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

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

The Strategic Position
2: The Environment
 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

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

 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

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

 Exhibit 2.1 Layers of the
business environment

The
Organisation

Exploring Corporate Strategy 8e, © Pearson Education 2008 2-5

 The Macro-Environment

Key
PESTEL
drivers

Scenarios

Exploring Corporate Strategy 8e, © Pearson Education 2008 2-6

 PESTEL Framework

Political Economic

Social Technological

Environmental Legal

Exploring Corporate Strategy 8e, © Pearson Education 2008 2-7

 The PESTEL Framework

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

 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.

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

 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.

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

 Industries and Sectors

Competitive Industry
forces life cycle

Competitive
cycles

Exploring Corporate Strategy 8e, © Pearson Education 2008 2-11

 Exhibit 2.2 The Five Forces Framework

Potential
entrants

Competitive
Suppliers Buyers
rivalry

Substitutes

Exploring Corporate Strategy 8e, © Pearson Education 2008 2-12

 The Threat of Entry: Barriers to Entry

Scale and experience

Access to supply and distribution channels

Expected retaliation

Legislation or government action

Differentiation

Exploring Corporate Strategy 8e, © Pearson Education 2008 2-13

 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

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

 The Power of Buyers

Are buyers concentrated?

What are the costs of switching?

Does backward vertical integration exist?

Exploring Corporate Strategy 8e, © Pearson Education 2008 2-15

 The Power of Suppliers

Are suppliers concentrated?

What are the costs of switching?

Does forward vertical integration exist?

Exploring Corporate Strategy 8e, © Pearson Education 2008 2-16

 Degree of Competitive Rivalry

Competitor balance
Industry growth rate
High fixed costs
High exit barriers
Low differentiation

Exploring Corporate Strategy 8e, © Pearson Education 2008 2-17

 Managerial Implications

 Which industries should we enter or

leave?
 What influence can we exert?
 How are competitors differently affected?

Exploring Corporate Strategy 8e, © Pearson Education 2008 2-18

 Other Issues in a
Five Forces Analysis
Define the ‘right’ industry
Determine whether industries are
converging
Identify complementary products

Exploring Corporate Strategy 8e, © Pearson Education 2008 2-19

 Exhibit 2.3 The Industry
Life Cycle

Exploring Corporate Strategy 8e, © Pearson Education 2008 2-20

 Exhibit 2.4 Cycles of Competition

Exploring Corporate Strategy 8e, © Pearson Education 2008 2-21

 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.

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

 Exhibit 2.5 Comparative Industry
Structure Analysis

Exploring Corporate Strategy 8e, © Pearson Education 2008 2-23

 Competitors and Markets

Strategic Market
groups segments

Strategic
customers

Exploring Corporate Strategy 8e, © Pearson Education 2008 2-24

 What are
Strategic Groups?
Strategic groups are
organisations within an industry
with similar strategic
characteristics, following similar
strategies or competing on
similar bases.

Exploring Corporate Strategy 8e, © Pearson Education 2008 2-25

 Characteristics for Identifying
Strategic Groups
Scope of activities Resource commitment
 Extent of product  Extent of branding
diversity
 Marketing effort
 Extent of geographic
coverage  Extent of vertical
integration
 Number of segments
served  Product quality
 Distribution channels  Technological
leadership
 Organisational size

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

 Benefits of Identifying
Strategic Groups

Understanding competition

Analysis of strategic opportunities

Analysis of mobility barriers

Exploring Corporate Strategy 8e, © Pearson Education 2008 2-27

 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.

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

 Exhibit 2.7 Some Bases of
Market Segmentation

Exploring Corporate Strategy 8e, © Pearson Education 2008 2-29

 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’?

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

 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.

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

 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.

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

 Types of Opportunity

In substitute In other strategic

industries groups

In targeting For complementary

buyers products

In new market
Over time
segments

Exploring Corporate Strategy 8e, © Pearson Education 2008 2-33

 Case Example: The European
Brewing Industry

 Complete a PESTEL analysis of the

European brewing industry.
 Complete a five forces analysis for
the industry.

Exploring Corporate Strategy 8e, © Pearson Education 2008 2-34