1. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-1 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

2. The Strategic Position 2: The Environment

3. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-3 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

4. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-4 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

5. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-5 Exhibit 2.1 Layers of the business environment The Organisation

6. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-6 The Macro-Environment PESTEL Scenarios Key drivers

7. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-7 PESTEL Framework PoliticalEconomic Technological EnvironmentalLegal Social

8. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-8 The PESTEL Framework

9. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-9 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.

10. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-10 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.

11. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-11 Industries and Sectors Competitive forces Competitive cycles Industry life cycle

12. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-12 Exhibit 2.2 The Five Forces Framework Competitive rivalry Potential entrants Buyers Substitutes Suppliers

13. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-13 The Threat of Entry: Barriers to Entry Scale and experience Access to supply and distribution channels Expected retaliation Legislation or government action Differentiation

14. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-14 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

15. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-15 The Power of Buyers Are buyers concentrated? What are the costs of switching? Does backward vertical integration exist?

16. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-16 The Power of Suppliers Are suppliers concentrated? What are the costs of switching? Does forward vertical integration exist?

17. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-17 Degree of Competitive Rivalry  Competitor balance  Industry growth rate  High fixed costs  High exit barriers  Low differentiation

18. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-18 Managerial Implications  Which industries should we enter or leave?  What influence can we exert?  How are competitors differently affected?

19. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-19 Other Issues in a Five Forces Analysis  Define the ‘right’ industry  Determine whether industries are converging  Identify complementary products

20. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-20 Exhibit 2.3 The Industry Life Cycle

21. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-21 Exhibit 2.4 Cycles of Competition

22. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-22 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.

23. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-23 Exhibit 2.5 Comparative Industry Structure Analysis

24. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-24 Competitors and Markets Strategic groups Strategic customers Market segments

25. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-25 What are Strategic Groups? Strategic groups are organisations within an industry with similar strategic characteristics, following similar strategies or competing on similar bases.

26. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-26 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

27. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-27 Benefits of Identifying Strategic Groups Understanding competition Analysis of strategic opportunities Analysis of mobility barriers

28. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-28 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.

29. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-29 Exhibit 2.7 Some Bases of Market Segmentation

30. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-30 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’?

31. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-31 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.

32. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-32 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.

33. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-33 Types of Opportunity In substitute industries In other strategic groups In targeting buyers For complementary products In new market segments Over time

34. Exploring Corporate Strategy 8e, © Pearson Education 2008 2-34 Case Example: The European Brewing Industry  Complete a PESTEL analysis of the European brewing industry.  Complete a five forces analysis for the industry.