Hitt M.A., Ireland R.D., Hoskisson R.E. Strategic Management: Competitiveness and Globalization: Concepts
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Part 1: Strategic Management Inputs
Did it read like a marketing brochure or something more infor-
mal? Did the blog allow viewer comments or post replies to
consumer questions?
Part Two
Based on the information you collected in the blog review, answer
the following questions:
Have you ever used blogs to help make decisions about •
something that you are considering purchasing? If so, how
did the blog material affect your decision? What factors would
make you more (or less) likely to rely on a blog in making your
decision?
How did the content of corporate blogs affect your perception •
of that company and its good and services? Did it make you
more or less likely to view the company favorably, or have no
effect at all?
Why do so few large companies maintain blogs? •
EXERCISE 2: CREATING A SHARED VISION
Drawing on an analysis of internal and external conditions, firms
create a mission and vision as a cornerstone of their strategy.
This exercise examines some of the challenges associated with
creating a firm’s shared direction.
Part One
The instructor will break the class into a set of small teams. Half
of the teams will be given an “A” designation, and the other half
assigned as “B.” Each individual team will need to plan a time
outside class to complete Part 2; the exercise should take about
half an hour.
Teams given the A designation will meet in a face-to-face
setting. Each team member will need paper and a pen or pen-
cil. Your meeting location should be free from distraction. The
location should have enough space so that no person can see
another’s notepad.
Teams given the B designation will meet electronically. You may
choose to meet through text messaging or IM. Be sure to confirm
everyone’s contact information and meeting time beforehand.
Part Two
Each team member prepares a drawing of a real structure. It can
be a famous building, a monument, museum, or even your dorm.
Do not tell other team members what you drew.
Randomly select one team member. The goal is for everyone
else to prepare a drawing as similar to the selected team member
as possible. That person is not allowed to show his or her drawing
to the rest of the team. The rest of the group can ask questions
about the drawing, but only ones that can be answered “yes”
or ”no.”
After 10 minutes, have everyone compare their drawings. If
you are meeting electronically, describe your drawings, and save
them for the next time your team meets face to face.
Next, select a second team member and repeat this process
again.
Part Three
In class, discuss the following questions:
How easy (or hard) was it for you to figure out the “vision” of •
your team members?
Did you learn anything in the first iteration that made the sec- •
ond drawing more successful?
What similarities might you find between this exercise and the •
challenge of sharing a vision among company employees?
How did the communication structure affect your process and •
outcomes?
VIDEO CASE
THE VALUE OF SETTING A LONG-TERM
STRATEGY
Anders Dahlvig/Group President and CEO/IKEA Services
IKEA is a brand famous for its focus on innovative solutions
to the business of selling high-quality, low-price home furnish-
ings. Anders Dahlvig, IKEA’s Group President and CEO, argues
that long-term strategic planning is a key to their success. For
the financial year ending August 2008, IKEA posted a 7 percent
increase in sales over the prior annual period, recording €21.1
billion in revenue. The firm has more than 128,000 employees
and operates in 24 countries.
Be prepared to discuss the following concepts and ques-
tions in class:
Concepts
Vision and mission •
Long-term strategy •
Stakeholders •
Global economy •
Strategic leaders •
Organizational culture •
Questions
What is this firm’s vision?1.
What is the firm’s mission or business idea?2.
Describe its competitive advantage. Why do you 3.
think competitors have found this concept difficult to
imitate?
What is in the news about this company?4.
Describe Anders Dahlvig as a strategic leader.5.
Do you believe Anders Dahlvig is constrained in his strategic 6.
decision making because of the unique organizational culture
at IKEA, or is he free to create and implement strategic deci-
sions as he sees best for the firm?
29
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NOTES
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Chapter 1: Strategic Management and Strategic Competitiveness
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Studying this chapter should provide you with the strategic
management knowledge needed to:
1. Explain the importance of analyzing and understanding the fi rm’s
external environment.
2. Defi ne and describe the general environment and the industry
environment.
3. Discuss the four activities of the external environmental analysis
process.
4. Name and describe the general environment’s seven segments.
5. Identify the fi ve competitive forces and explain how they determine
an industry’s profi t potential.
6. Defi ne strategic groups and describe their infl uence on the fi rm.
7. Describe what fi rms need to know about their competitors and
different methods (including ethical standards) used to collect
intelligence about them.
S
tu
d
yi
ng
t
h
is c
h
ap
ter s
h
ou
ld
p
rovi
d
e
y
ou wit
h
t
h
e strategi
c
m
ana
ge
ment knowled
ge
needed to
:
.
Explain the importance of anal
y
zin
g
and understandin
g
the fi rm’s
e
x
te
rn
al
e
nv
ir
o
nm
e
n
t
.
.
Defi ne and describe the
g
eneral environment and the industr
y
en
vi
ro
nm
en
t.
.
Discuss the four activities of the external environmental anal
y
sis
process
CHAPTER 2
The External Environment:
Opportunities, Threats,
Industry Competition, and
Competitor Analysis
Employing over 75,000 people, Philip Morris
International (PMI) is the leading international
tobacco company in terms of market share.
The fi rm’s product line features seven of the
world’s top 15 brands, including Marlboro,
which is the top-selling cigarette brand on a worldwide basis. (In 2008, PMI sold 310.7
billion Marlboro cigarettes. Altria Group, Inc., which spun-off PMI from its operations in
March 2008, sells the Marlboro brand in the United States.) PMI sells products in over 160
countries, holds about a 16 percent share of the total international cigarette market outside
the United States, and has the largest market share in 11 of the top 30 cigarette markets,
excluding the U.S. market. PMI continues to innovate across its brand portfolio to serve
different needs of various customers
and as a means of stimulating sales of its
products.
As is true for all fi rms, the strategic
actions (see Figure 1.1) PMI is taking today
and will take in the future are infl uenced
by conditions in its external environment.
The challenge for a fi rm’s strategic leaders
(including those at PMI) is to understand
what the external environment’s effects
are on the fi rm today and to predict (with
as high a degree of accuracy as possible)
what those effects will be on the fi rm’s
strategic actions in the future.
The regulations that are a part of the
political/legal segment of PMI’s general
environment (the general environment
and all of its segments are discussed in
this chapter) affect how PMI conducts
its business. In general, the regulations
regarding the selling of tobacco products
are less restrictive in global markets than
in the U.S. market. Nonetheless, PMI
must be aware of how the regulations might change in the markets it does serve as well
as those it may desire to serve in the future and must prepare to deal with these changes.
Aware of the possible effects of the political/legal environment on its operations in the
future, PMI has made the following public pronouncement: “We are proactively working
with governments and other stakeholders to advocate for a comprehensive, consistent and
cohesive regulatory framework that applies to all to tobacco products and is based on the
principle of harm reduction.” (Encouraging all companies competing in the tobacco industry
to develop products with the potential to reduce the risk of tobacco-related diseases is part
of the harm reduction principle.)
The global segment of the general environment also affects PMI’s strategic actions. To
pursue what it believes are opportunities to sell additional quantities of its products, PMI
recently acquired companies in Colombia, Indonesia, and Serbia to establish a stronger
foothold in emerging markets. The facts that taxes on tobacco products are lower in many
emerging markets compared to developed markets and that the consumption of tobacco
products is increasing in these markets are conditions in the external environment infl uencing
the choices PMI makes as it seeks growth. These conditions differ from those in the U.S.
market where cigarette consumption is declining by approximately 3 to 4 percent annually
and where in mid-2009, the U.S. Congress passed legislation (which President Obama then
signed into law) that empowered the Food and Drug Administration to regulate “cigarettes
and other forms of tobacco for the fi rst time.”
While cigarette consumption is increasing in some of its markets, PMI predicts that this
will not always be the case. In this respect, PMI anticipates that changes will occur in the
sociocultural segment of the general environment such that fewer people will be willing
to risk disease by consuming tobacco products. Anticipating this possibility, PMI recently
PHILIP MORRIS
INTERNATIONAL: THE
EFFECTS OF ITS EXTERNAL
ENVIRONMENT
Catherine Karnow/CORBIS
Advertising such as this Marlboro Man billboard
is more highly restricted in the United States than
in many global markets.
36
formed a joint venture with Swedish Match AB to market smokeless tobacco worldwide.
This collaborative arrangement unites the world’s largest seller of smokeless tobacco
(Swedish Match) with a marketing powerhouse that has a strong global presence across mul-
tiple markets (PMI). Because it is less dangerous than cigarettes in terms of disease, smoke-
less tobacco is seen as a product with long-term growth potential. PMI will likely remain
committed to the importance of its social performance as it pursues this joint venture. As
a measure of the effects of the physical environment segment of the external environment,
PMI says that it is strongly committed to the “promotion of sustainable tobacco farming, the
effi cient use of natural resources, the reduction of waste in (its) manufacturing processes,
eliminating child labor and giving back to the communities in which (it) operates.”
Sources: 2009, Altria Group Inc., Standard & Poor’s Stock Report, http://standardandpoors.com, April 25; 2009,
Philip Morris International home page, http://www.philipinternational.com, May 15; N. Byrnes & F. Balfour, Philip
Morris’ global race, BusinessWeek Online, http://www.businessweek.com, April 23; K. Helliker, 2009, Smoke-
less tobacco to get push by venture overseas, Wall Street Journal Online, http://www.wsj.com, February 4; A.
Pressman, 2009, Philip Morris unbound, BusinessWeek, May 4, 66; D. Wilson, 2009, Senate votes to allow FDA
to regulate tobacco, Wall Street Journal Online, http://www.wsj.com, June 12.
As described in the Opening Case and suggested by research, the external environment
affects a firm’s strategic actions.
1
For example, Philip Morris International (PMI) seeks to
grow through a joint venture with Swedish Match AB to distribute smokeless tobacco in
multiple global markets.
2
Because it is less dangerous than cigarettes in terms of contributing
to disease, smokeless tobacco is thought to have growth potential in many markets.
3
In addi-
tion to this health-related influence that is a part of the sociocultural segment of PMI’s exter-
nal environment, the firm’s strategic actions are affected by conditions in other segments of
its general environment, such as the political/legal and the physical environment segments.
As we explain in this chapter, a firm’s external environment creates both opportunities (e.g.,
the opportunity for PMI to enter the smokeless tobacco market) and threats (e.g., the pos-
sibility that additional regulations in its markets will reduce consumption of PMI’s tobacco
products). Collectively, opportunities and threats affect a firm’s strategic actions.
4
Regardless of the industry in which they compete, the external environment influences
firms as they seek strategic competitiveness and the earning of above-average returns. This
chapter focuses on how firms analyze their external environment. The understanding about
conditions in its external environment that the firm gains by analyzing that environment
is matched with knowledge about its internal organization (discussed in the next chapter)
as the foundation for forming the firm’s vision, developing its mission, and identifying and
implementing strategic actions (see Figure 1.1).
As noted in Chapter 1, the environmental conditions in the current global economy
differ from historical conditions. For example, technological changes and the continuing
growth of information gathering and processing capabilities increase the need for firms
to develop effective competitive actions on a timely basis.
5
(In slightly different words,
firms have little time to correct errors when implementing their competitive actions.)
The rapid sociological changes occurring in many countries affect labor practices and
the nature of products demanded by increasingly diverse consumers. Governmental
policies and laws also affect where and how firms choose to compete.
6
In addition,
changes to nations’ financial regulatory systems that were enacted in 2009 and beyond
are expected to increase the complexity of organizations’ financial transactions.
7
Viewed in their totality, the conditions that affect firms today indicate that for most
organizations, their external environment is filled with uncertainty.
8
To successfully deal
with this uncertainty and to achieve strategic competitiveness and thrive, firms must be
aware of and fully understand the different segments of the external environment.
Firms understand the external environment by acquiring information about
competitors, customers, and other stakeholders to build their own base of knowledge
and capabilities.
9
On the basis of the new information, firms take actions, such as
building new capabilities and core competencies, in hopes of buffering themselves
36
Part 1: Strategic Management Inputs
37
Chapter 2: The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis
from any negative environmental effects and to
pursue opportunities as the basis for better serv-
ing their stakeholders’ needs.
10
A firm’s strategic
actions are influenced by the conditions in the
three parts (the general, industry, and competi-
tor) of its external environment (see Figure 2.1).
The General, Industry, and
Competitor Environments
The general environment is composed of
dimensions in the broader society that influence
an industry and the firms within it.
11
We group
these dimensions into seven environmental
segments: demographic, economic, political/legal,
sociocultural, technological, global, and physical. Examples of elements analyzed in each
of these segments are shown in Table 2.1.
Firms cannot directly control the general environment’s segments. The recent
bankruptcy filings by General Motors and Chrysler Corporation highlight this fact.
These firms could not directly control various parts of their external environment,
including the economic and political/legal segments; however, these segments are
influencing the actions the firms are taking now including the forming of Chrysler’s
alliance with Fiat.
12
Because firms cannot directly control the segments of their
external environment, successful ones learn how to gather the information needed
to understand all segments and their implications for selecting and implementing the
firm’s strategies.
The general
environment is
composed of
dimensions in the
broader society that
infl uence an industry
and the fi rms within it.
Figure 2.1 The External Environment
General
Environment
Economic
Technological
Sociocultural
Physical
Political/Legal
Demographic
Industry
Environment
Threat of New Entrants
Power of Suppliers
Power of Buyers
Product Substitutes
Intensity of Rivalry
Competitor
Environment
Global
AP Photo/Seth Wenig
A woman bearing Chrysler
paperwork waits to
enter U.S. Bankruptcy
Court for the Chrysler
bankruptcy case in New
York, Monday, May 4,
2009. Aspects of the
external environment both
contributed to Chrysler’s
bankruptcy filing as well
as influenced the terms
under which it quickly
re-emerged.