1. Analysis of the Strategic Environment
Lecture 2

2. Learning Objectives
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
Use Porter’s five forces analysis in order to define the attractiveness of industries and sectors and to identify their potential for change
Identify successful strategic groups, valuable market segments and attractive ‘Blue Ocean’ within industries.
Use these various concepts and techniques in order to recognise threats and opportunities in the marketplace.

3. Introduction Strategic Position Culture Strategy Strategic in Choices
Environment
Capability
Purpose
Culture
Strategic
Choices
Strategy in
Action
Johnson, Whittington and Scholes (2011)

4. Figure 1: Layers of the business environment
Introduction (cont.)
Figure 1: Layers of the business environment
The macro-environment
Industry (or sector) Co
Competitors
The Organisation
Markets
Johnson, Whittington and Scholes (2011)

5. The Macro-Environment
The PESTEL Framework
Key drivers for change
Figure 2. PESTEL Analysis of the Airline Industry
Political
Governmental support for national carriers
Security control
Restrictions on margins
Economic
National growth rates
Fuel prices
Social
Rise in travel by elderly
Student international study exchange
Technological
Fuel-efficient engines and airframes
Security check technologies
Teleconferencing for business
Environmental
Noise pollution controls
Energy consumption controls
Land for growing airports
Legal
Restrictions on mergers
Preferential airport rights for some carriers
Johnson, Whittington and Scholes (2011)

6. The Macro-Environment (cont.)
Building Scenarios
Identifying the scope
Identifying the key drivers for change
Selecting opposing key drivers
Developing scenario ‘stories’
Identifying impacts – robustness check and contingency plans
Slow geo-economic shift
Rapid geo-economic shift
Harmonised financial coordination
Re-engineered Western-centrism
Rebalanced multilateralism
Discordant financial coordination
Fragmented protectionism
Financial regionalism
Johnson, Whittington and Scholes (2011)

7. Industries and Sectors
Competitive forces – the five forces framework
Potential entrants
Threat of entry
Competitive Rivalry
Suppliers
Buyers
Bargaining power
Bargaining power
Threat of substitutes
Substitutes
Johnson, Whittington and Scholes (2011)

8. Competitive forces – the five forces framework
The treat of entry
Barriers to entry
Scale and experience
Access and supply or distribution channels
Expected retaliation
Legislation or government action
Differentiation

9. Competitive forces – the five forces framework (cont.)
The threat of substitutes
-Important conditions:
The price/performance ratio
Extra-industry effects

10. Competitive forces – the five forces framework (cont.)
The power of buyers
Important conditions:
Concentrated buyers
Low switching costs
Buyer competition threat

11. Competitive forces – the five forces framework (cont.)
The power of suppliers
Important conditions:
Concentrated suppliers
High switching costs
Supplier competition costs

12. Competitive forces – the five forces framework (cont.)
Important conditions
Competitive balance
Industry growth rate
High fixed costs
High exit barriers
Low differentiation

13. Types of industries Monopolistic Oligopolistic Hypercompetitive
Perfectly competitive

14. Implications of five forces analysis
Which industries to enter/leave?
What influence can be exerted?
How are competitors differently affected?

15. Key issues in using the five forces framework
Defining the ‘right’ industry
Converging industries
Complementary organisations – complementor, value net

16. The value net
Harvard Business Review (1995), Adam M. Brandenburger and Barry Nalebuff

17. The dynamics of industry structure
The industry life cycle
Johnson, Whittington and Scholes (2011)

18. The evolution of industry structure and competition over the life cycle

19. Comparative industry structure analysis

20. Cycles of competition

21. Competitors and Markets
Strategic groups
Scope of activities
Extent of product/service diversity
Extent of geographical coverage
Number of market segments served
Distribution channels used
Resource commitment
Extent/number of branding
Marketing effort (advertising, sales force, etc.)
Extent of vertical integration
Product or service quality
Technological leadership (a leader or follower)
Size of organisation
Johnson, Whittington and Scholes (2011)

22. Strategic Groups

23. Market segments

24. Blue Ocean thinking