Business Strategy Lecture 2 The Business Environment

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Business Strategy Lecture 2The Business
Environment

• John Birchall

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Link to Overall Business StrategyHarrison (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

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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?

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Analyzing the Environment (Harrison, 2003 37)
The Broad Environment
Socio-cultural Influences
Technological Influences
Operating Environment
Competitors
Activist Groups
Local Communities
The Organization
Owners / Board of Directors Managers Employees
Suppliers
Customers
Unions
The Media
Financial Intermediaries
Government Agencies and Administrators
Economic Influences
Political / legal Influences
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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

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PESTLE Analysisand more

• Political
• Economic
• Sociocultural
• Technological
• Legal
• Environmental and Ethical

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PESTEL (Johnson, Scholes and Whittington, 2005
65-71)

• Political
• Economic
• Sociocultural
• Technological
• Environmental
• Legal

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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.

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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

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The Organization and Its Operating Environment
The Operating Environment
Local Communities
Activist Groups
Competitors
Customers
Suppliers
The Organization
The Media
Unions
Financial Intermediaries
Government Agencies and Administrators
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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

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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

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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

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Industry Analysis

• Porters 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

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Porters Five Forces Model(Harrison, 2003 53)
Threat of new entrants
Bargaining power of customers
Bargaining power of suppliers
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)
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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
Drop-off in usage
Users/ buyers
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
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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