strategy and strategic analysis gest-s-468static.skynetblogs.be/media/220959/836106622.pdf ·...

Strategy and Strategic Analysis

GEST-S-468

Pr Manuel Hensmans

Your student reps!

• ULB students – Jamy Delfosse [email protected]

– Corentin Scarcez [email protected]

• Exchange students – Inga Salaseviciute [email protected]

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mailto:[email protected]



Blog

• Please check regularly! – http://strategy2013.skynetblogs.be/

• Class schedule, syllabus, slides, cases, e-clips, ...

• Exam info!

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http://uv.ulb.ac.be/



Overview Course

• Introduction – Class 1: What is Strategy?

• Part I: The Strategic Position What is our current strategic context?

– Class 2: The Environment

– Class 3: Strategic Capabilities

– Class 4: Strategic Purpose

– Class 5: Culture and Strategy

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Overview Course (2)

• Part II: Strategic Choices What choices can we make for the future?

– Class 6: Business strategy

– Class 7: Corporate strategy

– Class 8: McKinsey guest lecture

– Class 9: International Strategy

– Class 10: Innovation I

– Class 11: Innovation II

– Class 12: M&A, alliances, organic growth

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Overview Course (3)

• Part III: Strategy in Action How do we get there in practice?

– Class 13: Strategy development processes

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Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Slide 2.7

The Strategic Position 2: The Environment

Learning outcomes (1)

• 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 (2)

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

• Importance strategic customer

Layers of the business environment

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The PESTEL framework

The PESTEL framework categorises macro-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.

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Political

• Government support for national carriers

• Security controls

• Restrictions on migrations

Economic

• National and regional growth rates

• Fuel prices (euro exchange rates)

Social

• Rise in travel by elderly

• Student international study exchange

Technological

• Fuel-efficient engines

• Security check technology

• Business teleconferencing

Environmental

• Noise pollution controls

• Energy consumption controls

• Land for growing airports

Legal

• Restrictions on mergers

• Preferential airport rights

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Political

• Political pressures against drinking & driving / binge drinking

Economic

• Rise of the Asian economies

• Energy prices soaring

Social

• Maturing tastes N-Europe / rising consumption S-Europe/Asia

• Awareness of alcohol on fitness

Technological

• Innovations around products such as ice-cold lager

Environmental

• Packaging issues

Legal

• Changes in licensing laws & permitted alcohol limits for driving

Use key PESTEL factors to build scenarios

Goal scenario analysis? 1) Predict future scenarios

2) Debate plausible scenarios

3) Forecast scenarios

• Consider plausible alternative futures

do not to attempt to predict the unpredictable

• Value = Organizational learning & debate

Give scenarios memorable titles

• How many scenarios? – Avoid 3 scenarios: increases risk-aversion

• Managers will go for the middling scenario

• Two or four scenarios – avoid an easy mid-point

• Adapt strategy to how scenarios actually play out

– Influence & monitor environment

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Scenario analysis

From PESTEL to scenarios?

• Identify key factors • high impact on the industry, market and organisation in question

– factors that bring most uncertainty

• In brewing industry?

– Shifting geography of consumption

• Shift to Asian economies and southern Europe (under Ec & S)

– Responsibility for product side-effects in West

• Increasing hostility to side-effects of drinking in West (under P and L)

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Attitudes to drinking & side-effects in - Part of everyday life - Little consideration of side-effects - Self-control expected even when intoxicated

Scenarios brewing industry (2022)

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Tobacco II Escape from

Alcatraz

Colonising the world

lMuch ado about

nothing

High

responsibility

side-effects

Low

responsibility

side-effects

Rapid

geographical

shift

Slow

geographical

shift

% Chinese men that smoke? 53

% Chinese doctors (GPs) that smoke? 50

% of Chinese adults who believe smoking causes health problems? 20

Scenarios brewing industry (2022)

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Tobacco II Escape from

Alcatraz

Colonising the world

lMuch ado about

nothing

High

responsibility

side-effects

Low

responsibility

side-effects

Rapid

geographical

shift

Slow

geographical

shift

Scenarios for the global financial system, 2020 https://members.weforum.org/pdf/scenarios/TheFutureoftheGlobalFinancialSystem.pdf

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TRY YOURSELF!

European Airlines industry

Financial Services industry!

https://members.weforum.org/pdf/scenarios/TheFutureoftheGlobalFinancialSystem.pdf

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Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011

Layers of the business environment

Industry analysis

• What is an industry?

– Firms producing same principal products/services

• 2 goals of industry analysis?

– Assess attractiveness industry structure

• Should we get in or out?

– Can we shape industry structure in our favour

• Not just passive stance

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Industry analysis: 5 forces framework

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1 Threat of Entry

• 5 main considerations – Economies of scale and experience

• Automobiles, advertising FMCG, biopharma

– But Internet banking (only 10,000 customers to be viable)

– Expected retaliation

• Price war or marketing blitz; global retaliation

– Access to supply or distribution channels

• Problem for new entrants in industries with retail component

– Yet, bypassed by Dell and Amazon

– Legislation or government action

• From patent protection to tariffs

– (De)regulation!

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1 Threat of Entry

• Height entry barriers – Differentiation

• Soft drinks versus steel

– Brand loyalty versus commoditizaton

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2 Threat of substitutes

• Substitutes are? – Products/services that offer similar benefit to an industry’s products or services, but

by a different process coming out of different industry

• Price/performance ratio • Alumnium vs steel in automobile manufacturing applications

• Videoconferencing vs travel

• Extra-industry influences – Always take into account!

• Demand wired telephone lines in emerging economies

– Capped due to?

• choice for wireless mobilies

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3 Power of Buyers

• Buyers are? – organization’s immediate customers, not necessarily ultimate consumers

• B2B versus B2C

• 3 main factors – Concentrated buyers

• Few grocery retailers = bulk of milk market demand

– Low switching costs

• Low for weakly differentiated commodities

– Steel, airlines, hotels

– Buyer competition threat

• Buyer owns supply or retail facilities?

– Threat of backward vertical integration

• E.g some steel companies own iron ore sources themselves

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4 Power of Suppliers

• 3 main factors – Concentrated suppliers

• Iron ore industry: 3 main producers

– Most steel companies still weak bargaining power

– High switching cost

• Microsoft’s operating system / office software

– Buyers prepared to pay premium to avoid hassle

– Supplier competition threat

• Foward vertical integration: e.g. on-line booking

– Low-cost airlines cut out travel agencies

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5 Competitive rivalry

• Among existing industry competitors – Competitor balance

• Numerous or roughly equal in size & power?

• One or two very dominant = less intense rivalry

– Industry growth

• Slow often means fierce rivalry

– Fixed costs

• High often means fierce rivalry

– Need larger volume to lower unit costs (overcapacity!)

– Exit barriers

• High tends to increase rivalry (esp declining ind)

– Differentiation

• Low increases rivalry

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Industry structure: profitability & growth

• Choice of industry has important consequences – Soft-drinks, pharmaceutical: 5 star industry

• Five forces are relatively weak

– Airlines, hotels: 0 star industry

• Five forces are relatively strong

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Airline industry: profitability? (US figures)

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Annual Loss and Earnings

1990 $ 3.9 billion loss





1995 $ 2.3 billion profit











US airlines (but also EU!) - Never a sustained return on

investment!

- Long periods of loss-making

- Spurts of mediocre profitability

Airlines industry: 5 forces

1. Threat of entry? – Low barriers of entry make for a constant stream of new entrants

• You can rent a plane, lease a gate, it’s all generic technologies

• No high capital requirements for planes: high resale value!

• Can start with one flight, very sexy industry

• Overall threat? strong

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2. Threat of substitutes? – Business travellers: videoconferencing

– Short-haul customers: trains, cars, ferries

• Overall threat? strong

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3. Power of buyers? – Online-comparison easy

– Strong middle men

– Buy tickets in bulk and sell to customers

• Overall buyer power? strong

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4. Power of suppliers? – Only 2 main manufacturers

• Boeing and Airbus

– Airports have lots of clout

– Pilots

• No substitute!

• If they strike they can shut you down!

• Overall supplier power? strong

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5. Competitive rivalry? – Very hard to differentiate economy travel

• Same planes, seats

– All about price!

• Overall strength rivalry? strong

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What can airlines do?

• Buyer power – Find better ways of differentiating

– Sell directly to customers

• Supplier power – Encourage new aircraft manufacturers

• Bombardier, Embraer...

• Substitutes – Improve reliability and check-in procedures

– Total journey times should fall!

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What can airlines do?

• New entrants – Find ways to discourage airports and others to let in new players

• Competitive rivalry – Enforce new price discipline

• Form new alliances

• Let strong players take over weak ones

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Industry analysis: difficulty! Strategic Customer

Industry analysis: difficulty! Strategic Customer

• The Strategic customer – the person(s) in market segment at whom the strategy is primarily

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

most disliked European short-haul airline

– Poll TripAdvisor (Oct 2006), Polls Consumer Watchdogs (2008-2013)

• Amongst frequent (business) travellers

– E-clip parody low-cost airlines

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• Market segment

– budget travellers

• Not business travellers

– Travel from low-cost, low-tax point to point airports

• not hub & spoke

• Strategic customer

– On-line end customer

• Not large businesses or travel agencies

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Does not care at all about parody!

Do the exercise for the European brewing industry!

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Threat of entry: global brewers

• Facilitating entry

– Beer brands enter new territories through industry consolidation

• Budweiser & ABInbev

– Counter-globalization niche for micro-brewers

• lots of small, specialist regional brewers with authentic experience

• Discouraging entry

– High on experience curve / capital requirements given mature, consolidating industry

– Strict regulations, high taxes and high retaliation odds

– Importance international branding to command premium price

• Overall threat of entry?

moderate

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Threat of substitutes: global brewers

• Maturing tastes in N-Europe

• Diversification threat

– from wine and cider/perry, other non-beer industries

• Overall threat of substitutes?

– moderately strong

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Power of buyers: global brewing

• Buyers are? – Supermarkets, hypermarkets, specialist retailers, clubs, pubs, restaurants…

• Forces that strengthen buyer power? – Low switching costs for some standard beers

– Large supermarkets can negotiate on bulk purchases

• Forces that weaken buyer power? – Diversity & number

– Brewers differentiate beers globally and locally

• Buyers around the world have to offer large variety of beers

– Some forward integration by larger brewers

• Into pubs

• Overall buyer power?

– moderate

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Power of suppliers: global brewing

• Suppliers are?

– providers of raw materials, other flavoring, packaging, machines, equipment and licenses

• Forces that strengthen supplier power?

– Smaller, traditional brewers not vertically integrated

• Even Heineken purchases malt on a contractual basis

– Quality raw material is highly important

• Forces that weaken buyer power?

– Independent hop growers are numerous

– Scale dominant multinational players

- e.g. SabMiller now grows own hops, and has its own apple orchards

• Overall supplier power?

moderate

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Competitive rivalry: global brewing

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Competitive rivalry: global brewing

• Increasing rivalry – recent economic downturn (depressing already slim margins)

– presence of large incumbents (overcapacity!)

• high fixed costs

• specialized assets lead to high exit barriers

– globalization of brands

• No territory is shielded from competiton anymore

• Decreasing rivalry – New differentiation

• “Light” beers (health)

• Overall rivalry? – strong

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Summary 5 forces: global brewing

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What can brewers do?

• Differentiate premium brands internationally

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• Standard lager sells best world-wide

– Potential growth low/non-alcohol beer!

• Cider, flavoured & light beers

– Innovative marketing campaigns

• 2014 FIFA World Cup

• Focus on Asia & Brazil

– rising disposable incomes & cultural shift twds alcoholic bvges

• Africa & Middle East

– Biggest growth potential

• Further consolidation?

– AB Inbev & SabMiller to drive down costs!

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What can brewers do?

• Differentiate premium brands internationally

–

• Standard lager sells best world-wide

– Potential growth low/non-alcohol beer!

• Cider, flavoured & light beers

– Innovative marketing campaigns

• 2014 FIFA World Cup

• Focus on Asia & Brazil

– rising disposable incomes & cultural shift twds alcoholic bvges

• Africa & Middle East

– Biggest growth potential

• Further consolidation?

– AB Inbev & SabMiller to drive down costs!

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