Strategy

Johnson, Scholes and Whittington, Exploring Corporate Strategy, 8 th Edition, © Pearson Education Limited 2008 Slide 2.2  Examine the layers of the business environment.  Identify frameworks that can be used to analyse the External environment  Analyse the environment for a given business using PESTLE analysis.

Johnson, Scholes and Whittington, Exploring Corporate Strategy, 8 th Edition, © Pearson Education Limited 2008 Slide 2.3  The wider environment provides a business with opportunities for growth, but is also a source of threat.  Business needs to consider three layers – there are frameworks to help them.

Johnson, Scholes and Whittington, Exploring Corporate Strategy, 8 th Edition, © Pearson Education Limited 2008 Slide 2.4 Exhibit 2.1 Layers of the business environment

Johnson, Scholes and Whittington, Exploring Corporate Strategy, 8 th Edition, © Pearson Education Limited 2008 Slide 2.5  Contains broad factors that influence most, if not all, businesses.  Analysed using a PESTEL framework.  Gives a business the key drivers of change.  A SWOT analysis can be used to assess the business against these factors.

Johnson, Scholes and Whittington, Exploring Corporate Strategy, 8 th Edition, © Pearson Education Limited 2008 Slide 2.6  Detailed, plausible views of how the environment might develop in the future.  Typically start from the key drivers with the greatest uncertainty – could have the most radical impact.  Used to consider possible alternatives rather than to predict the future. Handout – p.58, Johnson and Scholes (2008)

Johnson, Scholes and Whittington, Exploring Corporate Strategy, 8 th Edition, © Pearson Education Limited 2008 Slide 2.7  The next layer of the business environment considers a particular industry or sector.  A group of businesses all selling similar products or providing similar services.  Analysed using Porter’s Five Forces Model.

Johnson, Scholes and Whittington, Exploring Corporate Strategy, 8 th Edition, © Pearson Education Limited 2008 Slide 2.8 Exhibit 2.2 The five forces framework 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

Johnson, Scholes and Whittington, Exploring Corporate Strategy, 8 th Edition, © Pearson Education Limited 2008 Slide 2.9  Threat of entry  Threat of entry – depends upon scale and extent of barriers to entry; factors prohibiting new entrants to market.  Threat of Substitutes  Threat of Substitutes – products or services from a different industry that offer similar benefits.  The power of buyers  The power of buyers – buying power of customers.  The power of suppliers  The power of suppliers – powerful suppliers such as Microsoft can eat into projected profits if they raise prices.  Competitive rivalry  Competitive rivalry – the direct competition (number and size of) between businesses with similar products / services and similar customers.

Johnson, Scholes and Whittington, Exploring Corporate Strategy, 8 th Edition, © Pearson Education Limited 2008 Slide 2.10  Framework helps to analyse the attractiveness of the industry – used to decide whether or not to compete.  Industries more attractive when the forces are weak. Should avoid markets with strong forces.  Can markets be influenced? – Organisations can build barriers to entry or increase power over customers/suppliers through buying out competitors.  How are competitors affected? – changes in forces may affect smaller businesses more than larger ones.

Johnson, Scholes and Whittington, Exploring Corporate Strategy, 8 th Edition, © Pearson Education Limited 2008 Slide 2.11  Defining the “right” industry – can’t produce one analysis for market with different segments (e.g. car industry).  Analysis of different segments required (Family, Luxury, Used, Commercial).  Converging industries – technology industries in particular are causing boundary changes  (eg, Smartphone now substitute for Camera)  Complementary products – not normally considered, but complementors may choose to cooperate rather than compete (Microsoft/Dell)  Time – clearly forces change over time. Should we compare over time?

Johnson, Scholes and Whittington, Exploring Corporate Strategy, 8 th Edition, © Pearson Education Limited 2008 Slide 2.12 Source: Adapted from V. Lerville-Anger, F. Fréry, A. Gazengel and A. Ollivier, Conduire le diagnostic global d’une unité industrielle, Editions d’Organisation, Paris, 2001

Johnson, Scholes and Whittington, Exploring Corporate Strategy, 8 th Edition, © Pearson Education Limited 2008 Slide 2.13  Five forces can impact differently on different kinds of players (e.g. Skoda and Ferrari)  Focus upon Strategic groups – Organisations within an industry or sector with similar characteristics.

Johnson, Scholes and Whittington, Exploring Corporate Strategy, 8 th Edition, © Pearson Education Limited 2008 Slide 2.14

Johnson, Scholes and Whittington, Exploring Corporate Strategy, 8 th Edition, © Pearson Education Limited 2008 Slide 2.15 Characteristics for identifying strategic groups Sources: Based on M.E. Porter, Competitive Strategy, Free Press, 1980; and J. McGee and H. Thomas, ‘Strategic groups: theory, research and taxonomy’, Strategic Management Journal, vol. 7, no. 2 (1986), pp. 141–160

Johnson, Scholes and Whittington, Exploring Corporate Strategy, 8 th Edition, © Pearson Education Limited 2008 Slide 2.16  Competition can also be analysed through market segmentation.

Johnson, Scholes and Whittington, Exploring Corporate Strategy, 8 th Edition, © Pearson Education Limited 2008 Slide 2.17  Important to understand which product features are important to particular market segments.  Can compare critical success factors – factors of particular importance to customer choice, given similar prices.

Johnson, Scholes and Whittington, Exploring Corporate Strategy, 8 th Edition, © Pearson Education Limited 2008 Slide 2.18

Johnson, Scholes and Whittington, Exploring Corporate Strategy, 8 th Edition, © Pearson Education Limited 2008 Slide 2.19  Environmental analysis should be used to identify specific strategic Opportunities and Threats for the organisation.  Leads to first half of SWOT analysis.  Organisations want to reduce threats and take advantage of best opportunities.

Johnson, Scholes and Whittington, Exploring Corporate Strategy, 8 th Edition, © Pearson Education Limited 2008 Slide 2.20  Examine the layers of the business environment.  Identify frameworks that can be used to analyse the External environment  Analyse the environment for a given business using PESTLE analysis.