The Strategy Environment
Session 2
Business Strategy
The Strategy Environment
• Analyse the broad macro-environment of
organisations in terms of political,
economic, social, technological,
environmental and legal factors (PESTEL)
• Identify key drivers in this macroenvironment and use these key drivers to
construct alternative scenarios with regard
to environmental change
The Strategy Environment
• 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
Business Environment
The
Organisation
PESTEL Framework
Political
Economic
Social
Technological
Environmental
Legal
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.
The Five Forces Framework
Potential
entrants
Suppliers
Competitive
rivalry
Substitutes
Buyers
The Threat of Entry: Barriers to
Entry
Scale and experience
Access to supply and distribution channels
Expected retaliation
Legislation or government action
Differentiation
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
The Power of Buyers
Are buyers concentrated?
What are the costs of switching?
Does backward vertical integration exist?
The Power of Suppliers
Are suppliers concentrated?
What are the costs of switching?
Does forward vertical integration exist?
Degree of Competitive Rivalry
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Competitor balance
Industry growth rate
High fixed costs
High exit barriers
Low differentiation
Implications
• Which industries should we enter or leave?
• What influence can we exert?
• How are competitors differently affected?
The Industry Life Cycle
Strategic Groups
Strategic groups are organisations
within an industry with similar
strategic characteristics, following
similar strategies or competing on
similar bases.
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
Benefits of Identifying
Strategic Groups
Understanding competition
Analysis of strategic opportunities
Analysis of mobility barriers
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.
Market Segment
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’?
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
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.
Strategic gap
A strategic gap is an opportunity in the
competitive environment that is not
being fully exploited by competitors.
Case Example: The European
Brewing Industry
• Complete a PESTEL analysis of the
European brewing industry.
• Complete a five forces analysis for the
industry.
• How will the environmental trends affect
these companies?
• What are the relative strengths and
weaknesses of each?