled computers; gesture-controlled computers; picture phones; and
defeat of heart disease, AIDS, rheumatoid arthritis, multiple sclerosis, leukemia, and lung cancer. New
technological advancements in the computer industry alone are revolutionizing the way businesses operate
today. Cell phone and wireless Internet access are becoming common, with Finland leading all countries in
this new technology.
Competitive Forces
"Collection and evaluation of information on competitors is essential for successful strategy formulation"
Competition in virtually all industries can be described as intense.
Identifying rival firms:
Strengths
Weaknesses
Capabilities
Opportunities
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Strategic Management ­ MGT603
VU
Threats
Objectives
Strategies
Key Questions about Competitors:
Their strengths
Their weaknesses
Their objectives and strategies
Their responses to all external variables (e.g. social, political, demographic, etc.)
Their vulnerability to our alternative strategies
Our vulnerability to successful strategic counterattack Our product and service positioning
relative to competitors
Entry and exit of firms in the industry
Key factors for our current position in industry
Sales and profit rankings of competitors over time
Nature of supplier and distributor relationships
The threat of substitute products or services
The top five U.S. competitors in four different industries are identified in Table. An important part of an
external audit is identifying rival firms and determining their strengths, weaknesses, capabilities,
opportunities, threats, objectives, and strategies.
The Top Five U.S. Competitors in Four Different Industries in 1999
1999 SALES
PERCENTAGE
1999
PERCENTAGE
IN $
CHANGE FROM PROFITS IN CHANGE FROM
MILLIONS
1998
$ MILLIONS
1998
AEROSPACE
Boeing
57,993
+3
2,309
+106
Lockheed
25,530
-3
737
-26
Martin
United
24,127
+6
841
-27
Technologies
Northrop
8,995
+1
483
+149
Grumman
General
8,959
+21
880
+49
Dynamics
FOREST PRODUCTS
International
24,600
+3
199
-19
Paper
Georgia-
17,790
+35
716
+545
Pacific
Kimberly-
13,006
+6
1,668
+50
Clark
Boise
6,952
+13
200
NM
Cascade
Fort James
6,827
+0
350
-29
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Strategic Management ­ MGT603
VU
IBM
87,548
+7
7,712
+22
Hewlett-
43,808
+10
3,016
+8
Packard
Compaq
38,525
+24
569
NM
Computer
Dell
25,265
+38
1,666
+14
Computer
Xerox
19,228
-1
1,424
+143
PUBLISHING
Time Warner 27,333
+87
1,960
+1067
CBS
7,373
+8
157
NM
Gannett
5,260
+8
919
-5
McGraw-Hill 3,992
+7
426
+25
Knight-
3,228
+4
40
+11
Source: Adapted from Corporate Scoreboard, Business Week (March 27, 2000): 167-192.
NM: Not Measurable
Collecting and evaluating information on competitors is essential for successful strategy formulation.
Identifying major competitors is not always easy because many firms have divisions that compete in
different industries. Most multidivisional firms generally do not provide sales and profit information on a
divisional basis for competitive reasons. Also, privately held firms do not publish any financial or marketing
information.
Despite the problems mentioned above, information on leading competitors in particular industries can be
found in publications such as Moody's Manuals, Standard Corporation Descriptions, Value Line Investment Surveys,
Ward's Business Directory, Dun's Business Rankings, Standard & Poor's Industry Surveys, Industry Week, Forbes,
Fortune, Business Week, and Inc.
However, many businesses use the Internet to obtain most of their information on competitors. The
Internet is fast, thorough, accurate, and increasingly indispensable in this regard. Questions about
competitors such as those presented in Table are important to address in performing an external audit.
Key Questions About Competitors
1.
What are the major competitors' strengths?
2.
What are the major competitors' weaknesses?
3.
What are the major competitors' objectives and strategies?
4.
How will the major competitors most likely respond to current economic, social,
cultural, demographic, environmental, political, governmental, legal, technological,
and competitive trends affecting our industry?
5.
How vulnerable are the major competitors to our alternative company strategies?
6.
How vulnerable are our alternative strategies to successful counterattack by our
major competitors?
7.
How are our products or services positioned relative to major competitors?
8.
To what extent are new firms entering and old firms leaving this industry?
9.
What key factors have resulted in our present competitive position in this Industry?
10.
How have the sales and profit rankings of major competitors in the industry changed
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Strategic Management ­ MGT603
VU
over recent years? Why have these rankings changed that way?
11. What is the nature of supplier and distributor relationships in this industry?
12. To what extent could substitute products or services be a threat to competitors in
this industry?
Competition in virtually all industries can be described as intense and sometimes cutthroat. For example,
when United Parcel Service (UPS) employees were on strike in 1997, competitors such as Federal Express,
Greyhound, Roadway, and United Airlines lowered prices, doubled advertising efforts, and locked new
customers into annual contracts in efforts to leave UPS customer-less when the strike ended. If a firm
detects weakness in a competitor, no mercy at all is shown in capitalizing on its problems.
Seven characteristics describe the most competitive companies in America:
1) Market share matters; the 90th share point isn't as important as the 91st, and nothing is more dangerous
than falling to 89;
2) Understand and remember precisely what business you are in;
3) Whether it's broke or not, fix it--make it better; not just products, but the whole company if necessary;
4) Innovate or evaporate; particularly in technology-driven businesses, nothing quite recedes like success;
5) Acquisition is essential to growth; the most successful purchases are in niches that add a technology or
a related market;
6) People make a difference; tired of hearing it? Too bad;
7) There is no substitute for quality and no greater threat than failing to be cost-competitive on a global
basis; these are complementary concepts, not mutually exclusive ones.
8)
Competitive Intelligence Programs
Systematic and ethical process for gathering and analyzing information about the competition's activities and general business
trends to further a business' own goals.
Every organization must have an intelligence programmed. It should be ethical and systematic for gathering
and analyzing the information about competitor activities and activities involve in general business.
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Table of Contents:
  1. NATURE OF STRATEGIC MANAGEMENT:Interpretation, Strategy evaluation
  2. KEY TERMS IN STRATEGIC MANAGEMENT:Adapting to change, Mission Statements
  3. INTERNAL FACTORS & LONG TERM GOALS:Strategies, Annual Objectives
  4. BENEFITS OF STRATEGIC MANAGEMENT:Non- financial Benefits, Nature of global competition
  5. COMPREHENSIVE STRATEGIC MODEL:Mission statement, Narrow Mission:
  6. CHARACTERISTICS OF A MISSION STATEMENT:A Declaration of Attitude
  7. EXTERNAL ASSESSMENT:The Nature of an External Audit, Economic Forces
  8. KEY EXTERNAL FACTORS:Economic Forces, Trends for the 2000ís USA
  9. EXTERNAL ASSESSMENT (KEY EXTERNAL FACTORS):Political, Governmental, and Legal Forces
  10. TECHNOLOGICAL FORCES:Technology-based issues
  11. INDUSTRY ANALYSIS:Global challenge, The Competitive Profile Matrix (CPM)
  12. IFE MATRIX:The Internal Factor Evaluation (IFE) Matrix, Internal Audit
  13. FUNCTIONS OF MANAGEMENT:Planning, Organizing, Motivating, Staffing
  14. FUNCTIONS OF MANAGEMENT:Customer Analysis, Product and Service Planning, Pricing
  15. INTERNAL ASSESSMENT (FINANCE/ACCOUNTING):Basic Types of Financial Ratios
  16. ANALYTICAL TOOLS:Research and Development, The functional support role
  17. THE INTERNAL FACTOR EVALUATION (IFE) MATRIX:Explanation
  18. TYPES OF STRATEGIES:The Nature of Long-Term Objectives, Integration Strategies
  19. TYPES OF STRATEGIES:Horizontal Integration, Michael Porterís Generic Strategies
  20. TYPES OF STRATEGIES:Intensive Strategies, Market Development, Product Development
  21. TYPES OF STRATEGIES:Diversification Strategies, Conglomerate Diversification
  22. TYPES OF STRATEGIES:Guidelines for Divestiture, Guidelines for Liquidation
  23. STRATEGY-FORMULATION FRAMEWORK:A Comprehensive Strategy-Formulation Framework
  24. THREATS-OPPORTUNITIES-WEAKNESSES-STRENGTHS (TOWS) MATRIX:WT Strategies
  25. THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX
  26. THE STRATEGIC POSITION AND ACTION EVALUATION (SPACE) MATRIX
  27. BOSTON CONSULTING GROUP (BCG) MATRIX:Cash cows, Question marks
  28. BOSTON CONSULTING GROUP (BCG) MATRIX:Steps for the development of IE matrix
  29. GRAND STRATEGY MATRIX:RAPID MARKET GROWTH, SLOW MARKET GROWTH
  30. GRAND STRATEGY MATRIX:Preparation of matrix, Key External Factors
  31. THE NATURE OF STRATEGY IMPLEMENTATION:Management Perspectives, The SMART criteria
  32. RESOURCE ALLOCATION
  33. ORGANIZATIONAL STRUCTURE:Divisional Structure, The Matrix Structure
  34. RESTRUCTURING:Characteristics, Results, Reengineering
  35. PRODUCTION/OPERATIONS CONCERNS WHEN IMPLEMENTING STRATEGIES:Philosophy
  36. MARKET SEGMENTATION:Demographic Segmentation, Behavioralistic Segmentation
  37. MARKET SEGMENTATION:Product Decisions, Distribution (Place) Decisions, Product Positioning
  38. FINANCE/ACCOUNTING ISSUES:DEBIT, USES OF PRO FORMA STATEMENTS
  39. RESEARCH AND DEVELOPMENT ISSUES
  40. STRATEGY REVIEW, EVALUATION AND CONTROL:Evaluation, The threat of new entrants
  41. PORTER SUPPLY CHAIN MODEL:The activities of the Value Chain, Support activities
  42. STRATEGY EVALUATION:Consistency, The process of evaluating Strategies
  43. REVIEWING BASES OF STRATEGY:Measuring Organizational Performance
  44. MEASURING ORGANIZATIONAL PERFORMANCE
  45. CHARACTERISTICS OF AN EFFECTIVE EVALUATION SYSTEM:Contingency Planning