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Business Strategy 1 - 2010

Business Environment and Strategy

1Bsns Strategy 1 - 2010 - Transccend

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Layers Of An Organizations Environment

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Organnization

Competitive

Environment

Industry

Environment

PESTELEnvironment

PoliticalEconomic

Social

Technological

Environmental

Legal

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Components Of

Macro-environment

Bsns Strategy 1 - 2010 - Transccend 3

Political

Government stability

Taxation policy

Trade regulations

Social welfare policies

Economic

Bsns cycles

GNP trend

Interest rates

Money supply

Social

Population demographics

Social mobility

Life-style changes

Levels of education

Technological

Government spend on R&D

New ideas in science

Speed of tech transfer

Rates of obsolescence

Environmental

Env protection laws

Waste disposal laws

Energy consumption

Legal

Competition laws

Employment law

Product safety

Organnization

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Key Drivers of Change

Different drivers may affect different layers of anorganizations environment Market globalization (Customer needs similar worldwide)

Cost globalization (Organizations seek cost-advantage w-w)

Government globalization (Govt policies tend to besimilar)

Technical standardization

Competition globalization (Organizations compete w-w)

All of these may change structure of industry ormarket.

All of these have a bearing on the strategies to bedeveloped, particularly of MNCs

Bsns Strategy 1 - 2010 - Transccend 4See Exhibit 2.3, p 70

In what way ? Are similarities more or

dis-similariities?

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Differing Impact On Countries

Porters Diamond

Effect of previous factors will vary from

country to country.

Porters Diamond is a concept that explainswhy some nations are more competitive than

others.

The home base of an organization is important in

global competitiveness.

Home base provides factors which organizations

capitalize on.

Bsns Strategy 1 - 2010 - Transccend 5

What are nations competing for?

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Porters Diamond

Why Some Nations Are More Competitive

Bsns Strategy 1 - 2010 - Transccend 6

Organizations

Strategy and Structure

Demand Conditions

In Home Base

Advantage In

Related and Supporting

Industries

Specific Factors

In Home Base

Japanese customers

high expectations inelectronics, makes

Japanese electronic

industry more

competitive globally.

German tendency

towards systematic

mgmt makes for

engineering excellence

globally

In Italy, leather

footwear industry,

leather machinery

industry, design

industry benefit fromeach other.

In Sweden, tendency

against layoffs

promotes excellence

in automation

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Scenarios in Strategy Formulation

Scenarios are created because theenvironmental factors are too complex anduncertain to be analyzed all together.

Scenarios are detailed descriptions of how anorganization might perform, given a particularset of environmental factors.

Sharing and debating these scenariosimproves organizational learning, and helpsdevelop better strategies.

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Forces That Shape Competition

Within Industry

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Industries and Convergence

Industry means set of firms producing the

same principal product , or close substitutes.

In public services, corresponding concept is

sector.

Industry boundaries may change over time

due to convergence.

Convergence takes place when previously

separate industries begin to overlap in terms of

technologies, products and customers.

Bsns Strategy 1 - 2010 - Transccend 9

Can you think of

industries where

convergence iscurrently taking

place?

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Porters Five Forces Model

Bsns Strategy 1 - 2010 - Transccend 10

Organnization

New Entrants Buyers Suppliers Substitutes

Competitors

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Factors Affecting Competition

Extent ofbalance among competitors.

Each organization has accepted its standing in the

industry --- no one is attempting to gain

dominance

More balance, less competition, and vice-versa.

Industry growth rate

Different competitive features, depending onwhere you are in product life-cycle. (See graphic

on next slide)

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Competitive Conditions At

Different Product Life Cycle Stages

Bsns Strategy 1 - 2010 - Transccend 12

Development

Stage

Few

competitors

Sunrise

Stage

New entrants

Fight to get share

Shake-out

Stage

Weakest drop

out

Maturity

Stage

Efficiency

Fight to keep share

Sunset

Stage

Some drop out

Restricted sales

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F-F Model Helps Strategist To Consider

Are some industries more attractive than others?

Attractive when 5 forces are weak

What are the underlying forces in the PESTEL

environment that fuel competition? How might the 5 forces change?

What are the strengths and weaknesses of eachcompetitor with respect to the 5 forces?

Can we influence any of the 5 forces to work inour favor?

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Cycle Of Competition

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New Entrant

Existing

Organization

Move

Counter-move

1 After 2 or 3 cycles, rivalry shifts to another product, or another market.

2 Such multi-point competition tends to reduce the rivalry, due to rising costs

and risks.

3 If the speed of the cycle is very high, it is referred to as hyper-competition.

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Strategic Groups

Strategic groups are organizations within an industry, withsimilar strategic characteristics.

Different strategic groups would have different strategiccharacteristics. Ex: super-markets, convenience stores,

mom-and-pop stores Scope of activities

Product diversity

Geographical coverage

No of market segments served

Distribution channels used

Resource commitment No of brands

Marketing effort

Extent of vertical integration, etc

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Market Segments

Market segments are groups of customers

who have similar needs, but which are

different from the needs in other groups.

Understanding what these needs are, and

understanding how we and our competitors

are positioned to serve these needs is crucial

to strategic success.

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Critical Success Factors (CSF)

The Strategy Canvas

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5

4

3

2

1

0

Reputation After-sales Delivery Testing Technical

Service Reliability uality

Our organization

Competitor A

Competitor B

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Opportunities

Strategic Gaps are opportunities that are not

being exploited by competitors. Gaps may

exist in -

Substitute industries

Other strategic groups

Chain of buyers

Complementary products

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Book publishing and electronic books

De-regulation of electricity

market creates opportunity for

local generation

Books-retailing and coffee

shops

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SWOT Analysis

Lists key issues in the business environment,

and our organizations

Strengths

Weaknesses

Opportunities

Threats

with respect to these issues.

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End Of Session

Business Environment and Strategy

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