The Focus of Part 1:

The Strategic Position

How to analyse an organisations position in the
external environment
How to analyse the determinants of strategic
capability
How to understand an organisations purposes,
taking into account corporate governance,
stakeholder expects and business ethics
How to address the role of history and culture in
determining an organisations position

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The Strategic Position

2: The Environment

Learning Outcomes (1)

Analyse the broad macro-environment of
organisations in terms of political,
economic, social, technological,
environmental and legal factors
Identify key drivers in this macroenvironment and use these key drivers to
construct alternative scenarios with regard
to environmental change

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Learning Outcomes (2)

Use five forces analysis in order to define
the attractiveness of industries and sectors
for investment and to identify their
potential for change
Identify strategic groups, market
segments, and critical success factors,
and use them in order to recognise
strategic gaps and opportunities in the
market
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Exhibit 2.1 Layers of the

business environment
The macro-environment
Industry (or sector)
Competitors
The
Organisation

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The Macro-Environment

Key
drivers

PESTEL

Scenarios

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PESTEL Framework
Political

Economic

Social

Technological

Environmental

Legal

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The PESTEL Framework

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What Are Key Drivers for Change?

Key drivers for change are
environmental factors that are likely
to have a high impact on the success
or failure of strategy.

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What is a Scenario?
Scenarios are detailed and plausible
views of how the business
environment of an organisation might
develop in the future based on key
drivers for change about which there
is a high level of uncertainty.

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Industries and Sectors

Industry
life cycle

Competitive
forces

Competitive
cycles

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Exhibit 2.2 The Five Forces Framework

Potential
entrants

Suppliers

Competitive
rivalry

Buyers

Substitutes

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The Threat of Entry: Barriers to Entry

Scale and experience
Access to supply and distribution channels
Expected retaliation
Legislation or government action
Differentiation

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Why Are Substitutes a Threat?

Substitutes can reduce demand
for a particular class of products as
customers switch to alternatives.
Price/performance ratio
Extra-industry effects

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The Power of Buyers

Are buyers concentrated?

What are the costs of switching?

Does backward vertical integration exist?

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The Power of Suppliers

Are suppliers concentrated?

What are the costs of switching?

Does forward vertical integration exist?

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Degree of Competitive Rivalry

Competitor balance
Industry growth rate
High fixed costs
High exit barriers
Low differentiation

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Managerial Implications
Which industries should we enter or
leave?
What influence can we exert?
How are competitors differently affected?

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Other Issues in a
Five Forces Analysis
Define the right industry
Determine whether industries are
converging
Identify complementary products

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Exhibit 2.3 The Industry

Life Cycle

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Exhibit 2.4 Cycles of Competition

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What is Hypercompetition?
Hypercompetition occurs where the
frequency, boldness and
aggressiveness of dynamic
movements by competitors
accelerate to create a condition of
constant disequilibrium and change.

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Exhibit 2.5 Comparative Industry

Structure Analysis

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Competitors and Markets

Market
segments

Strategic
groups

Strategic
customers

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What are
Strategic Groups?
Strategic groups are
organisations within an industry
with similar strategic
characteristics, following similar
strategies or competing on
similar bases.

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Characteristics for Identifying

Strategic Groups
Scope of activities
Extent of product
diversity
Extent of geographic
coverage
Number of segments
served
Distribution channels

Resource commitment
Extent of branding
Marketing effort
Extent of vertical
integration
Product quality
Technological
leadership
Organisational size

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Benefits of Identifying
Strategic Groups
Understanding competition

Analysis of strategic opportunities

Analysis of mobility barriers

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What is a Market Segment?

A market segment is a group of
customers who have similar needs
that are different from customer
needs in other parts of the market.

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Exhibit 2.7 Some Bases of

Market Segmentation

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Managerial Issues in
Market Segmentation
How do customer needs vary by
market?
What is the relative market share
within market segments?
How can market segments be
identified and serviced?

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What is a Strategic Customer?

A strategic customer is the
person(s) at whom the strategy is
primarily addressed because they
have the most influence over which
goods or services are purchased.

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What are Critical Success Factors?

Critical success factors (CSFs) are
those product features with which a
organisation must outperform the
competition because they are
particularly valued by a group of
customers.

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Types of Opportunity
In substitute
industries

In other strategic
groups

In targeting
buyers

For complementary
products

In new market
segments

Over time

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Case Example: The European

Brewing Industry
Complete a PESTEL analysis of the
European brewing industry.
Complete a five forces analysis for
the industry.

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