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

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

2-3Exploring Corporate Strategy 8e, © Pearson Education 2008

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

2-4Exploring Corporate Strategy 8e, © Pearson Education 2008

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

2-5Exploring Corporate Strategy 8e, © Pearson Education 2008

Exhibit 2.1 Layers of the business environment

The Organisation

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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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The PESTEL Framework

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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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Exhibit 2.5 Comparative Industry Structure Analysis

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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

2-27Exploring Corporate Strategy 8e, © Pearson Education 2008

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’?

2-31Exploring Corporate Strategy 8e, © Pearson Education 2008

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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Case Example: The European Brewing Industry

Complete a PESTEL analysis of the European brewing industry.

Complete a five forces analysis for the industry.