The external context of strategy

Question 1

Political …

Answer 1

…highlights the role of the sate and other political forces.

Question 2

Economic…

Answer 2

…factors such as exchange rates, business cycles and differential economic growth rates around the world.

Question 3

Social…

Answer 3

…cultures and demographics.

Question 4

Technological…

Answer 4

…the internet, nano technology, the rise of new composite materials.

Question 5

Ecological…

Answer 5

…‘green’ environmental issues, such as pollution, waste and climate change.

Question 6

Legal…

Answer 6

…legislative and regulatory constraints or changes.

Question 7

What is a limitation of using a PESTEL framework?

Answer 7

Analysing these factors and their interrelations can produce long and complex lists.

Question 8

Can overcome PESTEL producing long lists by…

Answer 8

…first identifying the key drivers for change to focus on which PESTEL factors are most important.

Question 9

Scenario analyses…

Answer 9

…carried out to allow for different possibilities and help prevent managers from closing their minds to alternatives.

Question 10

Scenario analyses steps:

Answer 10

1. Define scope - whether global or regional whilst considering the time span.
2. Identify key drivers for change - - use PESTEL to determine which will have the a major impact.
3. Identify key uncertainties
4. Develop initial scenario themes
5. Check for consistency and plausibility
   (Shoemaker actually offers 10 steps)

Question 11

The uses of scenario planning:

Answer 11

1. Early warning signal
2. Assess robustness of core competencies
3. Evaluate risk
4. Sets off exploration and contingency planning - so doesn’t matter if the scenarios do not come to pass

Question 12

The three ways of scenario planning:

Answer 12

1. Intuitive - major themes present themselves
2. Heuristic - select two most important uncertainties
3. Statistically - - combine outcomes for all key uncertainties

Question 13

Limitations of scenario planning:

Answer 13

1. Managers tend to ignore the ‘optimistic’ and ‘pessimistic’ in favour of the ‘middling’ - thus 2 or 4 should be considered to overcome this
2. Shoemake found students were over confident
3. Students over predicted - K&T refer to this as the “conjunction fallacy” which contradicts the laws of probability
4. Tendency to look for confirming evidence

Question 14

The Five Forces framework helps identify the… . The …. can be used to help set an agenda.

Answer 14

…attractiveness of an industry. … various critical issues that have been identified… .

Question 15

The Five Forces are…

Answer 15

1. Threat of entry
2. Threat of substitutes
3. Power of buyers
4. Power of suppliers
5. Intensity of rivalry
   (Porter, 2008)

Question 16

The threat of entry is low where:

Answer 16

Porter:
1. Supply-side economies of scale - lower cost per unit
2. Demand-side benefits of scale - buyer’s willingness patronise the company
3. High customer switching costs
4. High capital requirements
5. Unequal access to distribution channels
6. Restrictive government legislation
ES:
7. High experience curve
8. Expected retaliation
9. Differentiated product/service - undifferentiated commodities reduce customer loyalty

Question 17

Substitutes are products or services that … to an industry’s products or services, but…

Answer 17

…offer a similar benefit…, ….have a different nature.

Question 18

The threat of substitutes is high if:

Answer 18

Porter:
1. There is an attractive price-performance trade-off to the industry’s product
2. Buyer’s cost of switching to the substitute is low
ES:
3. There are extra-incumbency effects - substitutes come from outside the industry

Question 19

The power of buyers is high where:

Answer 19

P:

1. Concentrated buyers
2. Undifferentiated products/services
3. Low switching costs
4. Can credibly threaten to integrate backwards

Question 20

The buyer group is sensitive if

Answer 20

1. Product represents a significant fraction of cost structure
2. Earn low profits - thus under pressure to trim purchasing costs
3. Quality is little affected by product

Question 21

To integrate backwards means to…

Answer 21

…purchase suppliers (perform activities up the value chain).

Question 22

The powerful buyers have… . They should be distinguished as… .

Answer 22

…negotiating leverage. …‘strategic customers’.

Question 23

The power of suppliers is high where:

Answer 23

P:

1. Concentrated suppliers
2. Differentiated products
3. High switching costs
4. Can credibly threaten to integrate forward
5. No substitutes e.g. well-trained pilots
6. Doesn’t depend heavily on its most profitable industry

Question 24

To integrate forwards means to…

Answer 24

…directly distribute (perform activities down the value chain).

Question 25

Intensity of rivalry is greatest if:

Answer 25

P: 1. Competitors are numerous or of equal size- hard to avoid poaching 2. Industry growth is slow - any growth is likely to be at the expense of a rival 3. High exit barriers - incumbents fight to maintain market share ES: 4. High fixed costs - requires high investment so companies seeks to spread costs and engage in price wars 5. Low differentiation - only way to compete is on price

Question 26

Engaging in a price war results in... . Though this can be overcome if the organisation serves needs of ... .

Answer 26

...zero-sum competition. ....different customer segments.

Question 27

Porter explains that the framework can reveal potential strategies:

Answer 27

1. Positioning opportunities - spot an industry that is specifically attractive to them (they might possess a unique capability). 2. Re-divide the profit pool- by neutralising supplier and buyer power, scare entrants through R&D, and limit substitutes 3. May discover latent customers - thus expand the profit pool

Question 28

Strengths of the FF framework:

Answer 28

1. Identifies the attractiveness of industries 2. Good starting point to identify the right strategies 3. Easy to apply to all organisations

Question 29

Critiques of the FF framework:

Answer 29

1. Co-operation - assumes a competitive environment where a company can only succeed at the expense of others, but there are complementary products (sixth force) 2. Dynamism - uses static analysis of the industry and ignores trends 3. Complexity - industries and customers may not be homogenous

Question 30

There is ... between competitors.

Answer 30

...heterogeneity...

Question 31

The power of the five forces typically varies with ...

Answer 31

...the stages of the industry life cycle.

Question 32

Limitations of the product life cycle:

Answer 32

1. Companies do not predictably flow through the stages - they can in fact 'de-mature' 2. 'maturity mind-set' - - can leave managers complacent and slow to respond to new competition

Question 33

A strength of the industry product life cycle:

Answer 33

Reminds managers that conditions are likely to change over time

Question 34

Blue oceans are...

Answer 34

...