1. 1 Business Strategy Lecture 2 The Business Environment John Birchall

2. 2 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. 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. 4 Analyzing the Environment ( Harrison, 2003: 37) The Organization The Organization Owners / Board of Directors ManagersEmployees Operating Environment The Broad Environment The Broad Environment FinancialIntermediaries Government Agencies and Administrators LocalCommunities Competitors Suppliers Customers ActivistGroups Unions Socio-cultural Influences Technological Influences Economic Influences Political / legal Influences The Media

5. 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. 6 PESTLE Analysis…and more Political Economic Sociocultural Technological Legal Environmental and Ethical

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

8. 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. 204-217.

9. 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. 10 The Organization and Its Operating Environment The Organization The Organization The Operating Environment The Operating Environment FinancialIntermediaries Government Agencies and Administrators LocalCommunities Competitors Suppliers Customers ActivistGroups Unions The Media

11. 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. 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. 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. 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. 15 Porter’s Five Forces Model (Harrison, 2003: 53) Potential Entrants Suppliers Customers Industry Competitors Rivalry Among Existing Firms Bargaining power of suppliers Threat of new entrants Bargaining power of customers Substitutes 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)

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

17. 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