The Strategic Environment International Business Strategy LON301BUS DO NOT ADD FURTHER SLIDES TO THIS PACK SAVE FILE USING THE FOLLOWING FORMAT: MODULE CODE UNIT NUMBER.PPT (E.G. LCM001U1.PPT) PLEASE DO NOT CHANGE TEMPLATE OR FORMATTING Unit: 3 Knowledgecast: 2

Module Learning Outcomes Communicate an in-depth understanding of the complexity of the environment and its applications on decision-making process Assess current developments in the organisational environment and alternative responses related to strategy Demonstrate the ability to construct and present quantitative and qualitative data effectively by the application of IT skills and methodological techniques This Knowledgecast focuses on defining the external environment and critically examining some of the tools/methods commonly used to analyse this environment.

The External Business Environment Layers of the business environment The organisation Competitors (or market) Industry (or sector) The macro environment The micro environment Organisation greyed out as INTERNAL (See Unit 3 Knowledgecast 1)

(far, remote, mediate, general) Macroenvironment “Consists of the forces at work in the general business environment which will shape the industries and markets in which the organisation competes”... “Is the part of the environment over which the business can rarely exert any direct influence but to which it must respond ” (Stonehouse, Hamill, Campbell and Purdie, 2000: pp 73 and 104). (far, remote, mediate, general) Strategic Management

(near, immediate, competitive, operating) Microenvironment “Is the competitive environment facing a business and it consists of the industries and markets in which the organisation conducts its business” (Stonehouse, Hamill, Campbell and Purdie, 2000: 73). (near, immediate, competitive, operating) Strategic Management

The Business Environment Company Internal Substitute Technological Buyer Political New Entrants Supplier Competitors Pick an organisation to illustrate SWOT making notes on the projection. Socio-cultural Image Copyright www.librarian.net/talks/nylink/nylink Economic Microenvironment Macroenvironment

M84 Strategic Management Industry Life Cycle M84 Strategic Management Gerry Johnson & Kevan Scholes: Exploring Corporate Strategy, Sixth Edition, © Pearson Education Ltd 2002

PEST Analysis Political Economic Socio-cultural Technological Strategic Management

PEST Analysis - Political Government stability Taxation, employment and safety law Social welfare policies Foreign trade regulations Relations between government and the organisation Government ownership of industry and attitude to monopolies and competition policy ‘Green’ issues that affect the environment Level and type of energy consumed – renewable energy? Rubbish, waste and its disposal Strategic Management

PEST Analysis - Economic Total GDP and GDP per head growth rates (trends) Inflation Consumer expenditure and disposable income Interest rates Currency fluctuations and exchange rates Investment, by the state, private enterprise and foreign companies Business cycles Unemployment Energy costs, transport costs, communications costs, raw materials costs Strategic Management

PEST Analysis - Socio-cultural Shifts in values and culture Change in lifestyle Consumerism Attitudes to work and leisure ‘Green’ environmental issues Education and health Demographic changes Distribution of income Social mobility Strategic Management

PEST Analysis - Technological Government and EU investment policy on research Government and industry focus on technological effort New patents and products Speed of change and adoption of new technology Rates of obsolescence The impact of the Internet Strategic Management

M84 Strategic Management Five Forces Framework M84 Strategic Management Gerry Johnson & Kevan Scholes: Exploring Corporate Strategy, Sixth Edition, © Pearson Education Ltd 2002

Five Forces Framework (cont.) Threat of new entrants (entry barriers) Economies of scale Differentiation Brand loyalty Start-up capital requirements Switching costs Access to supply and distribution channels Legislation or government action Retaliation (e.g. price cuts and advertising campaigns) Entry deterring price Strategic Management

Five Forces Framework (cont.) Determinants of substitution threat Product-for-product substitution (e.g. post mail and e-mail) Substitution of need (more reliable transports reducing the need for cars) Generic substitution (disposable income: boats/homes/furniture/holidays, etc.) Relative price/performance of substitutes Switching costs Effectiveness in meeting specific customer needs Willingness of buyers to substitute Product differentiation Brand loyalty Strategic Management

Five Forces Framework (cont.) Determinants of supplier power Concentration (number and size of the firms) Importance of suppliers’ sales that an industry represents Importance of the buyers in the industry as customers of the suppliers Differentiation of the product/service and alternative sources Switching costs The threat of backward integration by the buyer (the company in analysis) The threat of forward integration by the supplier Strategic Management

Five Forces Framework (cont.) Determinants of buyer power Concentration (number and size of the firms) Importance of buyers’ purchases to the total volume sold by the company Differentiation of the product/service and alternative sources Switching costs The threat of backward integration by the buyer (the company in analysis) The threat of forward integration of buyers by the company Access to information Strategic Management

Five Forces Framework (cont.) Competitive rivalry determinants Market growth rates (life cycle) Overcapacity Fixed costs Number of competitors in the industry Similarity of the size and power of the competitors Differentiation of the products/services provided (switching costs for buyers) Brand loyalty among consumers Barriers to exit (fixed costs of exit, emotional attachment, government restrictions, etc) Strategic Management

Five Forces Framework (cont.) Key questions arising from the ‘Five Forces’ Framework What are the key forces at work in the competitive environment? What are the underlying forces in the macroenvironment that are driving competitive forces? Is it likely that the forces will change, and if so, how? How do particular competitors stand in relation to these competitive forces? What can managers do to influence the competitive forces affecting the company? Are some industries more attractive than others? Strategic Management

External Changes and Value Creation Creating value is contingent on industry and market conditions The relation between the growth of market demand and the growth of industry capacity is central to value creation analysis Two possibilities exist: Market demand outruns industry capacity Industry capacity outruns market demand Make reference to market equilibrium theory…optimum is where market demand is equal to industry capacity but can greater value be created if market demand outruns industry capacity? Discuss critically with students.

Knowledgecast Summary Communicate an in-depth understanding of the complexity of the environment and its applications on decision-making process If different management functions, such as marketing and finance were to undertake the analysis using the same tool would the ‘output’ differ? What are the implications of this? Assess current developments in the organisational environment and alternative responses related to strategy How valuable are tools such as PESTEL or Porter’s Five Forces to businesses? Demonstrate the ability to construct and present quantitative and qualitative data effectively by the application of IT skills and methodological techniques Tools such as these can be used to analyse and present both quantitative and qualitative data. MAXIMUM THREE LEARNING OUTCOMES TO REVIEW: ONE REVIEW SUB BULLET PER LEARNING OUTCOME

Seminar Environmental Audit – Part One Carry out an analysis of the internal business environment of your case study organisation using one of the tools/methods covered in this unit. Bring your preparatory research to the seminar. On the whiteboard your tutor will ‘populate’ the tool/method chosen drawing on your research.

Group Activity Environmental Audit – Part Two Assessment Preparation – Research You have an opportunity to use this time to continue to gather information regarding the business environment of your case study organisation, which will be invaluable in preparing you for the first assignment. Assessment Preparation – Presentation Design You will also have an opportunity to use this time to design your presentation regarding the business environment of your case study organisation, which will be invaluable in preparing you for the first assessment. Ensure each member of the group understands and accepts their role and responsibilities.