chapter 2 - the environment

Part 1:The Strategic Position

Exploring Corporate Strategy 8e, © Pearson Education 2008 1-2

Last Week

Defined Strategy

Looked at different strategy levels: corporate, business, and operational

Looked at the basic vocabulary of strategy e.g. use of words – mission statement, vision, goals, objectives etc.

Introduced strategic management


The Focus of Part 1: The Strategic Position

How to analyse an organisation’s position in the external environment

How to analyse the determinants of strategic capability

How to understand an organisation’s purposes, taking into account corporate governance, stakeholder expects and business ethics

How to address the role of history and culture in determining an organisation’s position

The Strategic Position2: The Environment


Learning Outcomes (1)

Analyse the broad macro-environment of organisations in terms of political, economic, social, technological, environmental and legal factors

Identify key drivers in this macro-environment and use these key drivers to construct alternative scenarios with regard to environmental change


Learning Outcomes (2)

Use five forces analysis in order to define the attractiveness of industries and sectors for investment and to identify their potential for change

Identify strategic groups, market segments, and critical success factors, and use them in order to recognise strategic gaps and opportunities in the market


Exhibit 2.1 Layers of the business environment

The Organisation

Use PESTEL to analyse environment

identify key drivers for change & construct

scenarios of what the future might look like

Organisations producing the same products / services. Use Porter’s Five

Forces to determine industry attractiveness

Use Strategic Groups identify close

and remote competitors


The Macro-Environment

PESTEL

Scenarios

Key drivers


PESTEL Framework

Political Economic

Technological

Environmental Legal

Social


What Are Key Drivers for Change?

Key drivers for change are environmental factors that are likely

to have a high impact on the success or failure of strategy.


What is a Scenario?

Scenarios are detailed and plausible views of how the business

environment of an organisation might develop in the future based on key

drivers for change about which there is a high level of uncertainty.


Industries and Sectors

Competitive forces

Competitive cycles

Industry life cycle


Exhibit 2.2 The Five Forces Framework

Competitive rivalry

Potential entrants

Buyers

Substitutes

Suppliers


The Threat of Entry: Barriers to Entry

Scale and experience

Access to supply and distribution channels

Expected retaliation

Legislation or government action

Differentiation


Why Are Substitutes a Threat?

Substitutes can reduce demand for a particular class of products as customers switch to alternatives.

• Price/performance ratio

• Extra-industry effects


The Power of Buyers

Are buyers concentrated?

What are the costs of switching?

Does backward vertical integration exist?


The Power of Suppliers

Are suppliers concentrated?

What are the costs of switching?

Does forward vertical integration exist?


Degree of Competitive Rivalry

Competitor balance

Industry growth rate

High fixed costs

High exit barriers

Low differentiation


Managerial Implications

Which industries should we enter or leave?

What influence can we exert?

How are competitors differently affected?


Other Issues in a Five Forces Analysis

Define the ‘right’ industry

Determine whether industries are converging

Identify complementary products


Exhibit 2.3 The Industry Life Cycle


Exhibit 2.4 Cycles of Competition


What is Hypercompetition?

Hypercompetition occurs where the frequency, boldness and

aggressiveness of dynamic movements by competitors

accelerate to create a condition of constant disequilibrium and change.


Competitors and Markets

Strategic groups

Strategic customers

Market segments


What are Strategic Groups?

Strategic groups are organisations within an industry

with similar strategic characteristics, following similar

strategies or competing on similar bases.


Characteristics for Identifying Strategic Groups

Scope of activities

Extent of product diversity

Extent of geographic coverage

Number of segments served

Distribution channels

Resource commitment

Extent of branding

Marketing effort

Extent of vertical integration

Product quality

Technological leadership

Organisational size


Benefits of Identifying Strategic Groups

Understanding competition

Analysis of strategic opportunities

Analysis of mobility barriers


What is a Market Segment?

A market segment is a group of customers who have similar needs

that are different from customer needs in other parts of the market.


Exhibit 2.7 Some Bases of Market Segmentation


Managerial Issues in Market Segmentation

How do customer needs vary by market?

What is the relative market share within market segments?

How can market segments be identified and ‘serviced’?


What is a Strategic Customer?

A strategic customer is the person(s) at whom the strategy is primarily addressed because they

have the most influence over which goods or services are purchased.


What are Critical Success Factors?

Critical success factors (CSFs) are those product features with which a organisation must outperform the

competition because they are particularly valued by a group of

customers.


Types of Opportunity

In substituteindustries

In other strategicgroups

In targetingbuyers

For complementaryproducts

In new market segments

Over time

Exploring Corporate Strategy 8e, © Pearson Education 2008

Exhibit 2.8 A strategy canvas – perceived value by customers in the electrical engineering industrySources: Reprinted by permission of Harvard Business Review. Exhibit adapted from ‘Charting your company’s future’ by C. Kim and R. Mauborgne, vol. 80, no. 6. Copyright © 2002 by the Harvard Business School Publishing Corporation; all rights reserved


Chapter Summary (1)

Environmental influences can be thought of as layers around an organisation

The macro-environment can be analysed in terms of PESTEL factors

Industries and sectors can be analysed in terms of Porter’s Five Forces model


Chapter Summary (2)

Industry changes can be analysed in terms of the industry life cycle, hypercompetitive models of competition, and the comparative five forces radar plots

The inner layer of the environment can be analysed with strategic group analysis, market segment analysis, and the strategy canvas


Key Debate: How Much Does Industry Matter? (1)

There is a debate over whether strategy making should be externally or internally oriented

Porter’s work suggests that industry factors influence profitability more than firm-specific factors

But, this varies by industry


Key Debate: How Much Does Industry Matter? (3)

Porter & McGahan’s study suggests that some industries influence member’s firms profitabilities more than others.

Why might some industries have a larger influence on their members’ profitability than others?


This week’s Tasks

Read Chapter 2&3 Johnson et al, 2007 Prepare some brief notes for class discussion on:

The PESTEL framework

Porter’s Five Forces Framework

The Product Life Cycle

Segmentation Bases

In your groups, read the case study: Global Forces and the European Brewing Industry and answer questions at the end of the case study. Prepare to present your analysis to the rest of the class. You will be given 10 minutes, followed by 5 minutes Q&A


Next Week

Prepare 2 questions (per person) on capabilities that the class will discuss and answer – these may be based on what you do not understand and want clarification on

Seminar

WorkshopIn your groups, read the case study: Making

Ebay work and answer questions at the end of the case study

chapter 2 - the environment

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