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Business Strategy Lecture 2 The Business Environment

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

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Business Strategy Lecture 2 The Business Environment

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  1. Business Strategy Lecture 2The Business Environment John Birchall

  2. 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”

  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. Analyzing the Environment (Harrison, 2003: 37) TheBroadEnvironment 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

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

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

  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. 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. 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

  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. 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. 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. 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. Potential Entrants Industry Competitors Rivalry Among Existing Firms Suppliers Customers Substitutes Porter’s 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)

  16. 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 Users/ buyers Drop-off in usage 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

  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

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