Tutor Peter Considine. (Core Text Exploring (Corporate) Strategy, © Pearson Education Ltd 2008 or 2011) 1 Lecture Week 2 Assessing The Strategic Position. The External Situation Part 1

Tutor Peter Considine. (Core Text Exploring (Corporate) Strategy, © Pearson Education Ltd 2008 or 2011) 2 Learning Outcomes To be able to describe the forces in the macro-environment of an organisation using PESTEL and a range of other frameworks Understand key drivers for globalisation and frameworks for National Competitive Advantage Be able to develop Scenarios and explain their implications

Tutor Peter Considine. (Core Text Exploring (Corporate) Strategy, © Pearson Education Ltd 2008 or 2011) 3 Exhibit 2.1 Layers of the business environment The Organisation

Tutor Peter Considine. (Core Text Exploring (Corporate) Strategy, © Pearson Education Ltd 2008 or 2011) 4 The Macro-Environment PESTEL Scenarios Key drivers Diversity-Many different influences Complexity- Interconnected influences Speed of change Particularly ICT

Tutor Peter Considine. (Core Text Exploring (Corporate) Strategy, © Pearson Education Ltd 2008 or 2011) 5 Macroenvironment – PESTEL (1) Exhibit 2.2

Tutor Peter Considine. (Core Text Exploring (Corporate) Strategy, © Pearson Education Ltd 2008 or 2011) 6 The PESTEL Framework

Tutor Peter Considine. (Core Text Exploring (Corporate) Strategy, © Pearson Education Ltd 2008 or 2011) 7 Macroenvironment – PESTEL (2) Exhibit 2.2 Political Government stability Taxation policy Foreign trade regulations Social welfare policies Economic Business cycles GNP trends Interest rates Money supply Inflation Unemployment Disposable income

Tutor Peter Considine. (Core Text Exploring (Corporate) Strategy, © Pearson Education Ltd 2008 or 2011) 8 Macroenvironment – PESTEL (3) Exhibit 2.2 Sociocultural Population demographics Income distribution Social mobility Lifestyle changes Attitudes to work and leisure Consumerism Levels of education Technological Government spending on research Government and industry focus on technological effort New discoveries /developments Speed of technology transfer Rates of obsolescence

Tutor Peter Considine. (Core Text Exploring (Corporate) Strategy, © Pearson Education Ltd 2008 or 2011) 9 Macroenvironment – PESTEL (4) Exhibit 2.2 Environmental Environmental protection laws Waste disposal Energy consumption Legal Competition law Employment law Health and safety Product safety Note a PESTEL is not just a list of influences We need to understand key drivers for change which have differential impacts on industries, markets and organisations Focus is on the future impact of factors (e.g. scenario planning The combined effect of some factors likely to be most important

Tutor Peter Considine. (Core Text Exploring (Corporate) Strategy, © Pearson Education Ltd 2008 or 2011) 10 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.

Tutor Peter Considine. (Core Text Exploring (Corporate) Strategy, © Pearson Education Ltd 2008 or 2011) 11 Drivers of Globalisation Source: Based on G. Yip, Total Global Strategy ll, FT/Prentice Hall, 2003, chapter 2. Exhibit 2.3 See Exploring Corporate Strategy 2011 ed, Page edition: Page 297

Tutor Peter Considine. (Core Text Exploring (Corporate) Strategy, © Pearson Education Ltd 2008 or 2011) 12 Porter’s Diamond The Determinants of National Advantage Source: M. Porter, Competitive Advantage of Nations, Macmillan, Exhibit 2.4 See Exploring Corporate Strategy, 2011 ed. p270 or 2008.p301

Tutor Peter Considine. (Core Text Exploring (Corporate) Strategy, © Pearson Education Ltd 2008 or 2011) 13 Determinants of National Advantage Some nations are more competitive than others –Fostering domestic competition (Porter 1990,1998) Some industries within nations are more competitive than others Clusters of organisations from the same industry/sector

Tutor Peter Considine. (Core Text Exploring (Corporate) Strategy, © Pearson Education Ltd 2008 or 2011) 14 SCENARIO PLANNING Detailed and plausible views of future development of environment, based on groupings of key environmental influences and drivers of change about which there is a high level of uncertainty Different views of possible futures Long term view of strategy See Handbook/Blackboard site for the stages in developing scenarios and the illustration “Building Scenarios” in the core text “Exploring Corporate Strategy” – “Scenarios in the Bio Sciences” page 58

Tutor Peter Considine. (Core Text Exploring (Corporate) Strategy, © Pearson Education Ltd 2008 or 2011) 15 Scenario Planning As strategists we should recognise that an industry analysis does not necessarily end with a PESTEL/Five Forces etc. We often have to develop future possible scenarios especially when dealing with high levels of uncertainty The first step is to identify the key factors which act upon the industry – focusing in particular upon those that will have a high impact and are uncertain in nature

Tutor Peter Considine. (Core Text Exploring (Corporate) Strategy, © Pearson Education Ltd 2008 or 2011) 16 Scenario Planing cont. Step One: Identify between 5 to 8 key trends – From PESTEL/FIVE Forces etc Step Two: Identify and list forces likely to have an high impact on the industries future development. (list as many as you can think of) Step 3: Split these into two categories: Which of these are Certain Uncertain Step Four: Identify different possible futures by each of the factors with the highest likely impact and the greatest uncertainty (try to come up with 3 to 5) Step Five: For each of the above in step 4 identify in columns – Big Positive change (i)No Change(ii) Big negative change(iii) –1……… –2……… Step Six: Finally develop the scenarios based on the three possible future states for a –1. Benign Change –2. Moderate Change –3. Hostile Change See example in core text exploring corporate strategy and Blackboard week 2

Tutor Peter Considine. (Core Text Exploring (Corporate) Strategy, © Pearson Education Ltd 2008 or 2011) 17 Industries and Sectors Competitive forces in the industry : – Determine attractiveness of industry – Affect the way individual companies compete – Influence decisions on product/market strategy Industry – a group of firms producing the same principal product, e.g. mobile phones Sector – a group of organisations providing the same kinds of services, e.g. healthcare Industry – a group of firms producing the same principal product, e.g. mobile phones Sector – a group of organisations providing the same kinds of services, e.g. healthcare

Tutor Peter Considine. (Core Text Exploring (Corporate) Strategy, © Pearson Education Ltd 2008 or 2011) 18 Changing Boundaries of Industry Convergence –Previously separate industries begin to overlap in activities, technologies, products and customers –Supply-led, e.g. bundling and unbundling of sectors in public services externally driven by government regulation externally driven by e-commerce trends –Demand-led, e.g. Substitution of one product by another Customers want bundling of complementary products Creates new market segments

Tutor Peter Considine. (Core Text Exploring (Corporate) Strategy, © Pearson Education Ltd 2008 or 2011) 19 Competitiveness Business –Gaining advantage over competitors Competitive advantage Public sector –Demonstrable excellence in service delivery Assess attractiveness of different industries/sectors Identify sources of competition in an industry/sector Porter’s Five Forces – Next Week Assess attractiveness of different industries/sectors Identify sources of competition in an industry/sector Porter’s Five Forces – Next Week

Tutor Peter Considine. (Core Text Exploring (Corporate) Strategy, © Pearson Education Ltd 2008 or 2011) 20 Environment Part 1– Key Points PESTEL identifies key drivers of change Scenario planning involves building upon a PESTEL analysis to help develop strategies by predicting future uncertainties on important drivers in terms of their environmental forces and levels of importance Environmental analysis identifies opportunities and threats Scenario Building Portfolio Assessment No2