Example Solution Manual Essay

PESTEL analytic thinking is a efficacious starting bear witness for environmental analysis, encouraging students to think wide. express 2.2 provides an initial PESTEL analysis of the respiratory tract attention, giving students the general idea. The first enquire asks for additional elements in the analysis. For sheath, at a lower place Political, you efficiency add subsidies for local airports under Economic, you tycoon add the maturate of Asian economies and under Legal, you could add the tr demolition towards airline privatisation. A expose danger to sidle up is of long lists of thrusts or influences that atomic number 18 too awkward for practical action. So the second head teacher challenges students to assess which of the forces be credibly to be of close to signifi plentyce in driving assiduity change. hither students should fair(a)ify their views in terms of the evidence from the past and the believably touch on in the rising of whatsoever finical (a) influence. The end-chapter case example on the European brew sedulousness in any case asks students to do a PESTEL analysis. metaphor 2.2ScenariosScenarios dish out students think long term and actually broadly present the adult male Economic Forum and its members be looking a ten ahead, and thinking rough geo-economics in general as well as exclusively the grocery in a narrow sense. The question asks almost whether companies take a leak more than influence everyplace g everywherenment policy or geo-economics. It so goes on to ask about how companies cogency influence g all overnment. This as well obviously touches on issues of corporate social responsibility, pursued in Chapter 4. Companies believably do have more influence on policy coordination, scarce the issue is which governments they should be talking to (the unite States, China?) and whether it is except governments that upshot (United Nations, International M angiotensin-converting enzymetary F und, World Trade Organisation?).They should also cut into how they push aside best influence governments, individually or collectively finished, for example, the World Economic Forum or the Business Roundtable, the group of CEOs of leading Ameri so-and-so corporations. To some(prenominal) extent, the antecedent is probably to be exercised negatively by lobbying against and literary criticism ofproposals for financial re-regulation. It is worthwhile also asking about the influence these corporations can have themselves on geo-economic shifts some Western caller-out headquarters are shifting away from their home-countries, for example, the global headquarters of American civil design conglomerate Halliburton go to Dubai and Swiss/Swedish engineering company ABB moved its global robotics duty headquarters to Shanghai. Illustration 2.3The Steel IndustryThe trade name diligence provides a fairly easy-to-understand case of rapid structural change, and champion led by persis tence actors. Understanding how the leading companies are qualification an impact helps to counter a risk of determinism in Porterian analyses in an some other(prenominal) words, a sense that organizes are bring inn rather than changeable. The first question particularly invites a comparative analysis using the radar-plot barge ind in border 2.5. The radar-plot talent look roughly like the following, with the continuous lines indicating rough positions in around 2000 (10 years earlier than the illustration) and the dotted lines indicating positions in 2010.The comparative positions exalted coruscation the increase world-beater of suppliers such(prenominal) as the iron ore producers (negative) the high power of sophisticated buyers, somewhat mitigated by the declining power of the Big cardinal (mildly positive perhaps) and the beginning of decreased rivalry (positive) as the larger distinguish name companies such as Mittal try to consolidate the assiduity. It efficie ncy be state that the new compliance threat has stabilised and level(p) turn offd, though continue investment by Chinese players may increase rivalry peculiarly if they turn to overseas markets. Overall, comparing the size of the two radar plots over succession suggests only a marginal change in party favor of the steel producers. With examine to the second question, the acquisition strategies seem driven by the desire to shrink rivalry by cut the number of players and wind d induce capacity.You faculty ask students what is necessary to make this proceed here you might highlight the importance for reduced rivalry of both simultaneous cuts in capacity investments by, for example, the Chinese and strong barriers to new entry. With regard to the third question, victory in raising barriers to entry (e.g. by technological change) and inreducing rivalry (through continued integration) would make the fabrication more harming. Vertical desegregation strategies into op enings of supply (e.g. iron ore) would help too. A strength negative is probative progress with substitute materials. This depends on technological progress, and in that locationfore providing a utilitarian link between the Porter 5 Forces and PESTEL. Illustration 2.4Chugging in the kind-heartedness SectorThe aim of this Illustration of course is to show that industry structure analysis is relevant to not-for-profits as well. Indeed, charities appear ruthlessly hawkish hence the High Street chuggings. The first question points to at least three of the Porterian forces as causing problems (i) in that location are low barriers to entry, with constant recreation of the industry by new charities (ii) in that location is strong buying power on the part of local authorities commissioning services (iii) on that point is intense rivalry beca drill of the number of competitors and tendency towards overlap and duplication of benignant services. In addition, they face substitutes i n the form of local authorities and other agencies performing services in-house, save at this point the trend in that respect was in their favour. The suppliers of funds donors have many alternative charities to give to. The mergers and increasing c erstwhilentration levels (the largest are growing fastest) imply growing industry consolidation. At the moment, the industry structure might be described as highly competitive, but at that place may be widespread advantages to it despicable towards a more oligopolistic situation. Illustration 2.5Cycles of CompetitionThe wisdom in outline theory has been that competitiveness is about cooking up a long-run competitive advantage and then defending it against competitors. The idea of cycles of competition takes a more dynamic view as to how competition in an industry leave work its way out over time. It also highlights the potentially destructive nature of competition (at least from the point of view of industry players) and the va lue of trying to avoid it. Indeed, a primaeval point is that these competitive cycles are not inevitable. Signaling to competitors, and interpreting the signals of otherscompetitive moves, can help avoid head-on competition. Retaliation (Section 2.3 under barriers to entry) is a key article of faith here, as are the basics of game theory (Chapter 3).With regard to question 1, Francotop might have slowed down or rebuffed entirely Deutschespitzes onslaught of the french market by retaliating hard against its initial move even though the youth niche was not so strategic to Francotop, a determined response there would have signalled the likelihood that attacking the onus French market would be so fiercely opposed that it might not be worth Deutschespitzes while even to try. With regard to question 2, Francotop would have been hard-pressed to avoid escalating competition in the business market. However, one possibility might have been for Francotop to direction on a particular negl ected niche (say the small firms segment). By signaling understandably through advertising or similar that this niche was the extent of their ambitions, Francotop might have bring forwardd Deutschespitze to concentrate on its best opportunities, leaving the French get on with their specialism in peace. Illustration 2.6Key deal How Much Does Industry Matter?This debate addresses an enduring source of fray in strategy seek, and allows students to review the importance of the contents of Chapter 2 (particularly the quin forces), at the same time as introducing the more internally think issues of Chapter 3 that follows. For Porter, industry matters a lot. The sceptic might argue he would say that, wouldnt he? After all, this is exactly what his training in industrial economics and the streamer growths of his consulting firm would favour. However, the important thing here is to recognise the extent of the inquiry he (and collaborators such as Anita McGahan) render upon to make their case. It is worth pointing out to students that strategy theories are more than just theories there is solid empirical research involved too. When meeting a new theory, students should get utilise to asking where is the research evidence? What the research seems to suggest is that an industry is not the be-all and end-all, but that choosing an inviting industry is a very intimately starting point in strategy industry accounts for about two-fifths of the explained variance in the Porter and McGahan account (leaving aside manoeuvre variables etc.).Turning to the precise question, the kinds of industriesthat influence members profitabilities more than others seem generally to be service industries (explaining the greater industry effects in the Porter and McGahan study than in Rumelts). But to go on from here, industry influences are close to promising to be strongest in highly competitive and mature industries. In such industries, sources of firm-specific variousiation are likely to be a couple of(prenominal), easy imitated and easily competed away, so making it hard to earn above-normal profits. At the same time, standard recipes for competing would have been established, so only the incompetent would perform substantially infra the norm (and competition should have eliminated most such incompetents by the industry maturity stage). These conditions would probably prevail in service industries such as hotels, restaurants and retail. Newer industries are likely to offer more telescope for innovation and contrastiveiation, and have someer commodity competitors and suppliers, so allowing persistent vari qualification in profitability. word picture QuestionsHiscoxHiscox is a specialist insurer in the Lloyds of London amends market. The company specialises in niche areas such as property and casualty indemnity for high net worth individuals and companies, as well as surmount against such risks as hacking, kidnapping and satellite damage. The video case is sort of complicated, so best viewed after a thorough working through of the chapter material. 1.The industry is facing more buyer power, with the scrape up of online price similitude sites. On the other hand, there is a process of consolidation with the bestride of consolidators (companies such as closure), who are acquiring weaker companies in order to build position.This is likely in the long term to reduce rivalry. Major failures such as that of the American giant AIG (American Investment Group) are likely to reduce rivalry too. It is clear that general recessionary pressures are also influencing the market at the time of the video, reducing demand and likely to make it more price-sensitive. 2.Hiscox has a specialist position, aside from companies like AIG or the general insurers that Resolution is trying to buy, and its power in its niche is reinforced by its home run (well known in the United Kingdom). It also has the advantage of having both an underwriting (issue of insurance policies) and investment business, which mean that Hiscox is protected from short-term cycles or crises in one partof the business, probably helping to buffer it from price competition in the short term too. assigning 2.1PESTEL AnalysisPESTEL analysis is a useful starting point for environmental analysis. Illustration 2.1 provides a model. A leisure of the basic template of illustration 2.1 can be provided to students who can then be asked to complete it for the forces at work in a particular industry. The danger is that long lists of forces or influences can be generated by this device. So the second question challenges students to assess which of the forces are likely to be of most significance in driving industry change. Here students should justify their views in terms of the evidence from the past and the likely impact in the future of any particular influence. See the discussion of the PESTEL for the end-chapter case on the European create from raw mate rial industry for an example. denomination 2.2Building ScenariosAssignment 2.2 requires students to focus on change in industry characteristics and competitive forces through the complex body part of scenarios. Guidelines for the weeion of scenarios are given in Section 2.2.2 it is recommended that students follow these, building both two or four scenarios for a given industry. The work through in Assignment 2.1 should provide the bases of identifying the key industry forces or influences which will enable them to do this. Some of the problems of scenario building should be emphasised to students Students may try to build in too many factors and, therefore, not be able to limit the number of scenarios. They may find difficulty in generating scenarios with a coherent and compatible set of factors. Some may be wary of having to exercise judgement and others will confuse judgement with hunch. rise to support a realistic debate that tests out assumptions and intentions against kn own facts and trends. A particularly useful exercise is to ask students to build scenarios for an industry for which there is a company case (or for their own industry/company if possible) and then to assess the companys strategic position in the light of the different scenarios (e.g. see the notes above on the create from raw stuff industry).One of the issues that might surface is the easeor difficulty with which scenarios can be constructed. It unremarkably emerges that scenarios are very much easier to construct where the number of key forces at work in an industry is relatively few. They are less easy to construct if the number of important forces is high because the number of variables the student is trying to traverse becomes too great. This, in turn, raises another issue. Scenarios are of particular use in uncertain environments as a means of helping managers to think through possible futures. However, hesitancy may arise for a number of reasons. If uncertainty arises b ecause of the unpredictability of a few forces, then arguably scenarios may be very helpful, but what if uncertainty arises primarily because there are a large number of forces at work to what extent are scenarios of use in such circumstances? There are a particular number of very important forces at work in the brewing industry but what of fast-moving hi-tech industries where there are many different forces at work? Assignment 2.3Five Competitive ForcesFive forces analysis is an absolutely fundamental technique in strategy. Section 2.3 should give students the ability to carry out a basic five forces analysis of any industry. They should be encouraged to make do all of the elements of each of the five forces so for example, under barriers to entry, scale and experience effects, channels, retaliation and so on. The radar-plot technique of Exhibit 2.5 should only be used as a summary once the full analysis is complete the danger is of it being used to swing the analysis. Students should be expected to do more than simply list elements they should understandably identify the implications (positive or negative) of each. The second question about conclusions for industry attractive force should underline the importance of disgorgeing out implications, rather than just listing. Assignment 2.4Comparisons between Industries and Over TimeThis assignment allows students to build on Assignment 2.3 in order to consider the investment implications of differences between industries and change over time. The assignment is a substantial one if relying on students own research. However, time can be saved if two case studies are used (e.g. brewing, pharmaceuticals or hi-fi, perhaps looking backwards atchange over the past three to five years, rather than change in the future). Similarly, students may save time by using the radar-plot technique (Exhibit 2.5), as in the discussion of Illustration 2.3. It is important to note the two follow-up questions. explicitly asking fo r justification helps students avoid the superficial analysis which is easy to do with five forces. Asking the question about investment helps students think about concrete implications, again something that five forces analyses a good deal neglect.By looking over time, students will learn to be cautious about investing in industries with declining drawing card. By comparing industries, students can also consider industry attractiveness in their diversification decisions, an issue picked up in Chapter 7. At the same time, it is worth countering the implications of five forces analysis with two thoughts Industries that are highly attractive are likely to have high barriers to entry, so the costs of entry may outweigh the benefits of entering. An industry that is becoming relatively unattractive may be neglected by competitors, and, if you enjoy a strong competitive advantage in that industry, it may still be a source of profit to you. Assignment 2.5Strategic GroupsThis assignment b uilds on the notion of strategic groups and strategic space outlined in Section 2.4.1 in the text. mannequin 2.8 provides an example of how the exercise could be carried out. This could, for example, be applied to the European brewing industry Key strategic dimensions might come under all of the scope or resource commitment characteristics in Section 2.4.1 for example, product range or extent of vertical integration. Possible key strategic dimensions in the European brewing industry might include geographic coverage, strength of brands, diversification, size of firm, type of distribution, and so on. Students are encouraged to draw more than one strategic group map if they believe that more than two dimensions are important.It is useful to ask them to consider the extent to which different bases of such maps give rise to similar or different configurations. They might find, for example, that however the maps are drawn up, some companies always tend to end up in the same groups. In other words, some companies may have a very similar set of strategic characteristics along many dimensions. Students are asked to examine thestrategic group maps to see if there are any under-populated white spaces in the industry. For example, in brewing, is there an probability for a giant specialist in making own brand beer for the large retailers? However, students should assess carefully why there are few competitors in any such white spaces. White spaces can often turn out to be dangerous black holes rather than attractive opportunities. Assignment 2.6Critical Success Factors and the Strategy CanvasIt is very likely that students will concentrate on success factors that are salient to them as consumers for example, the product ranges of a clothing retailer. Less visible elements, such as ownership by a diversified parent company, may be neglected. However, for a short assignment, this need not matter too much the essence is comparison in order to identify areas of (potentia l) competitive advantage. The key insight of a strategy canvas is to encourage competitors to compete where it is relatively easy to secure a significant advantage (Blue Ocean), and not of necessity to compete fiercely over the top-rated success factors if advantage can only be obtained at very considerable cost (Red Ocean). You can introduce less visible, but strategically significant elements after they have through with(p) their basic analysis. Integrative AssignmentFull Analysis of an Industry or a SectorThis assignment would be a demanding research project over a significant part of the course. It is however a very good test of students ability to apply tools to real data appropriately, as well as developing their research skills. Students will see it as practical and, if allowed a choice of sectors, relevant to their own interests. Good research resources are essential. As well as free web-based resources such as company reports, trade association statistics and some governm ent or supra-governmental (EU, UN) reports and statistics, students would likely need limited-access resources such as the business press and journals available through BusinessSource Premier, Factiva or Proquest, and reports from organisations such as Euromonitor, Key Notes and Mintel. Your institutions bibliothec will advise you on what is available to students and how proficient they are likely to be in using such sources. You would also want to exact studentson which industries or sectors to choose. Very broad industries for example, the world airline industry are likely to overwhelm students with data. It might be helpful to encourage focus for example, the airline industry in India, or similar. Industry focus also reduces the risk of plagiarism.There are many student assignments of a similar nature available for a fee on the web, and it would emphatically be wise to avoid allowing students to research the same industries in resultant years. Requiring a specific focus on particular themes (e.g. internationalisation) or some less common concepts (e.g. the strategy canvas, cycles of competition etc.) can also reduce plagiarism. Insisting on precisely citing sources for key data and points (through an end-note system or similar) makes simple plagiarism harder too, as well as being good practice. If allowed, students will find very helpful a couple of example assignments from previous years to guide them roughly on what they are supposed(p) to do. A report length limit of around 20002500 words would encourage students to focus on what is really important. Requiring an executive summary would also force students to consider what is really important and what are the key implications. Over a two semester course, this assignment could be stage one of a two-part appraisal regime the second semester could have as an assignment asking students to consider implications of the first part for the strategy of a particular company in the original industry or secto r. Case ExampleThe European create from raw material IndustryThis case focuses on the key techniques of PESTEL and five forces analysis that are central to this chapter. Full cases such as the pharmaceutical industry can be used develop students skills in seeing trends in industry data and drawing conclusions as to the likely impact of those trends on particular companies in an industry. PESTELHere it would be helpful to ask the students to draw on wider knowledge or research (you may have beer insobrietyers from many countries in your class). Depending on how extensive students additional research and thinking are, a wide-range of issues may be raised. To highlight some for the purposes of illustration Political government campaigns against drink drivingEconomic the rise of the Asian economiesSocial rise of beer expenditure in southern EuropeTechnological few clear in the case, but innovations around products such as ice-cold lager might be raised Environmental few clear in the case, but packaging issues are likely to be important Legal few clear in the case, but changes in licensing laws and permitted alcohol limits for driving are relevant. PESTELs can often seem somewhat inconclusive, so it is important to pull out key issues and conclusions. The increasing hostility to drinking (under P and L) and the rise of Asian economies and southern Europe (under E & S) seem particularly important trends. One way of drawing some simple conclusions is to assess the boilers suit balance (positive or negative) under each of the PESTEL headings in the case of the European brewing industry, most of the headings are likely to be negative. The Five ForcesThere has traditionally been a wide variation of industry structures across Europe. The United Kingdom is fairly competitive. Denmark, Holland, Italy, Belgium and France, on the other hand, have been in coterminous monopoly situations. However, with increasing exports and imports and cross-border acquisitions, national markets are becoming less protected. An interesting issue, then, is at what level to conduct industry structure analysis. If at a European level, the broad issues to consider under each of the five forces are as follows Buyers With more than one fifth of beer sold through supermarkets, and increasing revivify to own-label, these buyers are increasingly powerful (underline that buyers are not the ultimate consumers). Suppliers The high concentration of the packagers suggests that these are becoming increasingly powerful. Substitutes Wine is clearly a dangerous substitute.New entrants Internationalisation through M&A and increase trade is introducing new entrants into previously protected markets most countries see increasing imports (Table 2). Anheuser-Busch and SABMiller are two obvious new entrants into Europe. Students might be alerted to the potential threat of TsingTao and the other Chinese brewers. Although not prominent in the case, there is still the potential of small new brewers entering using micro-breweries or contract brewers (e.g. Cobra). Rivalry falling demand,international entrants and over-capacity obviously increase the scope for rivalry. However, note that sales values are rising, that innovation and branding can mitigate price-competition, that there has been a history of price-fixing cartels, and that leading players are attempting consolidation through M&A. It might be useful to ask the students to equality industry concentration ratios in 2000 and 2009 that is, the share accounted for the top three or five players (Table 3). As ever, it is important to draw conclusions. On balance, the European brewing industry does not seem attractive, and unlikely to become more so until the current round of consolidation is completed and brewers achieve greater supplement against their buyers and suppliers. Impact on Particular Brewing CompaniesThe three companies are elect to represent different types of player. AB InBev is the largest player, afte r a succession of spectacular mergers. It is remarkable how the company is withdrawing from fast-growing China and eastern Europe, however. Greene King is tiny in comparison to AB InBev, with just one key domestic market, the United Kingdom. However, domestic focus and its own pubs may be giving it a strongly defended local position. You might ask whether there are competitors who might be tempted to buy such a company. Tsing Tao is the wild-card here. It is strong in its booming home market, but it is also interested in moving overseas. But would it make Europe a priority region for expansion, or choose another market?