2 SM Process: Strategic Position Strategic position considers the current position of the firm in the light of future changes in the external global environment and its internal resource capabilities.How to analyse an organisation’s position in the external, global environment (L2)How to analyse the a firm’s internal resources, capabilities and core competencies (L3).
3 Learning OutcomesAssess macro-environmental influences and the major drivers of change.Understand how industry structure drives competition and determines the level of industry profitabilityAnalyse industry attractiveness by applying the 5 forces model and consider how changes to the forces can affect future profitabilityDefine international business, globalisation, and the multinational company (MNC)Examine the impact of globalisation on the external macro-environment.
4 Strategic Position Analysis Internal Resources & CapabilitiesStrengths WeaknessesOpportunitiesThreatsExternal Environment
5 External Environment Analysis O & T OpportunityA trend in the external environment which potentially has a positive impact on the organisation and, if exploited, will improve it’s performance.ThreatA trend in the external environment which potentially has a negative impact on the organisation and, if not addressed, will hinder it’s performance.
6 Spheres of External Analysis Macro-EnvironmentIndustry Competitive EnvironmentCompetitorsOrganisation
7 Key Questions: Macro Environment Identify external trends –which are the most important environmental forcesaffecting the organisation?Assess the impact of the trend on the industry and the firm (+ opportunity or - threat)Evaluate trend and impact to derive key drivers from the external environment - which forces are likely to have a significant influence on the organisation in the future?Build alternative scenarios from key drivers.Useful framework = PEST ANALYSIS
8 Building your Analysis Identify the PEST factors affecting the organisation and monitor changes.Forecast/project the trends into the future.Impact analysis - anticipate the impact of the trends on the strategy of the organisation and the expected timing of events.
9 P = Political and legal factors E = Economic + globalisation PESTIdentifies trends but remember your impact analysis, leading tokey drivers for changeP = Political and legal factorsE = Economic + globalisationS = socio-cultural factors + environmentT = technological developmentsJohnson et al expand the framework to PESTLEThey have a separate set of trends for legal factors (L) and a 2nd E for changes in the natural environment - green issues.
10 From Macro to Industry Analysis The national/ global economyTechnologyThe CompetitiveEnvironmentSuppliersCompetitorsCustomersSocial -Cultural,EnvironmentPolitical/LegalThe Macro - Environment is difficult for the organisation to influence.The Macro Environment directly effects the Industry Competitive Environment.3
11 Porter’s Model Use the 5 Forces Model to evaluate competiveness: Assess profitability – industry attractivenessUnderstand forces influencing competitionIdentify which forces are critical to future competitivenessOpportunities & Threats to support strategy choices:Can the firm develop strategies to influence the key forces?How can a firm develop a position against the forces & rivals to gain competitive advantage?
12 Porter’s Five Forces Model Competition in an industry is more than the visible rivalry between competitors, you must in addition to competitive rivalry, consider 4 other forces:Demand side (prices) – bargaining power of buyersSupply side (costs) – bargaining power of suppliersPotential for new entrants (more competitors)Threat from substitute products (less demand)
14 Industry Structure and Profitability Force Profitability Profitabilityhigher if lower ifBarg’ing power of suppliers weak suppliers strong suppliersBargaining power of buyers weak buyers strong buyersThreat of new entrants high entry barriers low entry barriersThreats from substitutes few substitutes many substitutesCompetitive rivalry little rivalry intense rivalryEnvironment Attractive UnattractiveAnalytical task: assess the influence of each force- weak/medium/strongusing the factors which influence each force. What are these factors?
15 The Threat of EntryHow easy it is for new potential competitors to enter the industry depends on the height of the barriers to entry:Sources of barriers to entry are one or more of:Capital requirementsEconomies of scaleAbsolute cost advantageProduct differentiationAccess to channels of supply & distributionLegal and regulatory barriersExpected Retaliation9
16 Power of Buyers Are the buyers concentrated v. the competitors? Are the switching costs high or low?High or low product differentiation?Does the buyer purchase a large portion of industry output?Is their a threat of vertical backwards integration?
17 Power of Suppliers Are the suppliers concentrated v. the competitors? Are the competitors a significant customer to the supplier group?Are the suppliers inputs critical to competitor’s success?(high or low product differentiation?)Are the switching costs high or low?Is their a threat of vertical forwards integration?
18 Threat of SubstitutesNot to be confused with other competitor products, substitutes meet similar customer needs but are meet by players outside the industry. The threat depends on:the buyers’ propensity to substitutethe price-performance characteristics of substitutes.8
19 Visible Signs of Rivalry Using price competitionAdvertising battlesMaking new product releasesIncreasing consumer service levels
20 Degree of Competitive Rivalry Competitive Rivalry tends to be more intense when:There are numerous competitors or a smaller number of equally balanced competitorsIndustry growth is slowing and entering maturityThere are high fixed costs to coverProducts have limited differentiation (approaching commodity status) and low switching costsThere are high exit barriers.
21 Industry Structure and Profitability Force Profitability Profitabilityhigher if lower ifBarg’ing power of suppliers weak suppliers strong suppliersBargaining power of buyers weak buyers strong buyersThreat of new entrants high entry barriers low entry barriersThreats from substitutes few substitutes many substitutesCompetitive rivalry little rivalry intense rivalryEnvironment Attractive UnattractiveAnalytical task: assess the influence of each force- weak/medium/strongusing the factors which influence each force. What are these factors?
22 Applying the Five Forces Model Forecast Industry Profitability by:identifying and evaluating the key forces influencing the future competitive environment and their impact on profitabilityReview strategies to improve industry profitability:which key forces are lowering profitabilitywhich key forces can be changed in the future by individual firm strategy or in collaboration between existing or potential competitors
23 Strategic Groups Strategic Groups A group of firms within an industry which compete on a similar bases and share similar characteristics – a subset of the industry ‘s 5 forces.Examples of characteristics defining strategic groups are:Product rangeGeographic coverage – markets, production.Market segmentsDistribution channelsTechnologyOrganisation sizeIndustry examples:Car industry, Airlines, Supermarkets
24 Global Environment: What’s Different? Multiple Operating EnvironmentsDiverse PEST trends impacting value chain e.g. consumer preferences, distribution channelsResponding to diverse host governments and culturesCurrency risks impacts on costs and revenuesOrganisational complexity and diversityIntegration of operating units across time zones, languages and cultures
25 SummaryExternal environment analysis identifies future threats and opportunitiesThere are 3 potential levels of analysis: macro-environment (PEST), industry competitive environment (5 Forces), intra-industry strategic groups (SGA).In PEST: discuss trend, assess impact, identify key drivers of future change.In 5 Forces: assess each force by analysing underlying factors then conclude on the attractiveness of industry and key forces impacting future structure of industry competitionRefine 5 forces analysis further through SGA.