Womack Report

September 24, 2008

Strategic Management, September 24 2008

Filed under: Notes,School — Tags: — Phillip Womack @ 4:02 pm

Getting started.  Calender for the class has changed.  Check the syllabus.  Job fair is today.  I can’t really make it, due to being in class.  Wish I had time to go walk around.  Maybe this clas will end early and I’ll be able to run downstairs for a few minutes.

Some discussion of the recent financial issues.  Lehman Brothers had a 30:1 debt to equity ratio.  Commercial banks run about 11:1.

Banks in general make their money on the difference between interest they pay on money borrowed from depositers and the interest they are paid by borrowers.  Because of this, large, sustained interest rate changes kill them, by squashing that difference so small that the banks can’t meet expenses and turn a profit.

Environmental Scanning, or external analysis, is essentially paying attention to what’s happening outside the boundaries of a company.  This includes competition, operating environment, world events, and anything else external to the company which can affect its operations.

External analysis consists of knowing your current circumstances and predicting likely changes in the future.  Knowing current circumstances is the easy part.  Current crcumstances are essentially fixed.  Future prediction is difficult; expect to be wrong more than you’re right.  Don’t bet the farm on your future predictions unless you have extraordinary support for those predictions or extraordinary need.

Analyzing Strategic Groups:

  • Involves looking at competitors.
  • What is our industry?
  • Who do we compete with?
  • How do firms in our industry compete?
  • Understand the key success factors, the industry life cycle, and the relevant value curves.

This week, we’ll be performing a strategic group analysis and a Five Forces analysis.  The five forces analysis is handled well in the book; look at page 126.

For strategic group analysis the procedure is as follows:

  1. Identify two relevant succes factors
  2. Identify logical competitors given industry segmentation
  3. Rank the competitors based on each success factor.
  4. Identify strategic clusters
  5. Evaluate profit potential for each cluster
  6. Apply information to fture strategic positioning

Porter’s Five Forces:is a way of studying industries and figuring out if the industry is likely to be profitable.  If it is likely to be profitable, stay in it; if it isn’t, get out.  The five forces boil down to “who makes the rules” and “what changes who makes the rules”.  The five forces are:

  1. Power of Suppliers
  2. Direct competitors
  3. Power of buyers
  4. How hard is it for new companies to enter the industry?
  5. Are there substitutes or complements to what the industry does?

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