Download - Chapter 2 - The Environment
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Part 1:The Strategic Position
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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
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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
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The Strategic Position2: The Environment
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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
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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
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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
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The Macro-Environment
PESTEL
Scenarios
Key drivers
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PESTEL Framework
Political Economic
Technological
Environmental Legal
Social
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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.
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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.
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Industries and Sectors
Competitive forces
Competitive cycles
Industry life cycle
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Exhibit 2.2 The Five Forces Framework
Competitive rivalry
Potential entrants
Buyers
Substitutes
Suppliers
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The Threat of Entry: Barriers to Entry
Scale and experience
Access to supply and distribution channels
Expected retaliation
Legislation or government action
Differentiation
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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
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The Power of Buyers
Are buyers concentrated?
What are the costs of switching?
Does backward vertical integration exist?
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The Power of Suppliers
Are suppliers concentrated?
What are the costs of switching?
Does forward vertical integration exist?
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Degree of Competitive Rivalry
Competitor balance
Industry growth rate
High fixed costs
High exit barriers
Low differentiation
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Managerial Implications
Which industries should we enter or leave?
What influence can we exert?
How are competitors differently affected?
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Other Issues in a Five Forces Analysis
Define the ‘right’ industry
Determine whether industries are converging
Identify complementary products
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Exhibit 2.3 The Industry Life Cycle
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Exhibit 2.4 Cycles of Competition
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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.
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Competitors and Markets
Strategic groups
Strategic customers
Market segments
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What are Strategic Groups?
Strategic groups are organisations within an industry
with similar strategic characteristics, following similar
strategies or competing on similar bases.
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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
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Benefits of Identifying Strategic Groups
Understanding competition
Analysis of strategic opportunities
Analysis of mobility barriers
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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.
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Exhibit 2.7 Some Bases of Market Segmentation
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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’?
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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.
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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.
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Types of Opportunity
In substituteindustries
In other strategicgroups
In targetingbuyers
For complementaryproducts
In new market segments
Over time
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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
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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
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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
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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
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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?
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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
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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