The organisational

ecosystem
Chapter 4

Footnote 1
 Rational model (Johnson, Scholes and Whittington)

Internal environment

Evaluation and Review

Mission, vision Position Strategic
choice
Implementation and
and objectives appraisal options
Control

Stakeholders
Governance and
Ethics

External environment

Strategic
Strategic Analysis Strategic Choice Implementation

Footnote 2
 Lead outcome Component outcome Topics to cover

• SWOT analysis
a) Markets and competition • PESTEL analysis
1. Analyse the
• Competitor analysis
elements of b) Society and regulation
• Customer analysis
the ecosystem
• Wider ecosystems
• Industry ecosystem

• Globalisation
2. Discuss the (a-e) • Geopolitics
drivers of Institutional/systematic, • Demography
change in the social, market, technology • Customer empowerment
ecosystem and sustainability • Digital technology
• Automation

Footnote 3
 ❑ Components of an ecosystem impact each
other, creating a relationship which is
constantly evolving
❑ This requires organisations to be flexible,
adaptable and constantly evolving
❑ An organisations’ ecosystem is made up of
a network of organisations involved in
delivering a product or service, including:
▪ Customers
▪ Suppliers
▪ Distributors
▪ Competitors
▪ Government agencies

Footnote 4
 Macro environment (PESTEL)

Country specific factors (Porters’ diamond)

Industry life cycle

Porter’s five forces

Competitor analysis

Drivers of change
Technology, unpredicted demand, globalisation,
emerging economies, geopolitics, demographics,
Footnote 5
customer empowerment
 ❑ The main purpose of the environmental
analysis is to understand the current
environment and to predict how it will
change
▪ Identification of threats and opportunities
▪ Assessment of competition
▪ Obtain an understanding strengths and
weaknesses
▪ Meeting stakeholder needs

Footnote 6
 Porter’s Diamond

PESTEL
Global markets

Drivers of
External
environmental
Environment
change
Competitor analysis

Porter’s 5 forces

Lifecycle analysis

Footnote 7
 ❑ Main characteristics
o Multinational/multi-company supply chains
o Offshoring work (relocating business activities)
o Increasing mobility of resources and capital
❑ Entry into foreign markets driven by factors
such as:
o Shareholder pressure to increase returns
o Saturated home markets
o Opportunities in untapped markets
o Lowering of trade barriers

Footnote 8
 Globalisation
Benefits
❑ Greater economies of scale
❑ New cultural developments
❑ Cheaper raw materials
❑ Market development opportunities
❑ Risk reduction via diversified
markets
❑ Political incentives to encourage
inward investment
Footnote
Risks
❑ Marketing mix complications
❑ Cultural barriers
❑ Varying cost structures
❑ New competitors
❑ Exchange rate/political volatility
❑ Entry requirements – legal barriers
9
 ❑ The way a country’s
geography economics
and politics affect its
power and
relationships with
other countries
❑ Examples:
▪ BREXIT
▪ US vs China trade
wars

Footnote 10
 Drivers of change - Demography

Ageing
population

Rise of millennial
generation

Growth of middle
classes

Footnote 11
 ❑ Characteristics of
customer
empowerment
▪ Convenience
▪ Information
▪ Price of a mistake
is high
▪ Personalisation
▪ Collaboration

Footnote 12
 ❑ Digitisation has
resulted in:
▪ Changing products and
services
▪ Transforming industries
▪ Automation of
processes and
operations
▪ Enabling customers to
be linked
▪ New forms of
interaction – social
media

Footnote 13
 ❑Automation will change the nature of work
across industries

Capitalisation effect
Technology-fuelled The destruction effect is
Destruction effect

disruption and accompanied by a

capitalisation effect in which
automation substitute
demand for new goods and
capital for labour forcing
services increases and
workers to become leads to the creation of new
unemployed or relocate occupations, businesses
their skills elsewhere and even industries

Footnote 14
 Porter’s Diamond

PESTEL
Global markets

Drivers of
External
environmental
Environment
change
Competitor analysis

Porter’s 5 forces

Lifecycle analysis

Footnote 15
PESTEL Analysis
• Change of government
• New political initiatives
• Political union
• War
• Tax
• Global political moves
Footnote
• Demography • Interest rates
• Culture & Lifestyle • Exchange rates
• Education • Inflation rates
• Income • Unemployment
• Consumerism • Balance of payment
• Business cycles
16
PESTEL Analysis

• Rate of development • Health and safety • Pollution

and transfer legislation • Wastage
• Innovation • Consumer laws • Climate and climate
• Obsolescence • Data protection laws change
• Changing cost base • Accounting regulations
• Automation • New legislation
• IoT

Footnote 17
 LoNGPEST classifies PEST factors into three different
levels:

❑ Local
❑ National
❑ Global

Footnote 18
 Porter’s Diamond

PESTEL
Global markets

Drivers of
External
environmental
Environment
change
Competitor analysis

Porter’s 5 forces

Lifecycle analysis

Footnote 19
 Threat of
new
entrants

Bargaining Rivalry amongst Bargaining

power of competitors power of
suppliers customers

Substitutes

Footnote 20
 Purpose of
the model

Porter says that five forces

together determine

❑ the long term attractiveness of an industry

❑ i.e. the level of profit which can be

sustained in an industry

Footnote 21
 1. Bargaining power of suppliers
depends on:

❑ Number of suppliers
❑ Threats to suppliers industry
❑ Number of customers in the
industry
❑ Scope for substitution
❑ Switching costs
❑ Selling skills

Suppliers seek higher prices.

Footnote 22
 2. Threat of new entrants

This is limited by barriers to entry

❑ Scale economies
❑ Product differentiation
❑ Switching costs
❑ Access to distribution
❑ Patent rights
❑ Access to resources

Footnote 23
 3. Bargaining power of customers
depends on:

❑ Volume bought
❑ Scope for substitution
❑ Switching costs
❑ Purchasing skills
❑ Importance of quality

Customers seek lower prices

Footnote 24
 4. Rivalry among current competitors
depends on:

❑ Market growth
❑ Buyers ease of switching
❑ Spare capacity
❑ Exit barriers
❑ Uncertainty about competitor’s strategy

Footnote 25
 5. Threat from substitute products

❑ A substitute is produced by a
different industry but satisfies the
same needs

▪ Substitute resulting from innovation

▪ Substitute competing for disposable
income

Footnote 26
Footnote 27
 Collaboration rather than
competition

Industry-based rather
then firm-based

Dynamic industries –
model is static

Defining the industry

Non-profit organisations
may not find it useful

Footnote 28
 Porter’s Diamond

PESTEL
Global markets

Drivers of
External
environmental
Environment
change
Competitor analysis

Porter’s 5 forces

Lifecycle analysis

Footnote 29
 Industry/Product life cycle

Introduction Growth Shakeout Maturity Decline

Sales and
profits

Cash flow
+
Time
-
Profit

Footnote 30
Introduction stage:
❑Key points
Purchased by innovators; high launch and marketing costs are
likely; production volumes will be low and product cost will be
high; buyers are unsophisticated; competition is little.
❑Pricing strategy
Price skimming
Penetration pricing
❑Pioneer companies are first to market, but it is risky because of
high business and financial risks
Footnote 31
❑Growth
sales for the market as a whole increase; new competitors
to challenge pioneers; new segments may be developed;
demand becomes more sophisticated; competition increase
• The market becomes profitable as sales volumes increase
• Marketing is very important to build brand
• Prices fall due to economies of scale

Footnote 32
❑Shakeout:
sales growth rate slows down; market becomes saturated;
maximum profitability is reached, but starts to fall as supply
exceeds demand. Number of producers falls, either as a
result of business failures or takeovers.

Footnote 33
 • Maturity: often the longest period, there is little/no
market growth but profits remain good; cash flow
positive. High levels of competition so price becomes
more sensitive.
• Decline: product superseded; sales fall, over-capacity in
industry, some players leave market. Those who remain
try to find niches.

Footnote 34
• Offer a range of products at various stages of the life cycle
– BALANCED PORTFOLIO - mature products should fund
new developments
• Competencies need to change – at early stages, creativity
and innovation are key, whilst at later stages efficiencies
and pricing becomes more important
• SWOT varies across the life-cycle and strategies need to
change
• Anticipation of decline causes decline. Failure to invest in
marketing and development causes appropriate response
Footnote 35
 ❑Study summary of the life cycle
❑Marketing strategies

Footnote 36
 ❑Improved strategic planning
❑Improved budgeting
❑Proactive approach

Footnote 37
 ❑ How do you really know where you are in the cycle?
❑ Some products skip one or more of the phases.
❑ Not predictive.
❑ Can be influenced by strategic decisions.
❑ Does not consider connections between products.
❑ Can cause confusion – does the lifecycle reflect the
product class or a particular the brand?

Footnote 38
 Porter’s Diamond

PESTEL
Global markets

Drivers of
External
environmental
Environment
change
Competitor analysis

Porter’s 5 forces

Lifecycle analysis

Footnote 39
 ❑Activities which examine the comparative position
of competing entities in an industry.
❑Seeks to:
▪ understanding of own competitive advantage
▪ Insights into competitors’ past, present and future strategies
▪ Basis for developing sustainable advantage over competitors

❑Purpose (Grant):
▪ Forecast competitors’ future strategies and decisions
▪ Predict competitors’ likely reactions to firm strategies
▪ Determine how competitor reaction could be influenced in favour of the
organisation
Footnote 40
 Develop competitor response profile
• Laid back
• Brand • Objectives • Selective
competitors • Strategy • Tiger
• Industry • Assumptions • Stochastic
competitors • Resources
• Form
Identify competitors

Analyse competitors
and
competitors competencies
• Generic
competitors
• Predictions

Footnote 41
 Porter’s Diamond

PESTEL
Global markets

Drivers of
External
environmental
Environment
change
Competitor analysis

Porter’s 5 forces

Lifecycle analysis

Footnote 42
 ❑ See notes on globalisation

Footnote 43
 Porter’s Diamond

PESTEL
Global markets

Drivers of
External
environmental
Environment
change
Competitor analysis

Porter’s 5 forces

Lifecycle analysis

Footnote 44
 ❑Porter observed, that some nations’ industries are
more successful than other’s for example:
▪Germany’s motor vehicle industry
▪Hollywood for movies
▪Silicon Valley for IT start-ups
❑Four factors were identified to determine a
country’s attractiveness for a specific industry
❑NB - it is the HOME COUNTRY attractiveness
Footnote 45
 Firm strategy,
structure, rivalry

Factor conditions Demand

•Basic
•Advanced conditions

Related and
supporting
Footnote industries 46
 ❑ Factor conditions relate to a countries’ resources
o Basic factors – natural resources, climate conditions, semi-skilled workers or
unskilled workers – pre-conditions to be successful, but does not create
competitive advantage on its own
o Advanced factors – infrastructure, communication networks, skilled workforce
– factors that can help promote competitive advantage
❑ Demand conditions
❑ Domestic market has enough demand to “teach” the company or give them
experience of how to compete globally
❑ It allows companies to achieve cost efficient, high quality goods that satisfy
the customer requirements in a sophisticated market

Footnote 47
 ❑ Related and supporting industries
o Industries need to be supported by good local supply chain, which contributes
to quality and cost advantages
❑ Firm strategy structure and rivalry
o Cultural factors social attitudes and management styles can lead to
competitive advantage
o Intense competition in the domestic market means they need to perform well
to survive. This may also cause firms to look for export markets

Footnote 48
 ❑ Two aspects that impact the availability of factors in a domestic
market
o Clustering
▪ A combination of these factors can create a cluster of extremely
competitive firms that are well-placed to compete internationally
▪ Clustering reinforces the availability and improvement of diamond
elements
o Government policy
▪ Government policy is also important to reinforce the elements of the
diamond (education, infrastructure, subsidies)
▪ Tax regime and government attitudes to foreign investment could also
affect a multinational company’s decision to invest in a country

Footnote 49