Session : 4

Understanding the Strategic Position

through
Macro and Micro Environment Analysis
 Learning Outcomes

At the end of this session students should be able to:

• Discuss the importance of the strategic analysis
in determining the strategic position
• Explain the external business environment
consisting of markets and customers,
industries/ sectors and macro environment
• Identify the available frameworks of
external environmental analysis
• Discuss the implications of external
environmental analysis
 Exploring Strategy Framework
Scholes, et. al., 2020

4
 Strategic Position
• Strategic position is the understanding the factors that
have to be taken into account at the outset of strategy
development.

• The strategic position is concerned with the impact on

strategy of ;
• the external environment
• internal resources and competences (internal
environment)
• the expectations and influence of stakeholders
• organizational culture (Johnson et al.,2020)
 Strategic Analysis

Strategic analysis is carried out to understand the

strategic position of an organization.

• Market Based View: Strategy development is primarily

about seeking attractive opportunities in the marketplace.

• Resource Based View : Organizations focus on internal

characteristics such as organization’s specific strategic
capabilities, resources or cultures in strategy development.
 Understanding the Strategic Position

Strategic Analysis

External Environmental Internal EnvironmentalAnalysis

Analysis
 Organizational Environment
• Organizational Environment is the sum totality of all
the internal and external factors and forces affecting
the organizational performance.

• The environment is what gives organizations their means

of survival.
• The environment is also the source of threats.
• Environmental change can be fatal.
• It is vital that managers analyze their environments
carefully in order to anticipate and – if possible –
influence environmental change.
The Layers of Business Environment

(Johnson et al.,2020)
https://www.youtube.com/watch?v
=J97Q5koJ5WQ
 Macro Environment
• This consists of broad environmental factors that
impact to a greater or lesser extent many
organizations, industries and sectors.
(Johnson et al.,2020)

Analyzing the macro environment

(Johnson et al.,2020)
 PESTEL Analysis

• It provides a wide overview, PESTEL is likely to feed

into both environmental forecasts and scenario
analyses. The PESTEL analysis categorizes
environmental influences into six main types:
– Political
– Economic
– Social
– Technological
– Ecological
– Legal
 Mini Case

Do the PESTEL analysis based on the given mini case?

 PESTEL framework- An Example

• Political (P) • Economical (Ε)

– Government stability – GNP trends
– Taxation policy – Inflation
– Trade regulation – Unemployment
• Social (S) • Technological (T)
– Demographics – Rate of technological
– Lifestyle changes changes
– Social trends – Technology transfer policy
– Education levels – Government and industry
spending on research and
– Consumerism
development
• Ecological (E) • Legal (L)
– Environmental regulation
– Employment Laws
– Waste management
– Health and safety
– Energy issues

15
 PESTEL Analysis - Implications

• To analyse changing macro environmental factors

which are drawing out implications for the
organisation

• To understand the links between these factors. For

example: technology developments may
simultaneously change economic factors (for
example, creating new jobs), social factors
(facilitating more leisure) and environmental
factors (reducing pollution).
 Key Drivers for change

• The key drivers for change are the environmental

factors that are likely to have a high impact on
industries and sectors, and the success or failure or
strategies within them.
(Johnson et al.,2020)

• They are the forces likely to affect the structure of

an industry, sector or market. It is important that an
organization’s strategists consider each of the key
drivers for change, looking to minimize threats and,
where possible, seize opportunities.
 Key Drivers for change… cont
Eg:
• Changes in consumer preferences and behavior, particularly in
the context of online shopping, demand for sustainability, and
personalized experiences, are driving companies to adapt their
strategies.

• Growing concerns about environmental sustainability may

lead organizations to adopt eco-friendly practices, reduce
carbon footprints, or invest in green technologies.

https://www.youtube.com/watch?v=e-AJ-o7w3Fo
 Key Drivers for change - Implications

• Identifying key drivers for change helps

managers to focus on the PESTEL factors that are
most important and which must be addressed as
the highest priority.

• Without a clear sense of the key drivers for

change, managers will not be able to take the
decisions that allow for effective action.
 Building Scenarios

• Scenarios are detailed and plausible views of how the business

environment of an organisation might develop in the future
based on key drivers for change about which there is a high
level of uncertainty.

• Scenarios offer plausible alternative views of how the macro-

environment might develop in the future, typically in the long
term.

• They typically build on PESTEL analyses and the key drivers

for change, but do not offer a single forecast of how the
environment will change.
 Scenarios for the Transport Industry in
2024
Global Oil Price Increase Global Oil Price Decrease
Government
policy: Oil
price increase 1 2

Government
policy: Oil
3 4
price
decrease
 Building Scenarios - Implications

• Make managers more perceptive about the forces

in the business environment and what is really
important

• Managers are able to evaluate and develop

strategies (or contingency plans) for each scenario

• Managers will able to monitor the environment to

see how it is actually unfolding and adjust
strategies accordingly
 Industries and Sectors
• An industry is a group of firms producing products
and services that are essentially the same.
(Johnson et al.,2020)

• Understanding of the competitive forces in industry

or sector will useful in determining the
attractiveness of that industry and the likely success
or failure of particular organisations within that
industry.
 Five Forces Framework

• The five forces framework helps identify the attractiveness of

an industry or sector in terms of competitive forces

Source: Adapted and reprinted by permission of Harvard Business Review. From “How Competitive Forces Shape Strategy,” by Michael E. Porter,
Harvard Business Review, March/April 1979 © by the President and Fellows of Harvard College. All rights reserved.
 Implications of Five Force Analysis

• Provides useful insights into the forces at work

in the industry or sector environment of an
organisation
• Investigation of the implications of these
forces will useful in understanding:
– Which industries to enter (or leave)?
– How can the five forces be managed?
– What influence can be exerted?
– How are competitors differently affected?
 Key issues in using Five Forces
Framework

• Defining the ‘right’industry

• Converging industries

• Complementary products
 Competitors and Markets
• Many industries contain a range of companies, each
of which has different capabilities and competes on
different bases. These competitor differences are
captured by the concept of strategic groups.

• Customers too can differ significantly. Such customer

differences can be captured by distinguishing
between strategic customers and ultimate consumers
and between different market segments.

• Underpinning strategic groups and market segments

is recognition of what customers value and critical
success factors.
 Strategic groups
• Strategic groups are organizations within an industry
with similar strategic characteristics, following similar
strategies or competing on similar bases.
(Johnson et al.,2020)

• There are many different characteristics that distinguish

between strategic groups but these can be grouped into
two major categories:
– the scope of an organization’s activities (such as product range,
geographical coverage and range of distribution channels used)
– the resource commitment (such as brands, marketing spend and
extent of vertical integration)
Strategic groups…cont

(Johnson et al.,2020)
 Strategic Group analysis

Benz
High Volvo
P Chrysle
r r
i BMW
c
e Cherry QQ
Low
Maruti
Tata
Hyunda
i
High
Product Quality Low
30
Strategic Groups in the Pharmaceutical
Industry

31
 Strategic Group analysis

American Hawaiian
Delta Alaska
High
P
r
i Sky West Express Jet
c Southwest JetBlue
airlines Envoy
e Low Mesa

Departures
Number of destinations served
High Low
 Market Segments

• A market segment is a group of customers

who have similar needs that are different from
customer needs in other parts of the market.
(Johnson et al.,2020)

• The concept of market segments should remind

managers of several important issues:
– Customer needs
– Relative market share
– How market segments can be identified and
‘serviced’
 Strategic Customer

• The 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.

• Unless there is clarity on who the strategic

customer is, managers can end up analysing
and targeting the wrong people.
 Critical Success Factors

• Critical Success Factors (CSFs) are those

product features that are particularly valued by
a group of customers and, therefore, where the
organisation must excel to outperform
competition.

• It is important to see value through the eyes of

the customer and to be clear about relative
strengths.
 The Implication of External Environmental
Analysis-
Identifying the Opportunities and Threats
• The critical issue in the external environment analysis is
the implications that are drawn from this understanding
in guiding strategic decisions and choices.

• In responding strategically to the environment, the goal is

to reduce identified threats and take advantage of the best
opportunities.
• Identifying these opportunities and threats is extremely
valuable when thinking about strategic choices for the
future.
Questions and Clarifications