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Universidad Autònoma de Barcelona – ADE – Tomislav Rimac
Tomislav Rimac – Fall 2012
Escola Superior de Comerç Internacional - UPF
INTERNATIONAL MANAGEMENT
Lecture 7: Organizational Strategy
Tomislav Rimac – Fall 2013
Universitat Autònoma de Barcelona – ADE in English – 3 rd^ year
STRATEGIC MANAGEMENT I
Presentation 4b: Exploring The External Environment –
Macro And Industry Dynamics - Part 2
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 1
4. DIAMOND MODEL (PORTER)
Universidad Autònoma de Barcelona – ADE – Tomislav Rimac
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 2 The Porter Diamond: National Competitive Advantage Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 3 The diamond model is an economic model developed by Porter in his book The Competitive Advantage of Nations , where he published his theory of why particular industries become competitive in particular locations The approach looks at clusters , a number of small industries, where the competitiveness of one company is related to the performance of other companies and other factors tied together in the value-added chain, in customer-client relation, or in a local or regional contexts The Diamond Model
Universidad Autònoma de Barcelona – ADE – Tomislav Rimac
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 6 Factor conditions are human resources, physical resources, knowledge resources, capital resources and infrastructure
Specialized resources are often specific for an industry and
important for its competitiveness
Specific resources can be created to compensate for factor
disadvantages
The Diamond Model Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 7 Demand conditions in the home market can help companies create a competitive advantage, when sophisticated home market buyers pressure firms to innovate faster and to create more advanced products than those of competitors The Diamond Model
Universidad Autònoma de Barcelona – ADE – Tomislav Rimac
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 8 Related and supporting industries can produce inputs which are important for innovation and internationalization
These industries provide cost-effective inputs, but they also
participate in the upgrading process, thus stimulating other
companies in the chain to innovate
The Diamond Model Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 9 Firm strategy, structure and rivalry constitute the fourth determinant of competitiveness
The way in which companies are created, set goals and are
managed is important for success
But the presence of intense rivalry in the home base is also
important; it creates pressure to innovate in order to upgrade
competitiveness
The Diamond Model
Universidad Autònoma de Barcelona – ADE – Tomislav Rimac
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 12
5. PEST (PESTEL) ANALYSIS
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 13
Environmental scanning - the monitoring, evaluation
and dissemination of information from the external and
internal environments to key people within the
corporation
Natural environment (physical resources, wildlife, climate)
Societal environment (economic, technological, political-legal,
sociocultural forces)
Task environment (government, local communities, suppliers,
competitors, customers)
Environmental Scanning
Universidad Autònoma de Barcelona – ADE – Tomislav Rimac
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 14 Scanning External Environmental Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 15 Issues Priority Matrix
Universidad Autònoma de Barcelona – ADE – Tomislav Rimac
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 18 It is a part of the external analysis when conducting a strategic analysis or doing market research, and gives an overview of the different macro-environmental factors that the company has to take into consideration It is a useful strategic tool for understanding market growth or decline, business position, potential and direction for operations PESTEL Analysis Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 19 PESTEL Analysis
Source: www.smartdraw.com
Universidad Autònoma de Barcelona – ADE – Tomislav Rimac
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 20 Identifying External Environmental Variables Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 21 Identifying External Environmental Variables
Universidad Autònoma de Barcelona – ADE – Tomislav Rimac
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 24 Social factors include the cultural aspects and include health consciousness, population growth rate, age distribution, career attitudes and emphasis on safety Trends in social factors affect the demand for a company's products and how that company operates
For example, an aging population may imply a smaller and
less-willing workforce (thus increasing the cost of labor)
Furthermore, companies may change various management
strategies to adapt to these social trends (such as recruiting
older workers)
PESTEL – Social Factors Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 25 Technological factors include technological aspects such as R&D activity, automation, technology incentives and the rate of technology change They can determine barriers to entry, minimum efficient production level and influence outsourcing decisions Furthermore, technological shifts can affect costs, quality, and lead to innovation PESTEL – Technological Factors
Universidad Autònoma de Barcelona – ADE – Tomislav Rimac
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 26 Legal factors include discrimination law, consumer law, antitrust law, employment law, and health and safety laws These factors can affect how a company operates, its costs, and the demand for its products PESTEL – Legal Factors Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 27 Environmental factors include ecological and environmental aspects such as weather, climate, and climate change, which may especially affect industries such as tourism, farming, and insurance Furthermore, growing awareness of the potential impacts of climate change is affecting how companies operate and the products they offer, both creating new markets and diminishing or destroying existing ones PESTEL – Environmental Factors
Universidad Autònoma de Barcelona – ADE – Tomislav Rimac
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 30 PESTEL Example – Business Schools
Source: www.emeraldinsight.com
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 31 PESTEL Example - Recycling Industry
Source: www.terrainfirma.co.uk
Universidad Autònoma de Barcelona – ADE – Tomislav Rimac
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 32 The advantage and disadvantages of SWOT analysis is that it is simple to come up with a list but far too easy to miss important external factors Coming up with the results of each factor is not enough, for the SWOT to be successful it is essential to carry out further analysis of all the possible threats and disadvantages to make sure that they have been planned for in advance SWOT vs. PESTEL Analysis Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 33 The advantages and disadvantages of PEST analysis is that while the external factors are looked at closely there are no internal evaluations carried out Due to the advantages and the disadvantages of using either one or the other methods it is a good idea to combine the two to help provide you with the best analysis It is good practice to perform the PEST and then use the results in the opportunities and threat section of the SWOT SWOT vs. PESTEL Analysis
Universidad Autònoma de Barcelona – ADE – Tomislav Rimac
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 36 DEGREE OF FORMALITY EXAMPLES SUPPORTIVE PILLARS Formal Institutions Laws Regulatory (coercive) Regulations Rules Informal institutions Norms Normative Cultures Cognitive Ethics Dimensions of Institutions Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 37 Institutional theory : a theory that studies how organizations can increase their ability to grow and survive in a competitive environment by becoming legitimate in the eyes of their stakeholders Core purpose - to understand how organizational structures and processes acquire meaning and continuity beyond their technical goals E.g., golden parachutes, CSR, same-sex benefits,… Institutional Theory
Universidad Autònoma de Barcelona – ADE – Tomislav Rimac
Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 38 Golden parachute - an agreement between a company and an employee (usually upper executive) specifying that the employee will receive certain significant benefits if employment is terminated (e.g., the employment termination is as a result of a merger or takeover) More recently the term has been used to describe excessive CEO (and other executives) severance packages unrelated to change in ownership (also known as a Golden Handshake) - include severance pay, cash bonuses, stock options, or other benefits Example: Golden Parachute Universidad Autònoma de Barcelona – ADE – Strategic Management I Tomislav Rimac – Fall 2013 39 Institutional environment : values and norms in an environment that govern the behavior of a population of organizations Institutional Environment
