The Strategy Formulation

Process
Strategic Assessment
Analysis of the external environment
 Purpose of External Analysis
 To understand the external
environment as it affects the
enterprise
 3 levels of analysis:
 General changes in business environment
 Changes within the industry
 Activities of competitors and other specifics
PEST Analysis
 Political
 Legislation and Regulation
 International relations
 Economic
 Economic cycles
 Currency rates
 Capital, labour and commodity markets
 Social
 Demographics
 Tastes
 Environmental awareness
 Technological
 Process effect development
 Product capability
 Pressures affecting the view of the
external environment

 Stakeholders
 Corporate Governance
 Corporate Responsibility

N.B. Changes in any of above are particularly important

 Different Models of Governance

Anglo-Saxon Rhine Japanese

Ownership Public Institutions Institutions

Board Shareholder Shareholders & Kairetsu

Reps. Unions Reps.

Management Chairman Collective Collective

& CEO (5-7 people)

Adapted from Talk by Michel Albert (1994)

Strategic Management Society, 14th Annual International Conference, HEC Paris, September
 Threats to Corporate Survival

 Porter’s5 forces
 Government ideology & policy

 Fashion and fickleness

 Complementors

 Lobby and Interest groups

 Corporate Survival Model

Potential
Entrants
Government
Ideology & Threat of Lobby
New Entrants
Policy Groups
Redefining industries Changing ground
and markets rules and values

Threats to
Suppliers Corporate Buyers
Bargaining Power Bargaining Power
of Suppliers survival of Buyers

Increasing rate
Loss of Support
or degree of change

Threat of
Fashion & Substitutes Complementors
Fickleness
Substitutes
Source Adapted from Porter, M.E. Competitive Advantage (Free Press 1995) and
Grove, A.S. Only the Paranoid Survive (Harper Collins 1996)
Figure 9.4 Life Cycle Matrix
Life Stage
START-UP GROWTH MATURITY DECLINEAGEING
Competitive
Position Grow Fast
Defend Position
Defend Position
Grow Fast Attain cost leader-
DOMINANT Attain cost leader- Renew
ship
ship Grow with industry
Renew
Grow Fast Reduce costs Find and hold Niche
STRONG Differentiate Catch-Up Differentiate Grow with industry
Grow Fast Differentiate Grow with industry Harvest profit

Differentiate
Harvest Profit
Focus Consolidate
Differentiate Find niche,
SATISFACTORY Grow with industry Cut costs
Focus Grow with industry
Grow Fast

Harvest Profit
Harvest, catch up
Focus Turnaround
WEAK Find and Hold niche Divest
Grow with Find Niche
Turnaround
industry Consolidate

Find Niche Turnaround Withdraw

VERY
Grow with ind. Consolidate Divest Withdraw
WEAK

Adapted from an A D Little model

 Competitor Analysis
 Individual competitors
 Groups of competitors
 Extent of data varies by industry and
determines what analysis is possible
 May be possible to analyze competitors
using same techniques as for ourselves
 The Strategic Triangle
Ohmae, K (1982) The Mind of the Strategist

 Consists of the Customer, the company and

competitors
 The company and competitors deliver value to
the customer
 The company and competitors compete on cost
 The company recognises different customer
segments and determines value to each
segment accordingly
 The company recognises the competitors in
each segment and attempts to better its cost
bases vis-à-vis the competition
The Market Commitment Model

Low Recognition
Value Design
Premium Price Innovative
Shared Political

Service Hustle Commitment Emotion

Functionality
Comprehensive Reliability
Available Performance
Speed
Personalised Convenience
Symbiotic

Adapted from: de Kare Silver, M. (1997) Strategy in Crisis. Macmillan