ST310E Strategic Thinking Lecture Slides (2024-2025)

10/23/2024 ST310E - Strategic Thinking in a Complex World Session 4 Module Coordinator: Cilem Selin HAZIR (Ph.D) 2024-2025 Academic Year 1 Reca...

10/23/2024 ST310E - Strategic Thinking in a Complex World Session 4 Module Coordinator: Cilem Selin HAZIR (Ph.D) 2024-2025 Academic Year 1 Recap E S P T L embedded No direct E control Source: Thompson et al., Crafting and executing strategy 2 1  10/23/2024 PESTEL Analysis of Social Media Industry - A Quick Overview Competition / Anti-trust policies against buy-and burry or abusive practices. Political Discussions to regulate social media platforms to avoid the spread of misinformation, hate speech. Inflation (US/EU) and hyperinflation (e.g., Latin American/Middle Eastern Economic countries) impact advertising revenues of social media companies. Appreciation of the dollar against other currencies reduces foreign revenues. Increasing concerns about privacy, phone addiction, social media influence on Socio-cultural mental health. These create pressure for a change in business models. There is less desire for one big platform and a need for niche interactions. Augmented reality and virtual reality can change the user experience radically. Technological Open social media protocols can allow users to transfer their data and identity across platforms. Extreme heat waves can lead to failures in data centers and stop functioning of Environmental social media. Safety regulations being introduced (e.g., EU DSA) and requiring social media Legal companies to take action against illegal content, children's rights, hate speech, etc. Anti-trust regulations, data privacy laws, etc. 3 Analyzing the macro environment Where do we go? 1. Analysis of macro-environment cont’d: Source: Johnson et al. (2017) 2. Industry analysis 4 2  10/23/2024 Forecasting Strategic decisions involve forecasts about future conditions and outcomes. E.g., decision to invest in new capacity because of a forecast of growing demand (condition). Accurate forecasting is difficult: – Uncertainty – Organizations try to surprise rivals. Source: Johnson et al. (2017) 5 Which forecasting approach would you use… to forecast the increase in the elderly in the EU? Source: Johnson et al. (2017) 6 3  10/23/2024 Which forecasting approach would you use… The German government promoted the purchase or leasing of electrically powered vehicles (EVs) through the "Umweltbonus" funding program between 2016 and 2023. to forecast the EV sales after the elimination of the Umweltbonus? Source: Johnson et al. (2017) 7 An Example to Alternative Futures Forecasting the consequences for growth or unemployment of: Outcome A: staying in the regional union (e.g., EU, ASEAN, etc.) Outcome B: exiting the union Outcome C: exiting the union and currency union as well as adopting trade barriers. Source: Johnson et al. (2017) 8 4  10/23/2024 Directions of Change - Large-scale movements that form slowly with long- Megatrends term, broad impact - E.g., climate change, aging population, AI - Change of direction of a trend Inflexion points - Invalidates forecasts based on old direction - E.g., sub-Saharan Africa - Unstructured bits of information Weak signals - What is noise, what signal? Trend or fashion - E.g., rise in mortgage failures preceded financial crisis Source: Johnson et al. (2017) 9 Scenarios 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 Scenarios are more about to learn than to predict. – to explore the way in which environmental factors inter-relate and – to help keep managers’ minds open to alternatives possibilities in the future. Source: Johnson et al. (2017) 10 5  10/23/2024 Exercise: Transportation Industry Smart City Initiatives* Autonomous Vehicles** Public Transportation*** Any other key drivers? Which ones are independent? Which ones involve higher uncertainty? Which ones have a higher Climate Movementsǂ impact? Multi-modal transit networksǂǂ Image Sources: * https://cordis.europa.eu/article/id/116384-horizon-2020-projects-light-the-way-for-smart-cities-across-europe/fr ** https://www.theguardian.com/technology/2014/may/28/google-self-driving-car-how-does-it-work *** https://en.wikipedia.org/wiki/High-speed_rail_in_France ǂ https://en.wikipedia.org/wiki/Climate_movement ǂǂ https://www.researchgate.net/figure/Multimodal-transportation-network-design-based-on-common-terminals_fig2_373421827 11 Scenario Cube Source: Johnson et al. (2017) 12 6  10/23/2024 Exercise: Transportation Industry Briefly describe possible scenarios. Assume that you are co-managers of a car manufacturer. Reflect on : – What technologies should your company invest in (e.g., EVs, autonomous vehicles)? – Will your company focus on personal mobility or public transportation solutions? – What signs would signal that this scenario is unfolding? – What specific factors would cause you to adjust your strategy? 13 Scenario Process Scenarios make possible futures more tangible and vivid Source: Johnson et al. (2017) 14 7  10/23/2024 Recap E S P T L embedded No direct E control Source: Thompson et al., Crafting and executing strategy 15 The Five Forces Framework Source: Thompson et al. (2017) 16 8  10/23/2024 Four steps to apply the five forces analysis 1 Define industry boundaries 2 3 Identify parties Evaluate Specify pressures (high, medium, low) 4 Conducive to profits? Source: Thompson et al. (2017) 17 Evaluating the Forces: Competitive Rivalry Number of Degree of Growth Rate Fixed Costs Exit Costs Competitors Differentiation How many Is the industry What are the What are the How similar are significant in a mature or fixed costs financial, the products or players are declining phase involved in operational, or services in this there in the of its life cycle? running a social costs industry? industry? business in this associated with industry (e.g., leaving this Is price the How evenly main distributed is equipment, industry? production)? differentiator, the market Are companies or are there share? Are they high? "locked in" other factors even if they are that make not profitable? companies stand out? 18 9  10/23/2024 Evaluating the Forces: Competitive Rivalry Competitive rivalry is HIGH when: Many competitors Low growth rate – life cycle High fixed costs High exit costs Low differentiation 19 Evaluating the Forces: Threat of new entrants Reaction of Small Incumbents’ Attractiveness Entry Barriers Incumbents Advantages o Is this industry o What are the o How have existing o Can new entrants experiencing high startup costs (e.g., players reacted to easily replicate or demand or capital investment, new entrants in surpass the growth? know-how)? the past? incumbents' advantages? o Are profit margins o Are there o Are the attractive? regulatory or legal incumbents barriers that make aggressive in entry difficult (e.g., defending market patents, licenses)? share (e.g., price wars, legal actions)? 20 10  10/23/2024 Evaluating the Forces: Threat of new entrants Competitive rivalry Threat of new entrants is HIGH when: Attractive market Low entry barriers Weak reaction of incumbents Small incumbents’ advantages Source: Thompson et al. (2017) 21 Entry Barriers Economies of scale – production, distribution, advertising Costs Experience and learning curve Unique cost advantage of industry incumbents Strong brand preferences and customer loyalty Revenues Network effects in customer demand High capital requirements Supply and distribution network, retail shelves Restrictive government policies, legislation They are not the same for any potential entrant 22 11  10/23/2024 THANK YOU! We will continue 5-forces analysis in the next session! 23 12