sm lecture two : the environment

Strategic Management BUSM 3200

These Lecture Slides summarize the key points covered in the respective chapters in your

recommended text; these slides do NOT substitute, at all, the required reading of the assigned

chapter from the text. These slides also may contain additional supplementary material extracted

from other texts and sources outside your text book.

BUSM 3200- Strategic Management (Jan 2013) GDS 2-1

The Focus of part 1 of t he Text The strategic position

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

• How to analyse the determinants of strategic capability – resources, competences and the linkages between them.

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

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


Strategic Position


See page 46: 4 chapters comprise analysis of the Strategic Position

Chapter 2 Chapter 3

Chapter 4 Chapter 5

The Strategic Position Analysis

Essentially one of determining the answers to the question “where are we now”

External analysis: opportunities and threats/ industry attractiveness

Internal analysis: strengths/weaknesses, capabilities

TAKEN together we can do the SWOT and TOWS analysis (discussed next lecture)

The Strategic Position Analysis guides the planner on the type of STRATEGY/IES the company should pursue: are they viable and attractive?


Learning outcomes of Chapter Two:

• Analyse the broad macro-environment of organisations in terms of political, economic, social, technological, environmental (‘green’) and legal factors (PESTEL).

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


Learning outcomes of Chapter Two

• Use Porter’s five forces analysis in order to define the attractiveness of industries and sectors and to identify their potential for change.

• Identify successful strategic groups, valuable market segments and attractive ‘Blue Oceans’ within industries.

• Use these various concepts and techniques in order to recognise threats and opportunities in the marketplace.


OPPORTUNITIES AND THREATS

Opportunities and Threats is one-half of the SWOT analysis. We still need to cover the internal factors (next lecture)

Lots of confusion between SWOT and PEST- do NOT use these terms interchangeably!

Know this: PEST is part of SWOT PEST leads to the identification of the O and T (opportunities and threats)

When you list the PEST factors:

+ factors are considered Opportunities

- factors are considered Threats


PESTEL analysis reveals

Opportunities and threats

Key drivers of change

Different scenarios

Porter Five Forces

Threats and opportunities arising from the specific set of five forces in a given industry

Blue Ocean

Reveals where companies can create new market spaces or identify new success factors


OPPORTUNITIES AND THREATS

We will cover these concepts in detail in this lecture.

3–9 Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.

THINKING STRATEGICALLY ABOUT A COMPANY‘S INDUSTRY AND COMPETITIVE ENVIRONMENT

1. Does the industry offer attractive opportunities for growth?

2. What kinds of competitive forces are industry members facing,

and how strong is each force?

3. What factors are driving changes in the industry, and what

impact will these changes have on competitive intensity and

industry profitability?

4. What market positions do industry rivals occupy—who is

strongly positioned and who is not?

5. What strategic moves are rivals likely to make next?

6. What are the key factors for competitive success in the

industry?

7. Does the industry offer good prospects for attractive profits?

These set of points is taken from another text by Thompson and Strickland. I will use some

of the PWPT slides and intersperse them with our textbook content so as to give a fuller

dimension to External analysis. These seven questions will be examined throughout this

lecture topic. Read them now.

2-9

Layers of the business environment

Figure 2.1 Layers of the business environment



3.2 The Components of a Company’s Macro-Environment

This version shows how to place the industry five forces (Porter) within the context of the

broader External Macro Environmental forces

2-11


The External Environment

♦ The Macro-Environment

● Is the broad environmental context in

which a firm‘s industry is situated.

● Includes strategically relevant components

over which the firm has no direct control.

General economic conditions

Immediate industry and competitive

environment

2-12

The PESTEL framework (1)

The PESTEL framework categorises environmental influences into six main types:

political, economic,

social, technological,

environmental legal

Thus PESTEL provides a comprehensive list of influences on the possible success or failure of particular strategies.



• Political Factors: For example, Government policies, taxation changes, foreign trade regulations, political risk in foreign markets, changes in trade blocks (EU).

• Economic Factors: For example, business cycles, interest rates, personal disposable income, exchange rates, unemployment rates, GDP trends.

• Socio-cultural Factors: For example, population changes, income distribution, lifestyle changes, consumerism, changes in culture and fashion.



• Technological Factors: For example, new discoveries and technology developments, ICT innovations, rates of obsolescence, increased spending on R&D.

• Environmental (‘Green’) Factors: For example, environmental protection regulations, energy consumption, global warming, waste disposal and re-cycling.

• Legal Factors: For example, competition laws, health and safety laws, employment laws, licensing laws, IPR laws.


NOTE: it is important to do a PESTEL analysis with a specific emphasis on the industry you are studying (see page 51)


Keep the

PESTEL

factors specific

to the industry

you are

studying; avoid

using broad

generic factors

that have no

relevance to

your analysis.

Important to

note for your

Group

Assignment on

Strategic

Analysis!

Key drivers of change

Key drivers for change:

• The environmental factors likely to have a high impact on the success or failure of strategy.

• For example, the birth rate is a key driver for those planning nursery education provision in the public sector.

• Typically key drivers vary by industry or sector.

• (in you Group Assignment, make sure you identify the correct ‘key drivers’)


Using the PESTEL framework

• Apply selectively –identify specific factors which impact on the industry, market and organisation in question.

• Identify factors which are important currently but also consider which will become more important in the next few years.

• Use data to support the points and analyse trends using up to date information

• Identify opportunities and threats – the main point of the exercise!


Note this well !!!

Scenarios

Scenarios are detailed and plausible views of how the environment of an organisation might develop in the future based on key drivers of change about which there is a high level of uncertainty.

• Builds on PESTEL analysis .

• Do not offer a single forecast of how the environment will change.

• An organisation should develop a few alternative scenarios (2–4) to analyse future strategic options.


Carrying out scenario analysis (1)

• Identify the most relevant scope of the study – the relevant product/market and time span.

• Identify key drivers of change – PESTEL factors that have the most impact in the future but have uncertain outcomes.

• For each key driver select opposing outcomes where each leads to very different consequences.


Carrying out scenario analysis (2)

• Develop scenario ‘stories’ - That is, coherent and plausible descriptions of the environment that result from opposing outcomes

• Identify the impact of each scenario on the organisation and evaluate future strategies in the light of the anticipated scenarios.

• Scenario analysis is used in industries with long planning horizons for example, the oil industry or airlines.


Scenarios for the global financial system, 2020

Illustration 2.2


Moving from Macro to Industry- Specific Analyses


Once you complete

your Macro-

environment analysis,

you then move down

to study the forces

impacting specifically

on the industry that

you company

operates in.

Industries, markets and sectors

An industry is a group of firms producing products and services that are essentially the same. For example, automobile industry and airline industry.

A market is a group of customers for specific products or services that are essentially the same (e.g. the market for luxury cars in Germany).

A sector is a broad industry group (or a group of markets) especially in the public sector (e.g. the health sector)



QUESTION 2: WHAT KINDS OF COMPETITIVE FORCES ARE INDUSTRY MEMBERS FACING, AND HOW STRONG ARE THEY?

Porter’s five forces framework helps identify the attractiveness of an industry in terms of five competitive forces:

• the threat of entry,

• the threat of substitutes,

• the bargaining power of buyers,

• the bargaining power of suppliers and

• the extent of rivalry between competitors.

The five forces constitute an industry’s ‘structure’.

2-25

Source: Adapted with the permission of The Free Press, a Division of Simon & Schuster Adult Publishing Group, from Competitive Strategy: Techniques for Analyzing Industries and

Competitors by Michael E. Porter. Copyright © 1980, 1998 by The Free Press. All rights reserved

The five forces framework (1)

Figure 2.2 The five forces framework



The Threat of Entry & Barriers to Entry

• The threat of entry is low when the barriers to entry are high and vice versa.

• The main barriers to entry are:

Economies of scale/high fixed costs

Experience and learning

Access to supply and distribution channels

Differentiation and market penetration costs

Government restrictions (e.g. licensing)

• Entrants must also consider the expected retaliation from organisations already in the market



3.5

Factors Affecting

the Threat of Entry

2-28


Threat of Substitutes

Substitutes are products or services that offer a similar benefit to an industry’s products or services, but by a different process.

Customers will switch to alternatives (and thus the threat increases) if:

• The price/performance ratio of the substitute is superior (e.g. aluminium maybe more expensive than steel but it is more cost efficient for some car parts)

• The substitute benefits from an innovation that improves customer satisfaction (e.g. high speed trains can be quicker than airlines from city centre to city centre)



3.6

Factors Affecting

Competition from

Substitute Products

2-30


The bargaining power of buyers

Buyers are the organisation’s immediate customers, not necessarily the ultimate consumers.

If buyers are powerful, then they can demand cheap prices or product / service improvements to reduce profits .

Buyer power is likely to be high when:

Buyers are concentrated

Buyers have low switching costs

Buyers can supply their own inputs (backward vertical integration)



3.8

Factors Affecting

the Bargaining

Power of Buyers

2-32


The bargaining power of suppliers

Suppliers are those who supply what organisations need to produce the product or service. Powerful suppliers can eat into an organisation’s profits.

Supplier power is likely to be high when:

The suppliers are concentrated (few of them).

Suppliers provide a specialist or rare input.

Switching costs are high (it is disruptive or expensive to change suppliers).

Suppliers can integrate forwards (e.g. low cost airlines have cut out the use of travel agents).



Matching Strategy to Competitive Conditions

1. Pursuing avenues that shield the firm from as

many competitive pressures as possible.

2. Initiating actions calculated to shift competitive

forces in the firm‘s favor by altering underlying

factors driving the five forces.

3. Spotting attractive arenas for expansion, where

competitive pressures in the industry are

somewhat weaker. We will discuss this in greater depth

when we cover Business and

Corporate Strategies later in the

course.

2-34


3.7

Factors Affecting

the Bargaining

Power of Suppliers

2-35


Rivalry between competitors

Competitive rivals are organisations with similar products and services aimed at the same customer group and are direct competitors in the same industry/market (they are distinct from substitutes).

The degree of rivalry is increased when :

Competitors are of roughly equal size

Competitors are aggressive in seeking leadership

The market is mature or declining

There are high fixed costs

The exit barriers are high

There is a low level of differentiation BUSM 3200- Strategic Management (Jan 2013) GDS 2-36


Some Practical Examples of the Common ―Weapons‖ for Competing with Rivals

Competitive Weapons Primary Effects

Price discounting, clearance sales,

―blowout‖ sales

Lowers price (P), acts to boost total sales volume and market share,

lowers profit margins per unit sold when price cuts are big and/or

increases in sales volume are relatively small

Couponing, advertising items on sale Acts to increase unit sales volume and total revenues, lowers price (P),

increases unit costs (C), may lower profit margins per unit sold (P – C)

Advertising product or service

characteristics, using ads to enhance

a company’s image or reputation

Boosts buyer demand, increases product differentiation and perceived

value (V), acts to increase total sales volume and market share, may

increase unit costs (C) and/or lower profit margins per unit sold

Innovating to improve product

performance and quality

Acts to increase product differentiation and value (V), boosts buyer

demand, acts to boost total sales volume, likely to increase unit costs (C)

Introducing new or improved features,

increasing the number of styles or

models to provide greater product

selection

Acts to increase product differentiation and value (V), strengthens buyer

demand, acts to boost total sales volume and market share, likely to

increase unit costs (C)

Increasing customization of product or

service

Acts to increase product differentiation and value (V), increases

switching costs, acts to boost total sales volume, often increases unit

costs (C)

Building a bigger, better dealer network Broadens access to buyers, acts to boost total sales volume and market

share, may increase unit costs (C)

Improving warranties, offering low-

interest financing

Acts to increase product differentiation and value (V), increases unit

costs (C), increases buyer costs to switch brands, acts to boost total

sales volume and market share

2-37


3.4

Factors Affecting the

Strength of Rivalry

2-38


Is the Collective Strength of the Five Competitive Forces Conducive to Good Profitability?

♦ Is the state of competition in the industry

stronger than ―normal‖?

♦ Can industry firms expect to earn decent profits

given prevailing competitive forces?

♦ Are some of the competitive forces sufficiently

powerful to undermine industry profitability? In your analysis of a case company, you must not only identify the

relevant factors for each force but you must be able to make a critical

judgment of which forces carry more impact and could pose a threat

to the firm. These factors need to be considered when the firm

develops its business and corporate strategies to mitigate the threat

of such competitive forces

2-39

Types of industry (1)

• Monopolistic industries - an industry with one firm and therefore no competitive rivalry. A firm has ‘monopoly power’ if it has a dominant position in the market. For example, BT in the UK fixed line telephone market.

• Oligopolistic industries - an industry dominated by a few firms with limited rivalry and in which firms have power over buyers and suppliers.

• Perfectly competitive industries - where barriers to entry are low, there are many equal rivals each with very similar products, and information about competitors is freely available. Few (if any) markets are ‘perfect’ but may have features of highly competitive markets, for example, mini-cabs in London.


Types of industry (2)

• Hypercompetitive industries - where the frequency, boldness and aggression of competitor interactions accelerate to create a condition of constant disequilibrium and change.

• Hypercompetition often breaks out in otherwise oligopolistic industries (e.g. mobile phones).

• Organisations interact in a series of competitive moves in hypercompetition which often becomes extremely rapid and aggressive as firms vie for market leadership.


Implications of five forces analysis

• Identifies the attractiveness of industries – which industries/markets to enter or leave.

• Identifies strategies to influence the impact of the forces, for example, building barriers to entry by becoming more vertically integrated.

• The forces may have a different impact on different organisations e.g. large firms can deal with barriers to entry more easily than small firms.


Read Page 61 in detail !

Key Issues in using the five forces framework

• Apply at the most appropriate level – not necessarily the whole industry. E.g. the European low cost airline industry rather than airlines globally.

• Note the convergence of industries – particularly in the high tech sectors (e.g. digital industries - mobile phones/cameras/mp3 players).

• Note the importance of complementary products and services (e.g. Microsoft windows and McAfee computer security systems are complements). This can almost be considered as a sixth force.


The value net

Figure 2.3 The value net Reprinted by permission of Harvard Business Review. From ‗The Right Game‘ by A. Brandenburger and B. Nalebuff, July–August 1996, pp. 57–64.

Copyright © 1996 by the Harvard Business School Publishing Corporation. All rights reserved


Value Net: is a

model that maps

out the

organizations in

a business

environment that

create

opportunities for

value-creating

cooperation as

well as

competition


QUESTION 3: WHAT FACTORS ARE DRIVING INDUSTRY CHANGE, AND WHAT IMPACTS WILL THEY HAVE?

♦ Strategic Analysis of Industry Dynamics:

1. Identifying the drivers of change.

2. Assessing whether the drivers of change

are, individually or collectively, acting to

make the industry more or less attractive.

3. Determining what strategy changes are

needed to prepare for the impacts of the

anticipated change.

2-45


3.3 The Most Common Drivers of Industry Change

1. Changes in the long-term industry growth rate

2. Increasing globalization

3. Changes in who buys the product and how they use it

4. Technological change

5. Emerging new Internet capabilities and applications

6. Product and marketing innovation

7. Entry or exit of major firms

8. Diffusion of technical know-how across companies and

countries

9. Improvements in efficiency in adjacent markets

10. Reductions in uncertainty and business risk

11. Regulatory influences and government policy changes

12. Changing societal concerns, attitudes, and lifestyles

2-46


Assessing the Impact of the Factors Driving Industry Change

1. Overall, are the factors driving change causing

demand for the industry‘s product to increase

or decrease?

2. Is the collective impact of the drivers of change

making competition more or less intense?

3. Will the combined impacts of the change

drivers lead to higher or lower industry

profitability?

2-47


Developing a Strategy That Takes the Changes in Industry Conditions into Account

♦ What strategy adjustments will be needed

to deal with the impacts of the changes in

industry conditions?

● What adjustments must be made immediately?

● What actions must we not take or should we cease

to do now?

● What can we do now to prepare for adjustments

we anticipate making in the future?

The industry and the market forces

are always in a state of flux!

2-48

Industry Life Cycles

Industries are not in a static state

Rather they evolve through different stages

In your strategic analysis, you need to find out which stage your industry is in

Each stage creates different opportunities, challenges and suits different types of business strategies

See Figure 2.4


The industry life cycle

Figure 2.4 The industry life cycle


Comparative industry structure analysis

A mapping model used to mark the dimensions of the various scores in the five forces model

Which force scores higher lower

Plot them down in a ‘radar map’

Analyze the implications of the ‘profile’

Compare plots over two or more periods

Analyze the implications of the ‘changes’

See Figure 2.5


Comparative industry structure analysis

Figure 2.5 Comparative industry structure analysis


Cycles of Competition (page 67)

Enables the planner to map out the competitive moves of the firm versus its competitors

Show the chronology or sequence of strategic actions

Sequence of ‘moves’ and ‘counter-moves’ = cycles of competition (see Figure 2.6)

An analogy: remember your physics course we learnt an important principle from Newton: “for every action there is an equal and opposite reaction” – seems also relevant in strategy.


Cycles of competition

Figure 2.6 Cycles of competition Source: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc., from Hypercompetitive Rivalries: Competing in Highly Dynamic Environments by Richard A.

D‘Aveni with Robert Gunther. Copyright © 1994, 1995 by Richard A. D‘Aveni. All rights reserved



QUESTION 4: HOW ARE INDUSTRY RIVALS POSITIONED—WHO IS STRONGLY POSITIONED AND WHO IS NOT?

♦ A Strategic Group

● Is a cluster of industry rivals that have similar

competitive approaches and market positions:

Have comparable product-line breadth

Sell in the same price/quality range

Emphasize the same distribution channels

Use the same product attributes to buyers

Depend on identical technological approaches

Offer similar services and technical assistance

2-55

Strategic Groups

Strategic groups are organisations within an industry or sector with similar strategic characteristics, following similar strategies or competing on similar bases.

• These characteristics are different from those in other strategic groups in the same industry or sector.

• There are many different characteristics that distinguish between strategic groups.

• Strategic groups can be mapped on to two dimensional charts – maps. These can be useful tools of analysis.


Characteristics for identifying strategic groups

Figure 2.7 Some characteristics for identifying strategic groups



Using Strategic Group Maps to Assess the Market Positions of Key Competitors

♦ Constructing a strategic group map:

● Identify the competitive characteristics that

differentiate firms in the industry.

● Plot the firms on a two-variable map using pairs

of differentiating competitive characteristics.

● Assign firms occupying about the same map

location to the same strategic group.

● Draw circles around each strategic group, making

the circles proportional to the size of the group‘s

share of total industry sales revenues.

2-58


Typical Variables for Differentiating the Market Positions of Key Competitors on Group Maps

♦ Price/quality range (high, medium, low)

♦ Geographic coverage (local, regional, national, global)

♦ Product-line breadth (wide, narrow)

♦ Degree of service offered (no frills, limited, full)

♦ Distribution channels (retail, wholesale, Internet, multiple)

♦ Degree of vertical integration (none, partial, full)

♦ Degree of diversification into other industries (none,

some, considerable).

2-59


Choosing Variables for Group Maps

♦ Variables selected as map axes:

● Must not be highly correlated.

● Must reflect key approaches to customer

value and expose sizable differences in the

marketplace positions of rivals.

● May be quantitative, continuous, discrete

and\or defined in terms of distinct classes

and combinations.

2-60


Guidelines for Constructing Group Maps

♦ Draw map circles proportional to the combined

sales of firms in each strategic group to reflect

the relative sizes of each group to the total size

of the industry.

♦ Use different variable sets to show different

views of relationships among competitive

positions in the industry‘s structure—there is no

one best map for portraying how competing

firms are positioned.

2-61

Strategic groups in the Indian pharmaceutical industry

Figure 2.8 Strategic groups in the Indian pharmaceutical industry Source: Developed from R. Chittoor and S. Ray, ‗Internationalisation paths of Indian pharmaceutical firms: a strategic group analysis‘, Journal of International Management, vol. 13 (2009),

pp. 338–55



An example of using

Strategic Group Analysis in

the US Retailing Sector.

2-63


What Can Be Learned from Strategic Group Maps?

♦ Maps are useful in identifying which industry

members are close rivals and which are

distant rivals.

♦ Not all map positions are equally attractive.

1. Prevailing competitive pressures in the industry

and drivers of change favor some strategic

groups and hurt others.

2. Profit prospects vary from strategic group to

strategic group.

2-64

Uses of strategic group analysis

• Understanding competition - enables focus on direct competitors within a strategic group, rather than the whole industry. (E.g. Tesco will focus on Sainsburys and Asda)

• Analysis of strategic opportunities - helps identify attractive ‘strategic spaces’ within an industry.

• Analysis of ‘mobility barriers’ i.e. obstacles to movement from one strategic group to another. These barriers can be overcome to enter more attractive groups. Barriers can be built to defend an attractive position in a strategic group.


Market segments

A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market.

• Where these customer groups are relatively small, such market segments are called ‘niches’.

• Customer needs vary. Focusing on customer needs that are highly distinctive is one means of building a secure segment strategy.

• Customer needs vary for a variety of reasons -these factors can be used to identify distinct market segments.

• Not all segments are attractive or viable market opportunities – evaluation is essential.


Bases of market segmentation (1)

Table 2.1 Some bases of market segmentation


Who are the strategic customers?

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.

Examples:

• For a food manufacturer it is the multiple retailers (e.g. Tesco) that are the strategic customers not the ultimate consumer.

• For a pharmaceutical manufacturer it is the health authorities and hospitals not the final patient.



The Remaining Three Questions on Strategic External Analysis

♦ Before we move on to Blue Ocean

Strategy, let us review the last three

stages of external analysis as outlined by

Thompson and Strickland

5. What strategic moves are rivals likely to make next?

6. What are the key factors for competitive success in

the industry?

7. Does the industry offer good prospects for

attractive profits?

2-69


QUESTION 5: WHAT STRATEGIC MOVES ARE RIVALS LIKELY TO MAKE NEXT?

♦ Competitive Intelligence

● Information about rivals that is useful in anticipating

their next strategic moves.

♦ Signals of the Likelihood of Strategic Moves:

● Rivals under pressure to improve financial

performance

● Rivals seeking to increase market standing

● Public statements of rivals‘ intentions

● Profiles developed by competitive intelligence units

2-70


Useful Questions to Help Predict the Likely Actions of Important Rivals

♦ Which competitors‘ strategies are achieving good results?

♦ Which competitors are losing in the marketplace or badly

need to increase their unit sales and market share?

♦ Which rivals are likely make major moves to enter new

geographic markets or to increase sales and market share

in a particular geographic region?

♦ Which rivals can expand product offerings to enter new

product segments where they do not have a presence?

♦ Which rivals can be acquired? Which rivals are financially

able and looking to make an acquisition?

2-71


QUESTION 6: WHAT ARE THE KEY FACTORS FOR FUTURE COMPETITIVE SUCCESS?

♦ Key Success Factors

● Are the strategy elements, product and

service attributes, operational approaches,

resources, and competitive capabilities that

are necessary for competitive success by

any and all firms in an industry.

● Vary from industry to industry, and over time

within the same industry, as drivers of

change and competitive conditions change.

This is similar to the concept of critical

success factors which we will cover under

Blue Ocean Strategy

2-72


Identification of Key Success Factors

1. What product attributes and service features

buyers strongly affect buyers when choosing

between the competing brands of sellers?

2. What resources and competitive capabilities

are required for a firm to execute a successful

strategy in the marketplace?

3. What shortcomings will put a firm at a

significant competitive disadvantage?

2-73


QUESTION 7: DOES THE INDUSTRY OFFER GOOD PROSPECTS FOR ATTRACTIVE PROFITS?

♦ Industry Profitability Considerations:

● The industry‘s overall growth potential

● Effects of strong competitive forces

● Effects of prevailing drivers of change in the industry

● Competitive strength of the firm: its market position

relative to its rivals, its capability to withstand

competitive forces, and whether its position will

change in the course of competitive interactions

● The success of the firm‘s strategy in delivering on

the industry‘s key success factors

2-74

Blue ocean thinking

• ‘Blue oceans’ are new market spaces where competition is minimised.

• ‘Red Oceans’ are where industries are already well defined and rivalry is intense.

• Blue Ocean thinking encourages entrepreneurs and managers to be different by finding or creating market spaces that are not currently being served.

• A ‘strategy canvas’ compares competitors according to their performance on key success factors in order to develop strategies based on creating new market spaces.


Check the website: http://www.blueoceanstrategy.com/

http://www.blueoceanstrategy.com/

http://www.blueoceanstrategy.com/

Blue Ocean Strategy: Create a New Value Curve

Attributes

#1 #2 #3 #4 #5 #6 #7 #8 #9 #10

Att

ribute

Str

ength

Competitor A

Competitor B

Competitor C

© Strategy in Marketing (Pearson Asia 2009)

2-76

Strategy canvas

Figure 2.9 Strategy canvas for electrical components companies Source: Developed from W.C. Kim and R. Mauborgne, Blue Ocean Strategy, 2005, Harvard Business School Press


Blue Ocean: Critical success factors (CSFs)

• Critical success factors are those factors that are either particularly valued by customers or which provide a significant advantage in terms of cost.

• Critical success factors are likely to be an important source of competitive advantage if an organisation has them (or a disadvantage if an organisation lacks them).

• Different industries and markets will have different critical success factors (e.g. in low cost airlines the CSFs will be punctuality and value for money whereas in full service airlines it is all about quality of service).


Note this point well!!

Blue Ocean Model

Value Curves: graphic depiction of how customers perceive competitors’ relative performance across the critical success factors.

Value Innovation: is the creation of a new market space by excelling on established critical success factors on which competitors are performing badly and/or by creating new critical success factors representing previously unrecognized customer wants.


The budget airline market Blu

e O

cean

marke

t space

for b

ud

ge

t airline

s

2-80

BUSM 3200- Strategic

Management (Jan 2013)

GDS 3-80

Innovate products and services that redefine the market

Create new categories not thought of before

Apple i-Pod is a good example

Even marketing real estate- DUBAI

Palm

The World

BO Strategy- more examples

© Strategy in Marketing (Pearson Asia 2009)

2-83

BUSM 3200- Strategic

Management (Jan 2013)

GDS 3-83

Chapter summary (1)

• Environmental influences can be thought of as layers around an organisation, with the outer layer making up the macro-environment, the middle layer making up the industry or sector and the inner layer strategic groups and market segments.

• The macro-environment can be analysed in terms of the PESTEL factors, from which key drivers of change can be identified. Alternative scenarios about the future can be constructed according to how the key drivers develop.

• Industries and sectors can be analysed in terms of Porter’s five forces – barriers to entry, substitutes, buyer power, supplier power and rivalry. Together, these determine industry or sector attractiveness.


Chapter summary (2)

• Industries and sectors are dynamic, and their changes can be analysed in terms of the industry life cycle, comparative five forces radar plots and hypercompetitive cycles of competition.

• In the inner layer of the environment, strategic group analysis, market segment analysis and the strategy canvas can help identify strategic gaps or opportunities.

• Blue Ocean strategies characterised by low rivalry are likely to be better opportunities than Red Ocean strategies with many rivals.

• The most important reason for environmental analysis is to identify OPPORTUNITIES AND THREATS


PRACTICE ESSAY QUESTIONS

IMPORTANT NOTE: →

These questions are provided for your reference only – they are only INDICATIVE of the standard of questions you might expect in the final exam.

DO NOT use these questions to “spot”

The RMIT examiner will post advice on the exam on the Learning Hub closer to the exam; you are required to pay attention to that advise

The questions here show the range of topics that could be tested from this lecture; they are NOT exhaustive

To score a high grade it is important to LINK the theory to applications and examples. Where from?

You have been assigned specific cases to read from the text. Each case study will show you the kinds of strategic decisions the case company needs to make. You can draw from these examples.

You have selected a case company for your project; you may use examples from there.

You are supposed to read widely from the business press about local, regional and international companies strategies. You can use examples from there as well.

6-86 BUSM 3200- Strategic Management (Jan 2013) GDS

Sample Exam Question:

Why would you want to do an environmental analysis? In answering the question critically discuss the objectives behind an environmental analysis as well as discuss what two of the relevant tools will tell the user and how they may collectively contribute to achieving the desired outcomes.



Discuss the various elements of the firm’s macro-environment. Give examples of how two of these elements might influence a firm’s business level strategy.


Sample Exam Questions:

Explain how Porter's Five Forces Analysis can be used in the formulation of business level strategy. Illustrate your answer with examples from any case you have studied from the text or other examples of your own.

NOTE: this question is not strictly on the five forces model alone because it needs to be LINKED to a future topic to be covered on “Business Strategies”

This however reminds us of the fact that exam questions are often set with overlapping or linked themes. Be prepared for this!



Discuss the following two forces in the industry environment: power of suppliers and power of buyers. Use examples to support your answer.

Note in this question, the examiner asks you to focus just

on two forces. It is therefore pointless to write about all the five forces. Learn to be selective!


sm lecture two : the environment

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