Week 2 strategic position the environment

3BM020 Organisational Strategy and Decision Making Session Strategic Position & The Environment Strategic Position & The Environment Outcomes covered in this session HMV: January 2013 HMV: August 2014 – return to profitability (see following slide) Strategy Diagnosis “Re-engaging with music Core competencies: a defining capability or advantage that shoppers…This is about being distinguishes an enterprise from its competitors an authority in music, not selling music as a commodity”   Reclaim business from supermarket Supermarkets are suffering due to the impact of low-cost retailers (Aldi, Lidl) this presents an opportunity due to environmental turbulence Driven by a focus upon live experiences – e.g Megadeth (not Megadeath!) and Ed Sheeran Links to the industry (core competencies) and control/good relations with suppliers (see Porter’s forces) Retailer reopened 363 Oxford Street – the London location of its first store – complete with retro neon “His Master’s Voice” sign Unique resource – a brand that cannot be imitated by other organisations Closed loss making stores and stopped selling iPads and tablets Returned to selling band merchandise (e.g T-shirts) Stuck in the middle? Re-engaging with a core strategic focus which sends a message to consumers This will be considered with reference to Porter’s Generic Strategies and Bowman’s Strategy Clock Argument? HMV is synonymous with music and has resources (buildings and people) – which HMV can use to create a unique experience Online retailers cannot this A source of differentiation and competitive advantage   The company could rely on its unique resources which met the demands of market This may mean that customers were prepared to pay a price premium   Focus upon what the company does well Can the question “What business are you in?” be answered easily? Perhaps more so now than when HMV was stuck in the middle   The organisation engaged in a turnaround strategy to be successful in a competitive market The report and HMV HMV example: •Identified issues in an organisation’s strategic direction •Added the language of strategy to make an argument •Drawn on core concepts to demonstrate understanding •Supported this understanding with some evidence But…it needs: •Deep theoretical links – e.g to other concepts and theories (e.g Strategic Drift) •Engaged in an environmental or industrial analysis (PESTLE or Porter’s forces) •Evidenced substantial criticality – counter arguments, deeper examples etc Consider your organisation and the report requirements Your understanding of strategy will develop over the coming weeks; use this understanding to advance critical academic arguments which link to your chosen organisation Layers of The Business Environment Also: strategic groups Why external analysis? External analysis allows organisations to: • • • • Discover threats and opportunities Better understand the nature of competition Make more informed strategic choices See if above normal profits are likely in an industry The power of suppliers Are suppliers concentrated? What are the costs of switching? Does forward vertical integration exist? Five Forces Analysis (4) Supplier power is likely to be high where there is / are: • a concentration of suppliers • customers that are fragmented and bargaining power low • high switching costs • powerful supplier brand • possible integration forward by the supplier Five Forces Analysis (5) Competitive Rivalry is likely to be high when: • • • • • competitors are in balance there is slow market growth (product life cycle) there are high fixed costs in an industry there are high exit barriers markets are undifferentiated Competitive Competitive rivals rivals are are organisations organisations with with similar similar products products and and services services aimed aimed at at the the same same customer customer group group == direct direct competitors competitors Degree of competitive rivalry • • • • • Competitor balance Industry growth rate High fixed costs High exit barriers Low differentiation Five Forces Analysis (6) Key questions and implications • Are some industries more attractive than others? (weaker forces) • What underlying forces in the macroenvironment drive the competitive forces? • Will competitive forces change? • What are the strengths and weaknesses of the competitors in relation to the competitive forces? • Can competitive strategy influence competitive forces? (e.g build barriers to entry) Key Aspects of 5-Forces Analysis • Use at level of strategic business units (SBU) • Define the industry/market/sector • Don’t just list the forces: derive implications for industry/organisation • Note connections between competitive forces and key drivers in macroenvironment • Establish interconnections between the five forces • Competition may disrupt the forces rather than accommodate them Factors specific to competition • Underpinning logic: economic power in the market place • Key question: how much bargaining power does a company have against the five forces acting against it? • The Five Forces: each with an example of their power Industry competitors – e.g some may have stronger brands Customers – e.g may be large enough to dictate buying terms Suppliers – e.g perhaps supplying a unique ingredient Substitutes for the company’s products – e.g may be cheaper Potential new entrants – e.g could enter the market with new technology and threaten the company’s existence Criticisms of the – forces model       Analytical framework is static while existing environment is constantly changing Assumes organisation’s own interests come first Assumes all aspects of micro-environment have the same importance to the company The model views the environment as a threat and could therefore, discourage co-operation with suppliers and customers Ignores Human Resource aspect of strategy Strategy formed is prescriptive rather than emergent The Life Cycle Model Criticisms of the industry life cycle It is difficult to determine the duration of some life cycles and to identify the precise stage an industry has reached Some industries miss stages or cannot be clearly identified in their stages, particularly as a result of technological change Companies themselves can instigate change in their products and can, as a result, alter the shape of the curve At each stage of evolution, the nature of competition may be different Environment – Key Points (1) • PESTEL identifies key drivers of change • Scenarios analyse future implications of uncertain environmental forces • forces framework identifies sources of competition in an industry • Competition is dynamic Environment – Key Points (2) • Within an industry there are strategic groups competing on similar bases • Market segments help to understand differences between customers • Critical success factors are those features particularly valued by customers • Environmental analysis identifies opportunities and threats Results from environmental analysis Environmental analysis can be used to provide either a proactive strategy outcome or a reactive strategic situation Not sure what these approaches are? Go and find out…read around these areas Checklist for PESTEL Analysis • • • • • • Political – legislation, competition regulation etc Economic – GDP, Inflation, Unemployment etc Social – Demographics, changes in attitudes or values, tastes, fashions etc Technological – New products, adoption of new technologies, R&D expenditure etc Environmental – ‘Green’ issues, types of energy consumption (renewable, solar) etc Legal – Employment laws, health and safety laws, product laws etc Take Aways • Environmental influences can be thought of as layers around an organisation • The macro-environment can be analysed in terms of PESTEL factors • Industries and sectors can be analysed in terms of Porter’s Five Forces model .. .Strategic Position & The Environment Outcomes covered in this session HMV: January 20 13 HMV: August 20 14 – return to profitability (see following... organisation’s position in it • Obviously this is not the case Environmental scanning is an ongoing process • Types of change: incremental, radical…(more of this in week 9) Understanding The Environment Environmental... emergent processes Understanding The Environment The Macro -Environment Key drivers PESTEL Scenarios Macro environment – PESTEL (1) Macro environment – PESTEL (2) • • • • Political Government stability