The environment

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For any strategy to relevant and effective it must consider its environment. At a macro-environmental level two models are used to assess its impact on strategic planning.

The PESTEL model looks at the political, economic, social, technological, environmental and legal environment. It is worthy to notee that each element affects each industry or sector to a greater or lesser extent depending on the circumstances

The Porters five forces model attempts to explain how industries become profitable. He identified 5 factors - buyer power, supplier power, competitive rivalry, new entrants and substitutes all of which helped determine the success of an industry.

Scenario planning is used to force managers to think about other market positions and pal for these possible eventualities. It is particularly useful in dynamic unpredictable environments.

Porters diamond suggests four factors that influence gaining success in a new international market.

Factor conditions for eg, human resources, capital, physical resources knowledge

Demand conditions

Related and supporting industries - the industries suppliers

Firm strategy and rivalry

Industry convergence

This is where industries come together to form a larger industry.

An industry is a group of firms selling similar products which can substitutes.

A sector extends the idea of industry into public services.

Industry convergence makes it difficult to analyse the environment. It has been suggested that converged industries to be analysed in terms of supply-led, demand or market-led, convergence in substitutes or convergence in complements. see pg 47.

Strategic groups

A strategic group is defined as a group of corporations that employ the same or similar strategies in a particular industry. Hunt discovered that some companies follow very different strategies when compared with other companies in the same market and classified uniform industry sub-groups based on their value adding chain.

NOTE

The concept of strategic groups affects sector analysis in various ways:

The influence of Porter´s Five Forces loses importance as strategic groups can have very different characteristics within an industry (e.g. big businesses have a much higher bargaining power with their suppliers when compared to small businesses, as they have a much higher quantity of orders).

The concept of strategic groups is more focused on the competition within a group. In these strategic groups decisive competition takes place, as the competition with other groups is of minor importance. For example luxury restaurants do not compete with fast food chains, tough they both belong to the same sector.