Exploring Corporate Strategy 8e, © Pearson Education The Focus of Part 1: The Strategic Position  How to analyse an organisation’s position in the external environment  How to analyse the determinants of strategic capability  How to understand an organisation’s purposes, taking into account corporate governance, stakeholder expects and business ethics  How to address the role of history and culture in determining an organisation’s position

The Strategic Position 2: The Environment

Exploring Corporate Strategy 8e, © Pearson Education Learning Outcomes (1)  Analyse the broad macro-environment of organisations in terms of political, economic, social, technological, environmental and legal factors  Identify key drivers in this macro- environment and use these key drivers to construct alternative scenarios with regard to environmental change

Exploring Corporate Strategy 8e, © Pearson Education Learning Outcomes (2)  Use five forces analysis in order to define the attractiveness of industries and sectors for investment and to identify their potential for change  Identify strategic groups, market segments, and critical success factors, and use them in order to recognise strategic gaps and opportunities in the market

Exploring Corporate Strategy 8e, © Pearson Education Exhibit 2.1 Layers of the business environment The Organisation

Exploring Corporate Strategy 8e, © Pearson Education The Macro-Environment PESTEL Scenarios Key drivers

Exploring Corporate Strategy 8e, © Pearson Education PESTEL Framework PoliticalEconomic Technological EnvironmentalLegal Social

Exploring Corporate Strategy 8e, © Pearson Education The PESTEL Framework

Exploring Corporate Strategy 8e, © Pearson Education What Are Key Drivers for Change? Key drivers for change are environmental factors that are likely to have a high impact on the success or failure of strategy.

Exploring Corporate Strategy 8e, © Pearson Education What is a Scenario? Scenarios are detailed and plausible views of how the business environment of an organisation might develop in the future based on key drivers for change about which there is a high level of uncertainty.

Exploring Corporate Strategy 8e, © Pearson Education Industries and Sectors Competitive forces Competitive cycles Industry life cycle

Exploring Corporate Strategy 8e, © Pearson Education Exhibit 2.2 The Five Forces Framework Competitive rivalry Potential entrants Buyers Substitutes Suppliers

Exploring Corporate Strategy 8e, © Pearson Education The Threat of Entry: Barriers to Entry Scale and experience Access to supply and distribution channels Expected retaliation Legislation or government action Differentiation

Exploring Corporate Strategy 8e, © Pearson Education Why Are Substitutes a Threat? Substitutes can reduce demand for a particular class of products as customers switch to alternatives. Price/performance ratio Extra-industry effects

Exploring Corporate Strategy 8e, © Pearson Education The Power of Buyers Are buyers concentrated? What are the costs of switching? Does backward vertical integration exist?

Exploring Corporate Strategy 8e, © Pearson Education The Power of Suppliers Are suppliers concentrated? What are the costs of switching? Does forward vertical integration exist?

Exploring Corporate Strategy 8e, © Pearson Education Degree of Competitive Rivalry  Competitor balance  Industry growth rate  High fixed costs  High exit barriers  Low differentiation

Exploring Corporate Strategy 8e, © Pearson Education Managerial Implications  Which industries should we enter or leave?  What influence can we exert?  How are competitors differently affected?

Exploring Corporate Strategy 8e, © Pearson Education Other Issues in a Five Forces Analysis  Define the ‘right’ industry  Determine whether industries are converging  Identify complementary products

Exploring Corporate Strategy 8e, © Pearson Education Exhibit 2.3 The Industry Life Cycle

Exploring Corporate Strategy 8e, © Pearson Education Exhibit 2.4 Cycles of Competition

Exploring Corporate Strategy 8e, © Pearson Education What is Hypercompetition? Hypercompetition occurs where the frequency, boldness and aggressiveness of dynamic movements by competitors accelerate to create a condition of constant disequilibrium and change.

Exploring Corporate Strategy 8e, © Pearson Education Exhibit 2.5 Comparative Industry Structure Analysis

Exploring Corporate Strategy 8e, © Pearson Education Competitors and Markets Strategic groups Strategic customers Market segments

Exploring Corporate Strategy 8e, © Pearson Education What are Strategic Groups? Strategic groups are organisations within an industry with similar strategic characteristics, following similar strategies or competing on similar bases.

Exploring Corporate Strategy 8e, © Pearson Education Characteristics for Identifying Strategic Groups Scope of activities  Extent of product diversity  Extent of geographic coverage  Number of segments served  Distribution channels Resource commitment  Extent of branding  Marketing effort  Extent of vertical integration  Product quality  Technological leadership  Organisational size

Exploring Corporate Strategy 8e, © Pearson Education Benefits of Identifying Strategic Groups Understanding competition Analysis of strategic opportunities Analysis of mobility barriers

Exploring Corporate Strategy 8e, © Pearson Education What is a Market Segment? A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market.

Exploring Corporate Strategy 8e, © Pearson Education Exhibit 2.7 Some Bases of Market Segmentation

Exploring Corporate Strategy 8e, © Pearson Education Managerial Issues in Market Segmentation  How do customer needs vary by market?  What is the relative market share within market segments?  How can market segments be identified and ‘serviced’?

Exploring Corporate Strategy 8e, © Pearson Education What is a Strategic Customer? A strategic customer is the person(s) at whom the strategy is primarily addressed because they have the most influence over which goods or services are purchased.

Exploring Corporate Strategy 8e, © Pearson Education What are Critical Success Factors? Critical success factors (CSFs) are those product features with which a organisation must outperform the competition because they are particularly valued by a group of customers.

Exploring Corporate Strategy 8e, © Pearson Education Types of Opportunity In substitute industries In other strategic groups In targeting buyers For complementary products In new market segments Over time

Exploring Corporate Strategy 8e, © Pearson Education Case Example: The European Brewing Industry  Complete a PESTEL analysis of the European brewing industry.  Complete a five forces analysis for the industry.