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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
“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

                                                      1-2
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
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
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
   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
   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
Lets look at
   the general




   (macro)
   environment




Environmental influences on the organisation
Source: Adapted from Dobson et al.(2004), See Boddy (2010)
   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)
Source: Boddy (2010)
 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
Environmental influences on the organisation
Source: Adapted from Dobson et al.(2004) as cited in Boddy (2010).
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)
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
   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
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)
   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.
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
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
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
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
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?
 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
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
Johnson, Scholes and Whittington (2008), pp. 67 - 69
   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
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)
 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
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
   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)
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)


                                                                                       1-31

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Analysing the external environment of business (i.e. general, competitive)

  • 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 1-2
  • 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)
  • 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) 1-31

Notes de l'éditeur

  1. http://uk.youtube.com/watch?v=CoEv52rioL4