Strategic management Understanding the Tool
Every strategy is based on certain planning premises or
it involves the formulation and implementation of the predictions. Premise control is designed to check Five Forces Analysis assumes that there are five
major goals and initiatives taken by a company's top methodically and constantly whether the premises on important forces that determine competitive power in a
management on behalf of owners, based on which a strategy is grounded on are still valid. If you business situation. These are:
consideration of resources and an assessment of the discover that an important premise is no longer valid,
internal and external environments in which the the strategy may have to be changed. The sooner you 1.Supplier Power: Here you assess how easy it is for
organization compete recognize and reject an invalid premise, the better. suppliers to drive up prices. This is driven by the
This is because the strategy can be adjusted to reflect number of suppliers of each key input, the uniqueness
Strategic Management Process the reality. of their product or service, their strength and control
over you, the cost of switching from one to another,
1.goal-Setting and so on. The fewer the supplier choices you have,
2.Special Alert Control and the more you need suppliers' help, the more
The purpose of goal-setting is to clarify the vision for A special alert control is the rigorous and rapid
your business. This stage consists of identifying three powerful your suppliers are.
reassessment of an organization's strategy because of
key facets: First, define both short- and long-term the occurrence of an immediate, unforeseen event. An
objectives. Second, identify the process of how to 2.Buyer Power: Here you ask yourself how easy it is
example of such event is the acquisition of your for buyers to drive prices down. Again, this is driven by
accomplish your objective. Finally, customize the competitor by an outsider. Such an event will trigger
process for your staff, give each person a task with the number of buyers, the importance of each
an immediate and intense reassessment of the firm's individual buyer to your business, the cost to them of
which he can succeed. strategy. Form crisis teams to handle your company's switching from your products and services to those of
initial response to the unforeseen events. someone else, and so on. If you deal with few, powerful
2.Analysis buyers, then they are often able to dictate terms to you.
Analysis is a key stage because the information gained 3.Implementation Control
in this stage will shape the next two stages. In this Implementing a strategy takes place as a series of 3.Competitive Rivalry: What is important here is the
stage, gather as much information and data relevant to steps, activities, investments and acts that occur over a number and capability of your competitors. If you have
accomplishing your vision. The focus of the analysis lengthy period. As a manager, you'll mobilize many competitors, and they offer equally attractive
should be on understanding the needs of the business resources, carry out special projects and employ or products and services, then you'll most likely have little
as a sustainable entity, its strategic direction and reassign staff. Implementation control is the type of power in the situation, because suppliers and buyers
identifying initiatives that will help your business strategic control that must be carried out as events will go elsewhere if they don't get a good deal from
grow.. unfold. There are two types of implementation you. On the other hand, if no-one else can do what you
controls: strategic thrusts or projects, and milestone do, then you can often have tremendous strength.
3.Strategy Formulation reviews. Strategic thrusts provide you with
The first step in forming a strategy is to review the information that helps you determine whether the 4.Threat of Substitution: This is affected by the
information gleaned from completing the analysis. overall strategy is shaping up as planned. With ability of your customers to find a different way of
Determine what resources the business currently has milestone reviews, you monitor the progress of the doing what you do – for example, if you supply a
that can help reach the defined goals and objectives. strategy at various intervals or milestones. unique software product that automates an important
Identify any areas of which the business must seek process, people may substitute by doing the process
external resources. 4.Strategic Surveillance manually or by outsourcing it. If substitution is easy
Strategic surveillance is designed to observe a wide and substitution is viable, then this weakens your
4.Strategy Implementation range of events within and outside your organization power.
Successful strategy implementation is critical to the that are likely to affect the track of your organization's
success of the business venture. This is the action stage strategy. It's based on the idea that you can uncover 5.Threat of New Entry: Power is also affected by the
of the strategic management process. If the overall important yet unanticipated information by monitoring ability of people to enter your market. If it costs little in
strategy does not work with the business' current multiple information sources. Such sources include time or money to enter your market and compete
structure, a new structure should be installed at the trade magazines, journals such as The Wall Street effectively, if there are few economies of scale in place,
beginning of this stage. Journal, trade conferences, conversations and or if you have little protection for your key
observations. technologies, then new competitors can quickly enter
5.Evaluation and Control your market and weaken your position. If you have
Strategy evaluation and control actions include Porter’s Five Forces model strong and durable barriers to entry, then you can
performance measurements, consistent review of preserve a favorable position and take fair advantage of
internal and external issues and making corrective it.
The Porter's Five Forces tool is a simple but powerful
actions when necessary. Any successful evaluation of tool for understanding where power lies in a business
the strategy begins with defining the parameters to be Features strategic management
situation. This is useful, because it helps you
measured. These parameters should mirror the goals understand both the strength of your current
set in Stage 1. Determine your progress by measuring In strategic management long-term and integrated
competitive position, and the strength of a position
the actual results versus the plan. Monitoring internal planning producing and implementation have to be
you're considering moving into.
and external issues will also enable you to react to any done. The characteristics and features of the long term
substantial change in your business environment. With a clear understanding of where power lies, you strategic are as followed:-
1, Flexibility: It is one of the important features in
strategic management. In the case of determining long
Difference between BCG and GE matrix
term strategies, several intricate problems and hazards
can be visible, on that case, the management can take
hurried decision adapting to changed environment.
2,Integration: To take planning under the strategic
BCG Matrix GE Matrix management, it is essential to integrate goals objects
alongside the internal and external sides of the
1. BCG matrix consists of four cells 1. GE matrix consists of nine cells
institution.
2. The business unit is rated against relative 2. The business unit is rated against business strength and
market share and industry growth rate industry attractiveness 3.Speed: To bring the dynamism under the strategic
3. The matrix uses single measure to assess 3. The matrix used multiple measures to assess business management, it is inevitable to access the important
growth and market share strength and industry attractiveness affairs so that it may be possible to speed up the pace
4. The matrix uses two types of classification i.e 4. The matrix uses three types of classification i.e of action at present and future.
high and low high/medium/low and strong/average/weak 4.Innovation: Innovation or creativity is an important
5. Overcomes many limitations of BCG and is an feature in the case of strategic management. We know,
5. Has many limitations improvement over it environment is ever changing, that is way demand,
taste, and behavioural patterns of employers and
Strategic Control can take fair advantage of a situation of strength, employees are to be changed. Strategic management
improve a situation of weakness, and avoid taking controls and takes things forward by producing new
Strategic controls are a very significant component of wrong steps. This makes it an important part of your strategic planning and framing newer strategies.
the implementation process, as it involves tracking, planning toolkit. 5.Long-term plan: Long-term planning is very
monitoring and evaluating the effectiveness of essential to bring good result. There is no way to adopt
Conventionally, the tool is used to identify whether
the strategies that have been implemented, as well as long-term planning if anybody intends to compete in
new products, services or businesses have the potential
making any necessary adjustments and improvements the field of industry.
to be profitable. However it can be very illuminating
when necessary. 6.Guide-line of plan: Guide-line of planning pin-
when used to understand the balance of power in other
situations. points to implement any planning under the strategic
Types of Strategic Control management.
1.Premise Control
, 7.Determination of alternatives: It is a very urgent pulls the organization back to its old strategy. helping businesses become more profitable to helping
affair to implement goals of any institution. Under the Strategy follows structure. What the organization does governments stabilize industries.[2] Other Porter
strategic management, determination of alternatives defines the strategy. Changing strategy means strategic frameworks include the value chain and
can face obstacles standing on the way easily. changing what everyone in the organization does. the generic strategies
8.Consideration of environment: This tool which can When an organization changes its structure and not its
move anybody to achieve goals ignoring all strategy, the strategy will change to fit the new
unfavorable environments consideration of structure. Strategy follows structure. Suddenly
environment directs to take decision cautiously.\ management realizes the organization’s strategy has
shifted in an undesirable way. It appears to have done
it on its own. In reality, an organization’s structure is a
Relationship between strategy and structure powerful force. You can’t direct it to do something for
any length of time unless the structure is capable of
An organization’s strategy is its plan for the whole supporting that strategy.
business that sets out how the organization will use its
major resources. In other words, an organization’s Strategy
strategy is a plan of action aimed at reaching specific
goals and staying in good stead with clients and It generally involves setting goals, determining actions
vendors. to achieve the goals, and mobilizing resources to
On the other hands, an organization’s structure is the execute the actions. A strategy describes how the ends
way the pieces of the organization fit together (goals) will be achieved by the means (resources). The
internally. For the organization to deliver its plans, the senior leadership of an organization is generally tasked
strategy and the structure must be woven together with determining strategy. Strategy can be intended or
seamlessly. In other words, organizational structure is can emerge as a pattern of activity as the organization
a term used to highlight the way a company thinks adapts to its environment or competes. It involves
about hierarchy, assigns tasks to personnel and ensures activities such as strategic planning and strategic
its workforce works collaboratively to achieve a thinking. A CORE COMPETENCY
common goal. The goal is to avoid task overlap and
as "a harmonized It is a concept in management theory
workforce confusion, especially when it comes to Strategic planning introduced by, C. K. Prahalad and Gary Hamel.[1] It
laying a strong foundation for long-term productivity.
It is an organization's process of defining its strategy, can be defined combination of multiple resources and
Task overlap, a situation in which two or more
or direction, and making decisions on allocating its skills that distinguish a firm in the marketplace". [2]
employees perform the same task in different
departments, costs a company money. This creates resources to pursue this strategy. It may also extend to Core competencies fulfill three criteria:[1]
confusion, inefficiencies and lack of accountability -- control mechanisms for guiding the implementation of
because no employee ultimately has a clear the strategy. Strategic planning became prominent in 1,Provides potential access to a wide variety of
responsibility over who does what, where and when. corporations during the 1960s and remains an markets.
It is important to highlight that for too long, structure important aspect of strategic management. It is 2.Should make a significant contribution to the
has been viewed as something separate from strategy. executed by strategic planners or strategists, who perceived customer benefits of the end product.
Revising structures are often seen as ways to improve involve many parties and research sources in their 3.Difficult to imitate by competitors.
efficiency, promote teamwork, create synergy, analysis of the organization and its relationship to the Canon's core competencies from the original paper are
eliminate or create new department or reduce cost, environment in which it competes. precision mechanics, fine optics, and micro-
including personnel. Yes, restructuring can do all that electronics.[1] All products in Canon's product portfolio
Porter five forces analysis
and more. What has been less obvious is that structure are based on at least one of these core competencies
and strategy are dependent on each other. You can it is a framework to analyse level of competition
create the most efficient, team oriented, synergistic within an industry and business strategydevelopment. Definition of 'Core Competencies'
structure possible and still end up in the same place It draws upon industrial organization (IO)
you are or worse if a good strategy is not adopted. economics to derive five forces that determine the The main strengths or strategic advantages of a
Organizational structure and strategy are related competitive intensity and therefore attractiveness of business. Core competencies are the combination of
because organizational strategy helps a company a market. Attractiveness in this context refers to the pooled knowledge and technical capacities that allow a
define and build its organizational structure. A overall industry profitability. An "unattractive" business to be competitive in the marketplace.
company's organizational structure is based on the industry is one in which the combination of these five Theoretically, a core competency should allow a
result of the analysis of organizational strategy. The forces acts to drive down overall profitability. A very company to expand into new end markets as well as
company will use these results to determine its areas of unattractive industry would be one approaching "pure provide a significant benefit to customers. It should
concentration and how to position itself in order to competition", in which available profits for all firms also be hard for competitors to replicate.
succeed. are driven to normal profit. This analysis is associated
One of the first steps a company takes in its initial with its principal innovator Michael E. Porter of Distinctive competence of a firm refers to a set of
stages is assessing its operational environment in order Harvard University (as of 2014). activities or capabilities that a company is able to
to determine the conditions in which it must operate. perform better than its competitors and which gives it
This involves checking out the competition, consumer Porter referred to these forces as the micro an advantage over them. Distinctive competence can
trends, culture and other factors. The company will environment, to contrast it with the more general lie in different area such as technology, marketing
find out the strengths and weaknesses of its term macro environment. They consist of those forces activities, or management capability.
competition, the buying habits of the consumers, and close to a company that affect its ability to serve its
its economic capabilities. customers and make a profit. A change in any of the
forces normally requires a business unit to re-assess A company needs to develop its strategy that utilizes
The relationship between organizational structure and
the marketplace given the overall change in industry its distinctive competence to gain competitive
strategy becomes clearer when the company’s strategy
information. The overall industry attractiveness does advantage. It must be remembered that what
is in place. With a clear focus of what it wants to
not imply that every firm in the industry will return the distinctive competence of a firm may change with time
achieve, the organization will proceed to align its
same profitability. Firms are able to apply their core as other companies develop new capabilities and with
structure in such a manner to best achieve this. It will
competencies, business model or network to achieve a change in market requirements. Therefore companies
allocate responsibilities for optimal results, create
profit above the industry average. A clear example of need to identify their distinctive competence by careful
branches, and decide whether individual efforts or
this is the airline industry. As an industry, profitability analysis, and if required, strive to develop new
group participation is the best method for it to achieve
is low and yet individual companies, by applying competences to meet changing market requirements
its goals. The organizational structure and strategy will
unique business models, have been able to make a and competitive situation
also help the company decide if the tone of the
company should be strictly formal, semi-formal or return in excess of the industry average.
informal. All of these decisions can be made after Competency refers to the ability of a firm to carry out
Porter's five forces include - three forces from an activity well. It is built and developed by firms
determining the organizational strategy of the
'horizontal' competition: the threat of substitute consciously through experience and learning. A
company.
products or services, the threat of established rivals, competency reside in people in the firm and not in
Structure is not simply an organization chart. Structure
and the threat of new entrants; and two forces from physical assets.
is all the people, positions, procedures, processes,
'vertical' competition: the bargaining power of
culture, technology and related elements that comprise
suppliers and the bargaining power of customers. A Core competency is an activity central to a firm's
the organization. It defines how all the pieces, parts
and processes work together. This structure must be Porter developed his Five Forces analysis in reaction profitability and competitiveness that is performed
totally integrated with strategy for the organization to to the then-popular SWOT analysis, which he found well by the firm. Core competencies create and sustain
achieve its mission and goals. Structure supports unrigorous and ad hoc.[1] Porter's five forces is based firm's ability to meet the critical success factors of
strategy. If an organization changes its strategy, it must on the Structure-Conduct-Performance particular customer groups.
change its structure to support the new strategy. When paradigm in industrial organizational economics. It has
it doesn’t, the structure acts like a bungee cord and been applied to a diverse range of problems, from
Every strategy is based on certain planning premises or
it involves the formulation and implementation of the predictions. Premise control is designed to check Five Forces Analysis assumes that there are five
major goals and initiatives taken by a company's top methodically and constantly whether the premises on important forces that determine competitive power in a
management on behalf of owners, based on which a strategy is grounded on are still valid. If you business situation. These are:
consideration of resources and an assessment of the discover that an important premise is no longer valid,
internal and external environments in which the the strategy may have to be changed. The sooner you 1.Supplier Power: Here you assess how easy it is for
organization compete recognize and reject an invalid premise, the better. suppliers to drive up prices. This is driven by the
This is because the strategy can be adjusted to reflect number of suppliers of each key input, the uniqueness
Strategic Management Process the reality. of their product or service, their strength and control
over you, the cost of switching from one to another,
1.goal-Setting and so on. The fewer the supplier choices you have,
2.Special Alert Control and the more you need suppliers' help, the more
The purpose of goal-setting is to clarify the vision for A special alert control is the rigorous and rapid
your business. This stage consists of identifying three powerful your suppliers are.
reassessment of an organization's strategy because of
key facets: First, define both short- and long-term the occurrence of an immediate, unforeseen event. An
objectives. Second, identify the process of how to 2.Buyer Power: Here you ask yourself how easy it is
example of such event is the acquisition of your for buyers to drive prices down. Again, this is driven by
accomplish your objective. Finally, customize the competitor by an outsider. Such an event will trigger
process for your staff, give each person a task with the number of buyers, the importance of each
an immediate and intense reassessment of the firm's individual buyer to your business, the cost to them of
which he can succeed. strategy. Form crisis teams to handle your company's switching from your products and services to those of
initial response to the unforeseen events. someone else, and so on. If you deal with few, powerful
2.Analysis buyers, then they are often able to dictate terms to you.
Analysis is a key stage because the information gained 3.Implementation Control
in this stage will shape the next two stages. In this Implementing a strategy takes place as a series of 3.Competitive Rivalry: What is important here is the
stage, gather as much information and data relevant to steps, activities, investments and acts that occur over a number and capability of your competitors. If you have
accomplishing your vision. The focus of the analysis lengthy period. As a manager, you'll mobilize many competitors, and they offer equally attractive
should be on understanding the needs of the business resources, carry out special projects and employ or products and services, then you'll most likely have little
as a sustainable entity, its strategic direction and reassign staff. Implementation control is the type of power in the situation, because suppliers and buyers
identifying initiatives that will help your business strategic control that must be carried out as events will go elsewhere if they don't get a good deal from
grow.. unfold. There are two types of implementation you. On the other hand, if no-one else can do what you
controls: strategic thrusts or projects, and milestone do, then you can often have tremendous strength.
3.Strategy Formulation reviews. Strategic thrusts provide you with
The first step in forming a strategy is to review the information that helps you determine whether the 4.Threat of Substitution: This is affected by the
information gleaned from completing the analysis. overall strategy is shaping up as planned. With ability of your customers to find a different way of
Determine what resources the business currently has milestone reviews, you monitor the progress of the doing what you do – for example, if you supply a
that can help reach the defined goals and objectives. strategy at various intervals or milestones. unique software product that automates an important
Identify any areas of which the business must seek process, people may substitute by doing the process
external resources. 4.Strategic Surveillance manually or by outsourcing it. If substitution is easy
Strategic surveillance is designed to observe a wide and substitution is viable, then this weakens your
4.Strategy Implementation range of events within and outside your organization power.
Successful strategy implementation is critical to the that are likely to affect the track of your organization's
success of the business venture. This is the action stage strategy. It's based on the idea that you can uncover 5.Threat of New Entry: Power is also affected by the
of the strategic management process. If the overall important yet unanticipated information by monitoring ability of people to enter your market. If it costs little in
strategy does not work with the business' current multiple information sources. Such sources include time or money to enter your market and compete
structure, a new structure should be installed at the trade magazines, journals such as The Wall Street effectively, if there are few economies of scale in place,
beginning of this stage. Journal, trade conferences, conversations and or if you have little protection for your key
observations. technologies, then new competitors can quickly enter
5.Evaluation and Control your market and weaken your position. If you have
Strategy evaluation and control actions include Porter’s Five Forces model strong and durable barriers to entry, then you can
performance measurements, consistent review of preserve a favorable position and take fair advantage of
internal and external issues and making corrective it.
The Porter's Five Forces tool is a simple but powerful
actions when necessary. Any successful evaluation of tool for understanding where power lies in a business
the strategy begins with defining the parameters to be Features strategic management
situation. This is useful, because it helps you
measured. These parameters should mirror the goals understand both the strength of your current
set in Stage 1. Determine your progress by measuring In strategic management long-term and integrated
competitive position, and the strength of a position
the actual results versus the plan. Monitoring internal planning producing and implementation have to be
you're considering moving into.
and external issues will also enable you to react to any done. The characteristics and features of the long term
substantial change in your business environment. With a clear understanding of where power lies, you strategic are as followed:-
1, Flexibility: It is one of the important features in
strategic management. In the case of determining long
Difference between BCG and GE matrix
term strategies, several intricate problems and hazards
can be visible, on that case, the management can take
hurried decision adapting to changed environment.
2,Integration: To take planning under the strategic
BCG Matrix GE Matrix management, it is essential to integrate goals objects
alongside the internal and external sides of the
1. BCG matrix consists of four cells 1. GE matrix consists of nine cells
institution.
2. The business unit is rated against relative 2. The business unit is rated against business strength and
market share and industry growth rate industry attractiveness 3.Speed: To bring the dynamism under the strategic
3. The matrix uses single measure to assess 3. The matrix used multiple measures to assess business management, it is inevitable to access the important
growth and market share strength and industry attractiveness affairs so that it may be possible to speed up the pace
4. The matrix uses two types of classification i.e 4. The matrix uses three types of classification i.e of action at present and future.
high and low high/medium/low and strong/average/weak 4.Innovation: Innovation or creativity is an important
5. Overcomes many limitations of BCG and is an feature in the case of strategic management. We know,
5. Has many limitations improvement over it environment is ever changing, that is way demand,
taste, and behavioural patterns of employers and
Strategic Control can take fair advantage of a situation of strength, employees are to be changed. Strategic management
improve a situation of weakness, and avoid taking controls and takes things forward by producing new
Strategic controls are a very significant component of wrong steps. This makes it an important part of your strategic planning and framing newer strategies.
the implementation process, as it involves tracking, planning toolkit. 5.Long-term plan: Long-term planning is very
monitoring and evaluating the effectiveness of essential to bring good result. There is no way to adopt
Conventionally, the tool is used to identify whether
the strategies that have been implemented, as well as long-term planning if anybody intends to compete in
new products, services or businesses have the potential
making any necessary adjustments and improvements the field of industry.
to be profitable. However it can be very illuminating
when necessary. 6.Guide-line of plan: Guide-line of planning pin-
when used to understand the balance of power in other
situations. points to implement any planning under the strategic
Types of Strategic Control management.
1.Premise Control
, 7.Determination of alternatives: It is a very urgent pulls the organization back to its old strategy. helping businesses become more profitable to helping
affair to implement goals of any institution. Under the Strategy follows structure. What the organization does governments stabilize industries.[2] Other Porter
strategic management, determination of alternatives defines the strategy. Changing strategy means strategic frameworks include the value chain and
can face obstacles standing on the way easily. changing what everyone in the organization does. the generic strategies
8.Consideration of environment: This tool which can When an organization changes its structure and not its
move anybody to achieve goals ignoring all strategy, the strategy will change to fit the new
unfavorable environments consideration of structure. Strategy follows structure. Suddenly
environment directs to take decision cautiously.\ management realizes the organization’s strategy has
shifted in an undesirable way. It appears to have done
it on its own. In reality, an organization’s structure is a
Relationship between strategy and structure powerful force. You can’t direct it to do something for
any length of time unless the structure is capable of
An organization’s strategy is its plan for the whole supporting that strategy.
business that sets out how the organization will use its
major resources. In other words, an organization’s Strategy
strategy is a plan of action aimed at reaching specific
goals and staying in good stead with clients and It generally involves setting goals, determining actions
vendors. to achieve the goals, and mobilizing resources to
On the other hands, an organization’s structure is the execute the actions. A strategy describes how the ends
way the pieces of the organization fit together (goals) will be achieved by the means (resources). The
internally. For the organization to deliver its plans, the senior leadership of an organization is generally tasked
strategy and the structure must be woven together with determining strategy. Strategy can be intended or
seamlessly. In other words, organizational structure is can emerge as a pattern of activity as the organization
a term used to highlight the way a company thinks adapts to its environment or competes. It involves
about hierarchy, assigns tasks to personnel and ensures activities such as strategic planning and strategic
its workforce works collaboratively to achieve a thinking. A CORE COMPETENCY
common goal. The goal is to avoid task overlap and
as "a harmonized It is a concept in management theory
workforce confusion, especially when it comes to Strategic planning introduced by, C. K. Prahalad and Gary Hamel.[1] It
laying a strong foundation for long-term productivity.
It is an organization's process of defining its strategy, can be defined combination of multiple resources and
Task overlap, a situation in which two or more
or direction, and making decisions on allocating its skills that distinguish a firm in the marketplace". [2]
employees perform the same task in different
departments, costs a company money. This creates resources to pursue this strategy. It may also extend to Core competencies fulfill three criteria:[1]
confusion, inefficiencies and lack of accountability -- control mechanisms for guiding the implementation of
because no employee ultimately has a clear the strategy. Strategic planning became prominent in 1,Provides potential access to a wide variety of
responsibility over who does what, where and when. corporations during the 1960s and remains an markets.
It is important to highlight that for too long, structure important aspect of strategic management. It is 2.Should make a significant contribution to the
has been viewed as something separate from strategy. executed by strategic planners or strategists, who perceived customer benefits of the end product.
Revising structures are often seen as ways to improve involve many parties and research sources in their 3.Difficult to imitate by competitors.
efficiency, promote teamwork, create synergy, analysis of the organization and its relationship to the Canon's core competencies from the original paper are
eliminate or create new department or reduce cost, environment in which it competes. precision mechanics, fine optics, and micro-
including personnel. Yes, restructuring can do all that electronics.[1] All products in Canon's product portfolio
Porter five forces analysis
and more. What has been less obvious is that structure are based on at least one of these core competencies
and strategy are dependent on each other. You can it is a framework to analyse level of competition
create the most efficient, team oriented, synergistic within an industry and business strategydevelopment. Definition of 'Core Competencies'
structure possible and still end up in the same place It draws upon industrial organization (IO)
you are or worse if a good strategy is not adopted. economics to derive five forces that determine the The main strengths or strategic advantages of a
Organizational structure and strategy are related competitive intensity and therefore attractiveness of business. Core competencies are the combination of
because organizational strategy helps a company a market. Attractiveness in this context refers to the pooled knowledge and technical capacities that allow a
define and build its organizational structure. A overall industry profitability. An "unattractive" business to be competitive in the marketplace.
company's organizational structure is based on the industry is one in which the combination of these five Theoretically, a core competency should allow a
result of the analysis of organizational strategy. The forces acts to drive down overall profitability. A very company to expand into new end markets as well as
company will use these results to determine its areas of unattractive industry would be one approaching "pure provide a significant benefit to customers. It should
concentration and how to position itself in order to competition", in which available profits for all firms also be hard for competitors to replicate.
succeed. are driven to normal profit. This analysis is associated
One of the first steps a company takes in its initial with its principal innovator Michael E. Porter of Distinctive competence of a firm refers to a set of
stages is assessing its operational environment in order Harvard University (as of 2014). activities or capabilities that a company is able to
to determine the conditions in which it must operate. perform better than its competitors and which gives it
This involves checking out the competition, consumer Porter referred to these forces as the micro an advantage over them. Distinctive competence can
trends, culture and other factors. The company will environment, to contrast it with the more general lie in different area such as technology, marketing
find out the strengths and weaknesses of its term macro environment. They consist of those forces activities, or management capability.
competition, the buying habits of the consumers, and close to a company that affect its ability to serve its
its economic capabilities. customers and make a profit. A change in any of the
forces normally requires a business unit to re-assess A company needs to develop its strategy that utilizes
The relationship between organizational structure and
the marketplace given the overall change in industry its distinctive competence to gain competitive
strategy becomes clearer when the company’s strategy
information. The overall industry attractiveness does advantage. It must be remembered that what
is in place. With a clear focus of what it wants to
not imply that every firm in the industry will return the distinctive competence of a firm may change with time
achieve, the organization will proceed to align its
same profitability. Firms are able to apply their core as other companies develop new capabilities and with
structure in such a manner to best achieve this. It will
competencies, business model or network to achieve a change in market requirements. Therefore companies
allocate responsibilities for optimal results, create
profit above the industry average. A clear example of need to identify their distinctive competence by careful
branches, and decide whether individual efforts or
this is the airline industry. As an industry, profitability analysis, and if required, strive to develop new
group participation is the best method for it to achieve
is low and yet individual companies, by applying competences to meet changing market requirements
its goals. The organizational structure and strategy will
unique business models, have been able to make a and competitive situation
also help the company decide if the tone of the
company should be strictly formal, semi-formal or return in excess of the industry average.
informal. All of these decisions can be made after Competency refers to the ability of a firm to carry out
Porter's five forces include - three forces from an activity well. It is built and developed by firms
determining the organizational strategy of the
'horizontal' competition: the threat of substitute consciously through experience and learning. A
company.
products or services, the threat of established rivals, competency reside in people in the firm and not in
Structure is not simply an organization chart. Structure
and the threat of new entrants; and two forces from physical assets.
is all the people, positions, procedures, processes,
'vertical' competition: the bargaining power of
culture, technology and related elements that comprise
suppliers and the bargaining power of customers. A Core competency is an activity central to a firm's
the organization. It defines how all the pieces, parts
and processes work together. This structure must be Porter developed his Five Forces analysis in reaction profitability and competitiveness that is performed
totally integrated with strategy for the organization to to the then-popular SWOT analysis, which he found well by the firm. Core competencies create and sustain
achieve its mission and goals. Structure supports unrigorous and ad hoc.[1] Porter's five forces is based firm's ability to meet the critical success factors of
strategy. If an organization changes its strategy, it must on the Structure-Conduct-Performance particular customer groups.
change its structure to support the new strategy. When paradigm in industrial organizational economics. It has
it doesn’t, the structure acts like a bungee cord and been applied to a diverse range of problems, from
