Business Strategy 2024/2025 PDF

BUSINESS STRATEGY Sandra RAMOS 2024/2025 THE STRATEGIC POSITION MACRO-ENVIRONMENT ANALYSIS INTRODUCTION The environment creates both opportunities and threats for organisations. Examples: Canal+ or SKY → destabilised/challenged by the emergence of...

BUSINESS STRATEGY Sandra RAMOS 2024/2025 THE STRATEGIC POSITION MACRO-ENVIRONMENT ANALYSIS INTRODUCTION The environment creates both opportunities and threats for organisations. Examples: Canal+ or SKY → destabilised/challenged by the emergence of new competitors (Netflix, Amazon, etc.). Alibaba → rapid growth thanks to the evolution of the environment: technological progress; Chinese political and economic change; and international regulations. 3 INTRODUCTION Although the future can never be predicted perfectly, it is clearly important that entrepreneurs and managers try to analyse their environments as carefully as they can in order to anticipate and (if possible) take advantage of such environmental changes. 4 INTRODUCTION The macro-environment: Broad environmental factors that impact to a greater or lesser extent many organisations, industries and sectors Industry or Sector: It consists of organisations producing the same sorts of products or services. E.g. automobile industry; Pharmaceutical industry. Markets, Competitors: E.g. for a company like Renault, its competitors are Ford, Fiat, etc… 5 ANALYSING THE MACRO-ENVIRONMENT Forecasting Megatrends Inflexion points Weak signals PESTEL Analysis Prediction emphasis Market Nonmarket Scenario analysis Learning emphasis 6 PESTEL ANALYSIS PESTEL ANALYSIS It is useful for forecasting and scenarios development. It underlines that: Strategy should not only consider the economic aspects. Nonmarket factors should not be overlooked. Market Environment Suppliers, customer, competitors, etc. Agents with whom relations are essentially economic. Companies compete by sharing resources, revenues and profits. 8 PESTEL ANALYSIS Nonmarket Environment Social, political, legal and ecological factors, which can also be impacted by economic factors. Businesses, NGOs, politicians, government departments, regulators, political activists, campaign groups and the media. organisations need to build reputation, connections, influence and legitimacy. Lobbying, public relations, networking and collaboration are key nonmarket strategies. 9 POLITICS Two important steps: Identifying the Carrying out political importance of risks analysis. political factors; Two variables helpful to identifying the importance of political factors: 2. Exposure to civil society 1. The role of the state → in many organisations → organisations countries, the state is a major likely to mobilise around economic player (as a customer, political issues (lobbyists, supplier or financier). pressure groups, social networks, media). 10 POLITICS 11 POLITICS Example: Defence industry Highly politicised environment (typically they have high direct state involvement). Highly exposed to groups from civil society. Food Industry Private but exposed to strong political pressure from civil society (fair trade, health standards, labour rights). Canals Often state-owned but nowadays are not highly exposed to political pressures from civil society organisations. 12 POLITICS Two key dimensions to political risk analysis: macro-micro and internal-external dimensions. Macro-micro Risks associated with whole countries (Ex: France) → Specific risk of particular Many specialist organisations or sectors organisations publish relative within a country. rankings of countries’ macro political risks. 13 POLITICS Internal-External knock-on effects of events occurring outside particular countries’ Factors originating within countries national → E.g. Government change or boundaries.→ E.g. A fall in oil prices pressure from linked to internal political games in local campaigning groups. one country can also have an impact on other countries. 14 ECONOMICS Macroeconomics influence: Currency exchange rates, interest rates and fluctuating economic growth rates around the world. Economic Cycle: Despite the possibility of unexpected shocks, economic growth rates have an underlying tendency to rise and fall in regular cycles. Growth lasting several years is often followed by a slowdown or even a recession. Managers making long-term strategic decisions should assess where they stand in the overall economic cycle. 15 ECONOMICS Some industries are particularly vulnerable to economic cycles: Discretionary spend High fixed costs These are industries where buyers can E.g. Airlines, hotels and steel industries easily postpone their purchases for a year suffer during economic downturns, or two, exposing them to major cyclical because the high level of fixed costs they effects. require (equipment, staff, property, etc.) tend to encourage competitive price- E.g. Restaurants, Cars. cutting to ensure maximum use of capacity when demand is low. 16 SOCIAL Social influences impact the specific nature of demand and supply within the overall economic growth rate; shape the innovativeness, power and effectiveness of organisations. Key aspects that can shape demand and supply: Demographics Geography E.g. Population ageing in Western Industries and markets can be societies. concentrated in particular locations. Cars. E.g. Paris region accounts for 18%. 17 SOCIAL Distribution Culture Changes in wealth distribution influence Changing cultural attitudes can also raise the relative sizes of markets. strategic challenges. E.g. concentration of wealth in the hands E.g. new ethical attitudes are challenging of elites over the last 20 years has previously taken-for-granted strategies in constrained some categories of ‘middle the financial services industry. class’ consumption, while enlarging markets for certain luxury goods. 18 SOCIAL A second important social aspect of the macro-environment is organisation networks. Organisational It is a community of organisations that interact fields more frequently with one another than with those outside the field. Competitors, their suppliers and customers. Social interactions with other types of players: public authorities or pressure groups, legal entities such as regulators, or other social groups such as professional organisations and trade 19 unions, individuals (politicians). Much broader than industry or market. SOCIAL Networks and organisational fields can be analysed by means of sociograms. Maps of potentially important social (or economic) connections. Example: For a new hi-technology enterprise, important network connections might be links to leading universities, powerful firms and respected venture capitalists Maps can help assess the effectiveness of networks and identify who is likely to be most powerful and innovative within them. 20 Sociogram of social networks within an organisation al field. SOCIAL 21 SOCIAL Three concepts help to understand effectiveness, power and innovativeness: 1. Network Density Density refers to the number of interconnections between members in the network map. Effectiveness is increased by density because the more interconnections there are, the better the communication of new ideas between network members. Everybody is talking to each other, and anybody with potentially useful information is isolated. 22 SOCIAL 2. Central hub positions … where a particular organisation is responsible for connecting many network members, are relatively powerful within a network. Hubs have power because network members rely on them for interconnection with other members. Hubs are also potentially innovative because they can collect ideas from the whole network, and they hear about what is going on in one part of the network before most other parts. 23 SOCIAL 3. Broker positions … where a particular organisation connects otherwise separate groups of organisations, are associated with innovativeness. Brokers’ innovation advantage stems from their ability to link the most valuable information from one group of organisations with the most valuable information from the other group. Because they provide the connection between the two groups, they are able to exploit this combination of information before anybody else. 24 SOCIAL « Small Worlds » Exist where the large majority of a network’s members is closely connected, either just one step away (as C is from B) or one or two more steps away (as D is from B). Give members a good deal of protection and effectiveness, due to their density. Outsider organisations (ex: foreign firms) will have difficulty penetrating small world networks on their own, and will typically require the help of insiders. Are particularly likely in societies where economic activity is geographically concentrated or where social elites share common backgrounds. 25 TECHNOLOGY Technology: internet, nanotechnology or new composite materials, whose impact can spread far beyond single industries. As in the case of internet streaming, new technologies can open up opportunities for some organisations (e.g. Spotify and YouTube), while challenging others (traditional music and broadcasting companies). 26 TECHNOLOGY There are five primary indicators of innovative activity: 1. Research & Development budgets. 2. Patenting activity. Innovative firms, sectors or countries can Firms active in patenting new be identified by the extent of spending on technologies can be identified on national research, typically reported in company and international patent registers. E.g. annual reports and government statistics. European Patent Organisation (EPO) 27 TECHNOLOGY 3. Citation analysis. 4. New product 5. Media coverage. announcements. The potential impact of Specialist technology and patents and scientific papers Organisations typically industry media will cover on technology can be publicise their new product stories of the latest or measured by the extent to plans through press releases impending technologies, as which they are widely cited by and similar media. will various social media. other organisations (E.g. Data available on from Google Scholar). 28 TECHNOLOGY Technology Roadmaps: Project into the future various product or service demands; Identify technology alternatives to meet these demands; Select the most promising alternatives; Offer a timeline for their development. This roadmap has implications that are not limited to the design of new electronic devices. It also concerns other industries, such as architecture, home equipment and health. 29 ECOLOGICAL Environmental issues: pollution, recycling, global warming, etc.. Environmental regulations can impose additional costs, for example pollution controls (e.g. Standard WLTP), but they can also be a source of opportunity, for example the new businesses that emerged around mobile phone recycling. 30 ECOLOGICAL Three sorts of challenges that organisations may need to meet: 1. Direct pollution obligations: Disposing of waste by-products safely; Minimising the production of pollutants. Having clean processes for supply, production and distribution is generally better than managing the consequences of polluting after the fact. 31 ECOLOGICAL 2. Product stewardship: Refers to managing ecological issues through both the organisation’s entire value chain and the whole life cycle of the firm’s products. It involves responsibility for the ecological impact of external suppliers or final end-users. It will also involve responsibility for what happens to products at ‘end of life’ (how they are disposed of when consumers have no more use for them). 32 ECOLOGICAL 3. Sustainable development: Refers not simply to reducing environmental damage, but to whether the product or service can be produced indefinitely into the future. This sustainability criterion sets constraints on the over-exploitation of particular sources of raw materials, for instance in developing countries, and often raises issues regarding the economic and social well-being of local communities. 33 ECOLOGICAL Three contextual sources of pressure: 1. Ecological 2. Organisation field 3. Internal organisation An organisational field with highly The personal values of an Certain, visible and active regulators or campaign emotivity. groups will clearly give saliency to organisation’s leadership will ecological issues. clearly influence the desire to respond to ecological issues. High levels of field interconnectedness will also Actual responsiveness will rely increase the importance of on the effectiveness of ecological issues: within densely managerial systems that interconnected networks, it is harder to hide damaging promote and monitor behaviour and peer pressure to behaviours consistent with conform to ecological standards ecological obligations. 34 is greater. Contexts and motives for ecological issues ECOLOGICAL 35 LEGAL “Rules of the game". Labour, environmental and consumer regulation; taxation and reporting requirements; and rules on ownership, competition and corporate governance. The relaxation of legal constraints through deregulation has created many new business opportunities (E.g. low-cost airlines and ‘free schools’ in various countries). However, regulations can also handicap organisations. 36 LEGAL It is important to consider not only formal laws and regulations, but also more informal norms/rules: Are patterns of expected (‘normal’) behaviour that are hard to ignore. Formal and informal rules vary sufficiently between countries to define very different institutional environments, sometimes known as ‘varieties of capitalism’. 37 KEY DRIVERS PESTEL analysis can produce a long and complex list of issues. It doesn't matter whether a particular influence necessarily falls into a particular category. E.g. Protectionism is primarily a political or economic factor, or whether renewable energies should be considered from an ecological or sociological point of view. 38 KEY DRIVERS Rather than getting overwhelmed by a multitude of details, it is necessary to step back to identify the key drivers for change in a particular context. Environmental factors likely to have a high impact on industries and sectors, and the success or failure of strategies with them. 39 KEY DRIVERS Example: Social and legislative changes discouraging car use might have different and greater effects on supermarkets than, for example, retail banks. The supermarket chain might address reduced car use by cutting the number of out-of-town stores and investing in smaller urban and suburban sites. 40 FORECASTING FORECASTING All strategic decisions involve forecasting future conditions and outcomes. If changes in the environment are totally unpredictable, allocating resources is a gamble, not a strategy. Strategy therefore implies a form of predictability. 42 APPROACHES TO FORECASTING Three approaches based on uncertainty: 1. Single-point forecasting …is where organisations have such a confidence about the future that they will provide just one forecast number. E.g. Demographic trends 43 APPROACHES TO FORECASTING 2. Range forecasting … is where organisations have less certainty, suggesting a range of possible outcomes. These different outcomes may be expressed with different degrees of probability, with a central projection identified as the most probable, and then a range of more remote outcomes given decreasing degrees of likelihood. 44 APPROACHES TO FORECASTING 3. Alternative futures forecasting Involves less certainty, focusing on a set of possible yet distinct futures. Instead of a continuously graduated range of likelihoods, alternative futures are discontinuous: they happen or they do not, with radically different outcome. Example: for a country facing possible exit from a the Euro (currency union): Outcome A might reflect the consequences for growth or unemployment of staying in the union; Outcome B might reflect the consequences of exiting the union; Outcome C would be a further alternative outcome, consequent on a decision that followed the initial decision pointing towards outcome B. 45  Forecasting under conditions of uncertainty FORECASTING 46 DIRECTIONS OF CHANGE Three concepts help focus both on major trends and on possible turning points that might invalidate existing forecasts: 1. Megatrends 2. Inflexion Points 3. Weak Signals Changes slow to form, but Moments when trends shift in Advanced signs of future which influence many other direction, for instance turning trends particularly helpful in activities and views, possibly sharply upwards or identifying inflexion points. over decades. It sets the downwards). direction for other factors. Unstructured and fragmentary data -> often considered as anomalies. 47 SCENARIOS SCENARIOS Scenarios offer plausible alternative views of how the macro- environment might develop in the future, typically in the long term. Thus scenarios are not strategies in themselves, but alternative possible environments which strategies have to deal with. Scenario analysis is typically used in conditions of high uncertainty, for example where the environment could go in several highly distinct directions. 49 SCENARIOS Scenarios analyses can be differentiated from alternative futures forecasting → they usually avoid presenting alternatives in terms of calculated probabilities. The point of scenarios is more to learn than to predict. Scenarios are used to explore the way in which environmental factors inter-relate and to help keep managers’ minds open to alternative possibilities in the future. A scenario with a very low likelihood may be valuable in deepening managers’ understanding even if it never occurs. 50  THE SCENARIO PROCESS SCENARIOS 51 52 HANDBOOK Johnson, G., Whittington, R., Scholes, K., Angwin, D., & Regner, P. (2017). Exploring Strategy - Text and Cases (11th ed.). Pearson Education. 53 WEBSITES Scenarios planning: https://www.linkedin.com/pulse/scenario- planning-uncertain-future-anthony-c-taylor-/ https://www.consuunt.com/scenario- planning/ 54