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MGT603 - Strategic Management - Lecture Handout 10

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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.

  • 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 strategicmanagement 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 "hightech" 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

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
    • 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
IN $
MILLIONS
PERCENTAGE
CHANGE FROM
1998
1999
PROFITS IN
$ MILLIONS
PERCENTAGE
CHANGE FROM
1998
AEROSPACE
Boeing 57,993 +3 2,309 +106
Lockheed
Martin
25,530 -3 737 -26
United
Technologies
24,127 +6 841 -27
Northrop
Grumman
8,995 +1 483 +149
General
Dynamics
8,959 +21 880 +49
FOREST PRODUCTS
International
Paper
24,600 +3 199 -19
Georgia-
Pacific
17,790 +35 716 +545
Kimberly-
Clark
13,006 +6 1,668 +50
Boise
Cascade
6,952 +13 200 NM
Fort James 6,827 +0 350 -29
IBM 87,548 +7 7,712 +22
Hewlett-
Packard
43,808 +10 3,016 +8
Compaq
Computer
38,525 +24 569 NM
Dell
Computer
25,265 +38 1,666 +14
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 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.

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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