Strategic Analysis.
Environmental Analysis
Mikkeli 2005
Compiled by Rulzion Rattray
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The Environment & Decisions
Complex
Organic Extreme
Static
Mechanistic Extreme
Turton, R. (1991),
Dynamic
Simple
2
The Macro Environment
POLITICAL
ECONOMIC
SOCIETAL
ENVIRONMENTAL
TECHNOLOGICAL
VALUES/LIFE-STYLE
INEVITABLES
TRENDS
UNCERTAINTIES
Details and focus of analysis will depend on the
industry that is being investigated & should be linked
to forces that drive competition in that industry
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Structural Analysis of Industries
Michael Porter
Potential
Entrants
Threat of entry
Bargaining
Suppliers
Power
Industry
competitors
Bargaining
Power
Buyers
Rivalry
Threat of substitutes
Substitutes
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Structural Analysis of Industries
Michael Porter
• State of competition & the profit potential of an
industry depends on 5 forces
• Knowledge of the 5 forces allows a firm to:
– Establish the context for its strengths & weaknesses
– Determine industry opportunities & threats
• The Goal:
– To find a defendable position in the industry, where the
firm can defend itself against these forces, or influence
them in its own favour
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Generic Competitive Strategies
Michael Porter 1985
 “Positioning” determines whether a firm’s
profitability is above or below the industry
average.
 Position is logically based on industry
structure, this should allow the firm to deal
with industry forces better than rivals
 should be based either on lower costs or on
differentiation
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Compiled by Rulzion Rattray
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1
Generic Competitive Strategies
Michael Porter 1985
 Three Generic Strategies:
 Cost Leadership
 Differentiation
 Focus
 Firms must choose  pursuing more than one will result in the firm
being “stuck in the middle”
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Compiled by Rulzion Rattray
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2
Generic Competitive Strategies
Michael Porter 1985
Competitive Advantage
Broad
Cost
Leadership
Competitive
Scope
Narrow
Cost
Focus
Differentiation
?
Differentiation
Focus
Adapted from M.E. Porter Competitive Advantage, Free Press, 1985.
21/10/97
Compiled by Rulzion Rattray
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3
Generic Competitive Strategies
Michael Porter 1985
 There is only place for one cost leader in
any industry
 There is more than one basis for
differentiation or focus
 If two or more firms seek to occupy the
same position & on the same basis an
unprofitable battle can result
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Compiled by Rulzion Rattray
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4
The Strategy Clock
Bowman & Faulkner
High
Differentiation
Focus
Differentiation
Perceived
Added
Value
Low
Price
Low
Price/added
value
Low
Low
21/10/97
Strategies destined
for ultimate
failure
Price
Compiled by Rulzion Rattray
High
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Achieving
Sustainable Competitive Advantage




Be clear who target customers are
Understand customer’s perceived value
Understand basis of competitors strategy
Understand basis of own competitive
position; resources, stakeholders
 Ensure customers needs are met in a
distinctly different way
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Compiled by Rulzion Rattray
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References
• Johnson, G. & Scholes, K. (1998) Exploring Corporate Strategy, Prentice
Hall
• Porter ME (1979), “How Competitive Forces Shape Strategy”, Harvard
Business Review March/April 1979.
• Porter ME (1985), Creating & Sustaining Superior Performance, Free
Press.
• Stacey, R, (1996), Strategic Management & Organisational Dynamics,
Pitman, London.
• Turton, R. (1991), Behaviour in a Business Context, London, Chapman
Hall.
• Ginter P & Duncan (1990), Macroenvironmental Analysis, Long Range
Planning, December.
• Whittington R., (1993), What is Strategy & does it matter?, Routledge.
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