Evaluating the Strategic Implications of External Environment Analysis

Strategy and Innovation
Unit 4: Evaluating the Strategic Implications of
External Environment Analysis
In the prior three units, you have examined the fundamentals of strategic thinking and strategic
choice analysis. Now, you will be moving into a new, more detailed layer of strategic thinking that
will help you develop a more robust set of analytic skills.
In this unit, you will continue to apply strategic management decision-making tools in an effort to better
understand the various intersecting contexts from which strategic choices must be made. The specific
focus in this unit will be on the organisation’s external influences:
General external ecosystem, which includes identifying the most comprehensive set of
stakeholders and understanding how these stakeholders and the potential impact of broad political,
economic, social and technological forces can shape future strategic opportunities and threats
1.
Competitive environment, which includes analysing the core forces of rivalry and direct
competition, supply chain and customer influence, and industry entry, exit and substitution (also
known as five forces analysis and red ocean competition)
2.
Learning Objectives
Students will:
Analyse an organisation’s long-term prospects using environmental scanning
Analyse threats and opportunities within the general stakeholder and competitive environment of an
industry
Evaluate relevant critical implications of external environment strategy analysis
Learn
In this unit, you will identify and explore the implications of major political, economic, social,
technological, legal and environmental forces (sometimes called PESTLE analysis) along with
demographic analysis. You will also identify and explore the implications of a comprehensive
stakeholder analysis, and identify and evaluate the primary implications of the competitive
ecosystem through the completion of a robust five forces analysis.
General Ecosystem Analysis
The general ecosystem for business activity is illustrated in Figure 4.1 (Schulz, 2012):
Figure 4.1: General ecosystem of business
This chart illustrates that the organisation operates within a permeable boundary that is loosely called
an ‘industry’. It competes beyond that boundary, within the larger, general ecosystem – as do all
industries. The ‘outer ring’ of this chart illustrates what might be called ‘general forces’, which
influence and affect all businesses in an economy and which are shaped by large-scale behaviours
and beliefs, such as politics, economics, societal values and ethics, technology, demographic
changes, future trends and legal constraints. It is useful to catalogue and analyse how the general
forces affect an industry and the business you are studying, as these forces limit or enhance strategic
choices.
Note, within the general ecosystem, that businesses and organisations exist within a complex web of
interdependent stakeholder relationships. A PESTLE or ScanStep© analysis, although helpful in
defining some basic elements of the environment, is a good starting point but is insufficient.
Rather, one must supplement the PESTLE or ScanStep© analysis by examining how specific
stakeholder relationships can moderate and mediate the performance options and frontiers of an
organisation. These relationships must also be examined systematically and in depth, as Pitt and
Koufopoulos (2012) and Eccles and Serafeim (2013) suggest.
Finally, as Porter notes, it is also, ‘in essence, the job of the strategist is to understand and cope with
competition’ (2008:2). This competition derives from direct rivals that seem to be much like the
organisation and that seek the same customers. It also derives from indirect rivals, such as potential
new entrants or innovative substitutes provided by organisations outside the traditional industry
boundary and by wholesale new offerings from organisations pursuing blue ocean strategies, as
discussed by Kim and Mauborgne (2004).
References
Eccles, R.G. & Serafeim, G. (2013) The performance frontier: Innovating for a sustainable strategy.
Harvard Business Review. Available at: https://cb.hbsp.harvard.edu/cb/pl/22461329/22685708
/5e426b61506d6979573f8c0377148b19 (Accessed: 15/07/17).
Kim, W.C. & Mauborgne, R. (2004) Blue ocean strategy. Harvard Business Review. Available at:
https://cb.hbsp.harvard.edu/cb/pl/22461329/23097334/75fbc9b50bf01d27aa89dfe90d3dc3e8
(Accessed: 10/07/17).
Pitt, M.R. & Koufopoulos, D. (2012) Essentials of Strategic Management, London: SAGE
Publications.
Porter, M.E. (2008) The five competitive forces that shape strategy. Harvard Business Review.
Available at: https://cb.hbsp.harvard.edu/cb/pl/22461329/22461607
/0c6a0bd2cc0d082446d2cd90de5e50b3 (Accessed: 10/07/17).
Schulz, W.C., III (2012a) The General Ecosystem of Business [Infographic]. In: Schulz, W.C. III
(Author) Tools for Tracking Your Strategic Thoughts. Unpublished manuscript.
Dig Deeper
Read
The following readings are provided for you to dig deeper into the subject area.
Required
Book Chapters
Pitt, M., & D. N. Koufopoulos, (2012) Essentials of Strategic Management, London: Sage
Chapter 2, ‘Understanding the External Environment’ (pp.30-56)
Chapter 3, ‘Industry Sector Environments’ (pp.57-97)
Journal
Andrews, R., & M. Johansen, (2013) ‘Organisational Environments and Performance: A Linear
or Nonlinear Relationship?’, Public Organisation Review, 12 (2), pp.175-189. DOI:
10.1007/s11115-012-0173-z.
Journal
Nandakumar, M. K., A. Ghobadian, & N. O’Regan, (2010) ‘Business-Level Strategy and
Performance: The Moderating Effects of Environment and Structure’, Management Decision, 48
(6) pp. 907-939. DOI: 10.1108/00251741011053460.
Journal Article
Porter, M., (January 2008) ‘The Five Competitive Forces That Shape Strategy’, Harvard
Business Review. Available at: https://cb.hbsp.harvard.edu/cbmp/pl/65269518/65269526
/b00dd758ab4f5a62aed3756f02c106a2 (Accessed: 10/07/17).
Document
Schulz, W.C., III (2012b) Tools for Tracking Your Strategic Thoughts. Unpublished manuscript.
Document
Schulz, W.C., III (2013a) Tools for Tracking Your Strategic Thoughts [Spreadsheet]. Baltimore,
MD: Walden University.
Refer to this Excel spreadsheet to assist you with the specific Shared Activity elements, as
recommended.
Optional
Journal Article
Burt, G., Wright, G., Bradfield, R., Cairns, G. & van der Heijden, K. (2006) The role of scenario
planning in exploring the environment in view of the limitations of PEST and its derivatives.
International Studies of Management and Organisation. 36(3) pp.50-76. DOI:
10.2753/IMO0020-8825360303.
Journal Article
Ghosh, D., Willinger, G.L. & Ghosh, S. (2009) A firm’s external environment and the hiring of a
non-standard workforce: Implications for organisations. Human Resource Management Journal.
19(4) pp.433-453. DOI: 10.1111/j.1748-8583.2009.00109.x.
Journal Article
Grundy, T. (2006) Rethinking and reinventing Michael Porter’s five forces model. Strategic
Change. 15(5) pp.213-229. DOI: 10.1002/jsc.764.
Journal Article
Lotayif, M.S. (2010) Porter’s generic strategies and environmental scanning techniques:
Evidence from Egypt. The Business Review, Cambridge. 16(2) pp.216-225.
Journal
Wirtz, B.W., Mathieu, A. & Schilke, O. (2007) Strategy in high-velocity environments. Long
Range Planning, 40(3) pp.295-313. DOI: 10.1016/j.lrp.2007.06.002.
Watch
Video
Harvard Business Review (2008) The Five Competitive Forces That Shape Strategy [YouTube].
Available at: https://www.youtube.com/watch?v=mYF2_FBCvXw (Accessed: 10/7/17) .
In this interview, Michael Porter discusses his influential five forces framework for understanding
company strategy. Porter is a professor at Harvard University Business School.
Discuss
The goal of this unit’s Shared Activity is to help you become proficient at identifying critical
external general forces. These forces include stakeholder interests and needs, and specific
competitive forces which shape the ecosystem of the organisation and which provide a ‘contour’
for strategic action through the analysis of a large-scale, industry-level examination.
Shared Activity: Mapping and Evaluating the General External Ecosystem of an Industry-Economic
Sector
This fourth unit offers one assessment – an online discussion or ‘Shared Activity’, taking place
on the Discussion Forum. This is worth 10% of the overall module grade. Your initial post
should be completed by Day 7 of this unit.
In this Shared Activity, you will conduct research and perform critical analyses of the general external
ecosystem, including a detailed stakeholder analysis, of the organisation that you are studying as part
of your Project for this module. You will examine and probe the work of your peers, and then offer
potential critical directing questions and specific and constructive ideas for improving your peers’ work.
To prepare for this Shared Activity:
You are required to make an initial post to the Shared Activity by Day 7.
Review the Readings and, in particular, examine the ScanStep© framework in Pitt and Koufopoulos
(2012:Chapter 2).
Review the ‘Tools for Tracking Your Strategic Thoughts’ document, and consider how to best deploy
these tools. You are not required to use the pre-designed templates but you will be responsible for a
robust and complete analysis with implications clearly stated.
To complete this Shared Activity:
By Day 7:
Write a 500-word post:
Conduct a thorough and well-argued general external ecosystem analysis for the industry of the
organisation you have chosen.
Be sure to explain what the strategic implications of your analysis are and how the set of
implications limits or shapes your strategic recommendations.
Be sure to identify specific future strategy actions and recommendations based on your
evaluation of options and to provide a basic defence of why your recommended actions are the
most appropriate.
Conduct a thorough and well-argued stakeholder analysis for the industry of the organisation you
have chosen.
Be sure to explain what the strategic implications of your analysis are and how the set of
implications limits or shapes your strategic recommendations.
Be sure to identify specific future strategy actions and recommendations based on your
evaluation of options and to provide a basic defence of why your recommended actions are the
most appropriate.
You may want to attach either a worksheet or other table or visual as part of your analysis.
Note: Be sure to support your postings with evidence from the Required Readings and other current
literature from the University of Roehampton online library and other credible sources. Consult the
Harvard Referencing Style Guide for proper citation and referencing information.
Two Follow-on Posts:
You are required to make two follow-on posts by Day 14
Respond to at least two colleagues’ posts by probing the work of your peers, and then offer potential
critical directing questions and specific and constructive ideas for improving your peers’ analyses.
You should aim to engage with and extend the academic discussion in a sensitive and professional
way. Aim for at least two (2) posts of minimum 200 words each.
Guidance and Rubrics
Please note that confidentiality of information discussed in Shared Activities cannot be guaranteed.
Therefore, please do not include identifying details of actual individuals or organisations in your
responses.
Participate in this Shared Activity only during the period of this unit to ensure that you and your
colleagues can keep track of one another’s postings and maintain a focused, collaborative discussion.
Review the Shared Activity Rubric for information on how your contributions to the Shared Activities
will be graded in this unit.
The following two resources provide a detailed marking rubric that breaks down the constituent
element for this assessed Shared Activity, and general guidance for participation in Shared Activities.
These are important documents in preparing you for success in this activity.
Rubric
If you haven’t already downloaded the rubrics from the Module Overview page, you can
download them here. This single document contains the rubrics for all module assignments.
Go to the Shared Activity
Looking Ahead
In this unit, you reviewed the concept of the general ecosystem of business by using a model provided
in the unit. You performed a five forces analysis, using Porter’s concept, applying this to your selected
organisation, which contributed to your preparation and completion of Section 4 of your Business
Strategy Report.
In Unit 5, you will use tools to evaluate the skills, competencies and capabilities of your selected
organisation. You will use this data to grade the organisation’s strategic resources. You will also work
on and submit your Unit 5 Project.