SECTION DIVIDER [1 line only]

IBUS 5002
Strategy,
Innovation
&
QUESTIONS
Entrepreneurship

Week 4 -
Frameworks to understand the internal &
external factors impacting business
Dr Richard Seymour
1

outline

This week were going to cover strategic issues

associated with entrepreneurial activity, including the
tools for understanding the external:
1.

environment

2.

industry

3.

consumers

your Mission
- Fundamental
purpose
- Values & vision

your Objectives
- Specific
- Measurable
- Achievable

based on Hambrick & Fredrickson (2001)

the External
Environment
Industry
Consumers
(SW)OT etc.

your Strategy
(holding this all
together!)

the internal
Resources
Capabilities
People
Leadership
SW(OT) etc.

nature of change is shifting

nature of competition is
changing

and increasing

technological changes

traditional industry
boundaries are blurring:

technological diffusion

computers &
telecommunications

product & service

information &
communication
technologies
importance of
knowledge

pace of change is
relentless

service & experience

new competitive landscape

global economy is
changing

people, goods services

& ideas move freely
across geographical
boundaries
new opportunities
emerge in multiple
global markets
markets and industries
become more globalised

traditional sources of
competitive advantage no
longer guarantee success

new keys to success

include:

flexibility
innovation
speed
integration

what does it mean for you?

competitive landscape is more volatile & unpredictable

environmental changes are likely to be discontinuous

a declining emphasis on single domestic markets as more

industries globalise

firms must compete differently to achieve strategic

competitiveness & earn above-average or superior returns

managers must make significant and sometimes painful

decisions to achieve strategic/sustained competitiveness

a) environment
standard framework
- PESTLN
focus on the long term (usually) - look as far back as
you do forward

these factors will not be present around all industries

in equal importance

as well as identifying them, consider their significance

allow for shocks that occur irregularly, like
earthquakes and tsunamis (radical & incremental)

as examples
Economic
Interest rates
Inflation
Cost of key inputs
Disposable income
Unemployment

Technological
Communication
Information
Physical
transport (?)
Political
stability
rent-seeking
activism

Legal
Consumer laws
Competition laws
Natural environment
Resources
Weather
Seasonality
industry

Demographic structure
Population growth
Age distribution
Ethnic mix
Gender mix

Social structure
Consumer preferences
Cultural shifts
Value changes

b) industry
standard frameworks include

- five-forces (see your readings) & value net

- value chains and eco-systems
- strategic groups & mobility
- structure, conduct, performance
- etc. etc.

define your industry

define industry boundaries by identifying the relevant

market

define the boundary by substitutability on the

demand side

geographical boundaries may also apply to a

market

remain wary of external influences

be conscious of purpose of classification

five forces (not so helpful)

SUPPLIERS
Bargaining
power of
suppliers

Threat of
substitutes
INDUSTRY
COMPETITORS

POTENTIAL
ENTRANTS

Rivalry
among
existing firms

SUBSTITUTES

Threat of new
entrants
Bargaining
power of buyers
BUYERS

criticisms of 5-forces?

based on structure-conduct-performance approach that

has been largely replaced by game theory

assumptions may not always hold (business

relationships are not always at arms length)

static nature of analysis (competitive interactions are

not well managed - e.g. complementors)

sometimes blind to complementors & dynamics of of

markets

power & threats not so useful for entrepreneurial firms

Structure-Conduct-Performance
Framework (not so useful)
External
shocks

Industry
S Changes in
structure

Firms strategy
in
Changes in
C Changes
P
conduct
performance

Technology
breakthroughs

Demand
economics

Sales & Marketing

Finance

Capacity changes

Profitability

Changes in
government policy

Supply
economics

Vertical
integration

EVA

Changes in tastes
or lifestyles

Industry value
chain

Operational
efficiency

Technological
progress
Employment

Structure-Conduct-Performance
Framework (yawn)
External
shocks

Industry
S Changes in
structure

Firms strategy
in
Changes in
C Changes
P
conduct
performance

Technology
breakthroughs

Demand
economics

Sales & Marketing

Finance

Capacity changes

Profitability

Changes in
government policy

Supply
economics

Vertical
integration

EVA

Changes in tastes
or lifestyles

Industry value
chain

Operational
efficiency

Technological
progress
Employment

the value net (useful)

customers

substitutors

you

suppliers
Source: Brandenburger & Nalebuff (1995)

complementors

the game of business

Utilise the value net to identify

substitutors (alternative players from whom

customers may purchase products or to whom
suppliers may sell their resources)

complementors (players from whom customers buy

complementary products or to whom suppliers sell
complementary resources)

customers & suppliers (parties with whom the

company transacts)

changing the game

1. explore the interdependencies (draw the value net)
2. identify all the elements of the game
-

Players (none are fixed)

Added values (what each player brings to the game,

raise yours, lower others)

Rules (structures for the game)

Tactics (moves to shape the way players perceive the

game, reduce misconceptions or create uncertainty)

Scope (the boundaries of the game)

traps of co-optation strategy

dont think you have to accept the game you find yourself in
changing the game must not come at the expense of
others
dont believe everything done has to be unique
ensure you see the whole game (particularly in relation to
complementors)
ensure you think methodically about changing the game
(allocentric not egocentric)
there is no silver bullet for changing the game of business
(it is ongoing)

value chain analysis (bottom drawing)

Source:
Porter, 1985,
Competitive
advantage

your Mission
- Fundamental
purpose
- Values & vision

your Objectives
- Specific
- Measurable
- Achievable

based on Hambrick & Fredrickson (2001)

the External
Environment
Industry
Consumers
(SW)OT etc.

your Strategy
(holding this all
together!)

the Internal
Resources
Capabilities
People
Leadership
SW(OT) etc.

resources & capabilities

standard frameworks include

- resources (stuff you have)
- capabilities (what you do with that stuff)
- competencies (?)

internal value chain (top half of drawing)

Source:
Porter, 1985,
Competitive
advantage

(c) Dr Richard Seymour, 2010

resources & capabilities

Resources & capabilities lead to competitive advantage when they are:
valuable

They allow the firm to exploit opportunities or neutralise

threats in external environment

rare

Possessed by few if any current and potential

competitors

costly to
imitate

When other firms either cannot obtain the resources/

capabilities or must obtain them at a much higher cost

nonsubstitutable

The firm must be organised appropriately to obtain the

full benefits of the resources in order to realise a
competitive advantage
23

(c) Dr Richard Seymour, 2011

competencies

when resources & capabilities are valuable, rare, costly

to imitate, & non-substituatable, they become a core
competency

core competencies are resources & capabilities that can

serve as sources of sustained competitive advantage

resource-based model argues that core competencies

are the basis for a firms competitive advantage,
strategic competitiveness & ability to earn above
average returns

portfolios of competencies
The diversified corporation is a large tree:
- The leaves, flowers, fruit are end products
- Smaller branches are business units
- Trunk & major limbs are core products
- Root system that provides nourishment and
stability is the core competence