exploring business strategy
WEN.XU
lecture_2_the_macro-environment.pptSlide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Exploring Business Strategy
(247SAM)
Lecture 2: Analysis of
Macro-Environment
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Recap the last lecture
What is strategy in business?
Strategy is defined as ‘The long-term direction of an organisation’.
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Three-horizons of Glastonbury Festival
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Strategy statement?
The statement is a summary of an organisation’s strategy
| Mission | Goals, overriding purpose of an organisation |
| Vision | Goals , future state of an organisation |
| Objectives | Precise statement of organisational goal over some period of time |
| Scope | An organisational domain: customer, location, extent of internal activities |
| Advantage | competences over competitors |
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Strategy statement of Glastonbury Festival
E.g. ‘to develop the sustainable and international Festival Group, focused on hippy revellers and wider attenders, with competitive advantages in terms of the diversity, internationalisation and the strength of our relationships with key stakeholder’.
| Mission | Organising music events and festivals to socialise hippy revellers and wider audience |
| Vision | Sustaining social and fun experience to music fans and wider attenders at the international level |
| Scope | Entertainment/ Festival market/international entertainment festival |
| Advantage | Long history, hippy revellers, wider attenders, sponsor support |
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Exploring Business Strategy
(247SAM)
Lecture 2: Analysis of
Micro-Environment
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Learning outcomes for this week
- To analyse the broad macro-environment of organisations in terms of political, economic, social, technological, environmental and legal factors (PESTEL);
- To identify key drives for changes in this macro-environment, and
- To construct alternative scenarios with regard to the environment changes.
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Strategy ? Environment
- Why do we need analyse organisational environment in strategic management (2mins)?
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
“Strategic Management” starts from…
Understanding the strategic position :
Which includes understanding and making sense of:
External environment
Expectations/influence of stakeholders and purpose
Internal resources & capability
Culture
*
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Live case: Yahoo No more?
- Verizon Acquisition Of Yahoo Delayed until Q2
- Bloomberg data on 24/01/17
https:// www.bloomberg.com/news/articles/2017-01-23/yahoo-says-sale-to-verizon-delayed-until-second-quarter
- Yahoo no more: As Verizon takes over the company's core internet business
- Verizon announced its purchase of Yahoo for $4.83 billion in July 2016.
“The acquisition of Yahoo will put Verizon in a highly competitive position as a top global mobile media company, and help accelerate our revenue stream in digital advertising," said Lowell McAdam, Verizon chairman and CEO, in a press release at the time.
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
“Adapting an organisation to its environment is an essential aspect of strategic management”
(Rosen, 1995, p12)
How?
Analyse and understand the environment in which it operates.
1. Macro environment (External)
2. Meso/Competitive environment (External)
3. Micro environment of the firm itself (Internal)
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
(JSW, 2005, PG 64)
Layers of the business environment
Identifying Opportunities and Threats
Internal Analysis – Identifying strengths and weaknesses as well as culture, mission and vision
Strategic Group analysis
Life Cycle Model
5 forces and Game theory
PESTEL and Stakeholders
*
Very difficult to edit this picture. Idea would be to animate the slide (see slide show), first to show the basic ovals, then bring in the annotation. These lecture notes serve as revision sheets for students so it’s good to include some of the detail.
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
To assess the nature of the macro environment depends on…
Is it stable?
emphasis may be on maintaining and improving existing strategy
Why?
Future is more predictable and subject to the industry
Is it turbulent?
emphasis may be on trying to detect change as early as possible
Why?
Future is more uncertain
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Analysing Macro-environment: PESTEL
JSW (2005), PG 68,
Exhibit 2.2
*
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
PESTEL
Political:
Highlight the role of national and other political forces, e.g.
Taxation policy
Government stability
Government policy on fair trade, labour rights and health campaigners
Economic:
Macroeconomic factors, e.g.,
Exchange rate
Interest rates
Inflation
Unemployment
Disposable income
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Technological:
It refers to technological changes and influences, e.g.,
The internet, nano tech, or the rise of new materials
New discoveries/ development
Speed of technology
PESTEL
Sociocultural:
It includes changing cultures and demographics, e.g.,
Aging population
Social mobility
Lifestyle changes
Attitudes to work and leisure
Levels of education
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Legal:
Legislative and regulatory constraints or changes, e.g.
Environmental protection laws
Legal change re M&A
Regulations/liberalisation regarding trade and foreign investment
PESTEL
Environmental :
Ecological stands for ‘green’ environmental issues, e.g.,
Pollution
Waste
Climate change
Mobile recycling
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Rethinking: Why use PESTEL?
- An audit of influences of an organisational environment
- Helps identify forces that are driving structural change
- With the purpose of using this information to guide strategic decision-making.
- If the organisation is able to audit its current environment and assess potential changes, it will be better placed than its competitors to respond to changes.
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Be aware of limitations and improper use of PESTEL!
- Too much information
- Only a list of information does not make sense
- Open to interpretation
- Based on past data
- Avoid descriptive and subjective –need to backup with evidence
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Any question so far?
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
What can you read from the following reports of business news?
*
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Why is the automotive industry developing the electric car ?
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Automotive industry: The Key Industry Drivers
- Research and development to decarbonise cars, vehicles and the fuels they use is the single most important driver for the sector.
- Global harmonisation and economies of scale are also key drivers
- the global car manufacturing industry has reached over capacity in traditional vehicles in existing markets
The French car manufacturers are seen as forerunners in the electric vehicle sector in Europe
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
The market for premium cars in China has increased at a rate of 36 %
- Chinese middle class to upgrade to premium cars
Consider the different markets
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
It tells…
- Changes?
- Key drivers for the changes?
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
It tells…
The environmental factors likely to have a high impact on the success or failure of strategy.
Typically key drivers vary by industry or sector.
*
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Building Scenarios
- High levels of uncertainty = impossible to build a single view of how environmental influences might affect an organisation’s strategies
- Scenarios offer plausible alternative views of how the business environment might develop in the future
- Scenarios typically build on PESTEL analyses and key drives for change
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Scenario analysis
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Five-step scenario analysis
*
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Example: scenarios for the global fashion industry, 2025
- Self-guide study: P.40 Core book:
- S1: Scenario scope?
- S2: Key drivers for change in the next 15 years from 2010 on?
- S3: Scenario stories?
- S4: Impact of alternative scenario on Levi Strauss & Co.?
- S5: Early warning system?
*
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Summary of today
How to analyse an organisation’s position in the broad environment -external (macro) environment. PESTEL framework
Identify key drivers in this macro-environment and
Use these key drivers to construct alternative scenarios with regard to environmental change
*
*
Slide 2.*
Johnson, Whittington and Scholes, Exploring Strategy, 9th Edition, © Pearson Education Limited 2011
Further Reading
- Read chapter 2 for next lecture:
Sections 2.3 to 2.5 on industrial environments.
- Read the case study for next seminar this week:
‘Global forces and the advertising industry’ (Group 1 to present in Week 3)
