The External Environment

MGMT 256, Global Business Strategies

1–1
Logical Framework

What is strategy

Why strategy

How to Develop a Successful Strategy?

References
• Peng, Global Strategy 11th and 12th Ed., Cengage Learning
• Porter, M.E. (1980) Competitive Strategy, Free Press, New York.
• Hitt, Ireland and Hoskisson, Strategic Management, Competitiveness and
Globalization, 12e, Cengage Learning
• Hill, Schilling and Jones, Strategic Management Theory, 12e, Cengage
Learning
• Gaspar et al, Introduction to Global Business, 2nd Ed., Cengage Learning
• Wheelen et al, Strategic Management and Business Policy 15e, Pearson
• 2013 Robert M. Grant, Contemporary Strategy Analysis, 8e
Revision

1–4
01 02 03
What is a strategy? Why have a How
strategy? • Core Ideology
• Survival • SWOT Analysis
• Win: Competitive • Strategy Formulation
Advantage

Contents
What is Strategy?
• Origins
• Art of the generals
• Art of Winning the “war”
• Strategy as a:
• Plan
• Pattern
• Position
• Perspective
• Ploy

• Process
• Theory/Approach
Intended vs. Emergent Strategy
Environmental Variables

1-9
Figure 1-4: Hierarchy of Strategy

1-10
Strategic Mindset
• What is a strategic mindset?
• Why is it important?
• How to develop a strategic mindset?
Why have a strategy?
• Discussion
• What is the first priority of any organism, entity, person or organization?
 Core Ideology

Measure &
SWOT Analysis
Realign
Strategic
Management
Process
Implementation Objectives

Strategy
Benefits of Strategic Management

• Survival, above-average returns, growth and long-term survival

• The attainment of an appropriate match, or “fit,” between an
organization’s environment and its strategy, structure, and processes
has positive effects on the organization’s performance.
• Strategic planning becomes increasingly important as the
environment becomes more unstable.
• Clearer sense of strategic vision for the firm
• Sharper focus on what is strategically important
• Improved understanding of a rapidly changing environment

1-14
15
The Resource-
Based Model of
Above-Average
Returns

HITT et al, Strategic Management, Competitiveness and Globalization, 12e. © 2017 Cengage Learning.
The Resource-Based Model
of Above-Average Returns

Core
Capability competence
An integrated set A source of
of resources competitive
Resources advantage
Physical, human, and
organizational capital
(tangible and intangible)

HITT et al, Strategic Management, Competitiveness and Globalization, 12e. © 2017 Cengage Learning.
Resources As Core Competencies
Costly to imitate

How resources
Rare become core Valuable
competencies

Nonsubstitutable

HITT et al, Strategic Management, Competitiveness and Globalization, 12e. © 2017 Cengage Learning. 1–18
The Industry
Organization
(I/O) Model
of Above-
Average
Returns

HITT et al, Strategic Management, Competitiveness and Globalization, 12e. © 2017 Cengage Learning.
Core Ideology
What is Ideology
• Discussion
Vision Statement
• A Successful Vision:
• is an enduring word picture of what the firm wants to be and expects to
achieve in the future.
• stretches and challenges its people.
• reflects the firm’s values and aspirations.
• is most effective when its development includes all stakeholders.
• recognizes the firm’s internal and external competitive environments.
• is supported by upper management decisions and actions.

1–22
Mission Statement
• An Effective Mission:
• specifies the present business or businesses in which the firm intends to
compete and customers it intends to serve.
• has a more concrete, near-term focus on current product markets and
customers than the firm’s vision.
• should be inspiring and relevant to all stakeholders.
• Should illustrate why the company exists (raison d'être) and how it adds value
to its stakeholders

1–23
Components of Core Ideology
Mission

• Purpose of the company, or a statement of what the company strives to

do. Raison d'être. The value the firm adds to key stakeholders.

Vision

• Articulation of a company’s desired achievements, future state and

competitive position.

Values

• Statement of how employees should conduct themselves and their

business to help achieve the company mission.

Establishing major goals

• Goal - Precise and measurable desired future state that a company

attempts to realize.
HITT et al, Strategic Management, Competitiveness and Globalization, 12e. © 2017 Cengage Learning.
Stakeholder
Groups

Government

HITT et al, Strategic Management, Competitiveness and Globalization, 12e. © 2017 Cengage Learning.
Values
• Discussion
• What are the organization values?
• Why are they important?
• How do they manifest themselves?
• What is the organization culture?
• Can it be a source of competitiveness?
• Can the lack of values hurt the organization?
Activity
• Identify core ideology of a business you admire
The Strategic Management Process:
The ASP Process
• Analyses • Performance
• The external environment • Governance mechanisms
• The internal organization • Organizational structure
• Strategic leadership
• Strategies
• Strategic entrepreneurship
• Business-level strategies
• Marketplace competition
• Corporate-level strategies
• Diversified portfolio management
• International strategies
• Cooperative strategies
Situation Analysis/
SWOT Analysis
"know yourself, know your opponents and mind your surroundings."
Discussion
• What is Situation Analysis?
• What is a SWOT Analysis?
• Why is it important?
• How to perform it?
• What is PLESTG Analysis?

• A Situation Analysis is an analysis of the company’s internal and

external environments
Criticism
• Discuss criticism of the SWOT tool
Strategic management
General managers

• Bear responsibility for a company’s overall performance or

for one of its major self-contained subunits or divisions.

Functional managers

• Responsible for supervising a particular function, task,

activity, or operation.

Multidivisional company

• Competes in several different businesses and has a separate

self-contained division to manage each.
33
HITT et al, Strategic Management, Competitiveness and Globalization, 12e. © 2017 Cengage Learning. 34
The External Environment
Analysis and Interaction with Strategic Management Process
The external environment

1 2 3 4
What is it? Why care so How to analyze What next?
much about it? it?
 Opportunities and Threats

• Opportunity
– A condition in the general
environment that, if exploited
effectively, helps a firm achieve
strategic competitiveness.

• Threat
– A condition in the general environment that may hinder a firm’s efforts to
achieve strategic competitiveness.

HITT et al, Strategic Management, Competitiveness and Globalization, 12e. © 2017 Cengage Learning.
 The External Environment

HITT et al, Strategic Management, Competitiveness and Globalization, 12e. © 2017 Cengage Learning.
 External Environmental Analysis

• General Environment
– Focused on the future
• Industry Environment
– Focused on factors and conditions influencing a firm’s profitability within
an industry
• Competitor Environment
– Focused on predicting the dynamics of competitors’ actions, responses
and intentions

HITT et al, Strategic Management, Competitiveness and Globalization, 12e. © 2017 Cengage Learning.
Environmental Analysis
• General: PLESTG
• Political, Legal, Economic, Social/Cultural, technological, global
• Industry: Porter 5 Forces
• Entrants, Substitutes, Bargaining Powers of Suppliers & Buyers + Level of
Rivalry
• Competitive:
• Objectives, strategy, strengths, weaknesses, future response
The General Environment: Segments and Elements

HITT et al, Strategic Management, Competitiveness and Globalization, 12e. © 2017 Cengage Learning.
Components of the External Environmental
Analysis

HITT et al, Strategic Management, Competitiveness and Globalization, 12e. © 2017 Cengage Learning.
The Five Forces of Competition Model

HITT et al, Strategic Management, Competitiveness and Globalization, 12e. © 2017 Cengage Learning.
 Interpreting Industry Analyses

Low entry barriers

Suppliers and buyers

have strong positions
Unattractive
Strong threats from industry
substitute products

Intense rivalry (Low profit potential)

among competitors

HITT et al, Strategic Management, Competitiveness and Globalization, 12e. © 2017 Cengage Learning.
Interpreting Industry Analyses (cont’d)

High entry barriers

Suppliers and buyers

have weak positions
Attractive
Few threats from industry
substitute products

Moderate rivalry (High profit potential)

among competitors

HITT et al, Strategic Management, Competitiveness and Globalization, 12e. © 2017 Cengage Learning.
 Competitor Analysis Components

strategic intent

HITT et al, Strategic Management, Competitiveness and Globalization, 12e. © 2017 Cengage Learning.
Ethical Means to Get Competitive Intelligence
• Annual reports
• Public disclosures and press releases
• Trade shows
• Research projects and academic partnerships
• Competitor hiring specific employees with specific skills
• Suppliers
• Etc.
Cracks in the
Golden Arches

https://www.wazoku.com/cracks-in-the-golden-arches-a-struggling-fast-food-giant/
Cracks in the Golden Arches
McDonald's is the largest restaurant chain in the world. It has 14,350
restaurants in the United States, with the largest market share of any such
chain (7.3 percent). In total, it has more than 36,000 restaurants worldwide.
Over the years, McDonald's was a leader, not only in market share, but also
with the introduction of new menu items to the fast food market. For
example, it first introduced breakfast items to this market, and its breakfast
menu now accounts for about 25 percent of its sales. It successfully
introduced Chicken McNuggets to this market, and currently, McDonald's is
the single largest restaurant customer of Tyson Foods, the largest distributor
of chicken products. In more recent years, McDonald's successfully
introduced gourmet coffee products and began to compete against
Starbucks. With all of this success, what is the problem?

https://www.wazoku.com/cracks-in-the-golden-arches-a-struggling-fast-food-giant/
The problems revolve around competition and changing consumer tastes.
Consumers have become more health-conscious, and competitors have been
more attuned to customer desires. As a result, McDonald's suffered a decline
in its total sales revenue of 2.4 percent and a drop in net income of 15
percent in 2014. This was the first decline in both figures in 33 years. It
seems that McDonald's did a poor job of analyzing its environment and
especially its customers and competitors. During this same time, some of
McDonald's competitors flourished. For example, Sonic enjoyed a 7 percent
increase in its sales, and Chipotle recorded a large 20 percent increase. Other
specialty burger restaurants, such as Smashburger, have stolen business from
McDonald's even though their burgers are priced a little higher than
McDonald's burgers. The quality of these competitors' products is perceived
to be higher and many are “made to order” and thus customized to the
customer's desires. And, partly because the volume and complexity of the
McDonald's menu items have grown, the time required for service has also
increased. This change has been most evident in the drive-through lanes in
which the wait time has grown by approximately 20 percent in recent years.
Because of the lack of understanding the changing market and
competitive landscape, McDonald's was unable to be proactive and
now is in a reactive mode. For example, in 2013, it decided to add
chicken wings to its menu. Wings were sold successfully at McDonald's
in Hong Kong, and it imported its “cayenne-and-chili-pepper coating”
used there. The market test for the wings in Atlanta was successful, so
the firm implemented a major campaign to sell them at its restaurants
throughout the United States. The eight-week campaign was a
miserable failure (some referred to it as the “mighty wings debacle”).
Perhaps they were too spicy for the broad market, but some believe
that they were also too expensive at $1.00 per wing, with a box of five
wings costing $1.00 more than a similar number at KFC. Because of
these problems, McDonald's hired a new CEO in 2015, hoping to
overcome its woes.
The new CEO must act quickly. McDonald's has recently announced that it is
changing to use only chickens raised without antibiotics to be sensitive to
human health concerns. It has also market tested custom hamburgers in
Australia with success. In fact, Australia is one of McDonald's bright spots
around the world. Sales have increased in Australia when they have fallen in
the United States, Europe, and Asia. Making major changes to the
McDonald's menu is challenging partly because of its scale and supply chain.
It orders hundreds of millions of pounds of chicken each year, so it will take a
few years to fully implement the change to antibiotic-free chicken. Changing
vegetables in Happy Meals (e.g., adding baby carrots) and implementing new
wraps which require additional (new) vegetables (such as cucumbers) will
take time because they require obtaining large scale suppliers that can
provide the necessary quantity and quality at the right price and in the right
location(s).
McDonald's was once a leader, and now it is fighting from behind, trying to
stem its downturn.
Cracks in the Golden Arches
• Questions
• Why is McDonald’s facing decline in sales?
• What are the environmental changes which is McDonald’s experiencing?
• Do these changes represent opportunities or threats?
• What are the strategic implications for these changes?
• What happens if we Monitor and respond to these changes
• at an early stage?
• at a late stage?
• Why is it difficult to respond at an early stage to such changes?
Why change is difficult for large organizations
• Business Inertia
• Resources required
• People afraid of uncertainty and resist change
• Past success may hinder change
• Large networks
• Interests and turfs

• How do we overcome these hurdles:

• Management of change
Additional Cases
Case Studies
• Elizabeth II
• Madonna
• Wall Mart
• Starbucks
• Ryan Air
Activity
• What are the lessons we can learn from Starbucks growth
• http://www.mckinsey.com/global-themes/employment-and-
growth/starbucks-quest-for-healthy-growth-an-interview-with-
howard-schultz
• Perform SWOT analysis for Starbucks
• What would be the best strategy for Starbucks?
Lessons Learned
• Growth in itself is not a strategy: Disciplined growth
• Over emphasis on P/E ratio led to reporting monthly sales, which
made managers make decisions to increase sales rather than serve
customers (which would eventually increase sales), Schultz stopped
that
• Seed products inside the store, then utilize emotional connection
with clients in selling these products in other retail stores (30,000)
RyanAir
• From an industry-based view, assess the strength of the five forces and
determine the extent to which Ryanair is positioned against those forces.
• From a resource-based view, what explains Ryanair's success?
• From an institution-based view, assess the opportunities and threats
presented by the current and future institutional environment (both formal
and informal). How should Ryanair respond?
• What is your evaluation of the proposal that Ryanair offer free flights in
perpetuity? Draw on the three views in your answer.
• ON ETHICS: Evaluate Ryanair's ethical (or unethical) behavior, especially in
light of the questionable practices discussed in the case. What changes, if
any, would you recommend to CEO Michael O'Leary?