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Strategic Market Management

European Edition
David A. Aaker and Damien McLoughlin

David Aaker, Damien McLoughlin, Strategic Market Management European 1


Edition, 0470059869, © Copyright 2007 John Wiley & Sons Ltd
Chapter Five

Environmental analysis and strategic


uncertainty

David Aaker, Damien McLoughlin, Strategic Market Management European 2


Edition, 0470059869, © Copyright 2007 John Wiley & Sons Ltd
“We are watching the dinosaurs die, but we don’t
know what will take their place.”
- Lester Thurow, MIT Economist

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“There is something in the wind.”
-William Shakespeare, The Comedy of Errors

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“A poorly observed fact is more treacherous than a
faulty train of reasoning.”
-Paul Valéry, French philosopher

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Environmental analysis and
strategic uncertanity
 The goal is to identify and evaluate trends and events that
will affect strategy either directly and indirectly.
 It is important to look at the indirect impact as well.

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Environmental Analysis
 Technology
– To what extent are existing technologies maturing?
– What technological developments or trends are affecting or
could affect the industry?

 Government
– What changes in regulation are possible? What will their
impact be?
– What tax or other incentives are being developed that might
affect strategy?

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Edition, 0470059869, © Copyright 2007 John Wiley & Sons Ltd
Figure 6.1
Environmental Analysis
 Economics
– What are the economic prospects and inflation outlets for the
countries in which the firm operates?
– How will they affect strategy?

 Culture
– What are the current or emerging trends in lifestyles, fashions,
and other components of culture?
– Why?
– What are their implications? Figure 6.1

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Edition, 0470059869, © Copyright 2007 John Wiley & Sons Ltd
Figure 6.1
Environmental Analysis
 Demographics
– What demographic trends will affect the market size
of the industry or its submarkets?
– What demographic trends represent opportunities or
threats?

Figure 6.1

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Edition, 0470059869, © Copyright 2007 John Wiley & Sons Ltd
Figure 6.1
Environmental Analysis
 General External Analysis Questions
– What are the significant trends and future events?
– What threats and opportunities do you see?
– What are the key areas of uncertainty as to trends or events that
have the potential to impact strategy? Evaluate these strategic
uncertainties in terms of their impact.

 Scenarios
– What strategic uncertainties are worth being the basis of a
scenario analysis?
Figure 6.1
David Aaker, Damien McLoughlin, Strategic Market Management European 10
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Figure 6.1
Technology Trends
 An incremental innovation makes the offering more attractive
/profitable but does not change the value proposition on the
functional strategy (adding new flavors to toothpaste). Firms good
at at incremental innovations are committed to their business model
and they are unlikely to drive real change in the industry.

 A Transformational innovation will change the business model


totally like a new way to manufacture, distribute and market the
offer.(The advent of Steam powe, the Car, FedEx) It is likely to
make the assets/competencies irrelavant and they make take
decades to emerge

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 Substantial innovations are in between in newness
and impact. They often represent a new
generation of products that make existing products
obselete (Airbus 380, windows 7) Substantioanl
innovations are much more common than
transformational innovations.
 The transformational and substantial innovations
often bring new companies into the industry

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Forecasting Technologies
How to sort out the winners from the losers?
 Invention of shopping trolley (W)
 Screens attached to shopping carts to highlight specials (L)
The criteria for retailing:
 Use technology to create and immediate, tangible benefit
for the customers,
 Make the technology easy to use,
 Prototype, test and refine,
 Recognize that customer response to technology varies

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Impact of new technologies
• Diesel- electric locomotives versus steam
• Transistors versus vacuum tubes
• Ballpoint pens versus fountain pens
• Nuclear power versusu bıoilers for fossil –fuel
• Electric razors versus safety razors

• The sales of the old technology continues for a


substantial period because the firms involved continue to
improve them.
• It is relatively difficult to predict the outcome of a new
technology
Consumer Trends
 Both threats and opportunities
 Women’s lifestyle

Cultural trends
 Cocooning
 Fantasy adventure
 Pleasure revenge Small indulgences
 Down-ageing
 Being alive
 99 lives
Cultural Trends
 Tribing, the affinity towards a social unit that is
centred around an interest or activity and is not bound
by conventional social links.
 Emergence of social media
 Being green: Citizens are more concerned about the
impact of society and business on the global
ecosystem,
 Every business needs to be assured of supply of
essential raw materials,
 The governments will be imposing sanctions and taxes
on those damaging the environment
Demographics
The World population

7.608.310.132

TSİ 10.30 p.m. 14.3.2018


 Population growth in many countries has dropped
below the rate necessary to maintain present levels
 A nation needs a fertility rate of about 2.1 children
per woman
 Not one major country has sufficient internal
population growth to maintain itself
 The free flow of immigration will help to
ameliorate the dual problems of explosive
population expansion in less-developed
countries and worker shortage in
industrialized regions
 Europe will need 1.4 billion immigrants over
the next 50 years
 Japan and the U.S. will need 600 million
immigrants between now and 2050
Europe above 65 115mio.(2005) 136 mio (2020)

Europe above 80 25 mio (2005) 36 mio (2020)

Average age in Asia 29 (2000) 40 (2050)

The demand for healthcare, %32, %24, %21 (from 2005 to 2020)
housing and energy in Italy.

The demand for toy(sports, %41, %36. %23 (from 2005 to 2020)
motorcycles and education

•The pop. Of the UK will be rising by 5 million people over the next 25 years,
immigrants will be taking two-thirds of it. What may be the implications?
•1.The impact of strategic uncertanity is related to:
• The extent to which it involves trends or events that will impact
• upon eisting or potential businesses,
• The importance of the business involved
• The number of business involved

•2. The immediacy of a straregic uncertanity is related to:


• The probability that the trend will ossur,
• The timeframe of the trend
• The reaction time likely to be available

© Copyright 2010 John Wiley & Sons Ltd 25


Strategic Uncertainties Categories
Immediacy
Low High

Monitor and
Analyse In-

High
analyse;contingent
depth; develop
strategies
strategy
Impact

considered
Low

Monitor Monitor and


analyse
Figure 6.2

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Edition, 0470059869, © Copyright 2007 John Wiley & Sons Ltd
Scenario Analysis

Identify
Scenarios

Relate Scenarios
to Existing or
Proposed Strategies
Estimate
Scenario
Figure 6.3
Probabilities

David Aaker, Damien McLoughlin, Strategic Market Management European 27


Edition, 0470059869, © Copyright 2007 John Wiley & Sons Ltd
Key Learnings
 Environmental analysis of changes in technology, demographics, culture,
the economy, and governmental actions should detect and analyse current
and potential trends and events that will create opportunities or threats to
an organization.

 Impact analysis involves assessing systematically the impact and


immediacy of the trends and events that underlie each strategy uncertainty.

 Scenario analysis, a vehicle to explore different assumptions about the


future, involves the creation of two to three plausible scenarios, the
development of strategies appropriate to each, the assessment of scenario
probabilities, and the evaluation of the resulting strategies across the
scenarios.

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Edition, 0470059869, © Copyright 2007 John Wiley & Sons Ltd
Ancillary Slides

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Edition, 0470059869, © Copyright 2007 John Wiley & Sons Ltd
“A decision is the action an executive must take
when he has information so incomplete that the
answer does not suggest itself.”
- Admiral Arthur W. Radford

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Edition, 0470059869, © Copyright 2007 John Wiley & Sons Ltd
“It’s easy to make decisions when there are no bad
options.”
- Robert Half

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Edition, 0470059869, © Copyright 2007 John Wiley & Sons Ltd