Week 3 Business Strategy

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Week 3 - Business Strategy

• Strategic Position -
• The Environment

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Learning Outcomes

• Describe forces in macro-environment using PESTEL
  framework
• Identify key structural drivers of change and the
  differential impact on organisations
• Define an industry and provide examples of
  industry convergence
• Use the 5 Forces Framework to identify sources of
  competition
• Define strategic groups and how the concept
  facilitates understanding competition
• Explain what is meant by market segmentation and
  how it facilitates understanding what customers
  value
• Describe typical kinds of opportunities and
  threats

3
Analysing the Environment

• Organisations do not exist in a vacuum, they are
  part of a complex world.
• Management should be continually aware of the
  external forces which not only influence demand
  for existing products and services, but also
  create opportunities for new products and
  services.
• (Bowman and Asch, 1987, p. 60)

4
Environmental Scanning

• Before firm can formulate strategy, it needs
  to scan the environment to identify possible
  opportunities and threats, and its internal
  environment for strengths and weaknesses
• (Wheelen and Hunger, 2000, p. 53)

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Business Strategy and Competitive Positioning

• Business Strategy focuses on improving the
  competitive position of a companys or business
  units products or services within the specific
  industry or market segment that the company or
  business unit serves
• (Wheelen and Hunger, 2000, p. 113).

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Environmental Scanning

• refers to gathering information about
  external conditions for use in formulating the
  firms strategies. Scanning is an important
  on-going activity because it helps managers
  understand and oversee the potential changes in
  market demand, industry rivalry patterns, the
  rise of potential substitute products, and
  general macro-environmental forces that may have
  long term effects on the firm.
• (Pitts and Lei, 1996, p. 47)

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PESTEL Framework

• Political (e.g. government stability taxation
  policy
• foreign trade regulations social welfare
  policies)
• Economic (e.g.business cycles interest rates
• unemployment disposable income)
• Socio-cultural (e.g. population demographics
  income distribution social mobility lifestyle
  changes attitude to work and leisure
  consumerism levels of education)
• (Johnson and Scholes, 2002)

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PESTEL contd.

• Technological (e.g. government spending on
  research government and industry focus on
  technological effort new discoveries/development
  speed of technological transfer rates of
  obsolescence)
• Environmental (e.g. environmental protection
  laws waste disposal energy consumption)
• Legal (e.g. monopolies legislation employment
  law health and safety product safety)
• (Johnson and Scholes, 2002)

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Structural Drivers of Change

• are forces likely to affect the structure of an
  industry, sector or market
• look at combined effect of some of the PESTEL
  factors, rather than factors separately
• good example is globalisation of industries and
  markets (e.g. retailing, telecommunications,
  hospitality and tourism)

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Strategic Groups

• Organisations within an industry with similar
  strategic characteristics, following similar
  strategies or competing on similar bases...
• Look at characteristics such as product/service
  diversity geographical coverage distribution
  channels used extent of branding marketing
  effort product or service quality technological
  leadership size)
• (Johnson and Scholes, 2002, pp. 123-4)

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Identifying Competitors

• firms offering similar product/ utilising similar
  technology (e.g. Penguin V Twix six pack)
• firms operating in same product category (e.g
  Penguin V crisp manufacturer)
• firms offering products which deliver same
  service (e.g. long-distance coach firm V
  railways, cars, etc.)
• firms competing for the same spending power
  (Harley Davidson V conservatory, boat builders)
• (Wilson and Gilligan, 1997, p. 122)

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Sources of Competition

• Industry Analysis
• 5 Forces Framework (Porter)
• Industry Groups (Johnson and Scholes)
• Determinants of National Advantage
• Porters Diamond

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5 Forces Model (Porter)
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Porters Diamond - Determinants of National
Advantage
Firm Strategy, Structure and Rivalry
Demand Conditions
Factor Conditions
Related and Supporting Industries
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Understanding Markets and Market Segments (J S,
2002, p. 127)

• Success or failure of organisation also depends
  on understanding customer needs and on ability to
  meet them
• Market segmentation - identifying similarities
  and differences between groups of customers and
  users

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Understanding What Customers Value

• Important to see value through the eyes of the
  customer or the stakeholder
• Difficult however, because value is
  multi-dimensional
• Useful to think of perceived customer value
• Use information at hand
• (J S, 2002, pp. 130-131)

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Opportunities and Threats

• Using frameworks just detailed, managers can
  identify new market space to gain competitive
  advantages
• Look for Strategic gaps to fill, for example
• across substitute industries
• across strategic groups
• across complementary product and service
  offerings
• new market segments

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SWOT Analysis

• A SWOT analysis summarises the key issues from
  the business environment and the strategic
  capability of an organisation that are most
  likely to impact on strategy development
• (Johnson and Scholes, 2002, p. 134)
• Next weeks lecture focuses on strategic
  capability, the internal environment and
  strengths and weaknesses

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Summary

• macro-environmental factors which impinge upon
  business strategies
• impact of environmental influences on the firm
• various sources of competitive advantage
• markets, market segments, what customers value
• opportunities and threats