3. Strategic Position the Environment

7/24/2019 3. Strategic Position the Environment

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Johnson, Whittington and Scholes, Exploring Strategy , 9th Edition, © Pearson Education Limited 2011

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Part I:

The Strategic Position



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The Focus of part 1:

The strategic position

• Ho to anal!se an organisation"s #osition in theexternal environment.

• Ho to anal!se the determinants o$ strategic

capability % resources, com#etences and the

lin&ages 'eteen them.

• Ho to understand an organisation’s purposes,

ta&ing into account cor#orate governance,

stakeholder expectations and 'usiness ethics.• Ho to address the role o$ history and culture in

determining an organisation"s #osition.

2



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Slide 2.(

The Strategic Position

2: The Environment



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Learning outcomes (1)

• *nal!se the 'road macro+enironment o$organisations in terms o$ #olitical, economic,

social, technological, enironmental -green"/ and

legal $actors (PESTEL).

• denti$! &e! driers in this macro+enironment

and use these &e! driers to construct alternatie

scenarios ith regard to enironmental change.



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Learning outcomes (2)

• se Porter’s ive orces analysis in order tode$ine the attractieness o$ industries and sectors

and to identi$! their #otential $or change.

• denti$! success$ul strategic groups, alua'le

market segments and attractie !"lue #ceans’

ithin industries.

• se these arious conce#ts and techni3ues in

order to recognise threats and opportunities inthe mar&et#lace.





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The PESTEL framewor (1)

7he PES7EL $rameor& categorisesenironmental in$luences into si8 main t!#es

#olitical, economic,

social, technological,enironmental legal

7hus PES7EL #roides a com#rehensie list o$in$luences on the #ossi'le success or $ailure o$

#articular strategies.



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The PESTEL framewor (2)

• Political $actors% 5or e8am#le, ;oernment#olicies, ta8ation changes, $oreign traderegulations, #olitical ris& in $oreign mar&ets,

changes in trade 'loc&s -E/.

• Economic $actors% 5or e8am#le, 'usinessc!cles, interest rates, #ersonal dis#osa'le

income, e8change rates, unem#lo!ment rates,;<P trends.

• Socio&cultural $actors% 5or e8am#le,#o#ulation changes, income distri'ution, li$est!lechanges, consumerism, changes in culture and



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The PESTEL framewor (!)

• Technological Factors: 5or e8am#le, ne discoeriesand technolog! deelo#ments, =7 innoations, rates

o$ o'solescence, increased s#ending on >?<.

• Environmental (‘Green’) Factors: 5or e8am#le,

enironmental #rotection regulations, energ!

consum#tion, glo'al arming, aste dis#osal and re+

c!cling.

• Legal Factors: 5or e8am#le, com#etition las, health

and sa$et! las, em#lo!ment las, licensing las, P>

las.



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"ey #rivers of change

"ey #rivers for change:• 7he enironmental $actors li&el! to hae a high

im#act on the success or $ailure o$ strateg!.

• 5or e8am#le, the 'irth rate is a &e! drier $orthose #lanning nurser! education #roision in

the #u'lic sector.

• 7!#icall! &e! driers ar! '! industr! or sector.



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$sing the PESTEL framewor

• *##l! selectively %identi$! s#eci$ic $actors hichim#act on the industr!, mar&et and organisation in

3uestion.

• denti$! $actors hich are important currently 'ut

also consider hich ill 'ecome more important in

the next e! years"

• se #ata to su##ort the #oints and anal!se trends

using u# to date in$ormation• denti$! o##ortunities and threats % the main #oint

o$ the e8ercise@

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Scenarios

Scenarios are detailed and #lausi'le ies o$ hothe enironment o$ an organisation might deelo# in

the $uture 'ased on &e! driers o$ change a'out

hich there is a high leel o$ uncertaint!.

• Auild on PES7EL anal!sis .

• <o not o$$er a single $orecast o$ ho the

enironment ill change.• *n organisation should deelo# a $e alternatie

scenarios -2%)/ to anal!se $uture strategic o#tions.

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%arrying out scenario ana&ysis (1)

• denti$! the most relevant scope o the stu#y % thereleant #roductBmar&et and time s#an.

• denti$! $ey #rivers o change % PES7EL $actors

that hae the most im#act in the $uture 'ut hae

uncertain outcomes.

• 5or each &e! drier select opposing outcomes

here each leads to er! di$$erent conse3uences.

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%arrying out scenario ana&ysis (2)

• %evelop scenario ‘stories’ & 7hat is, coherentand #lausi'le descri#tions o$ the enironment

that result $rom o##osing outcomes

• '#entiy the impact o each scenario on theorganisation and ealuate $uture strategies in

the light o$ the antici#ated scenarios.

• Scenario analysis is use# in industries ith long

#lanning horiCons $or e8am#le, the oil industr!

or airlines.

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Scenarios for the g&oba& financia&

system' 22

llustration 2.2

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n#ustries' marets an# sectors

'n industry is a grou# o$ $irms #roducing#roducts and serices that are essentiall! the

same. 5or e8am#le, automo'ile industr! and

airline industr!.

' market is a grou# o$ customers $or s#eci$ic

#roducts or serices that are essentiall! the same

-e.g. the mar&et $or lu8ur! cars in ;erman!/.

' sector is a 'road industr! grou# -or a grou# o$mar&ets/ es#eciall! in the #u'lic sector -e.g. the

health sector/

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Porter*s five forces framewor

Porter*s five forces $rameor& hel#s identi$! theattractieness o$ an industr! in terms o$ $ie

com#etitie $orces

• the threat o entry

• the threat o substitutes

• the bargaining poer o buyers

• the bargaining poer o suppliers and

• the extent o rivalry beteen competitors.

7he $ie $orces constitute an industr!"s

structure".

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Source *da#ted ith the #ermission o$ 7he 5ree Press, a <iision o$ Simon ? Schuster *dult Pu'lishing ;rou#, $rom ompetitive Strategy: Techniues or *naly+ing 'n#ustries an#

ompetitors '! Dichael E. Porter. =o#!right © 19:0, 199: '! 7he 5ree Press. *ll rights resered

The five forces framewor (1)

5igure 2.2 7he $ie $orces $rameor&

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The five forces framewor (2)

The Threat o Entry * "arriers to Entry

• 7he threat o$ entr! is lo hen the 'arriers to entr!

are high and ice ersa.

• 7he main 'arriers to entr! are

Economies o$ scaleBhigh $i8ed costs E8#erience and learning

*ccess to su##l! and distri'ution channels

<i$$erentiation and mar&et #enetration costs

;oernment restrictions -e.g. licensing/

• Entrants must also consider the e8#ected retaliation

$rom organisations alread! in the mar&et

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The five forces framewor (!)

Threat o Substitutes

Su'stitutes are #roducts or serices that o$$er a similar'ene$it to an industr!"s #roducts or serices, 'ut '! adi$$erent #rocess.

=ustomers ill sitch to alternaties -and thus thethreat increases/ i$

• 7he #riceB#er$ormance ratio o$ the su'stitute issu#erior -e.g. aluminium ma!'e more e8#ensie thansteel 'ut it is more cost e$$icient $or some car #arts/

• 7he su'stitute 'ene$its $rom an innoation thatim#roes customer satis$action -e.g. high s#eed trains

can 'e 3uic&er than airlines $rom cit! centre to cit!

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The five forces framewor (+)

The bargaining poer o buyers

Au!ers are the organisation"s immediate customers,

not necessaril! the ultimate consumers.$ 'u!ers are #oer$ul, then the! can demand chea#

#rices or #roduct B serice im#roements to reduce

#ro$its .

Au!er #oer is li&el! to 'e high hen Au!ers are concentrated

Au!ers hae lo sitching costs

Au!ers can su##l! their on in#uts -'ac&ard ertical

integration/

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The five forces framewor (,)

The bargaining poer o suppliers

Su##liers are those ho su##l! hat organisations

need to #roduce the #roduct or serice. Poer$ulsu##liers can eat into an organisation"s #ro$its.

Su##lier #oer is li&el! to 'e high hen

7he su##liers are concentrated -$e o$ them/.

Su##liers #roide a s#ecialist or rare in#ut. Sitching costs are high -it is disru#tie or e8#ensie to

change su##liers/.

Su##liers can integrate $orards -e.g. lo cost airlines

hae cut out the use o$ trael agents/.

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The five forces framewor (-)

+ivalry beteen competitors

=om#etitie rials are organisations ith similar

#roducts and serices aimed at the same customer

grou# and are direct com#etitors in the same

industr!Bmar&et -the! are distinct $rom su'stitutes/.

7he degree o$ rialr! is increased hen

=om#etitors are o$ roughl! e3ual siCe

=om#etitors are aggressie in see&ing leadershi#

7he mar&et is mature or declining 7here are high $i8ed costs

7he e8it 'arriers are high

7here is a lo leel o$ di$$erentiation

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mp&ications of five forces ana&ysis

• denti$ies the attractiveness o$ industries %hich industriesBmar&ets to enter or leae.

• denti$ies strategies to inluence the im#act o$

the $orces, $or e8am#le, 'uilding 'arriers toentr! '! 'ecoming more erticall! integrated.

• 7he $orces ma! hae a #ierent impact on

#ierent organisations e.g. large $irms can deal

ith 'arriers to entr! more easil! than small

$irms.

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ssues in five forces ana&ysis

• *##l! at the most appropriate level % notnecessaril! the hole industr!. E.g. the Euro#ean

lo cost airline industr! rather than airlines

glo'all!.

• ote the convergence o$ industries % #articularl! in

the high tech sectors -e.g. digital industries +

mo'ile #honesBcamerasBm#( #la!ers/.

• ote the im#ortance o$ complementary #roductsand serices -e.g. Dicroso$t indos and Dc*$ee

com#uter securit! s!stems are com#lements/. 7his

can almost 'e considered as a si8th $orce.

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The va&ue net

5igure 2.( 7he alue net>e#rinted '! #ermission o$ arvar# -usiness .evie! . 5rom 7he >ight ;ame" '! *. Aranden'urger and A. ale'u$$, Jul!%*ugust 1994, ##. 6%4).

=o#!right © 1994 '! the Harard Ausiness School Pu'lishing =or#oration. *ll rights resered

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ompara ve n us ry s ruc ure




ompara ve n us ry s ruc ureana&ysis

5igure 2. =om#aratie industr! structure anal!sis

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Types of in#ustry (1)

• ,onopolistic industries + an industr! ith one $irm and

there$ore no com#etitie rialr!. * $irm has mono#ol!

#oer" i$ it has a dominant #osition in the mar&et. 5or

e8am#le, A7 in the F $i8ed line tele#hone mar&et.• #ligopolistic industries + an industr! dominated '! a

$e $irms ith limited rialr! and in hich $irms hae

#oer oer 'u!ers and su##liers.

• Perectly competitive industries . here 'arriers toentr! are lo, there are man! e3ual rials each ith er!

similar #roducts, and in$ormation a'out com#etitors is

$reel! aaila'le. 5e -i$ an!/ mar&ets are #er$ect" 'ut

ma! hae $eatures o$ highl! com#etitie mar&ets, $ore8am le mini+ca's in London.

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Types of in#ustry (2)

• -ypercompetitive industries + here the$re3uenc!, 'oldness and aggression o$ com#etitor

interactions accelerate to create a condition o$

constant dise3uili'rium and change.

• H!#ercom#etition o$ten 'rea&s out in otherise

oligo#olistic industries -e.g. mo'ile #hones/.

• Grganisations interact in a series o$ com#etitie

moes in h!#ercom#etition hich o$ten 'ecomese8tremel! ra#id and aggressie as $irms ie $or

mar&et leadershi#.

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%yc&es of competition

5igure 2.4 =!cles o$ com#etitionSource: Adapted with the permission of The Free Press, a Division of Simon & Schuster, Inc, from Hypercompetitive Rivalries: Competing in Highly DynamicEnvironments !" #ichard A D$Aveni with #o!ert %unther op"right ' ())*, ())+ !" #ichard A D$Aveni A rights reserved

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The in#ustry &ife cyc&e

5igure 2.) 7he industr! li$e c!cle

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Strategic /roups

Strategic groups are organisations ithin an industr!or sector ith similar strategic characteristics, $olloing

similar strategies or com#eting on similar 'ases0

• 7hese characteristics are di$$erent $rom those in other

strategic grou#s in the same industr! or sector.• 7here are man! di$$erent characteristics that

distinguish 'eteen strategic grou#s.

• Strategic grou#s can 'e ma##ed on to to

dimensional charts % ma#s. 7hese can 'e use$ul tools

o$ anal!sis.

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strategic groups

5igure 2.6 Some characteristics $or identi$!ing strategic grou#s

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pharmaceutica& in#ustry

5igure 2.: Strategic grou#s in the ndian #harmaceutical industr!Source <eelo#ed $rom >. =hittoor and S. >a!, nternationalisation #aths o$ ndian #harmaceutical $irms a strategic grou# anal!sis", /ournal o 'nternational 0anagement , ol. 1( -2009/,##. ((:%

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$ses of strategic group ana&ysis

• nderstanding competition + ena'les $ocus on

direct com#etitors ithin a strategic grou#, rather

than the hole industr!. -E.g. 7esco ill $ocus on

Sains'ur!s and *sda/

• 'nalysis o strategic opportunities & hel#s identi$!

attractie strategic s#aces" ithin an industr!.

• 'nalysis o !mobility barriers’ i.e. o'stacles tomoement $rom one strategic grou# to another.

7hese 'arriers can 'e oercome to enter more

attractie grou#s. Aarriers can 'e 'uilt to de$end an

attractie #osition in a strategic grou#.

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aret segments

' market segment is a grou# o$ customers ho hae

similar needs that are di$$erent $rom customer needs in

other #arts o$ the mar&et.

• Where these customer grou#s are relatiel! small,such mar&et segments are called niches".

• =ustomer needs ar!. 5ocusing on customer needs

that are highl! distinctie is one means o$ 'uilding a secure

segment strateg!.• =ustomer needs ar! $or a ariet! o$ reasons +these

$actors can 'e used to identi$! distinct mar&et segments.

• ot all segments are attractie or ia'le mar&et

o##ortunities % ealuation is essential.

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ases of maret segmentation (1)

7a'le 2.1 Some 'ases o$ mar&et segmentation

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3ho are the strategic customers4

' strategic customer is the #erson-s/ at hom thestrateg! is #rimaril! addressed 'ecause the! hae the

most in$luence oer hich goods or serices are

#urchased.

E8am#les• 5or a $ood manu$acturer it is the multi#le retailers -e.g.

7esco/ that are the strategic customers not the ultimate

consumer.

• 5or a #harmaceutical manu$acturer it is the health

authorities and hos#itals not the $inal #atient.

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%ritica& success factors (%SFs)

• /ritical success actors are those $actors that are

either #articularl! alued '! customers or hich

#roide a signi$icant adantage in terms o$ cost.

• =ritical success $actors are li&el! to 'e an im#ortant

source o$ com#etitie adantage i$ an organisation

has them -or a disadantage i$ an organisation lac&s

them/.

• <i$$erent industries and mar&ets ill hae di$$erent

critical success $actors -e.g. in lo cost airlines the

=S5s ill 'e #unctualit! and alue $or mone!

hereas in $ull serice airlines it is all a'out 3ualit! o$serice .

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&ue ocean thining

• 5&ue oceans* are ne mar&et s#aces here com#etition

is minimised.

• 56e# 7ceans" are here industries are alread! ell

de$ined and rialr! is intense.

• Alue Gcean thin&ing encourages entre#reneurs and

managers to 'e di$$erent '! $inding or creating mar&et

s#aces that are not currentl! 'eing sered.

• 8 5strategy canvas* com#ares com#etitors according totheir #er$ormance on &e! success $actors in order to

deelo# strategies 'ased on creating ne mar&et

s#aces.

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Strategy canvas

5igure 2.9 Strateg! canas $or electrical com#onents com#aniesSource <eelo#ed $rom W.=. Fim and >. Dau'orgne, -lue 1cean Strategy , 200, Harard Ausiness School Press

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%hapter summary (1)

• Enironmental in$luences can 'e thought o$ as layers

around an organisation, ith the outer la!er ma&ing u#

the macro&environment , the middle la!er ma&ing u# the

in#ustry or sector and the inner la!er strategic groupsan# mar$et segments.

• 7he macro+enironment can 'e anal!sed in terms o$ the

2ESTEL actors, $rom hich $ey #rivers o change can

'e identi$ied. *lternatie scenarios a'out the $uture can'e constructed according to ho the &e! driers deelo#.

• ndustries and sectors can 'e anal!sed in terms o$

2orter’s ive orces % 'arriers to entr!, su'stitutes, 'u!er

#oer, su##lier #oer and rialr!. 7ogether, thesedetermine in#ustr or sector attractiveness"

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%hapter summary (2)

• 'n#ustries an# sectors are #ynamic , and their changes

can 'e anal!sed in terms o$ the in#ustry lie cycle,

comparative ive orces ra#ar plots and hypercompetitive

cycles o competition.• n the inner la!er o$ the enironment, strategic group

analysis, mar$et segment analysis an# the strategy

canvas can hel# identi$! strategic ga#s or o##ortunities.

• -lue 1cean strategies characterised '! lo rialr! areli&el! to 'e 'etter o##ortunities than .e# 1cean

strategies ith man! rials.

• 7he most im#ortant reason $or enironmental anal!sis is

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3. Strategic Position the Environment