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Foundations of Strategic Management > 2 09.10.-23.10 Strategic Positioning. Environment > Flashcards

2 09.10.-23.10 Strategic Positioning. Environment Flashcards

1
Q

Layers of the business environment

A
  1. The organisation
  2. Markets and Competitors
  3. Industry (or sector)
  4. The macro-environment
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2
Q

The PESTEL framework categorises environmental factors into six key types:

A
  • Political
  • Economic
  • Social
  • Technological
  • Ecological
  • Legal
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3
Q

What PESTEL helps with?

A

PESTEL helps to provide a list of potentially important issues influencing strategy. It is important to assess the impact of each factor.

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4
Q

What belongs to Political factors:

A

The role of the state e.g. as an owner, customer or supplier of businesses. Other political factors include government policies, taxation changes, foreign trade regulations, political risk in foreign markets, changes in trade blocks (e.g. expansion of EU).

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5
Q

What belongs to Economic factors:

A

The role of macro-economic factors. This includes business cycles, interest rates, personal disposable income, exchange rates, unemployment rates, differential growth rates around the world.

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6
Q

What belongs to Social factors

A

Including changing cultures and demographics. Examples are the ageing population in Western societies, income distribution, lifestyle changes, consumerism, changes in culture and fashion.

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7
Q

What belongs to Technological factors:

A

New discoveries and technology developments. Examples include developments on the internet, nano-technology or the rise of new composite materials.

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8
Q

What belongs to Ecological factors:

A

This refers to ‘green’ environmental issues, such as pollution waste and climate change. Examples are environmental protection regulations, energy problems, global warming, waste disposal and re-cycling.

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9
Q

What belongs to Legal factors:

A

Legislative and regulatory constraints or changes. Examples are IPR, competition law, health and safety law, employment law, liberalisation of trade law.

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10
Q

What are Key drivers for change?

A

This are the environmental factors likely to have a high impact on the success or failure of strategy.

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11
Q

Typically How Key drivers vary?

A

Typically, key drivers vary by industry or market.

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12
Q

Give an example of Key drivers change

A

For example, retailers are concerned with social changes and customer behaviour which have driven a move to ‘out of town’ shopping. Personal disposable income also drives demand for retailers.

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13
Q

Name Three concepts are useful for focusing on change while at the same time avoiding too much detail:

A
  1. Megatrends
  2. Inflexion Points
  3. Weak signals
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14
Q

Explain what are Megatrends

A

Megatrends – large-scale changes that are slow to form but influence many other activities over decades to come. Examples include ageing populations and increase economic growth in Asia. F.E. f.e. in Asia are a lot of young people but what to do to be able to finance all their rents in future. F.e. digitalisation is a megatrend

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15
Q

Explain what are Inflexion points

A

Inflexion points – when trends shift sharply upwards or downwards. E.g., sub-Saharan Africa may have reached an inflexion point after decades of stagnation (and may embark on a period of rapid growth). Also sometimes called “Tipping Points”

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16
Q

Explain what are Weak signals

A

Weak signals – advanced signs of future trends that may help to identify inflexion points – often unstructured and fragmented bits of information. E.g., mortgage failures in California in 2007 were a weak signal for the financial crisis that hit the global economy in 2008.

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17
Q

How to use PESTEL:

A
  • Apply selectively – identify specific factors which impact on the industry, market and organisation in question.
  • Identify factors which are important currently but also consider which will become more important in the next few years.
  • Use data to support the points and analyse trends using up-to-date information.
  • Identify opportunities and threats – the main point of the exercise!
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18
Q

What are Scenarios?

A

Scenarios are plausible views of how the environment of an organisation might develop in the future based on key drivers of change about which there is a high level of uncertainty.

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19
Q

Scenarios typically:

A
  • Build on PESTEL analysis and key drivers of change.
  • Offer more than a single view. An organisation will typically develop a few alternative scenarios (2–4) to explore and evaluate future strategic options.
  • The point is not to predict, but to encourage managers to be alert to a range of possible futures. Effective scenario-building can help build strategies that are robust in the face of environmental change.
  • Scenario analysis is used in industries with long planning horizons, for example the oil industry or airlines industry.
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20
Q

Name 5 basic steps that are often followed to carry out scenario analyses

A
  • Identify the most relevant scope of the study – the relevant product/market and time span.
  • Identify key drivers of change – PESTEL factors which will have the most impact in the future but which have uncertain outcomes and are mutually independent.
  • For each key driver select opposing outcomes where each leads to very different consequences.
  • Develop scenario ‘stories’. That is, coherent and plausible descriptions of the environment that result from opposing outcomes.
  • Identify the impact of each scenario on the organisation and evaluate future strategies in the light of the anticipated scenarios.
  • Establish early warning systems. Identify indicators that might give an early warning of the way the environment is changing and monitor such indicators.
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21
Q

What does Scenario Cube suggest?

A

The scenario cube suggests two additional criteria are relevant: uncertainty, in order to make different scenarios worthwhile; and mutual independence, so that the drivers are capable of producing significantly divergent or opposing outcomes.

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22
Q

What is an industry?

A

An industry is a group of firms producing products and services that are essentially the same. For example, the automobile industry and the airline industry. (look from companies’ side)

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23
Q

What is a market?

A

A market is a group of customers for specific products or services that are essentially the same (e.g. the market for luxury cars in Germany). (Look from customer side)

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24
Q

What is a sector?

A

A sector is a broad industry group (or a group of markets) especially in the public sector (e.g. the health sector). (look from companies’ side)

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25
Q

What does Porter’s Five Forces Framework helps with?

A

Porter’s Five Forces Framework helps identify the attractiveness of an industry in terms of five competitive forces. The five forces constitute an industry’s ‘structure’.

26
Q

Name the 5 forces

A
  • the threat of entry
  • the threat of substitutes
  • the bargaining power of buyers
  • the bargaining power of suppliers and
  • the extent of rivalry between competitors.
27
Q

Who are competitive rivals?

A

Competitive rivals are organisations with similar products and services aimed at the same customer group and are direct competitors in the same industry/market (distinct from substitutes).

28
Q

When does degree of rivalry increases?

A
  • Competitors are of roughly equal size
  • Competitors are aggressive in seeking leadership
  • The market is mature or declining
  • There are high fixed costs
  • The exit barriers are high
  • There is a low level of differentiation
29
Q

What are barriers to entry?

A

Barriers to entry are the factors that need to be overcome by new entrants if they are to compete.

30
Q

When The threat of entry is low?

A

The threat of entry is low when the barriers to entry are high and vice versa.

31
Q

What are The main barriers to entry?

A

The main barriers to entry are:
* Economies of scale/high fixed costs
* Experience and learning
* Access to supply and distribution channels
* Differentiation and market penetration costs
* Legislation or government restrictions (e.g. licensing)
* Expected retaliation from incumbents.

32
Q

What are substitutes in 5 Forces framework?

A

Substitutes are products or services that offer a similar benefit to an industry’s products or services, but have a different nature i.e. they are from outside the industry.

33
Q

When customers will switch to alternatives? (thus are also the threat increases)

A

Customers will switch to alternatives (and thus the threat increases) if:
* The price/performance ratio of the substitute is superior
* The substitute benefits from an innovation that improves customer satisfaction

34
Q

Who are Buyers?

A

Buyers are the organisation’s immediate customers, not necessarily the ultimate consumers.

35
Q

What powerful buyers can do?

A

If buyers are powerful, then they can demand cheap prices or product/service improvements to reduce profits.

36
Q

When buyer power is likely to be high?

A

Buyer power is likely to be high when:
* Buyers are concentrated
* Buyers have low switching costs
* Buyers can supply their own inputs (backward vertical integration).

37
Q
A
38
Q

Who are Suppliers?

A

Suppliers are those who supply what organisations need to produce the product or service. Powerful suppliers can reduce an organisation’s profits.

39
Q

Whe is suppliers power likely to be high?

A

Supplier power is likely to be high when:
* The suppliers are concentrated (few of them)
* Suppliers provide a specialist or rare input
* Switching costs are high (it is disruptive or expensive to change suppliers)
* Suppliers can integrate forwards (e.g. low-cost airlines have cut out the use of travel agents)

40
Q

Name types of industry

A
  • Monopolistic
  • Oligopolistic
  • Perfectly competitive
  • Hypercompetitive
41
Q

Give definition to Monopolistic industry

A

Monopolistic industries – an industry with one firm and therefore no competitive rivalry. A firm has ‘monopoly power’ if it has a dominant position in the market.

42
Q

Give definition to Oligopolistic industry

A

Oligopolistic industries – an industry dominated by a few firms with limited rivalry and in which firms have power over buyers and suppliers.

43
Q

Give definition to Perfectly competitive industry

A

Perfectly competitive industries – where barriers to entry are low, there are many equal rivals each with very similar products, and information about competitors is freely available. Few markets are ‘perfect’ but many may have features of highly competitive markets

44
Q

Give definition to Hypercompetitive industry

A

Hypercompetitive industries – where the frequency, boldness and aggression of competitor interactions accelerate to create a condition of constant disequilibrium and change.

45
Q

Name how the 5 Forces analysis should next prompt investigation of the implications of these forces

A
  • Which industries/markets to enter or leave – it helps identify the attractiveness of industries.
  • What influence can be exerted? - Identifies strategies that can influence the impact of the five forces.
  • The forces may have a different impact on different organisations.
46
Q

Name issues in 5 Froces analysis

A
  • Defining the ‘right’ industry. Applying the model at the most appropriate level – not necessarily the whole industry.
  • Converging industries – particularly in the high tech arenas – where industries overlap
  • Complementary organisations – which enhance the attractiveness of a business to customers or suppliers.
47
Q

What is a value net?

A

A value net is a map of organisations in a business environment demonstrating opportunities for value-creating cooperation as well as competition.

48
Q

When an organisations is a complementor?

A

An organisation is a complementor if:
* Customers value your product more when they have the other organisation’s product than when they have your product alone
* It is more attractive for suppliers to provide resources to you when it is also supplying the other organisation than when it is supplying you alone

49
Q

Summarises some of the conditions that can be expected at different stages in the life cycle

A

Check The industry life cycle in book or in your summary

50
Q

What are strategic groups?

A

Strategic groups are organisations within an industry or sector with similar strategic characteristics, following similar strategies or competing on similar bases.
* These characteristics are different from those in other strategic groups in the same industry or sector.
* There are many different characteristics that distinguish between strategic groups.
* Strategic groups can be mapped on to two dimensional charts – maps. These can be useful tools of analysis.

51
Q

**

What can you use strategic group analysis for?

A
  • Understanding competition – enables focus on direct competitors within a strategic group, rather than the whole industry.
  • Analysis of strategic opportunities – helps identify attractive ‘strategic spaces’ within an industry.
  • Analysis of ‘mobility barriers’ – i.e. obstacles to movement from one strategic group to another. These barriers can be overcome to enter more attractive groups. Barriers can be built to defend an attractive position in a strategic group.
52
Q

What is a market segment?

A

A market segment is a group of customers who have similar needs that are different from customer needs in other parts of the market.

53
Q

What are niches?

A

Where these customer groups are relatively small, such market segments are called ‘niches’.

54
Q

What two issues are particularly important in market segment analysis

A
  • Customer needs vary. Focusing on customer needs that are highly distinctive is one means of building a secure segment strategy. Customer needs vary for a variety of reasons – these factors can be used to identify distinct market segments.
  • Specialisation. Not all segments are attractive or viable market opportunities – evaluation is essential.
55
Q

Who is a strategic customer?

A

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.

56
Q

Give a definition to critical succes factors?

A

Critical success factors are those factors that are either particularly valued by customers or which provide a significant advantage in terms of cost.

57
Q

What are critical success factors important for?

A

Critical success factors are likely to be an important source of competitive advantage if an organisation has them (or a disadvantage if an organisation lacks them).

58
Q

What are Blue oceans?

A

‘Blue Oceans’ are new market spaces where competition is minimised.

59
Q

What are Red oceans?

A

‘Red Oceans’ are where industries are already well defined, and rivalry is intense.

60
Q

What does Blue Ocean thinking encourage to?

A

Blue Ocean thinking encourages entrepreneurs and managers to be different by finding or creating market spaces that are not currently being served.

61
Q

What do strategy canvas do?

A

A ‘strategy canvas’ compares competitors according to their performance to establish the extent of differentiation.

Foundations of Strategic Management (3 decks)

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