Strategic Management

Lecture 2 The External Environment

The Nature of the Environment

Dynamism Visible

Uncertain

Simple

Knowledge Complexity

The Population Ecology View

Hannan and Freeman (1977) Organisational Ecology Natural Selection?
Inertia and Change (Reliability and Accountability) Niche Theory (Generalists and Specialists) Resource Partitioning (Market Concentration) Density Dependence (Legitimation vs Competition) Age Dependence (New, Adolescence, Ageing)

PEST Analysis
Political International Trade Agreements Political Systems Investment Taxation Policy Alliances Regulation Social Lifestyle Changes Demographics Culture Fashion/ Trends Health/ Education Economic GDP Growth Interest Rates Inflation Exchange Rates Globalisation Labour Supply/ Cost Technological Information Technology New Media Patents Emerging Research Technology Transfer

5 Forces Porter (1980)

Entrants

Suppliers

Competition

Buyers

Substitutes

Industry Lifecycle Analysis

Embryonic Growing Shakeout Mature Decline Stage

Users/ Buyers
Competitive Conditions

Few: trial of early users

Growing adopters: trial of product/ service Entry of competitors Attempt to achieve trial.

Growing selectivity of purchase

Saturation of users: Repeat purchase reliance

Drop-off in usage

Few competitors

May be many.
Likely price cutting for volume.

Fight to Exit of some maintain share. competitors.

Difficult to Selective gain/take share. distribution. Emphasis on efficiency and low cost

Fight for share. Shakeout of weakest Undifferentiated competitors. product/service.

G Johnson, K Scholes and R Whittington, Exploring Corporate Strategy, 7th Edition, Pearson, 2005, p86

UK Supermarket Industry in 2007

Broad

Strategic Group Analysis

Tesco
Range of Products

Sainsburys Asda Morrisons

Narrow Basic

Aldi/ Netto

Waitrose Somerfield
High

Perceived Quality of Products

Porters Diamond

Stakeholders
Customers Suppliers Shareholders & Creditors National & Local Governments Media Foreign Governments Social Activist Groups Local Communities Wholesalers Public Opinion Employees

Competitors
Business Support Groups

The Organisation

Adapted from K Davis & W C Frederick Business and Society: Management, Public Policy, Ethics, 5th Edition, McGraw-Hill, 1984

Scenario Planning

Scenario Planning at BA
British Airways (BA) created two scenarios of possible change from 1995 to 2005.
Wild Gardens Asian markets grow rapidly US falls into long recession 1997 Election in UK won by Conservatives for fifth time EU enlarged but no single currency EC initiates an Atlantic Open Skies agreement New Structures Asias rise slower than expected and investment reduced 1997 Election in UK won by Labour who promote stronger European integration and a single currency This leads to EU integrated air traffic control and high speed rail expansion US commitment to environmental targets increases

K Moyer, Scenario Planning at British Airways - a case study, Long Range Planning, Vol 29, Iss 2, 1996

Environmental Analysis Research Based Differential Impact Alternative Strategies