CHAPTER 3 ANALYSING THE STRATEGIC ENVIRONMENT
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3.2.3 Market share
Although some strategists disagree, a large share of a market is usually regarded as being strategically
beneficial.6 The reason is that a large share may make it possible to influence prices and may also
reduce costs through scope for economies of scale, thereby increasing profitability.7 Clearly, there
are definitional problems here – see Section 3.2.1 above – but some estimate of market share is
desirable from a strategy perspective. In practice, it may be difficult to establish a precise market
share – for example, the share of the film market taken by Lord of the Rings in 2002 will depend on
the fact that it had a high share during the few weeks after its general release and greatest popularity
– but this may not matter. From a strategy perspective, the important point is that Lord of the Rings
took a significant share of the fragmented film market during that year. Equally, there will be other
strategic circumstances where a dominant share may be identified – for example, the market share
held by companies supplying domestic water to households – without necessarily being able to
measure the precise share. This is explored further in Chapters 4 and 14.
KEY STRATEGIC PRINCIPLES
•
Environmental analysis can usefully begin with a basic assessment of the market definition and size,
the market growth and the market share.
•
Market definition is important because it will determine the size and scope of the strategic
opportunity. Market definition will be defined by a consideration of customers and the availability
of substitute products.
•
Market growth is commonly estimated early in any strategic analysis because of its importance with
regard to the growth objectives of an organisation.
•
A basic estimate of market share can be used to estimate whether an organisation has a significant
share of a market as a starting point in exploring the strategic implications.
Copyright © 2015. Pearson Education Limited. All rights reserved.
3.3 DEGREE OF TURBULENCE IN THE ENVIRONMENT8
Video Part 4b
At the general level of environmental analysis, it is important to consider the basic conditions
surrounding the organisation. Special attention needs to be directed to the nature and strength of
the forces driving strategic change – the dynamics of the environment. One reason for this consideration is that, if the forces are exceptionally turbulent, they may make it difficult to use some of the
analytical techniques – like Porter’s ‘Five Forces’, discussed later in this chapter. Another reason
is that the nature of the environment may influence the way that the organisation is structured to
cope with such changes.
The environmental forces surrounding the organisation can be assessed according to two main
measures:
Definition f
1 Changeability – the degree to which the environment is likely to change. For example, there
Definition f
is low changeability in the liquid milk market and high changeability in the various internet
markets.
2 Predictability – the degree to which such changes can be predicted. For example, changes can
be predicted with some certainty in the mobile telephone market but remain largely unknown in
biogenetics.
These measures can each be subdivided further. Changeability comprises:
• Complexity – the degree to which the organisation’s environment is affected by factors such as
internationalisation and technological, social and political complications.
• Novelty – the degree to which the environment presents the organisation with new situations.
Lynch, Richard. Strategic Management, Pearson Education Limited, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/cityuhk/detail.action?docID=5174490.
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72
PART 2 STRATEGIC ANALYSIS AND PURPOSE
Environmental
turbulence
Repetitive
Expanding
Changing
Discontinuous
Surprising
Changeability
1
4
2
4
3
Complexity
National
National
Regional
Technological
Regional
Socio-political
Global
Economic
Familiarity
of events
Familiar
Extrapolable
Discontinuous
Familiar
Discontinuous
Novel
Predictability
Table 3.2 Assessing the dynamics of the environment
1
4
2
4
3
Rapidity
of change
Slower than
response
Visibility
of future
Recurring
Turbulence
level
Low
Comparable
to response
Forecastable
1
2
Predictable
Faster than
response
Partially
predictable
3
4
Unpredictable
surprises
5
High
Source: Ansoff, I and McDonnell, E (1990) Implanting Strategic Management, FT Prentice-Hall. With permission.
Predictability can be further subdivided into:
• rate of change of the environment (from slow to fast);
• visibility of the future in terms of the availability and usefulness of the information used to predict
Copyright © 2015. Pearson Education Limited. All rights reserved.
the future.
Using these factors as a basis, it is then possible to build a spectrum that categorises the environment and provides a rating for its degree of turbulence (see Table 3.2).
When turbulence is low, it may be possible to predict the future with confidence. For example,
film companies like Warner Brothers might be able to use data on their film customers around the
world, along with international economic data, to predict future demand for different types of films.
When turbulence is higher, such predictions may have little meaning. The changeability elements
influencing the organisation may contain many and complex items and the novelty being introduced into
the market place may be high. For example, new services, new suppliers, new ideas, new software
and new payment systems were all being launched for the internet at the same time. Turbulence was
high. Predicting the specific outcome of such developments was virtually impossible.
If the level of turbulence is high – called hypercompetition9 by some strategists – and as a result
the environment is difficult to study, the analysis recommended in some of the sections that follow
may need to be treated with some caution. However, for most fast-growing situations, including
the internet, there is merit in at least attempting to understand the main areas of the environment
influencing the organisation. It may not be possible to undertake formal predictions, but it will
certainly be possible to identify the most important elements. Ways of coping with this situation
are explored in Chapter 5 on Strategy Dynamics.
KEY STRATEGIC PRINCIPLES
•
It is important to begin an analysis of the environment with a general consideration of the degree
of turbulence in that environment. If it is high, then this will make prediction difficult and impact
on prescriptive approaches to strategy development.
•
There are two measures of turbulence: changeability, i.e. the degree to which the environment is
likely to change; and predictability, i.e. the degree to which such change can be predicted.
•
Each of the two measures can then be further subdivided: changeability can be split into
complexity and novelty; predictability can be divided into rate of change and visibility of the future.
All these elements can then be used to explore turbulence.
Lynch, Richard. Strategic Management, Pearson Education Limited, 2015. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/cityuhk/detail.action?docID=5174490.
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