Strategy A View From the Top By: Kluyver & Pearce

CHAPTER 3: ANALYZING THE EXTERNAL STRATEGIC ENVIRONMENT

Strategy A View From the Top

By: Kluyver & Pearce

Globalization

Globalization as a political, economic, social, and technological force, seems unstoppable. In this era the lines between countries has been broken and the flow of information is being shared at and incredibly fast pace.

Globalization centers on the flow of high technology and real-time information as defining traits of the modern world economics.

Globalization Continued

3 Primary Reasons for Globalization Political globalization

Marked with the fall of communism in the 1989 Economic globalization

Countries opted for democracy and market driven economies

Deregulated industries Privatized formally state run enterprises Liberated capital flows

Technological Globalization

Regionalism

Some analysts view regionalism as the stepping stone to a global economy. But others view that it will create more tension between as like countries and societies forge economic and political structures. Examples

NAFTA – Canada, United States, Mexico EU- accounts for 25% of all world trade ASEAN- coordinates trading policies for Southeast Asia EUROMED- group of 12 Mediterranean countries for free

trade Mercosur- small trading club founded by Argentina,

Brazil, Paraguay, and Urugauy.

New Powerhouses: India and China

India GDP has grown more than 5% annually in the last 5 years Western style is taking hold Investments are growing Foreign capitol and technology are coming in

China Preferred location for manufacturing companies Huge population Low labor cost Foxconn Example

Global Tectonics

Study done by the Penn State Center for Global Business Studies

-Refers to the developing trends in technology, nature, and society slowly revolutionize the business environment, much like the Earths tectonic plates shifting the ground.

Global Tectonics Continued

Environmental Tectonics Arise from the interaction between people and their

environment, such as the growth of the worlds population or the phenomenon of urbanization.

Technological Tectonics Advances in biotechnology, nanotechnology, information

systems power economic growth and development, global integration, and the speed by which the global economy is becoming a “knowledge” economy.

Societal Tectonics Represents the shift in international governance and

political and cultural value.

12 Global Trends

The project identified 12 global trends that are likely to present the most significant challenges for the companies in the next 30 years.

12 Global Trends Continued

1. Population TrendsAcross the planet, demographics trends are transforming societies, changing patterns of economic activity, creating new economic and social dependencies, and altering the geopolitical landscape World population is expected to hit 7.8 Billion by 2025 and 9

billion by 2050 Growth is higher in areas least capable of supporting such

growth New Migration and imagration patterns will emerge Aging population in Europe, United States, and Japan will

present challenges for the public and private sector


2. UrbanizationMigration from rural to urban areas is rapidly becoming a major challenge. Today less than half of the worlds population live in cities, by 2030 this number is suppose to increase 60% Local and federal governments will be pressed to provide

necessary infrastructure and social services Rising potential for social, health – related, economic, and

security volatility Mega cities with 10 milion or more will become a commonplace.

These trends offer large opportunities for business


3. The Spread of Infectious Disease As levels of migration and cross-border flow of labor and

goods increase, the likelihood of epidemics and the spread of infectious disease become greater.

The impact on the economic growth and development can be enormous.

Many of these problems would have to be provided by the private sector – from heath care infrastructure to developing new drugs.

Example Swine Flu


4. Recourse Management The strategies of many companies around the

world depend on the availability of such critical resources as water, food, and energy.

Energy availability is an ongoing concern in many industries and has spawned innovation and investment in a whole new range of renewable source of energy.


5. Environmental Degradation

“Global Warming”

Solution to these problems will require a partnership between the private sector and the regulatory authorities on a global scale.


6. Economic Integration higher levels of cross border economic activity

have increased interdependence among the worlds economies and created a fully integrated economic system on the global scale.

Example Airbus Wings are manufactured in Britain Fuselage and tail in Germany Doors in Spain Cockpit in France


7.Knowledge Dissemination Knowledge is changing the nature of the products and

services companies bring to the market and the business model they use to develop and manage.

Smart products – interactive products that become smarter the more they are used and that can be customized are a primary focus of modern product development

Example of a tire that notifies the driver that the air pressure is low


8. Information Technology Changed the way we do business People can now log into websites to look up orders

and track shipments. Businesses have created intranets so that employees

can work together on projects and still be hundreds of miles away.

People are now able to work from home to balance work and family life.


9. Biotechnology Rapid advances in humankinds ability to understand

and manipulate the basic elements of life are likely to fundamentally alter scientific inquiry and offer solutions to problems that could not be solved before

The bio technology revolution is likely to have the greatest potential in three areas. Medicine Agriculture environment


10. Nanotechnology The ability to create new materials one atom at a time

is fundamentally reshaping our vision of the future, with stronger and lighter materials that will reduce the cost of transportation and reduce pollution.

Example “Nanomedicines” that will be able to monitor, repair, and

control human biological systems.


11. Conflict

The fall of the Berlin wall in 1989 changed the nature of international conflict. Now we have multiple civil and intracountry conflicts, that are mostly clusters of developing countries.

Terrorism has become a major threat for business and civil society and continues to threaten the stability of the international political and economic order.


12. Governance Societies and corporations are connected by two

interrelated sets of laws1. Rule of law defined by local and national legislatures,

multilateral agreements, and an emerging body of international law

2. Market defines the second law

Risk and Uncertainty

To capture the lack of predictability, decision making situations often are described in three ways1. Certainty – accurate, measurable information in

known

2. Uncertainty – little is known about the outcomes

3. Risky- we cannot predict its outcome

We must be able to assess the degree of uncertainty associated with relevant events, the speed with which changes are likely to occur, and the possible outcomes they foreshadow.

Scenario Analysis

The purpose is to analyze the effects of various uncontrollable change forces on the strategic playing field and to test the resiliency of specific strategic alternatives. Divides Knowledge into two categories:

1. Things we believe we know something about

2. Elements we consider uncertain or knowable

Scenario Analysis Continued

Scenario- building process1. Deciding what possible future developments to

probe, which trends-technology changes, demographic changes, or resource issues.

2. Identifying what forces or developments are likely to have the greatest ability to shape the future.

3. Constructing a comprehensive set of future scenarios based on different combinations of possible outcomes.

4. Generating scenario- specific forecasts that allow an assessment of the implications of the alternative futures for strategic postures and choices.

Global Futures: The Global Scenario Group

The Global scenario group examined a number of scenarios that would develop in the twenty first century based on Conventional worlds, Barbarization, and Great transition.

Global Futures: The Global Scenario Group Continued

Conventional World Scenarios1. Market Forces – incorporated mid range population

and development projections and typical technological change assumptions.

2. Policy Reform – Adds strong, comprehensive, and coordinated government action, as called for in many policy – oriented discussions of sustainable, to achieve greater social equity and environmental protection.


Barbarization Scenarios1. Breakdown- crises combined and spin out of control ,

leading to unbridled conflict, institutional disintergration, and economic collapse.

2. Fortress World – This variant features an authoritarian response to the threat of breakdown


Great Transitions Scenarios1. Eco-Communalism – incorporates the green vision of

bioregionalism, localism, face-to-face democracy, small technology, and economic autarky.

2. New Sustainability Paradigm - Shares some of the goals of the eco – communalism scenarios, but would seek to change the character of the urban, industrial situation, rather than to replace it, build a more humane and equitable global civilization rather than retreat into localism.

A New Compact Between Business and Society?

In the emerging environment, companies will find it harder to do business as usual.

Traditional strategies for companies grow, cut cost, innovate, differentiate, and globalize are now subject to a set of new laws of doing business in relationship to society.

A New Compact Between Business and Society? Continued

1. Size means Scrutiny2. Cutting cost raises compliance risk 3. Strategy must involve society 4. Reducing risks means building trust5. Satisfying shareholders means satisfying

stakeholders6. Global growth requires global gains7. Productivity requires sustainability8. Differentiation relies on representation9. Good governance needs good representation

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Strategy A View From the Top By: Kluyver & Pearce