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The Strategic Position: The Environment
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Exploring Corporate Strategy 8e, © Pearson Education 2008 2-1
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
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-3
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
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-4
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
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-5
Exhibit 2.1 Layers of the business environment
The Organisation
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-6
The Macro-Environment
PESTEL
Scenarios
Key drivers
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-7
PESTEL Framework
Political Economic
Technological
Environmental Legal
Social
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-8
The PESTEL Framework
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-9
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.
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-10
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.
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-11
Industries and Sectors
Competitive forces
Competitive cycles
Industry life cycle
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-12
Exhibit 2.2 The Five Forces Framework
Competitive rivalry
Potential entrants
Buyers
Substitutes
Suppliers
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-13
The Threat of Entry: Barriers to Entry
Scale and experience
Access to supply and distribution channels
Expected retaliation
Legislation or government action
Differentiation
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-14
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
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-15
The Power of Buyers
Are buyers concentrated?
What are the costs of switching?
Does backward vertical integration exist?
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-16
The Power of Suppliers
Are suppliers concentrated?
What are the costs of switching?
Does forward vertical integration exist?
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-17
Degree of Competitive Rivalry
Competitor balance
Industry growth rate
High fixed costs
High exit barriers
Low differentiation
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-18
Managerial Implications
Which industries should we enter or leave?
What influence can we exert?
How are competitors differently affected?
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-19
Other Issues in a Five Forces Analysis
Define the ‘right’ industry
Determine whether industries are converging
Identify complementary products
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-20
Exhibit 2.3 The Industry Life Cycle
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-21
Exhibit 2.4 Cycles of Competition
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-22
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.
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-23
Exhibit 2.5 Comparative Industry Structure Analysis
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-24
Competitors and Markets
Strategic groups
Strategic customers
Market segments
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-25
What are Strategic Groups?
Strategic groups are organisations within an industry
with similar strategic characteristics, following similar
strategies or competing on similar bases.
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-26
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
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-27
Benefits of Identifying Strategic Groups
Understanding competition
Analysis of strategic opportunities
Analysis of mobility barriers
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-28
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.
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-29
Exhibit 2.7 Some Bases of Market Segmentation
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-30
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’?
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-31
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.
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-32
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.
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-33
Types of Opportunity
In substituteindustries
In other strategicgroups
In targetingbuyers
For complementaryproducts
In new market segments
Over time
Exploring Corporate Strategy 8e, © Pearson Education 2008 2-34
Case Example: The European Brewing Industry
Complete a PESTEL analysis of the European brewing industry.
Complete a five forces analysis for the industry.