BUS496 CS Lect4 2.ppt-Chapter 4 Explorin...
BUS496_CS_Lect4_2.ppt-Chapter 4 Exploring the External Environment:
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BUS496 CS Lect4 2.ppt-Chapter 4 Exploring the Exte...
BUS496_CS_Lect4_2.ppt-Chapter 4 Exploring the External Environment:
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BUS496_CS_Lect4_2.ppt-Chapter 4 Exploring the External Environment:
Page 1
Chapter 4
Exploring the External Environment:
Macro and Industry Dynamics


Page 2
2
OBJECTIVES
Explain the importance of the external context for
strategy and firm performance
1
Use PESTEL to identify the macro characteristics of
the external context
2
Identify the major features of an industry and the
forces that affect industry profitability
3
Understand the dynamic characteristics of the
external context
4
Show how industry dynamics may redefine industries
5
Use scenario planning to predict the future structure
of the external context
6


Page 3
3
THE COLA WARS
“Coca-Cola sells a billion servings – in cans, bottles, and glasses –
every day. You can grab a Coke in almost 200 countries.
Its archrival,
Pepsi, isn’t too far behind.
Like Ford versus Chevy, theirs is a battle
not just for customer dollars, but for their hearts and minds as well.
– The History Channel, “Empires of industry. Cola Wars”


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4
THE COLA
WARS (TIMELINE)
Coca-Cola
Coca-Cola invented
“Kick Pepsi's can”
Diet Coke
New Coke
Repair Coke and restore
Stock price
Diversify product line
1886
1950
1960
1970
1980
1990
2000
Pepsi
“Beat Coke”
“Pepsi Generation”
“Pepsi Challenge”
Foster entrepreneurial
spirit of Pepsi’s people
Jettison slow-growing
businesses
Diversify beyond
soft-drinks


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5
EXTERNAL CONTEXT OF STRATEGY
An internal analysis is
just half of what is
needed to build
strategy
The SWOT and more
complicated
frameworks help us
understand the full
picture
Internal
Strengths
Weaknesses
Capabilities
Relationships
Etc.


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6
COMPARATIVE INDUSTRY – WIDE LEVEL OF PROFITABILITY, 1995 – 2004
Source:
Data from Standard and Poor’s CompuStat
Weighted average return on invested capital
Percent
-5
0
5
10
15
20
25
Bever-
ages
Ciga-
rettes
Pharma-
ceuticals
Eating
esta-
blish-
ments
Steel
Rail-
roads
Truck-
ing
Bott-
lers
Comp-
uters
Agri-
cul-
tural
pro
ducts
Pre-
pack
aged
soft
ware
Air-
lines
Wire-
less
pro-
viders


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7
THE EXTERNAL ENVIRONMENT OF THE ORGANIZATION
Macro Environment
Political, Economic, Sociocultural,
Technological, Environmental, Legal
Industry Environment
Strategic Group
The Organization


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8
KEY QUESTION TO ASK
What macro environmental
conditions will have a material
effect on our ability to implement
our strategy successfully?
How stable are these
characteristics?
What is our
firm’s industry?
What are the
characteristics of the
industry?


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9
UNDERSTANDING THE MACRO ENVIRONMENT USING A PESTEL ANALYSIS
How stable is the political environment?
Tax policies
Etc.
Projected interest rates?
Inflation?
Etc.
Lifestyle trends?
Demographic changes?
Etc.
Level of government research funding?
How mature is technology?
Etc.
Political
Economic
Socio-cultural
Technological
Is intellectual property protected?
Relevant consumer laws?
Etc.
Legal


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