External Analysis in Business Strategy

External Analysis

• External analysis looks at factors outside the firm impacting performance.
• Includes PESTEL analysis, Porter's Five Forces, and key success factors.
• Helps understand industry attractiveness and competitive opportunities.

Learning Objectives

• Recall what strategy is.
• Conduct a PESTEL analysis to evaluate external factors.
• Differentiate firm and industry effects on performance.
• Apply Porter's Five Forces to analyze industry profit potential.
• Segment industries into constituent markets with attractiveness appraisals.
• Analyze competition and customer requirements to identify competitive advantages.

Course Plan

• Understand gaining and sustaining competitive advantage.
• Learn about PESTEL, Porter's Five Forces, and key success factors.
• Explore internal analysis, core competencies, and resource-based view.
• Examine business strategy, generic business strategies, cost leadership vs. differentiation.
• Dive into business strategy II—innovation, entrepreneurship, and platforms
• Understand diversification, vertical integration, strategic alliances, mergers, and acquisitions.
• Learn about competing globally and the integration-responsiveness framework.

Recall Lecture 01: What is Strategy?

• Strategy is a firm's quest for competitive advantage.
• Competitive advantage is having a better plan and execution.
• Strategy is linked to high efficiency.
• Strategic decision-making involves mission, vision, and values to execute plans.
• Vision statements can be product-oriented or customer-oriented.

Stakeholder Impact Analysis

• Stakeholders are identified; Step 1
• Stakeholder interests and claims are understood; Step 2
• Opportunities and threats posed by stakeholders are assessed; Step 3
• Economic, legal, ethical, and philanthropic responsibilities are clarified; Step 4
• Strategies for addressing stakeholder concerns are defined; Step 5

PESTEL Analysis

• PESTEL analysis is a framework to assess macro-environmental factors.
• Factors considered are Political, Economic, Sociocultural, Technological, Ecological, and Legal.
• The framework helps understand environmental influences on firms.
• Opportunities and threats emerging from environmental trends are important in strategic planning.

Profitability of US Industries (2000-2010)

• Data for various industries is presented, including tobacco, household products, motor vehicles, entertainment, and airlines.
• Data includes median Return on Equity (ROE).
• Leading companies in each industry are noted.

Porter's Five Forces Model

• Industries have multiple participants competing for profits from suppliers, buyers, rivals, potential entrants, and substitute products/services.
• The five forces help understand profit distribution.
• Profitability is a function of willingness to pay, price, and cost.

Applying Industry Analysis

• Industry analysis explains profitability differences between industries and changes over time.
• Analysis aids in strategic positioning and predicts competitions and industry changes.
• Identifying competitive pressures on industries is an advantage.

Key Concepts and Takeaways

• Strategic management is an integrative field combining analysis, formulation, and implementation.
• Strategic management allows a holistic view of a firm and understanding superior performance.
• Porter's Five Forces reveals industry profit potential and competitive positioning.

Decision Making Techniques

• Using heretical questions can challenge long-held beliefs.
• Asking disruptive questions can lead to better solutions.
• Conflict-inducing tools like devil's advocacy and dialectical inquiry encourage critical evaluation.

Analyzing Organizational Goals and Objectives

• Analyzing objectives and goals include examining inconsistency with long-term mission, stakeholder equality, and conflicts with policies.

Analyzing the External Environment

• Understanding general environmental trends and their impact on business is a key factor.

Analyzing the Internal Environment

• Analyze internal processes to determine how they add value, resource source and vitality, and financial performance relative to competitors.

Assessing Firm's Intellectual Assets

• Assessing intellectual assets focuses on identifying underutilized human capital.
• Exploring strategic alliances and knowledge management systems is valued.

Formulating Business-Level Strategies

• Choosing the correct competitive strategy for industry and competitive situation is important.

Formulating International-Level Strategies

• Considering local competition on the global stage is essential for international strategies.
• Choosing between cost reduction and local adaptation is central to international success.

Creating Effective Organizational Designs

• Organizational structures fit the type of business.
• Effective use of boundaryless designs while maintaining control.

Fostering Corporate Entrepreneurship

• Effective innovation management requires dilemmas to be resolved.
• New venture initiatives and entrepreneurial orientations are important for success.

A Good Analysis

• Organizing and providing a graphical analysis is better, avoiding the obvious, adding background of the problem, making logical suggestions, recommending solutions, and applying rigorous quality control.

Segmentation Analysis

• Dividing the market into segments based on characteristics influencing behavior.
• Identifying key success factors for each segment is necessary.
• Variables, matrix construction, and segment scope are key considerations.

Key Success Factors

• Factors affecting a company's ability to survive are important criteria.
• Understanding customer needs, competition, and internal ability to support these needs is essential.