STRATEGIC

MANAGEMENT

Topic 3
Strategic Position
THE ENVIRONMENT
 INTRODUCTION

 The first stage of the strategic management process

 Enables the organisation to understand its strategic position.
 There are two basic views to understanding strategic position of
an organisation.
 Industrial Organisation View and
 Resource-based view
 VIEWS ON STRATEGIC POSITION
 Industrial Organisation View
 The stress is on external factors in the organisation’s strategic position.
 This view argues that environmental factors are what matters most to success i.e.
for a firm to gain competitive advantage
 strategy development should be primarily about seeking attractive opportunities in
the marketplace.
 Involves firms striving to compete in attractive industries, avoiding weak
industries and understanding key information of the attractive industries
 Includes the general external environment and industry factors
 VIEWS ON STRATEGIC POSITION (CONT’D)

 Resource-based View
 Emphasises on internal factors in the organisations strategic position.
 argues that an organisation’s specific strategic capabilities, resources or
cultures should drive strategy.
 From these internal characteristics, it is believed that distinctive strategies and
superior performance can be built.
 Basis is that they type, mix, amount and nature of a firms internal resources
should be considered first when developing a strategy for sustainable
competitive advantage
 ANALYSING THE ENVIRONMENT
 Introduction
 It is vital that managers analyse their environments carefully in order
to anticipate and – if possible – influence environmental change.
 This section therefore provides frameworks for analysing changing
and complex environments.
 The framework describe the environment as a model of layers
namely:
 Macro-Environment
 Industry or sector
 Customer and markets
Macro-environment
 THE ENVIRONMENT

1. Macro-Environment
 Three tools for analysing the macro-environment will be looked at
namely;
i. PESTEL (provides a wide overview): Managers must analyse how these factors are
changing now, how they are likely to change and draw implications for the organisation
ii. Key drivers (focus on what is important for any particular organisation) and
iii. Scenarios(build on the key drivers to explore different ways in which the macro-
environment might change).
 These tools are interrelated.
 MACRO-ENVIRONMENT CONT’D …… TOOLS FOR
ANALYSIS

1. PESTEL FRAMEWORK
 provides a comprehensive list of influences on the possible success or failure
of particular strategies
 Includes: Political, Economic, Social, Technological,
Environmental/Ecological and Legal/Ethical factors
 Factors do change all the time
 Learning Task:
 Review the organization from your learning Activity 1/Assignment
 Undertake a PESTEL analysis for the organization.
PESTEL FRAMEWORK
POLITICAL ECONOMIC:
Role of governments including: Refers to macro-economic factors including:
• Political stability • exchange rates,
• Government ideologies • business cycles
• Taxation policies • economic growth
• Inflation/unemployment/interest rates

SOCIAL TECHNOLOGICAL
Factors from the society include • Innovations
• Demographics • New production technology
• Culture and religion • Internet
• Media influences
• Lifestyle Trends
ENVIRONMENTAL/ECOLOGICAL LEGAL/ETHICAL
Refers to ‘Green issues’ • Business laws
• Pollution and waste • Trade Agreements
• Energy/power consumption
• Management of hazardous material
 2. KEY DRIVERS FOR CHANGE

Key drivers for change are the high-impact factors likely to affect significantly the
success or failure of strategy.
 Key drivers will vary by industry or sector.
 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.
 Learning task:
 From your list, which of the influences would you highlight as likely to be
the ‘key drivers for change’ for that organization in the coming five years?
EXAMPLE OF KEY DRIVERS FOR CHANGE IN
PHARMACEUTICAL COMPANY
POLITICAL ECONOMIC
• Health care reforms leading to increased taxes • Branded drugs commanding higher prices
on drugs
• Governments focusing more on prevention
than treatment of diseases

SOCIAL TECHNOLOGICAL
• Aging population: people living longer due to • Innovations in medical treatment
advances in medicine • Digital innovation raising awareness
• Chronic ailments: increasing thereby increasing
the market for drugs

ENVIRONMENTAL LEGAL/ETHICAL
• Disposal of waste • Increase of off-patent drugs
• Health care reforms legislation
 MACRO-ENVIRONMENT (CONT’D)

3. 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.
 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.
 Sharing and debating alternative scenarios improves organisational learning by
making managers more perceptive about the forces in the business environment and
what is really important.
 MACRO-ENVIRONMENT (CONT’D)
BUILDING SCENARIOS

 Managers should also evaluate and develop strategies (or contingency plans) for each
scenario and then monitor the environment to see how it is actually unfolding and
adjust strategies accordingly
 Scenarios are especially useful where
 there are a limited number of key drivers influencing the success of strategy;
 where there is a high level of uncertainty about such influences;
 where outcomes could be radically different; and
 Where organisations have to make substantial commitments into the future that
may be highly inflexible and hard to reverse in adverse circumstances.