Market-Based View on Strategy: External Environment Analysis

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SESSION 2: EXTERNAL ANALYSIS AND MBV

Market Based View of Strategy: External environment analysis > strategic issues-> winning strategies-> superior performance

Market based view of strategy (MBV) - sometimes known as Industrial Organisation based view (IO) places primary importance on external conditions faced by the firm. In this view, strategy is about the firm creating for itself a ‘market position’ via strategy whereby it can defend itself from external environmental forces and/or influence them in a way that places it at an advantage vis-à-vis its competitors . MBV paradigm is firstly connected to the ‘structure–conduct–performance’ approach, where the structure of a macro and micro external environment determines firm conduct/strategy (e.g. innovation strategies, strategies for neutralising 5 forces etc., ) and hence firm performance (e.g. profits).MBV also focuses on a ‘dynamic competition approach’, where firms not only are influenced by the external environment, but also actively seek to change it (e.g. the Schumpetarian approach such as influencing EV forces ). According to MBV therefore, a firm’s external environment plays a key role in determining its strategy and performance.

According to MBV, insightful diagnosis of a company’s external environment is a prerequisite for a firm to succeed in formulating winning strategies and hence achieve superior returns. Consequently , the task of formulating a winning strategy should always begin with an appraisal of the company’s external environment to identify strategic issues ( future threats and opportunities , current barriers ) then addressing these strategic issues by matching firm’s strategies to the conditions , characteristics and structure of its external environmental forces acting upon on it – Slide 1
This section presents the theories, analytical tools and concepts (TTC) of a firm’s external environment that should be considered in formulating strategic choices for superior returns. Attention centres on the firm’s macro ( remote ) environment , and competitive ( intermediate ) environment as well as its market ( immediate ) environment and the factors that determine competitive success . Slide 2

In analysing the external environment surrounding the organisation, ten conceptual and analytical tools are identified: Slide 3 with their characteristics slides 4 , 5

A) Macro (Remote) Environment

1. PESTEL Analysis
2. Industry Dynamics ( EV Forces ) Analysis
3. Environmental Turbulence Analysis

B) Competitive (Intermediate) Environment

4. Industry Economic Features Analysis ( Industry DNA)
5. Industry 5 Forces Analysis
6. Industry Life Cycle Analysis

C) Market (Immediate) Environment

7. Industry Key Success Factors Analysis
8. Strategic Group Analysis
9. Individual Competitor Profiling
10. Market ( Customer ) Segmentation and Positioning Analysis ---------------------------------------------------------------------------------------- A) Let’s start with TTC’s of Macro (Remote) Environment Analysis:

We refer to the macro-environment as the broad environment outside an organization’s industry and markets. It is generally beyond the influence of the individual business but can have significant impact on the micro- or specific environment (industry and market) in which the business operates. However the impacts of broad environment on industry environments differ depending on the type of industry. For example, recessionary pressures are threat on most manufacturing related industries but opportunity for tobacco and alcohol related industries as people tend to smoke and drink more during economic hardships. The macro-environment is sometimes referred to as the ‘general’ or ‘remote environment’ because it tends to exert forces from outside the organization’s sphere of influence and usually beyond its control. Changes in the macro-environment can be of...
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