1 Strategic Analysis. Environmental Analysis Mikkeli 2005 Compiled by Rulzion Rattray

2 The Environment & Decisions Complex Simple Static Organic Extreme Mechanistic Extreme Dynamic Turton, R. (1991),

3 The Macro Environment POLITICAL ECONOMIC SOCIETAL ENVIRONMENTAL TECHNOLOGICAL VALUES/LIFE-STYLE UNCERTAINTIES INEVITABLES TRENDS Details and focus of analysis will depend on the industry that is being investigated & should be linked to forces that drive competition in that industry

4 Structural Analysis of Industries Michael Porter SuppliersBuyers Substitutes Potential Entrants Industry competitors Rivalry Threat of entry Threat of substitutes Bargaining Power Bargaining Power Political Economic Societal Technological Environmenta l

5 Structural Analysis of Industries Michael Porter State of competition & the profit potential of an industry depends on 5 forces Knowledge of the 5 forces allows a firm to: –Establish the context for its strengths & weaknesses –Determine industry opportunities & threats The Goal: –To find a defendable position in the industry, where the firm can defend itself against these forces, or influence them in its own favour

6 21/10/971Compiled by Rulzion Rattray Generic Competitive Strategies Michael Porter 1985  “Positioning” determines whether a firm’s profitability is above or below the industry average.  Position is logically based on industry structure, this should allow the firm to deal with industry forces better than rivals  should be based either on lower costs or on differentiation

7 21/10/972Compiled by Rulzion Rattray Generic Competitive Strategies Michael Porter 1985  Three Generic Strategies:  Cost Leadership  Differentiation  Focus  Firms must choose -  pursuing more than one will result in the firm being “stuck in the middle”

8 21/10/973Compiled by Rulzion Rattray Generic Competitive Strategies Michael Porter 1985 Cost Leadership Differentiation Cost Focus Differentiation Focus Competitive Advantage Competitive Scope Broad Narrow Adapted from M.E. Porter Competitive Advantage, Free Press, ?

9 21/10/974Compiled by Rulzion Rattray Generic Competitive Strategies Michael Porter 1985  There is only place for one cost leader in any industry  There is more than one basis for differentiation or focus  If two or more firms seek to occupy the same position & on the same basis an unprofitable battle can result

10 21/10/977Compiled by Rulzion Rattray The Strategy Clock Bowman & Faulkner Differentiation Focus Differentiation Low Price Low Price/added value Strategies destined for ultimate failure Perceived Added Value High Low Price HighLow

11 21/10/978Compiled by Rulzion Rattray Achieving Sustainable Competitive Advantage  Be clear who target customers are  Understand customer’s perceived value  Understand basis of competitors strategy  Understand basis of own competitive position; resources, stakeholders  Ensure customers needs are met in a distinctly different way

12 References Johnson, G. & Scholes, K. (1998) Exploring Corporate Strategy, Prentice Hall Porter ME (1979), “How Competitive Forces Shape Strategy”, Harvard Business Review March/April Porter ME (1985), Creating & Sustaining Superior Performance, Free Press. Stacey, R, (1996), Strategic Management & Organisational Dynamics, Pitman, London. Turton, R. (1991), Behaviour in a Business Context, London, Chapman Hall. Ginter P & Duncan (1990), Macroenvironmental Analysis, Long Range Planning, December. Whittington R., (1993), What is Strategy & does it matter?, Routledge.