The Strategy Environment

Session 2

Business Strategy

The Strategy Environment

• Analyse the broad macro-environment of organisations in terms of political, economic, social, technological, environmental and legal factors (PESTEL)

• Identify key drivers in this macro-environment and use these key drivers to construct alternative scenarios with regard to environmental change

The Strategy Environment

• 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

Business Environment

The Organisation

PESTEL Framework

Political Economic

Technological

Environmental Legal

Social

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.

The Five Forces Framework

Competitive rivalry

Potential entrants

Buyers

Substitutes

Suppliers

The Threat of Entry: Barriers to Entry

Scale and experience

Access to supply and distribution channels

Expected retaliation

Legislation or government action

Differentiation

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

The Power of Buyers

Are buyers concentrated?

What are the costs of switching?

Does backward vertical integration exist?

The Power of Suppliers

Are suppliers concentrated?

What are the costs of switching?

Does forward vertical integration exist?

Degree of Competitive Rivalry

• Competitor balance

• Industry growth rate

• High fixed costs

• High exit barriers

• Low differentiation

Implications

• Which industries should we enter or leave?

• What influence can we exert?

• How are competitors differently affected?

The Industry Life Cycle

Strategic Groups

Strategic groups are organisations within an industry with similar

strategic characteristics, following similar strategies or competing on

similar bases.

Characteristics for Identifying Strategic Groups

Resource commitment• Extent of branding• Marketing effort• Extent of vertical

integration• Product quality• Technological leadership• Organisational size

Scope of activities• Extent of product diversity• Extent of geographic

coverage• Number of segments

served• Distribution channels

Benefits of Identifying Strategic Groups

Understanding competition

Analysis of strategic opportunities

Analysis of mobility barriers

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.

Market Segment

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’?

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

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.

Strategic gap

A strategic gap is an opportunity in the competitive environment that is not being fully exploited by competitors.

Case Example: The European Brewing Industry

• Complete a PESTEL analysis of the European brewing industry.

• Complete a five forces analysis for the industry.

• How will the environmental trends affect these companies?

• What are the relative strengths and weaknesses of each?