Introduction to Strategic

Management
Macro-Environment
Analysis
What is Strategy?

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Tesla Motors: the future is electric! Page: 5

Questions
How does Tesla Motor’s strategy fit with the various

strategy definitions in Figure 1.1 ?

What seems to account for Tesla’s success?

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Horizon 1 - businesses need defending and extending,

but the expectation is that in the long term they will likely
be flat or declining in terms of profits; For ex: original
Tesla Roadster car and subsequent models
Horizon 2 - businesses are emerging activities that

should provide new sources of profit. For ex: new mega-

battery business of Tesla

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Horizon 3 - typically risky research and development

(R&D) projects, start-up ventures, test-market pilots or

similar. For ex: at Tesla, these might be further solar
electric initiatives, rockets and space transportation
For a fast-moving organization like Tesla, Horizon 3

might generate profits a few years from the present time.

In a pharmaceutical company, where the R&D and

regulatory processes for a new drug take many years,

Horizon 3 might be a decade ahead.
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A mission statement aims to provide employees and

stakeholders with clarity about what the organization is

fundamentally there to do - ‘What business are we in?’
A vision statement is concerned with the future the

organization seeks to create - ‘What do we want to achieve?’

Statements of corporate values communicate the underlying

and enduring core ‘principles’ that guide an organization's

strategy and define the way that the organization should operate
– ‘Would these values change with circumstances?’ And if the
answer is ‘yes’ then they are not ‘core’ and not ‘enduring’.

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Objectives are statements of specific outcomes that are

to be achieved. These are often expressed in precise

financial terms, for instance, the level of sales, profits or
share valuation in one, two- or three-years’ time
Also, market- based objectives, such as market share,

customer service, repeat business and so on are also

included

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Strategy Statement
Strategy statements should have three main themes:

the fundamental goals (mission, vision or objectives) that

the organization seeks; the scope or domain of the
organization’s activities; and the particular advantages or
capabilities it has to deliver all of these.
Scope. An organization's scope or domain refers to three

dimensions: customers or clients; geographical location;

and extent of internal activities (‘vertical integration’)
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Strategy Statement
Advantage. This part of a strategy statement describes

how the organization will achieve the objectives it has

set for itself in its chosen domain => Competitive
Advantage
Strategy statements covering goals, scope and

advantage should be no more than 35 words long

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Both Samsung electronics and
Southampton University strategies. Page:9
Questions
Construct short strategy statements covering the goals, scope

and advantage of Samsung and the Southampton University.

How much do the different private- and public-sector contexts
matter?
Construct a strategy statement for your own organization

(university, sports club or employer). What implications might

this statement have for change in your organisation?
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Levels of Strategy
Corporate Level => overall scope of an organisation and

how value is added to the constituent businesses of the

organizational whole.
Business Level => how the individual businesses should

compete in their particular markets (this is often called

‘competitive strategy’).
Functional Strategies => how the components of an

organisation deliver effectively the corporate- and business-

level strategies in terms of resources, processes and people
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The Environment

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The Environment
The environment is what gives organizations their means

of survival
In private sector satisfied customers are what keep an

organization in business
In public sector its government, clients, patients and

students
Environment can also be the source of threats → shifts

in market demand, new regulations, revolutionary

technologies, entry of new competitor 19
What affects a company?

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PESTEL Analysis

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 PESTEL framework
Politics:
The role of the state. In many countries and sectors, the
state is often important as a direct economic actor, for
instance as a customer, supplier, owner or regulator of
businesses.
Exposure to civil society organizations. Civil society
comprises a whole range of organization that are liable
to raise political issues, including political lobbyists,
campaign groups, social media or traditional media
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The macro dimension of political risk refers to the

risks associated with whole countries – for instance

China, France or Nigeria
The internal dimension of political risk relates to

factors originating within the countries, for example

government change or pressure from local
campaigning groups

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BP’s PESTEL. Page 36
In the light of this analysis, what strategic options

would you advise a Western oil producer such as

Shell or BP to consider?
Have the Opportunities and Threats changed since

2016? How would you update this analysis?

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 PESTEL framework
Economic → sub-cycles of economic growth
• The Kitchin or ‘stock’ cycle is the shortest cycle, tending to last about
three to four years from one cyclical peak to the next. build up stocks of
raw materials and parts as economies emerge from recessions
• The Juglar or ‘investment’ cycle is a medium-term cycle, typically
stretching over 7–11 years. The cycle is driven by surges of investment
in capital equipment, for instance plant and machinery → investments
have been made across an economy → firms are able to cut back on
further investment until the equipment is worn out → investment cut-
backs drain demand from the economy → a new turning-point:
innovation forces firms to spend again by investing in a new generation
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of capital equipment
 PESTEL framework
Economic → sub-cycles of economic growth
• The Kuznets or ‘infrastructure’ cycle is the longest, lasting
between 15 and 25 years. These cycles follow the life-spans
of infrastructural investments, for example in housing or
transport. → triggered by initial surges of infrastructure
investment, which then ease off as infrastructural needs are
met.
• The cyclical upturn comes when the last generation of
infrastructure is worn out or outdated, and a new surge of
investment is required 27
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Some industries are particularly vulnerable to economic cycles:
Discretionary spend industries: purchasers can easily put off

their spending for a year or two. Housing, restaurants and cars

tend be highly cyclical because many people can choose to delay
or curtail spending on these for a while
High fixed cost industries: airlines, hotels and steel. Suffer from

economic downturns as high fixed costs in plant, equipment or

labor tend to encourage competitive price-cutting to ensure
maximum capacity utilization.
For ex: filling the empty seats by offering cheap tickets → price

wars will decrease the profits of all players

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• Many of these factors are linked together → technology
development change economic factors (creating new
jobs), social factors (facilitating more leisure) and
environmental factors (reducing pollution)
• Key drivers for change are the environmental factors
likely to have a high impact on industries and sectors, and
the success or failure of strategies within them → clothing
retailer is concerned with social changes, computer
manufacturer is concerned with technological change

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 PESTEL framework
Social:
• Demographics. The ageing population in Western countries → demand
for elderly services → diminishing supplies of young labor to look after
them
• Distribution. Changes in wealth distribution influence the relative sizes
of market. Concentration of wealth in the hands of elites over the last 20
years has constrained some categories of ‘middle-class’ consumption,
while enlarging markets for certain luxury goods
• Geography. Industries and markets can be concentrated in particular
locations → Industry cluster → Silicon Valley
• Culture. The rise of ‘digital natives’ (generations born after the 1980s,
and thus from childhood immersed in digital technologies) 31
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Intelligence Unit 8200 and the small
world of Israeli hi-tech. page 42
Identify at least one important hub and one important

broker in the Unit 8200 network.

If you were a foreign cybersecurity company, what

would you do to access Israel’s expertise?

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 PESTEL framework
Ecological:
• Direct pollution obligations
• Product stewardship refers to managing ecological
issues through both the organization’s entire value
chain and the whole life cycle of the firm’s products
• Sustainable development – whether the product or
service can be produced indefinitely into the future

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 PESTEL framework
Legal:
Labor, environmental and consumer regulation; taxation and
reporting requirements; and rules on ownership, competition
and corporate governance
Varieties of capitalism – the variance of formal and informal
rules between countries:
1. Liberal market economies
2. Coordinated market economies
3. Developmental market economies
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 PESTEL framework
Liberal market economies - competition between companies,
aggressive acquisitions of one company by another and free
bargaining between management and labor.
• Companies raise funds from financial institutions
• Company ownership is either entrepreneurial or widely
dispersed amongst many shareholders
• These economies tend to support radical innovation and are
receptive to foreign firms
• Best examples are US and United Kingdom
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 PESTEL framework
Coordinated market economies – encourage more
coordination between companies, often supported by industry
associations or similar frameworks.
• Constraints on hostile acquisitions vs. support for consensus and
collective arrangements between management and labor
• Companies tend to rely on banks for funding, while family
• ownership is often common
• Support steady innovation over the long run and, because of
coordination networks, are typically less easy for foreign firms to
penetrate. For ex: Germany and Japan
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 PESTEL framework
Developmental market economies – strong roles for the state
in owning or heavily influencing strategic companies.
• State often encourage private-sector firms to coordinate
between themselves and with national economic policy-
makers
• Labor relations highly regulated
• Banks, often state-owned, are the key source of funding
• Long-term, infrastructural and capital-intensive projects may
be favored, but foreign firms will often be at a disadvantage
• Best example: Brazil, China and India 39
Uber drives into trouble. page
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Using the concept of ‘varieties of capitalism’ in which

countries would you expect Uber to be most successful

and in which less so?
What are the costs and benefits of Uber’s aggressive

approach to growth?

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Forecasting
Single-point forecasting is where organizations have

such confidence about the future that they will provide

just one forecast number
For ex: An organization might predict that the population

in a market will grow by 5 per cent in the next two years.

Implies a great degree of certainty

Often attractive to organizations because they are easy

to translate into budgets

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 Forecasting
Range forecasting is where organizations have less certainty,

suggesting a range of possible outcomes.

These forecasts are often called ‘fan charts’, because the range of

outcomes ‘fans out’ more widely over time, reflecting growing

uncertainty over the longer term.
‘Fan charts’ are often used in economic forecasting, for example

economic growth rates or inflation

the most probable projections are darkest shaded, and the range of

more remote outcomes are lightly shaded areas in Figure 2.8 (ii)
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 Forecasting
Alternative futures forecasting typically involves even

less certainty, focusing on a set of possible yet distinct

futures.
Alternative futures are discontinuous: they happen, or

they do not, with radically different outcomes (see Figure

2.8(iii)).

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 Forecasting
For example:

Outcome A – expected sales if a competitor business

did not invest in a new machine or similar capacity

Outcome B – the competitor making that investment

Outcome C – the competitor both making that

investment and then slashing prices to make full use of

the new capacity

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Building Scenarios
 Are carried out to allow for different possibilities
and help prevent managers from closing their
minds to alternatives
 Scenarios offer plausible alternative views of how
the business environment of an organization might
develop in the future
 Typically build on PESTEL analyses, but do not
offer a single forecast
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Building Scenarios
 Oil industry → low growth and high instability vs.
high growth and low instability
 The point of scenarios is more to learn than to
predict
 Analyzing different scenarios improves
organizational learning and make managers
more perspective about the forces in the
business environment
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 Building Scenarios
Usually there 3 types of scenarios – ‘optimistic’,
‘middling’ and ‘pessimistic’
Managers usually focus on middling scenario → its
better to have 2 or 4 scenarios
Scenarios are especially useful where:
 there are a limited number of key drivers
 there is a high level of uncertainty
 outcomes could be radically different
 organizations have to make substantial
commitments into the future that may be highly
inflexible

For example, oil companies invest in exploring oilfields with

the lives of 20 years or more. 48
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Alibaba – the Yangtze River
Crocodile. Pages 58-60
Carry out a PESTEL analysis of Alibaba at the time of

the case. Evaluate the balance of opportunities and

threats, using the same kind of figure as in Illustration
2.1.
Draw a basic sociogram of Alibaba’s network (see

Section 2.2.3 and Figure 2.5). Explain why this network

may be useful.
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