1. Business Strategy Lecture 2 The Business Environment
John Birchall

2. “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”

3. 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?

4. 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

5. 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

6. PESTLE Analysis…and more
Political
Economic
Sociocultural
Technological
Legal
Environmental and Ethical

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

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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 16

17. 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