Analysis of the Strategic Environment Lecture 2

Learning Objectives 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 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 Ocean’ within industries. Use these various concepts and techniques in order to recognise threats and opportunities in the marketplace.

Introduction Strategic Position Culture Strategy Strategic in Choices Environment Capability Purpose Culture Strategic Choices Strategy in Action Johnson, Whittington and Scholes (2011)

Figure 1: Layers of the business environment Introduction (cont.) Figure 1: Layers of the business environment The macro-environment Industry (or sector) Co Competitors The Organisation Markets Johnson, Whittington and Scholes (2011)

The Macro-Environment The PESTEL Framework Key drivers for change Figure 2. PESTEL Analysis of the Airline Industry Political Governmental support for national carriers Security control Restrictions on margins Economic National growth rates Fuel prices Social Rise in travel by elderly Student international study exchange Technological Fuel-efficient engines and airframes Security check technologies Teleconferencing for business Environmental Noise pollution controls Energy consumption controls Land for growing airports Legal Restrictions on mergers Preferential airport rights for some carriers Johnson, Whittington and Scholes (2011)

The Macro-Environment (cont.) Building Scenarios Identifying the scope Identifying the key drivers for change Selecting opposing key drivers Developing scenario ‘stories’ Identifying impacts – robustness check and contingency plans Slow geo-economic shift Rapid geo-economic shift Harmonised financial coordination Re-engineered Western-centrism Rebalanced multilateralism Discordant financial coordination Fragmented protectionism Financial regionalism Johnson, Whittington and Scholes (2011)

Industries and Sectors Competitive forces – the five forces framework Potential entrants Threat of entry Competitive Rivalry Suppliers Buyers Bargaining power Bargaining power Threat of substitutes Substitutes Johnson, Whittington and Scholes (2011)

Competitive forces – the five forces framework The treat of entry Barriers to entry Scale and experience Access and supply or distribution channels Expected retaliation Legislation or government action Differentiation

Competitive forces – the five forces framework (cont.) The threat of substitutes -Important conditions: The price/performance ratio Extra-industry effects

Competitive forces – the five forces framework (cont.) The power of buyers Important conditions: Concentrated buyers Low switching costs Buyer competition threat

Competitive forces – the five forces framework (cont.) The power of suppliers Important conditions: Concentrated suppliers High switching costs Supplier competition costs

Competitive forces – the five forces framework (cont.) Important conditions Competitive balance Industry growth rate High fixed costs High exit barriers Low differentiation

Types of industries Monopolistic Oligopolistic Hypercompetitive Perfectly competitive

Implications of five forces analysis Which industries to enter/leave? What influence can be exerted? How are competitors differently affected?

Key issues in using the five forces framework Defining the ‘right’ industry Converging industries Complementary organisations – complementor, value net

The value net Harvard Business Review (1995), Adam M. Brandenburger and Barry Nalebuff

The dynamics of industry structure The industry life cycle Johnson, Whittington and Scholes (2011)

The evolution of industry structure and competition over the life cycle http://www.toknowpress.net/ISBN/978-961-6914-02-4/papers/ML13-300.pdf

Comparative industry structure analysis

Cycles of competition

Competitors and Markets Strategic groups Scope of activities Extent of product/service diversity Extent of geographical coverage Number of market segments served Distribution channels used Resource commitment Extent/number of branding Marketing effort (advertising, sales force, etc.) Extent of vertical integration Product or service quality Technological leadership (a leader or follower) Size of organisation Johnson, Whittington and Scholes (2011)

Strategic Groups

Market segments http://s3-eu-west-1.amazonaws.com/tutor2u-media/subjects/business/diagrams/marketing-segmentation-bases1.jpg?mtime=20150313144621

Blue Ocean thinking http://www.12manage.com/images/picture_blue_ocean_red.gif