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Strategic Analysis. Environmental Analysis

Strategic Analysis. Environmental Analysis. Mikkeli 2005 Compiled by Rulzion Rattray. The Environment & Decisions. Complex. Organic Extreme. Static. Dynamic. Mechanistic Extreme. Simple. Turton, R. (1991),. The Macro Environment. POLITICAL ECONOMIC SOCIETAL ENVIRONMENTAL

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Strategic Analysis. Environmental Analysis

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  1. Strategic Analysis.Environmental Analysis Mikkeli 2005 Compiled by Rulzion Rattray

  2. The Environment & Decisions Complex Organic Extreme Static Dynamic Mechanistic Extreme Simple Turton, R. (1991),

  3. The Macro Environment POLITICAL ECONOMIC SOCIETAL ENVIRONMENTAL TECHNOLOGICAL VALUES/LIFE-STYLE INEVITABLES TRENDS UNCERTAINTIES Details and focus of analysis will depend on the industry that is being investigated & should be linked to forces that drive competition in that industry

  4. Structural Analysis of Industries Michael Porter Political Potential Entrants Environmental Threat of entry Economic Industry competitors Bargaining Bargaining Suppliers Buyers Power Power Rivalry Threat of substitutes Societal Technological Substitutes

  5. Structural Analysis of Industries Michael Porter • State of competition & the profit potential of an industry depends on 5 forces • Knowledge of the 5 forces allows a firm to: • Establish the context for its strengths & weaknesses • Determine industry opportunities & threats • The Goal: • To find a defendable position in the industry, where the firm can defend itself against these forces, or influence them in its own favour

  6. Generic Competitive StrategiesMichael Porter 1985 • “Positioning” determines whether a firm’s profitability is above or below the industry average. • Position is logically based on industry structure, this should allow the firm to deal with industry forces better than rivals • should be based either on lower costs or on differentiation 21/10/97 Compiled by Rulzion Rattray 1

  7. Generic Competitive StrategiesMichael Porter 1985 • Three Generic Strategies: • Cost Leadership • Differentiation • Focus • Firms must choose - • pursuing more than one will result in the firm being “stuck in the middle” 21/10/97 Compiled by Rulzion Rattray 2

  8. Generic Competitive StrategiesMichael Porter 1985 Competitive Advantage Cost Leadership Differentiation Broad ? Competitive Scope Cost Focus Differentiation Focus Narrow Adapted from M.E. Porter Competitive Advantage, Free Press, 1985. 21/10/97 Compiled by Rulzion Rattray 3

  9. Generic Competitive StrategiesMichael Porter 1985 • There is only place for one cost leader in any industry • There is more than one basis for differentiation or focus • If two or more firms seek to occupy the same position & on the same basis an unprofitable battle can result 21/10/97 Compiled by Rulzion Rattray 4

  10. The Strategy ClockBowman & Faulkner High Differentiation Focus Differentiation Perceived Added Value Low Price Strategies destined for ultimate failure Low Price/added value Low Price Low High 21/10/97 Compiled by Rulzion Rattray 7

  11. AchievingSustainable Competitive Advantage • Be clear who target customers are • Understand customer’s perceived value • Understand basis of competitors strategy • Understand basis of own competitive position; resources, stakeholders • Ensure customers needs are met in a distinctly different way 21/10/97 Compiled by Rulzion Rattray 8

  12. References • Johnson, G. & Scholes, K. (1998) Exploring Corporate Strategy, Prentice Hall • Porter ME (1979), “How Competitive Forces Shape Strategy”, Harvard Business Review March/April 1979. • Porter ME (1985), Creating & Sustaining Superior Performance, Free Press. • Stacey, R, (1996), Strategic Management & Organisational Dynamics, Pitman, London. • Turton, R. (1991), Behaviour in a Business Context, London, Chapman Hall. • Ginter P & Duncan (1990), Macroenvironmental Analysis, Long Range Planning, December. • Whittington R., (1993), What is Strategy & does it matter?, Routledge.

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