The Focus of Part 1:
The Strategic Position
 How to analyse an organisation’s position in the
external environment
 How to analyse the determinants of strategic
capability
 How to understand an organisation’s purposes,
taking into account corporate governance,
stakeholder expects and business ethics
 How to address the role of history and culture in
determining an organisation’s position
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The Strategic Position
2: The Environment
Learning Outcomes (1)
Analyse the broad macro-environment of
organisations in terms of political,
economic, social, technological,
environmental and legal factors
Identify key drivers in this macroenvironment and use these key drivers to
construct alternative scenarios with regard
to environmental change
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Learning Outcomes (2)
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
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Exhibit 2.1 Layers of the
business environment
The
Organisation
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The Macro-Environment
Key
drivers
PESTEL
Scenarios
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PESTEL Framework
Political
Economic
Social
Technological
Environmental
Legal
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The PESTEL Framework
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What Are 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.
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What is a Scenario?
Scenarios are detailed and plausible
views of how the business
environment of an organisation might
develop in the future based on key
drivers for change about which there
is a high level of uncertainty.
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Industries and Sectors
Industry
life cycle
Competitive
forces
Competitive
cycles
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Exhibit 2.2 The Five Forces Framework
Potential
entrants
Suppliers
Competitive
rivalry
Buyers
Substitutes
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The Threat of Entry: Barriers to Entry
Scale and experience
Access to supply and distribution channels
Expected retaliation
Legislation or government action
Differentiation
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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
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The Power of Buyers
Are buyers concentrated?
What are the costs of switching?
Does backward vertical integration exist?
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The Power of Suppliers
Are suppliers concentrated?
What are the costs of switching?
Does forward vertical integration exist?
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Degree of Competitive Rivalry
Competitor balance
Industry growth rate
High fixed costs
High exit barriers
Low differentiation
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Managerial Implications
Which industries should we enter or
leave?
What influence can we exert?
How are competitors differently affected?
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Other Issues in a
Five Forces Analysis
Define the ‘right’ industry
Determine whether industries are
converging
Identify complementary products
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Exhibit 2.3 The Industry
Life Cycle
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Exhibit 2.4 Cycles of Competition
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What is Hypercompetition?
Hypercompetition occurs where the
frequency, boldness and
aggressiveness of dynamic
movements by competitors
accelerate to create a condition of
constant disequilibrium and change.
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Exhibit 2.5 Comparative Industry
Structure Analysis
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Competitors and Markets
Market
segments
Strategic
groups
Strategic
customers
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What are
Strategic Groups?
Strategic groups are
organisations within an industry
with similar strategic
characteristics, following similar
strategies or competing on
similar bases.
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Characteristics for Identifying
Strategic Groups
Scope of activities
Resource commitment
 Extent of product
diversity
 Extent of branding
 Extent of geographic
coverage
 Number of segments
served
 Distribution channels
 Marketing effort
 Extent of vertical
integration
 Product quality
 Technological
leadership
 Organisational size
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Benefits of Identifying
Strategic Groups
Understanding competition
Analysis of strategic opportunities
Analysis of mobility barriers
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What is a 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.
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Exhibit 2.7 Some Bases of
Market Segmentation
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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’?
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What is a 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.
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What are 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.
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Types of Opportunity
In substitute
industries
In other strategic
groups
In targeting
buyers
For complementary
products
In new market
segments
Over time
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Case Example: The European
Brewing Industry
 Complete a PESTEL analysis of the
European brewing industry.
 Complete a five forces analysis for
the industry.
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