MBA StratMan Analyse the Environment. Dr. Vesselin Blagoev

Transcription

1 MBA StratMan Analyse the Environment Dr. Vesselin Blagoev

2 Diagnosing the strategic position (Strategic Analysis) Environment Analysing the environment Capability Purpose Culture Source: Johnson, Scholes and Whittington (2008, p.12)

3 Layers of the environment The macro environment (PESTEL) Industry or sector (Porter s Five Forces, Industry Life Cycle) Competitors (Competitor Analysis, Strategic Group Analysis) The organisation Markets (Customer segmentation) Increasing uncertainty Johnson, Scholes and Whittington (2008)

4 PESTEL analysis of the airline industry Political Gov. support for national carriers Security controls Restrictions on migration Social Rise in travel by elderly Student international study exchanges Environmental Noise pollution controls Energy consumption controls Land for growing airports Economic National growth rates Fuel prices Technological Fuel efficient engines and airframes Security check technologies Teleconferencing for business Legal Restrictions on mergers Preferential airport rights for some carriers

5 The macro environment - PESTEL Applied to Thorntons Political New countries joining EU (potential new markets but also increased threat of competition) Anything affecting supply or price of cocoa UK govt increasingly concerned about health issues Economic Changes in disposable income Exchange rates Bank lending rates Social Chocolate gifts are seasonal Healthy eating issue Demographic changes What is going to affect customers, suppliers and competitors?

6 PESTEL continued Social (cont.) Increasing trend in organic food The ethical consumer (Fairtrade, recycling, foodmiles, carbon footprint) Environmental Warmer climate may reduce demand for chocolate Increased awareness of environmental issues concerning waste and carbon footprint Technological Developments in payment technology Internet shopping is reducing high street shopping Developments in manufacturing Legal EU regulations Employment law These issues will have different degrees of certainty

7 PESTEL How do you judge certainty? How do I know I ve thought of everything? What is most/least important? Does the organization have the power to control any of the PESTEL issues?

8 PESTEL practical tips You don t have to fill all categories Some issues fit into more than one category Think about the potential impact Only include realistic issues On the other hand weak signals Be careful about technological issues

9 What do I do with the information from PESTEL? Make a judgement on which issues are of vital importance look for OPPORTUNITIES AND THREATS How should the organization respond? How do these issues affect Customer demand? Suppliers? Competitors? It is not just a list of issues that remains untouched forever more!

10 Remember PESTEL issues affect all organizations within a particular industry, but How will each organization respond? Who is best equipped to deal with the environment?

11 Industry analysis: Porter s Five-Forces model

12 Industry analysis: Porter s Five-Forces model Potential Entrants To help understand the attractiveness of An industry Suppliers Bargaining power Will it be easy to make a profit? xxxxxx Competitive Rivalry xxxxxx Substitutes Barriers to entry Bargaining power Buyers Source: Porter (1980,p.4)

13 Industry analysis: Porter s Five Forces model Potential Entrants To help understand the attractiveness of An industry Suppliers Bargaining power Will it be easy to make a profit? xxxxxx Competitive Rivalry xxxxxx Substitutes Barriers to entry Bargaining power Buyers Source: Porter (1980, p.4)

14 Porter s Five Forces: Threat of entry / Barriers to entry Capital requirement / start-up costs Economies of scale Experience curve Access to distribution channels Government barriers Likelihood of retaliation Your judgment (high/medium/low threat) is not right or wrong if you give justification for your judgment

15 Porter s Five Forces: Bargaining Power of buyers/suppliers Can be considered together Relative concentration Relative importance of product Credible threat of vertical integration (backwards or forwards) Control of information Switching costs

16 Porter s Five Forces: Threat of substitutes Product for product substitution Substitution of need Generic substitution Does not include direct competitors or or

17 Porter s Five Forces: Competitive Rivalry High if Several equally strong players Mature market High fixed costs Little differentiation High exit barriers supermarkets Airlines Construction

18 Five forces: general points Use at level of SBU NOT corporate level. You need a separate analysis for each industry. What is the industry? This is a particularly tricky issue. Can be used by firms already in the industry or by firms deciding whether to enter an industry Assumes that the structure of an industry determines conduct, which determines performance (SCP). This view has been challenged by the resource based view of the firm.

19 Five Forces practical tips It is difficult to get insider information such as suppliers so you need to make inferences You need to look for clues to high competitive rivalry such as price wars, takeovers, falling sales, over-capacity... Are firms actually competing? sometimes they avoid each other on purpose

20 The Five Forces and the internet According to Porter... The internet has heightened competitive rivalry because; Firms can compete on price Entry barriers are lowered Buyer power is increased as access to information becomes easier All firms can more easily achieve operational effectiveness therefore sustainable competitive advantage needs to come from being different to competitors

21 Porter s 5 Example

22 Lo w Rivalr y Entry threat Lo w Time + 5 Hi Hi gh Hi gh Hi ghhi gh gh Time 0 Substitute threat Lo w Low Buyer power Low Supplier power Porter s 5 Comparative industry structure analysis (J,W & S, 2012, c.35)

23 Criticisms of Five Forces It assumes that structure determines conduct which determines performance This is assuming that positioning correctly within an industry is the key to success However, these positions are generic and therefore obvious to competitors It ignores the issue of complementors (the sixth force) There are many exceptions to the rule that industry matters more than resources Widely debated can you find more criticisms?

24 The industry life cycle model: Will CSF change over time? Innovators Early Early majority Late majority Laggards adopters Development Growth Shake out Maturity Decline

25 Industry life cycle general rules Introduction Growth Maturity Decline Competitors Few, increasing Many/ consolidation Oligopoly Exiting Customers Few, rich Increasing, discerning Repeat sales Moving away Entry barriers Technology Start up costs competition Overcapacity Profits Negative Increasing High Declining Marketing Inform Persuade Maintain loyalty Reduced Haberburg and Rieple (2008, p.115)

26 Industry life cycle practical tips Not all industries follow this trajectory Some go in cycles Some have different product life-cycles within the overall industry Disruptive technology can change the established oligopoly overnight Falling sales of one firm does not indicate an industry in decline you have to look at the whole industry and you have to know why there is a decline e.g. recession or substitute? Has the industry exhausted all markets? e.g. budget fashion industry is mature in UK but maybe not in Spain.

27 10x Any questions