Transcript Business Strategy Lecture 2

Business Strategy
Lecture 2
The Business Environment
John Birchall
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Link to Overall Business Strategy
Harrison (2003: 4) definition – unpacked
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“Strategic management is a process
through which organizations analyse and learn
from their internal and external environments,
establish strategic direction,
create strategies that are intended to move the
organization in that direction, and
implement those strategies,
all in an effort to satisfy key stakeholders”
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Questions
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Can a firm create its own environment?
How accurately can we predict the future?
Enron example in Harrison (2003: 35)
What can we hope to know about our
competitors?
Is adaptation best achieved by planning - or
by a process of trial and error?
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Analyzing the Environment
(Harrison, 2003: 37)
The Broad Environment
Socio-cultural Influences
Technological Influences
Operating Environment
Activist
Groups
Suppliers
Unions
Competitors
The Organization
Owners / Board of Directors
Managers
Employees
Customers
The Media
Financial
Intermediaries
Economic Influences
Local
Communities
Government Agencies
and Administrators
Political / legal Influences
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The Broad Environment
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Hard for the firm to influence
Changes can be far-reaching
The media: rich source of both
information and speculation
PESTLE analysis: a classic strategy tool
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PESTLE Analysis…and more
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Political
Economic
Sociocultural
Technological
Legal
Environmental and Ethical
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PESTEL
(Johnson, Scholes and Whittington, 2005:
65-71)
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Political
Economic
Sociocultural
Technological
Environmental
Legal
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Variants on PESTLE include…
DEEPLIST
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Demographic
Economic
Environmental (Ecological)
Political
Legal
Informational (Knowledge-based)
Social
Technological
FINLAY, P. (2000) Strategic management: an introduction to
business and corporate strategy. Harlow: Pearson
Education/Prentice Hall, pp. 204-217.
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A Major Risk
(critical evaluation of
theory)
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Like the old-fashioned SWOT technique,
PEST helps us make lists
Lists can help us think, but…
A list should be the beginning, not the
end of thinking
Johnson, Scholes and Whittington (2005:
69-71) look at the way PESTEL factors
combine…
then at drivers and trends of business
change
Harrison (2003: Ch 2) integrates this with
industry and company analysis
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The Organization and Its
Operating Environment
The Operating Environment
Activist
Groups
Suppliers
Unions
Competitors
Local
Communities
Customers
The Organization
The Media
Financial
Government Agencies
Intermediaries
and Administrators
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The Organization and Its
Operating Environment
Operating environment includes numerous
stakeholders
 These can be and become allies
 They can provide information about changes
in the broad environment
 They can co-operate in finding new ways
forward (Harrison, 2003: 64-66)
BUT…
 Traditionally, strategy writers have analysed
forces of competition in this environment
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Competitive Analysis
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Porter (1996, 1998) the leading theorist
Know your industry, know your competitors,
know yourself
Then find a way of competing that will make
the most of your strengths and exploit your
rivals’ weaknesses
Deliver distinctive value to your customers
Achieve competitive advantage
Translate this into profits by keeping a good
balance between costs and prices
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Question:
Is strategy neat or messy?
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Porter (1996 and 1998)
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Neat and far-sighted
Plan thoroughly and take up a position
Make trade-offs, resolve dilemmas
Compete and win
Stacey (2003)
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Messy and chaotic
Unpredictable outcomes
Hold the paradox, spark creativity
Engage in conversation, learn and grow
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Industry Analysis
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Porter’s Five Forces Model
Life-cycle analysis
Can help identify whether an industry is
attractive
Stay or go? Decisions
Can help identify key success factors for
competitors
Cannot provide a mission in life
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Porter’s Five Forces Model
(Harrison, 2003: 53)
Potential
Entrants
Bargaining power
of suppliers
Threat of new
entrants
Industry
Competitors
Bargaining power
of customers
Customers
Suppliers
Rivalry Among
Existing
Firms
Threat of
substitute products
or services
Substitutes
Source: Adapted with the permission
of the Free Press, an imprint of Simon &
Schuster Adult Publishing Group (see
text for complete reference)
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The industry life cycle model
(Johnson, Scholes and Whittington, 2005: 86)
Growth
Shakeout
Maturity
Decline
Development
Users/
buyers
Few: early
adopters
Growing
adopters:
trial of
product/
service
Growing
selectivity
of purchase
May be
many
Competitive
conditions
Few
competitors
Entry of
competitor
s
Likely price
cutting
for volume
Shake-out of
weakest
competitors
Saturation
Reliance on
repeat
purchases
Difficulties in
gaining/taking
Share; fights
Emphasis on
efficiency/
low cost
Drop-off
in usage
Exit of some
competitors
Selective
distribution
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Why are some organisations
more successful than others?
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Perspectives and Approaches
Traditional
Resource-Based
Stakeholder
Key Concepts (tools / frameworks)
Competitive Advantage
Environmental Analysis
Strategic Management Process (Robin Hood)
Situation Analysis
Direction
Formulation
Implementation
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