Business Strategy Lecture 2 The Business Environment John Birchall www.AssignmentPoint.com

“Strategic management is a process Link to Overall Business Strategy Harrison (2003: 4) definition – unpacked “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” www.AssignmentPoint.com

Questions 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? www.AssignmentPoint.com

Analyzing the Environment (Harrison, 2003: 37) The Broad Environment Socio-cultural Influences Technological Influences Operating Environment Competitors Activist Groups Local Communities The Organization Suppliers Owners / Board of Directors Managers Employees Customers Unions The Media Financial Intermediaries Government Agencies and Administrators Economic Influences Political / legal Influences www.AssignmentPoint.com

The Broad Environment 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 www.AssignmentPoint.com

PESTLE Analysis…and more Political Economic Sociocultural Technological Legal Environmental and Ethical www.AssignmentPoint.com

PESTEL (Johnson, Scholes and Whittington, 2005: 65-71) Political Economic Sociocultural Technological Environmental Legal www.AssignmentPoint.com

Variants on PESTLE include… DEEPLIST 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. www.AssignmentPoint.com

A Major Risk (critical evaluation of theory) 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 www.AssignmentPoint.com

The Organization and Its Operating Environment The Operating Environment Local Communities Activist Groups Competitors Suppliers Customers The Organization The Media Unions Financial Intermediaries Government Agencies and Administrators www.AssignmentPoint.com

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 www.AssignmentPoint.com

Competitive Analysis 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 www.AssignmentPoint.com

Question: Is strategy neat or messy? Porter (1996 and 1998) Neat and far-sighted Plan thoroughly and take up a position Make trade-offs, resolve dilemmas Compete and win Stacey (2003) Messy and chaotic Unpredictable outcomes Hold the paradox, spark creativity Engage in conversation, learn and grow www.AssignmentPoint.com

Industry Analysis 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 www.AssignmentPoint.com

Porter’s Five Forces Model (Harrison, 2003: 53) Potential Entrants Threat of new entrants Bargaining power of suppliers Industry Competitors Rivalry Among Existing Firms Bargaining power of customers Suppliers Customers Threat of substitute products or services Source: Adapted with the permission of the Free Press, an imprint of Simon & Schuster Adult Publishing Group (see text for complete reference) Substitutes www.AssignmentPoint.com

The industry life cycle model (Johnson, Scholes and Whittington, 2005: 86) Maturity Shake-out Decline Growth Development Growing adopters: trial of product/ service Few: early adopters Growing selectivity of purchase Saturation Users/ buyers Drop-off in usage Reliance on repeat purchases May be many Difficulties in gaining/taking Share; fights Exit of some competitors Likely price cutting for volume Competitive conditions Few competitors Entry of competitors Selective distribution Emphasis on efficiency/ low cost Shake-out of weakest competitors www.AssignmentPoint.com 16

Why are some organisations more successful than others? 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 www.AssignmentPoint.com