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Hi, welcome back.
In our last video we talked about ways to monitor the external environment.
This topic is important because without information,
you cannot develop an effective strategy.
After it processes the information with the analysis stage,
described in one of our past videos.
You will be able to determine the implications of the external changes
in the firm's competitive strategy.
The strategy is drawn according to our current perception on
the competitive environment and how we think it will evolve.
As time goes by, the firm increases its understanding of the market that proves or
disproves this previous understanding.
This gap happens because the market has not been properly understood before.
Or because the market has changed.
Regardless of the reason,
it is necessary to estimate the implications to our strategy.
This concept can be explained in a simple way.
In the case of discussed in one of our previous videos.
Believed that its superior formulation would give it a competitive
advantage over its lower cost and lower quality competitor.
And now they believe was that end consumers would be sensitive
to the difference in quality.
Experience has shown otherwise and
chocolate milk manufactures were unwilling to pay more for superior quality.
There is another example that will illustrate how changes in the external
environment can influence a company's strategy effectiveness, the Kodak case.
Between 1929 and the 80s,
Kodak was the undisputed world leader in chemical photography processes.
Kodak in 1975 invented digital photography and built an operational prototype.
Unfortunately Kodak defined photography as a chemical process and
decided not to pursue the digital photography market.
Another reason for not pursued a new technology was that even if it worked
properly digital photography might cannibalize the chemical photography.
That of course was correct.
But instead of working on a controlled cannibalization process that would
allow Kodak to emerge of the process as the business leader,
Kodak allowed other companies to pursue digital photography.
As a result,
Asian companies have invested heavily in the development of digital photography.
This technology evolved rapidly and enabled the emergence of
a business model that eventually took Kodak out of the business.
By the time Kodak developed a digital camera,
the quality of the photos that use chemical process was significantly better.
Kodak dominated every stage of the chemical photography process.
And each stage was extremely profitable.
Kodak had no incentive to develop a technology that would effectively
destroy the business model in which Kodak prospered.
In retrospect, it is easy to judge Kodak's attitude.
But based on the information available to management at the time,
most of us would come to the very same conclusion and make the same decisions.
The most important lesson that Kodak examples give us, is that the external
environment changes and sometimes demand changes in our strategy.
The external conditions needed to be monitored and
the strategies needed to be adapted accordingly.
In our next video we will talk more about how changes
in the external environment demand changes our strategy.
Before you go, which of the current practices
are extremely integrated into your firm's culture and
strategy that could become dangerous if the market changed?
Will your firm abandon this practice or fight to keep them alive?