INDIAN INSTITUTE OF TECHNOLOGY ROORKEE

Models for Strategic Decisions

External Environment Analysis
Demographic
Economic
Political/Legal
General
Socio Cultural
Technological
Global
Threat of new entrants
Power of suppliers
Industry Power of buyers
Threat of substitutes
Intensity of rivalry

Future Objectives
Current Strategies
Competitor
Assumptions
Capabilities

2
Internal Environment Analysis

Tangible
Resources
Intangible

HR
MIS
Manufacturing Capabilities
Marketing
R&D

Valuable
Core Rare
Competency Costly to imitate
Non substitutable

3
Terms

Strategy an integrated & coordinated set of commitments

& actions designed to exploit core competencies and gain
competitive advantage.

Competitive Advantage a strategy which competitors are

unable to duplicate or find too costly to try to imitate.

Above average returns are returns in excess of what an

investor expects to earn from other investments with similar
amount of risk.

4
How to choose a strategy

Firms need information on where they stand and which path to

tread on.

Widely used are the I/O Model of Above average returns &
Resource based model of Above average returns.

Firms use these two models to generate the information they

need to form their vision and mission and then to select and
decide how to implement one or more strategies.

5
I/O Model of AAR

Assumptions

External environment is assumed to impose pressure and constraints

Firms within an industry are assumed to control strategically relevant
resources and pursue similar strategies
Resources are highly mobile
Decision makers are rational and act in firms best interest.

The Industrial Organization (I/O) model of AAR explains the

external environments dominant influence on strategic
actions

6
 Earn Above
Average Returns
Develop/Acquire
Skills or assets to
Formulate a implement
strategy to gain strategy
Locate an AAR
industry with
Study external High Potential
environment for AAR

7
Resource-Based Model of AAR

Assumptions

Each organization is a collection of unique resources and capabilities.

Resources and Capabilities are not highly mobile across firms, this
difference is basis of competitive advantage.

The differences in firms performances across time are

primarily due to their unique resources and capabilities.
The strategy would allow it to earn AAR in attractive industry.

8
 Earn AAR

Strategy
Formulation and
Locate Implementation
Attractive
Determine Industry
Competitive
Determine Advantage
Capabilities
Identify
Resources