Preparation for Strategy Development

Sheikh Morshed Jahan Associate Professor IBA, University of Dhaka

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Stakeholder Analysis PESTLE Analysis Porters Diamond Five Forces Model Life Cycle Model Strategic Questions Dynamics of Competition
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Part 1: Stakeholder Analysis

Sheikh M Jahan, IBA, Univ. Dhaka

Whoever (person or organization) has a stake (or interest) in the actions or performances of a company is a stakeholder to that company.
Stakeholder analysis is the process of identifying such actors-with-stake and analyzing their interest and influence/power vis--vis the action/strategy of the enterprise
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Primary Stakeholders
(Shareholders/Owners, Customers, Employees, and Value Chain Partners)

Secondary Stakeholders
(Competitors, Trade and Industry Associations & Chambers, Local Communities, Educational Institutes, Government, etc.)

Tertiary Stakeholders
(Society at Large, Development Partners, Media, etc.)

Sheikh M Jahan, IBA, Univ. Dhaka

Source: Adapted from A. Mendelow, Proceedings of the Second International Conference on Information Systems, Cambridge, MA, 1991. Johnson, Scholes & Whittington (2005) Exploring Corporate Strategy, 7th Edition, Pearson Education

Sheikh M Jahan, IBA, Univ. Dhaka

Stakeholder Analysis helps strategist to better understand the likely response (to its activities and moves) from the stakeholders
It helps better utilization of resources (e.g. attention or time) as it involves management of stakeholders

Sheikh M Jahan, IBA, Univ. Dhaka

Part 2: PESTEL Analysis

Sheikh M Jahan, IBA, Univ. Dhaka

PESTEL framework categorizes macro environment into six main categories:

Political

Economic
Socio-cultural Technological Environmental Legal

Sheikh M Jahan, IBA, Univ. Dhaka

Source: Johnson, Scholes & Whittington (2005) Exploring Corporate Strategy, 7th Edition, Pearson Education

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These (otherwise somewhat-distant-to-business) forces have significant influence on how businesses should respond to forces of different nature and dynamics This may be treated as the starting point of strategic thinking process

Sheikh M Jahan, IBA, Univ. Dhaka

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Part 3: Porters Diamond

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Porters diamond suggests that there are some inherent reasons

why some nations are more competitive than the others

&
why some industries within nations are more competitive

than the others

Sheikh M Jahan, IBA, Univ. Dhaka

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Porters Diamond
The Determinants of National Advantage

This is an excellent framework when looking at conditions for business

Source: M. Porter, Competitive Advantage of Nations, Macmillan, 1990.

Johnson, Scholes & Whittington (2005) Exploring Corporate Strategy, 7th Edition, Pearson Education

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Porter suggests that the national home-base of an organization plays an important role in creating advantage (for the firm) on a global scale. Impact of national macro economic factors on the competitive environment can be better understood by this analysis

Sheikh M Jahan, IBA, Univ. Dhaka

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Part 4: 5-Forces of Competition

Sheikh M Jahan, IBA, Univ. Dhaka

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Source: Adapted from M.E. Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors 1980, Free Press, 1980, p. 4. Copyright 1980,1988 by The Free Press, a division of Simon & Schuster Inc. Reproduced with permission. Sheikh M Jahan, IBA, Univ. Dhaka 18

Buyer power likely to be high when

Concentration of buyers Low cost of switching Threat of backward integration by buyer

Supplier power likely to be high

Concentration of supplier High switching cost Threat of forward integration
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Threat of entry

Economies of scale and scope Capital requirement and availability Access to supply and distribution channels Access to technology Customer/supplier loyalty Expected retaliation from existing firms Legislation/government policy Differentiation
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Threat of substitution
Product-for-product substitution Substitution of needs Generic substitution (same wallet substitution)

Competitive rivalry degree depends on

Equal sized, or one/two dominant? Industry growth rate (life cycle) Capacity utilization rate Differentiation potential
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Part 5: Life Cycle Analysis

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Johnson, Scholes & Whittington (2005) Exploring Corporate Strategy, 7th Edition, Pearson Education

Part 6: Competitive Strategy Question Time

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Are some industries more attractive than others? What are the underlying forces in the macro environment that are driving the competitive forces? Is it likely that the forces will change? If so, how? How do a particular competitor stand in relation to these competitive forces? What can the company do to influence these forces or to navigate through the turbulent wave of competition?

Can barriers to entry be built? Power over buyer/supplier be increased?
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Part 7: Dynamics of Competition

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With changes in time, environment changes so does the capabilities and strategies of the organization
Erosion in competitive advantage is only natural there is nothing called permanent competitive advantage everything is only temporary This creates a cycle of competition
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Incumbent
Builds or Inherits Entry Barriers No Response

Entrant
Attacks Soft Market Segment Widens Attack to Adjacent Segments Starts Price War

Reinforces Barriers

Attacks Entrants Home Market

Source: RA DAveni with Robert Gunther

Restart the Cycle in Adjacent Market

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Market Entry Decision

Lead Firms Response

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Part 7: Team Exercise & Presentation

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Divide into four teams Select an industry of your choice Perform an extensive analysis using the tools discussed Synthesize the most important discoveries Identify the strategic implications from the perspective of a prospective entrepreneur Present before the group
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