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Block 15: Strategic Analysis - Coggle Diagram
Block 15: Strategic Analysis
Introduction to Strategic Analysis
External and Internal Analysis:
Strategic analysis involves understanding a company’s
strengths and weaknesses
(internal) and the
opportunities and threats
it faces (external). This helps in determining the company’s current strategic position and future potential.
Macro-Environmental Analysis (PESTEL):
The PESTEL framework
categorizes environmental factors into six key areas:
Political, Economic, Social, Technological, Ecological, and Legal
. This analysis helps identify opportunities and threats in the broader environment.
Industry Analysis (Porter’s Five Forces):
Porter’s Five Forces
model analyzes the competitive forces within an industry, including the
threat of new entrants, bargaining power of suppliers and buyers, competitive rivalry
, and the
threat of substitutes
. This helps determine the industry’s profitability and attractiveness.
Internal Analysis (Resource-Based View and Dynamic Capabilities):
The
Resource-Based View (RBV)
focuses on a firm’s internal resources and capabilities, arguing that sustained competitive advantage comes from unique, valuable, rare, and inimitable resources.
Dynamic Capabilities
extend this by emphasizing the firm’s ability to adapt and renew its resources in response to changing environments.
(VRIO)
Macro-Environmental Analysis: PESTEL
"Scenario Planning, Institutional Environment Analysis, Global Business Environment"
PESTEL Framework:
The PESTEL framework helps organizations analyze the external macro-environment by categorizing factors into six areas: (PESTEL is a framework for macro-environmental strategic analysis. The analysis considers both the market environment and the non-market environment – providing a lens through which to view and analyze the complex external environment.)
Economic
: Economic growth, exchange rates, inflation
Example: A recession reduces consumer spending on non-essentials, lowering demand for premium smart home gadgets.
Social
: Demographics, cultural trends, health consciousness these affect supply and demand and could create opportunities
Example: Growing concerns about digital surveillance make customers prefer devices with offline functionality and no voice-recording features.
Technological
: Technological advancements, R&D, patents
Example: A breakthrough in battery life (e.g., solid-state batteries) allows the startup to differentiate its product with "1-month charge" claims.
Ecological
: Environmental issues, climate change, sustainability "how pressing these matters are and how seriously they are considered"
Political
: Government policies, trade restrictions, tax policies
New data privacy laws requiring local data storage (e.g., EU’s GDPR) force the startup to invest in regional servers, increasing costs
Legal
: Labor laws, consumer protection, competition laws relaxed laws create opportunities while existing ones create new sets of challenges
Example: Patent lawsuits from competitors delay the product launch by 6 months, forcing costly design workarounds.
Advantages of PESTEL:
It provides a structured way to analyze the external environment, helping managers anticipate threats and opportunities.
Easy to apply and simple
extracting Os and Ts easily
Limitations of PESTEL:
It can be overly simplistic, and managers may overlook key issues or become complacent after conducting the analysis hence macro analysis should be done regularly
repetitive and relatively generic "subjective so bias"
neglects the internal perspective (SW)
It also ignores firm-specific internal capabilities or micro-level factors.
Focus on trends without assessing likelihood, timing, or impact, which may waste resources if some risks are less likely to occur in some areas of the
unknown unknowns which are risks that are so implausible that they could have not been predicted by everyone beforehand, such as Covid-19 pandemic
Greatest value
Helps managers anticipate and adapt to macro-country environmental changes that impact business strategy.
Ensures firms are proactive rather than reactive to market shifts.
Key Benefits for Competitive Advantage:
Risk Management
– Prepares businesses for economic downturns, regulatory shifts, or technological disruptions.
Innovation & Market Expansion
– Identifies opportunities before competitors do.
Regulatory Compliance & Reputation
– Ensures alignment with government policies, avoiding legal risks.
PESTEL analysis helps you to highlight and explore areas where you may be able to take advantage of opportunities or recognize and manage threats.
Example Applications:
Tesla & Environmental Regulations:
Tesla leveraged strict climate policies to dominate the EV market.
TikTok’s Adaptation to Social Trends:
Rapidly grew by identifying shifts in consumer behavior toward short-form video content.
Industry Analysis: Porter’s Five Forces
"Competitive Forces Model, Industry Attractiveness Analysis, Market Structure Analysis"
Porter’s Five Forces Model:
This model analyzes the competitive forces within an industry "The greater the strength of the forces, the less profitable the industry is. The weaker the forces are, the more profitable the industry is"
Threat of New Entrants
: Barriers to entry, such as economies of scale, capital requirements, and brand loyalty.
Bargaining Power of Suppliers
: The ability of suppliers to influence prices and terms.
Happens when:
there are few suppliers, the cost of switching from one supplier to another is high, it is hard (or impossible) to substitute the supplier’s goods, the customer is a small or infrequent purchaser
Bargaining Power of Buyers
: The ability of customers to influence prices and demand better quality.
Happens when:
buyers have lots of alternative sources of supply, there are low switching costs for buyers, product or service is not deemed as essential by buyers
Threat of Substitutes:
The availability of alternative products or services that can fulfill the same need.
Happens when:
buyers are willing to change their habits, buyers have low switching costs to the new category
Competitive Rivalry
: The intensity of competition among existing firms in the industry higher intensity can hinder profits
Happens when:
there is low industry growth, there are many firms in the industry, market growth is slow, products are similar
Using Five Forces Analysis:
This analysis helps firms understand the profitability of an industry and identify strategies to improve their competitive position. For example, firms can work to reduce supplier power, increase barriers to entry, or differentiate their products to reduce the threat of substitutes.
Limitations of Porter’s Five Forces:
The model is backward-looking offers no recommendations as what to do and assumes that industries are clearly defined, which is increasingly less true in today’s interconnected markets.
It also overlooks the internal capabilities of firms, which can be crucial for competitive advantage.
Static and neglects collaboration and repetitve
Greatest value
Provides insights into where to focus efforts to increase market power.
Helps managers understand industry dynamics and shape strategies to defend against competitive pressures.
Key Benefits for Competitive Advantage:
Industry Attractiveness
– Determines if an industry is worth entering or investing in.
Strategic Market Positioning
– Helps firms weaken external threats and strengthen their position.
Profitability Optimization
– Identifies pricing power and ways to increase bargaining leverage.
Example Applications:
Apple’s High Supplier Power Mitigation: By designing its own chips (M1, M2), Apple reduced supplier dependence (previously reliant on Intel).
Netflix’s Defense Against New Entrants: By investing in original content, Netflix made it harder for new streaming services to compete. Netflix initially thrived by exploiting low threat of substitutes (DVD rentals) but later faced disruption from new entrants (Disney+, Amazon Prime
Amazon’s Competitive Rivalry Strategy: Amazon’s vast logistics network and pricing strategy intensify industry competition, keeping rivals under pressure.
Internal Analysis: Resource-Based View (RBV) and Dynamic Capabilities
"Value Chain Analysis, Dynamic Capabilities, Competitive Advantage Pyramid" "Resource-Based View (RBV), Core Competencies Model, Strategic Resource Evaluation"
Resource-Based View (RBV):
RBV focuses on a firm’s internal resources and capabilities, arguing that sustained competitive advantage comes from resources that are
Valuable, Rare, Inimitable, and Organized (VRIO).
Valuable
: The resource must create value for customers and help the firm exploit opportunities or neutralize threats.
Rare
: The resource must be unique and not widely available to competitors (Patents and copyright help companies to maintain rarity. Strong brands also create rarity, as only that company’s product is perceived to fill the needs of the customer. Prime locations, staff capabilities)
Inimitable
: The resource must be difficult for competitors to copy or substitute. there are three criteria for this:
Causal ambiguity:
Competitors often struggle to identify the specific causes behind a company's success. Without understanding what drives success, replication becomes impossible.
Culture and history:
A company's unique historical path and the culture that has developed over time are impossible to replicate.
Complexity:
Resources and capabilities that involve intricate interlinkages between departments, processes, or partnerships are hard to replicate.
Organized
: The firm must be organized to effectively exploit the resource
Greatest value to managers
Helps managers identify and leverage key internal resources to create a long-term advantage.
Focuses on firm-specific strengths rather than external market conditions.
Key Benefits for Competitive Advantage:
Strategic Resource Allocation – Helps managers decide where to invest (e.g., R&D, brand equity).
Sustainability of Advantage – Ensures competitors cannot easily imitate what makes the company successful.
Performance Optimization – Aligns internal resources to maximize profitability and market dominance.
Example:
Google’s Search Algorithm
: It is valuable (dominates search), rare (proprietary technology), inimitable (complex AI models), and organized (integrated into Google’s ecosystem).
Coca-Cola’s Brand Equity
: A strong brand name that is difficult for competitors to replicate.
Tesla’s Battery Technology
: Cutting-edge battery innovation gives Tesla a sustainable advantage over traditional automakers.
Advantages of VRIO:
Identifies Sustainable Competitive Advantage
Focuses on Unique Internal Strengths
Takes into account the internal capabilities
Helps Allocate Resources Effectively
Disadvantages of VRIO:
Limited Focus on External Factors
Difficulty in Measuring "Rarity" and "Inimitability"
Does Not Address Execution & Market Fit
Resource-Centric, does not focus on execution "mostly applied in tech and innovation seeking companies"
Hard to Apply to Startups and Small Businesses
Static Nature: Assumes resources retain value over time, ignoring market dynamism (e.g., BlackBerry's keyboard tech becoming obsolete despite being VRIO-aligned)
Measurement Challenges: Difficulty quantifying "inimitability" or "organization" (e.g., Tesla's brand value is intangible and context-dependent)
External Blindspot: Fails to account for disruptive innovations that devalue existing resources (e.g., Blockbuster's infrastructure became irrelevant post-streaming)
Tacit VS Implicit knowledge
Tacit knowledge is intuitive and experience-based, hard to document but valuable in decision-making and innovation.
Explicit knowledge is structured and codified, making it easier to store, share, and apply systematically.
Dynamic capabilities
Dynamic capabilities refer to a firm's ability to adapt, integrate, and reconfigure its resources and competencies in response to changing environments. It goes beyond simply having valuable resources (as in VRIO) and focuses on how firms continuously renew their competitive advantage.
Sensing Opportunities & Threats → Identifying market changes, new trends, and potential disruptions.
Seizing Opportunities → Allocating resources to take advantage of new opportunities.
Transforming & Reconfiguring → Constantly reshaping the business model, processes, and strategies to remain competitive.
Apple: Continuously innovates by sensing new trends (e.g., wearables), seizing opportunities (Apple Watch, AirPods), and transforming its ecosystem.