1. Student appointment:
“It is not the strongest of the
species that survive, nor the
most intelligent, but the most
responsive to change.”
- Darwin
Dr. Miles Weaver,
Senior Lecturer in Strategic Management,
Leicester Business School
mweaver@dmu.ac.uk
Join an ongoing debate:
With your lecturer: @DrMilesWeaver
Classmates & the world using: #ManStrat

2. “if ignorant both of your enemy and yourself, you
are certain to be in peril”.
“The supreme art of war is to subdue the enemy
without fighting”.
“All men can see these tactics whereby I
conquer, but what none can see is the strategy
out of which victory is evolved”.
- Sun Tzu
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3. At the end of this lecture students should be able to:-
 Identify major external influences on organisations and
outline tools with which to analyse any business
environment
Objectives:-
 Understand the importance of environmental scanning and
how it fits into the strategic management process
 Conduct a PESTLE analysis for an organisation with which
you are familiar
 Identify the main sets of forces exerting influence on
organisations
 Use Porter’s five forces analysis to define the
attractiveness of industries and sectors for investment and
to identify their potential for change
 Identify strategic groups within an industry with similar
strategic characteristics

4. Analyze internal and
 Strategic management involves external environment
the major decisions, business
choices, and actions that chart Define strategic intent
the course of the entire and mission
organisation
 It consists of: Formulate strategies
 Analysis of the internal and external
environment of the firm
 Definition of the firm’s mission Implement strategies
 Formulation and implementation of
strategies to provide a competitive
advantage Assess strategic
outcomes

5. Social, Industry Other
political, attractiveness, opportunities
External regulatory, industry and threats --
& community dynamics, & like new
Factors considerations competitive technologies
conditions
Company’s Strategic Situation/position
Firm’s Ambitions, Shared
strengths, philosophies, vision, values
Internal weaknesses, & ethical and company
& competitive principles culture
Factors market position of key
executives

6.  Firms study the external environment in order
to:
 Identify opportunities and threats in the
marketplace
▪ we will centre on this when formulating strategies,
as well as the internal strengths and weaknesses to
be discussed in the next lecture topic
 Avoid surprises
 Respond appropriately to competitors’ moves
 A major challenge is to gather accurate market
intelligence in a timely fashion, and transform
it into usable knowledge to gain a competitive
advantage over other firms

7.  Strategy needs to be adaptive and dynamic
 Need to know what to adapt to
 Need to understand dynamics
 Impact on organisation
 On growth and scope for growth
 On level and nature of competition
 On “rules of the game”
 On costs
 On profit

8. Lets look at
the general
(macro)
environment
Environmental influences on the organisation
Source: Adapted from Dobson et al.(2004), See Boddy (2010)

9.  Economic Forces – regulate
the exchange of materials,
money, energy and
information
 Technological Forces –
generate problem-solving
inventions
 Political-legal Forces -
allocate power and provide
constraining and protecting
laws and regulations
 Socio – cultural Forces –
regulate the values, morals,
and customs of society
Johnson, Scholes, and Whittington (2011)

10. Source: Boddy (2010)

11.  Not just a list of influences
 Need to understand key drivers of
change
 Drivers of change have differential
impact on industries, markets, and
organisations
 Focus is on future impact of
environmental factors
 Combined effect of some of the factors
likely to be most important
 Your tutorial task is to consider the general
(macro) environment of BP

12. Environmental influences on the organisation
Source: Adapted from Dobson et al.(2004) as cited in Boddy (2010).

13. M.E. Porter (1980) discussed
‘Competitive Strategy’
 What makes some industries more
attractive/successful than others?
 “…identifying the basic, underlying
characteristics of an industry rooted in
its economics and technology that
shape the arena in which competitive
strategy must be set.” (p.6)
 Competition reflects structure
 Structure determines profit
potential
Porter (1980)

14. 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
Competitive forces in the industry:
 Determine attractiveness of industry
 Affect the way individual companies compete
 Influence decisions on product/market strategy

15.  Business
 Gaining advantage over competitors
▪ Competitive advantage
 Public sector
 Demonstrable excellence in service
delivery
▪ Servqual
Assess attractiveness of different industries/sectors
Identify sources of competition in an industry/sector
Porter’s Five Forces

16. Key questions and implications:
 Are some industries more attractive than
others? (weaker forces)
 What underlying forces in the macro-
environment drive the competitive forces?
 Will competitive forces change?
 What are the strengths and weaknesses of
the competitors in relation to the
competitive forces?
 Can competitive strategy influence
competitive forces? (e.g. build barriers to
entry)

17.  Use at level of strategic business
units (SBU)
 Define the industry/market/sector
 Don’t just list the forces: derive
implications for
industry/organisation
 Note connections between
competitive forces and key drivers in
macro environment
 Establish interconnections between
the five forces
 Competition may disrupt the forces
rather than accommodate them
?
Adapted from: Porter (1980), Competitive Strategy: Techniques Power of other
Stakeholders
for Analyzing Industries and Competitors, Free Press, p. 4.

18. Fewer new entrants = more profit
 Affected by entry barriers such as
 high costs of equipment and facilities
 lack of distribution facilities
 customers loyal to established brands
 small companies lack economies of
scale
 subsidies/regulations favour existing
firms
 E.g. Patent-protected
drugs, presentation software

19. Greater power of buyers = less profit to seller
 Power of buyer increases if:
 Buyer takes high % of supplier’s sales
 Many alternative products or suppliers
 Product a high % of buyers costs, creating
incentive to seek alternatives
 Cost of switching to other suppliers is low
E.g. online products, major supermarkets
like Wal-Mart, Tesco

20. High power of supplier = less profit to buyer
 Power of supplier is high if:
 Buyer takes small % of sales
 Few alternative products or suppliers
(distinctive product keeps buyers loyal)
 Product a low % of buyer’s costs, little
incentive to seek alternatives
 Cost of switching suppliers high
E.g. luxury brands, business software

21. Easy to substitute = less profit to supplier
 Substitution becomes easier if:
 Buyers willing to change habits
 Technological developments
enable new products and
services
 Transport costs falling
 New suppliers entering a
market
E.g. online media, new
materials

22. Greater rivalry = lower profit
 Rivalry increases when:
 many firms, but none dominant
 market growing slowly, so firms fight for
share
 high fixed costs encourages over-
production
 loyalties (family businesses or political
support) prolong over-capacity
e.g. airlines, agriculture, Nokia and new
mobile suppliers, current banking
industry?

23.  Subjective interpretation
as well as objective
realities
 Forces contradict/balance
each other
 Managers can consciously
try to shape them as part
of their strategy
 Competitive forces
affected by those in the
general environment

24. Equipment manufacturers Is low due to the enormous
compete for the market share. cost in licences (£22bn) and
Nokia, Motorola, Sony general investment into new
Ericsson. Consolidation in the 3G technology. This might
industry. Threat from
become a threat if policy
New Entrants towards heavy regulation is to
Suppliers’
change
Power
Very intense. Numerous
offers, packages. If a
customer threatens to
withdraw , the provider Rivalry Buyers’
could offer a new phone, of Power
free line rental. Firms
Market is mature, and Buying power of
now emphasis is on consumers is very high,
price, coverage, customer as there is a lot of
service choice. Existence of
Convergence of mobile independent retailers
CPW, Link,
telephony with PDAs and Threat from
with Internet. This could Others differentiated
switch both voice and text
Substitutes
themselves through
messaging into internet. cheap advertising
In your own time consider this slide and the clip illustrating Apple iphone Vs competitors available on the blog

25. Johnson, Scholes and Whittington (2008), pp. 67 - 69

26.  An industry or sector may be too high a level
to provide for a detailed understanding of
competition
 Many industries contain a range of
companies, each of which has different
capabilities and compete on different bases
 These competitive differences are captured
by the concept of strategic groups

27. Some characteristics for identifying strategic
Strategic groups are groups:
organisations within an
industry with similar
Strategic characteristics,
following similar
strategies or competing
on similar bases
Sources: Based on M.E. Porter, Competitive
Strategy, Free Press, 1980; and J. McGee and
H. Thomas, ‘Strategic groups: theory, research
and taxonomy’, Strategic Management Journal,
vol. 7, no. 2 (1986), pp. 141–160.
See Johnson, Scholes, and Whittington (2008)

28.  To understand who are the most direct competitors
of an organisation
 To establish the different bases of competitive
rivalry within and between the strategic groups
 To assess if an organisation could move from one
group to another
 Depends on barriers to entry
 To identify opportunities and threats
 Changes in the macro-environment may create
strategic space

29. Broad
Regionally Focused: Global Broad Line
Broad Line Producers Producers
E.g. Fiat, PSA, Renault E.g. GM, Ford, Toyota
Nissan, VW, Honda
Nationally Focused Global Suppliers of
PRODUCT Intermediate Line Limited Range
RANGE Producers E.g. Volvo, Saab,
E.g. Kia, Proton Subaru, Daihatsu
Nationally Focused,
Luxury Manufacturers
Small, Specialist
Eg Jaguar, BMW
Producers
E.g. Morgan (UK)
Performance Car
Narrow Producers
E.g. Porche, Lotus
National GEOGRAPHICAL SCOPE Global
McGee & Thomas, 1986

30.  Strategic management starts with the strategic
situation/position
 A company’s strategic situation/position consists of
understanding both the external and internal environment
(internal environment to be discussed next week)
 PESTEL identifies key drivers of change
 5 forces framework identifies sources of competition in an
industry
 Competition is dynamic
 Within an industry there are strategic groups competing on
similar bases
 Environmental analysis identifies opportunities and
threats (NB: consider the strategic management
process)

31. READING ACTIVITY
 Capon (2008), chapter 2 (in custom  Prepare BP case in your group using
text) your WIKI, for forthcoming tutorial
 Boddy (2010), chapter 3
 Obtain the market report (e.g.
Mintel, Datamonitor) for your chosen
Indicative: organisation and conduct research
 Johnson, Scholes and Whittington into its business environment
(2011)
 Worthington and Britton (2006)
 Use the tools noted in this lecture and
in the texts to analyse the external
environment
 You will need to demonstrate this analysis
in the assessment and use your findings
to synthesise a view of the organisations
strategic position (e.g. industry
attractiveness, major external influences)
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