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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
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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.
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What are nations competing for?
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Porters Diamond
Why Some Nations Are More Competitive
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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
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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
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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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