WEEK 1-First Ideas

WELCOME TO INTERNATIONAL BUSINESS ENVIRONMENT

[MUSIC] The world changes, but do we? And more importantly for our forthcoming considerations, do
organizations change with the world? Be it by reacting to or indeed by promoting change. Take, as an
example from history, the case of the Swiss watch market. By 1970, the Swiss watch market held about
90% of world market share. Then, the advent of quartz based watches hit the market place, and by 1978
having not adopted the quartz based products or found a way to cope with changes, the Swiss watch
industry was in serious decline. With Japanese companies making headway into the market. By 1984,
the number employed in the Swiss watch making industry had declined from about 90,000 by about
two-thirds to 30,000. There had been a not dissimilar shrinkage in the number of watch making
companies which had been around 1,600. The irony is, that the quartz based approach had been
promoted by some Swiss swatch makers but conservative values held sway. The environment was
changing. And the potential impacts had not been analyzed properly. Interestingly, the Swiss watch
making industry had suffered a similar challenge 100 years earlier when mass production of watches in
the USA threatened the Swiss companies. Although that storm was weathered, causing them to focus
on their production techniques and quality issues in response. Another example of suffering at the
hands of a changing environment can be found in the case of Midland Bank. This UK bank as was, had
its origins in 1836. And by 1934 had become the largest deposit bank in the world. Today, it doesn't
exist. An international expansion strategy saw a link up with the Crocker Bank in the USA, which was
a disaster as the new environment and culture had not been assessed well enough. And then, the UK
recession of the early 1990s, compounded by huge mortgage debts and loans and a property price
collapse, produced vulnerabilities and it was swallowed up by HSBC. Now, a common sight in the
streets of UK cities and towns, where Midland banks had once been. Other once household names have
fallen by the wayside. Compaq, Woolworth's, Pan American World Airways, Pan Am, TWA, another
airline, and many more. In your country, I'm sure you're able to think of names that once you were very
familiar with, but are no more. Or, to a lesser or greater degree, were challenged by a changing
business environment. With greater competition, particularly on a more global scale, changing
customer tastes and preferences, price, and cost pressures, and changes in the life cycles of their
products and services. Here, we consider some approaches, some models, adopted by organizations to
help manage the challenges presented
by changing business environments. In week two, we considered the impact of a range of factors
referred to as PESTLE factors. Political, economic, sociocultural, technological, legal, and
environmental. We also consider an organization's strengths, weaknesses, opportunities, and threats
through a SWOT analysis. In week three, we progressed to consider the nature and characteristics of
products and services. In so doing, we investigate the product life cycle, what's known as the Boston
Box. And Ansoff's Matrix, which looks at what to do when a product or service needs to be rejuvenated
in its marketplace. In week four, we look at the work of Michael Porter, particularly his five forces
model and his strategies for competitive advantage. Each of our sets of considerations is accompanied
by explanatory slides, readings, quizzes, activities including reflective activities to help reinforce
learning. We start by setting a context and an international one of that by looking at what it is that
organizations do. Transforming resources as inputs into outputs for consumption. And we also look at
organizational cultures, which impact upon that process. Again, we reinforce the learning with readings
and other activities. [MUSIC]
INTRODUCTION

[MUSIC] There are many management theories and management models. Consultance, academic
thinkers and organizations themselves identify ideas and theories and ways of doing things. Sometimes
new things, sometimes existing things engaged with in different ways. Those things, different as they
may be, have a commonality in that they are all set in a context, indeed, many contexts. If those
contexts were set in stone, not changing, life as a manager in an organization would be relatively
straightforward. With little change to worry about and the comfort of predictability. Unfortunately,
organizational life is not like that. The world is dynamic, complex, fast-changing, and increasingly so.
This is where the notion of theories and models can play a significant role in helping managers to deal
with analyzing what is going on. Why what has happened, has happened, and what might happen in a
range of future scenarios. Looking back into history you reveal a virtual treasure trove of examples of
organizations being impacted by their changing environments. And finding ways of managing their
affairs in new and different ways. In the 1940's, the UK War Department faced issues concerning
where and how to situate anti-aircraft guns. And, what was the safest speed merchant ships should
journey at over the Atlantic Ocean? The government adopted scientific operational research models.
Stephen Geary, an architect, but also an entrepreneur, saw potential prosperity in death. With London
fast running out of burial space, he analyzed the competitive environment, saw an opportunity, and
formed the London cemetery company. And opened a number of sites around London, including the
famous High Gate Cemetery. As public styles and preferences changed over the years, he adapted the
burial plots to reflect styles. Discoveries in the pyramids in Egypt led to a popular taste for Egyptian
architecture. And so, he offered chambers and mausoleums reflecting Egyptian influence. The USA
government's New Deal following the 1930's Great Depression presented challenges to businesses,
with greater union rights and employee protections, causing businesses to have to change. The
Industrial Revolution in the UK and wider Europe in the late 18 th century brought with it changes,
presenting challenges to organizations and their managers. The Silk Road from China to West Asia
promoted trade with Europe and Africa. In more recent times, changing business environments have
presented both challenges and opportunities. Before the growth of the Internet, many air travel flights
used to be sold through travel agents. New companies, illustratively Ryanair, adopted online sales and
ticketing with enthusiasm, and successfully sold. Social media organizations spotted how the Internet
could contribute to both people's personal lives and to marketing initiatives by businesses. This came
from analyzing the environment, the changing contexts. This is what we concern ourselves with.
Analyses of environments, whether internal and/or external. We engage with models which can help us
with such analyses. Porters 5 Forces, Generic Strategies for
Competitive Advantage, PEST and SWOT analysis, Product Life Cycles to cite some. The context for
our analyses have been impacted by a growing international bank drop, not least through globalisation.
Trade flourishes between countries, and across and between continents. Money can be moved around
the world at the press of a button. An initiative in one country years ago would probably have been
restricted to that one country. Now, it could spread across the world, and sometimes very quickly. To
enable this to make sense of our analyses, we start by considering what it is that organizations and their
managers do. And thereafter, the international contexts and their influences and consequences.
[MUSIC]
INTERNATIONAL CONTEXTS
[MUSIC] International contexts, opportunities and challenges impact upon organizations and the
people working in and with those organizations. Employees, suppliers of resources and customers and
consumers of organizational outputs. Here, we consider some of the matters to be taken into account as
backdrops against which later application of analytical models take place. Key to this Is an appreciation
of what drives globalization. Understanding those drivers can help in understanding how to analyze the
international context and interpret the results of the analyses. A recognition of the drivers can help in
shaping strategy and thereafter adapting and amending strategy in light of changes that take place,
resulting in a differing blend of drivers. [MUSIC]

CASE STUDY
United Airlines Case Study

This case scenario relates to the American airline company United Airlines. Of course, the term
American refers to the company’s parentage as such, and its ‘head office’, based in Chicago, Illinois.
But it is in fact international in its operations: worldwide - global. It has other offices around the
world, with a presence in many countries in all the continents. And yet when it started as a mail (postal)
airline in 1916 (as another company) it was local in regions within the USA. It was not until 1928 that
it developed passenger services on any scale, following amalgamations with until 1928. It was not until
1983 that it acquired international routes. And yet in the here and now, it has large-scale global
operations. Clearly, since its inception, much will have happened in the world, resulting in influences
impacting upon the nature and scope of its operations. And, given the increase in speed of change
within the business world, the influences arising from those changes have the potential for greater and
faster impact if not identified – preferably proactively rather than reactively – and acted upon and
managed.

This case scenario focuses on the multi-faceted passenger market. It is multi-faceted in that United
Airlines’ management has identified different types of passengers, with different demands, needs and
expectations. This is commonly referred to as segmentation and is necessary if the company is to be
able to manage in a fiercely competitive and increasingly complex environment.

Task

Access the case scenario:

http://businesscasestudies.co.uk/united-airlines/responding-to-a-changing-external-business-
environment/united-airlines.html#axzz4W1qka7Qf

Read through it and note the segments United Airlines has identified. Link these to the possible
influences that have caused particular segments to arise. Are they rooted in changes to demographics?
Aspirations? Business needs, holiday (vacation) needs of travellers? To what degree do available
finance and/or disposable income impact upon the segments. After that, think about how changes in the
world – the business/market environment – might impact upon the segments in the future. Will some
disappear? Will now ones replace them? Will there be additional ones?
When you have captured you thoughts contribute them to the forum and share them with others.
Compare your thoughts with those of others, and reflect upon whether you would alter your original
thoughts in light of ‘other’ lessons learnt.

Factors Driving Moves To Global Strategies

[MUSIC] So let's have a look at the factors driving the move towards global strategies. After all, they
don't just appear. Somebody doesn't wake up one morning and say, I think it's a good idea. Let's do
global strategies. There are drivers because of the way in which the world is changing, the way in
which consumers are changing, and organizations are changing. First all, there are some market factors.
There's a move towards homogeneous market needs, global customers, product lifecycles, they just
seem to be getting shorter and shorter. Also the idea of transferable brands and advertising and the
internationalization of distribution channels, really, quite genuinely, that shrinking world. There are
also competitive factors not surprisingly linked to those market factors. There's a competitive
independence, a degree of competitive independence among countries. There are global moves and
transitioning of competitors. And then, of course, if you know that your competitors are going to be
undertaking global moves, we need to look for opportunities to pre-empt those global moves by
competitors and perhaps do it ourselves. Try and find ways of getting in first. Another set of factors
influencing the move towards global strategies, there are environmental factors, such as falling
transportation costs, the improvement in communications particularly e-communications, government
policies. And government policies will clearly shape, certainly influence, but often shape the way in
which organizations move. Technology change, for many organizations that will be one of the greatest
influences. There are understandably economic factors, you can often get worldwide economies of
scale in manufacturing and/or distribution. Often there's a steep learning curve. You can get
efficiencies through worldwide sourcing. And of course, there are significant differences in country
costs. And with those country costs, if you can go to a country at relatively low cost to yourself, of
setting up there or working with somebody there, you could benefit perhaps from cheaper labor cost,
material costs, less distribution costs. And all of that will be linked to the idea of rising product
development costs. And maybe you want to be moving somewhere else with a global strategy to at
least limit, to the best that you can, the product development costs. [MUSIC]

Globalization and Internationalization

[MUSIC] People tend to use the words globalization and internationalization freely and in ways which
suggest that they're synonymous and interchangeable. In fact, they are different, and it's important to
understand the differences. Globalization, as a word, has no one unique definition but the definitions
offered are unified by a common theme. That theme reflects, as academics Ian Britain and Chris
Worthington put it, the process of integration on a worldwide scale of markets and production. This
leads to a breakdown of national boundaries and the emergence of quite literally a global marketplace.
Internationalization on the other hand sees nation states being linked by trade and the movement of
resources. Internationalization can bring about agreements to regions. With regionalism, bonding
nation states through trade agreements. As in the case of the European Union and it's single market.
And ASEAN, the Association of Southeast Asian Nations, promoting economic growth and other
political and social objectives. [MUSIC]
Hofstede's comparison of National Cultures
Let's look more closely at Hofstede's Comparison of National Cultures. Hofstede's work looked at
national cultures, obviously because that's what we are exploring at the moment, but in the context of
the particular attitudes, the mindsets associated with people's characteristics and how those
characteristics influence and impact upon as we're talking about organizations, upon events in the
workplace. Hofstede came up with five dimensions of culture and went on to measure how people in
different countries vary in their attitudes to each of the dimensions. One of the dimensions is power
distance, and we'll look at that in more detail in a moment. A second one is what Hofstede referred to
as uncertainty avoidance. A third one, individualism versus collectivism. A fourth one, masculinity and
femininity, and long and short-term orientation. Clearly, having identified those five dimensions, we
should now explore each of them in turn. First, the power distance dimension culture. This is all about
the extent to which less powerful people, unfortunately on occasions we have to talk in hierarchical
terms and in it degrees of influence terms, the extent to which less powerful people in organizations
accept the power is not distributed evenly. There are some countries, according to Hofstede research,
around the world which accept inequality just being the norm. Illustratively, Hofstede research shows
Malaysia, Mexico, Venezuela, China, France, and Brazil. And of course, if you then translate that into
the workplace it has huge implications for the way in which those organizations are managed and the
way in which they function. There are other countries, again according to Hofstede research, which are,
should say that they don't quite like this idea of inequality and they certainly don't really accept it, and
they include Australia, Great Britain, Sweden, and Denmark. If we look at the uncertainty avoidance
dimension culture, well here, this is where, again according to Hofstede research, it's about the extent
to which members of a particular culture feel threatened by ambiguous or unknown situations that
they're worried about the lack of certainty. Of course, some people will readily accept ambiguity and
tolerate it, and in response they'll improvise or they'll use their initiative. Some others, they require
instructions, they need to be told what to do and in fact they expect to be told what to do. Illustratively,
according to Hofstede research, countries tolerating ambiguity and uncertainty include the USA, Great
Britain, Sweden, Denmark, and Brazil. On the other hand, the ones which are less tolerant of ambiguity
and uncertainty want more precision uncertainty include Japan, Korea, a number of Latin American
countries, and some Mediterranean countries. If we look at the individualism versus collectivism
dimension, let's see what we discover there. Well, first of all we have to define what we mean by
individualism and collectivism. Individualism relates to societies where ties between individuals are
loose. Not quite completely standalone as individuals, but certainly more towards the end of the
spectrum. Collectivism on the other hand, relates to societies where people are more cohesive, more
integrated, and very often from the moment they're born they bond within strong cohesive groups
embracing loyalty and fidelity. Hofstede research suggests that the country is reflecting more towards
the individualism end to the spectrum include the USA, Great Britain, Australia, Canada. On the other
end of the spectrum reflecting collectivism as we defined it, some Asian countries and a number of
South American countries. The masculinity and femininity dimension culture is interesting. It would
appear at the outset that maybe it's being a little stereotypical but it's not quite as we might imagine it.
Masculinity as a term in Hofstede research applies when gender roles, be they applied implicitly or
explicitly, are assigned to males reflecting that macho approach being tough, being assertive, often
seeking material rewards that has to be something in it for me, and to females reflecting tenderness and
quality of life, more perceptive, more intuitive. Femininity in Hofstede research is used when we look
at the quality of life, tenderness, and be that implicitly or explicitly again, assigned, and this is the
interesting aspect not in the stereotypical division but to both males and females. Undoubtedly and if
we think about people we know there are some males who certainly are macho, but there are others
who show a slightly different approach to their lives, be their working lives and/or personal lives. And
also some females who don't necessarily fall into what we thought was going to be the stereotypical
description perhaps or in themselves assertive so it can apply to both males and females. Illustratively
in the context of how we've just defined masculinity, the countries in Hofstede research which reflect
that masculinity include Japan, Austria, Germany, China, and the USA. In the Hofstede research those
reflecting femininity, again in the context that we've defined it, Sweden, Norway, Netherlands, and
Denmark. What we should also do, and I place these in long and short-term orientation dimension, and
we might just want to linger on this for a moment or two to make sure that we really grasp the essence
of what it's about. Again, Hofstede research, let me quote it, "Long-term orientation culture reflects a
fostering of virtues towards future rewards - in particular perseverance and thrift." A short-term
orientation culture, again to quote it, "reflects a fostering of virtues related to the past and present - in
particular respect for tradition, the preservation of 'face' and honor, and of course, in many societies
fulfilling social obligations. " And those societal norms will translate into the workplace. Hofstede
research suggests that illustratively countries reflecting a longer-term orientation include China and
Japan, and those reflecting a short-term orientation include Great Britain, Australia, Canada, and the
USA.

SUMMARY WEEK 1
And so, what we have engaged with is a backdrop, a context of international influences, which help
shape how organizations plan and manage. The influences emerge from the political environment,
economic environments, both macro and micro, sociocultural influences. Technological change. Legal
considerations including requirements. And the increasingly influential, ethical, and ecological aspects.
All that is challenging both individually and collectively. To help make sense of it all, we should turn
to models which have been shown to help with this. Identifying good models and engagement with
understanding, applying, and analyzing those models is our next step along our path forwards.
WEEK 2-Analysing the External Environment

Analysing the External Environment- Introduction

[MUSIC] Any organization, commercial, government, not-for-profit, social, is likely to be impacted,

sometimes greatly, sometimes to a lesser extent, by factors in its external environment. The external
environment being the big wide world in which it exists and operates. Some of those factors may be
closely linked to its operations, those having an immediate impact. And others which are more general,
linked to the contextual environment. Any one organization, whilst it's located in an external
environment with other organizations, is actually located in one particular position. And that position
impacts uniquely on that organization. After all, organizations are located in different places
undertaking different business activities and with different products, services and customers. Even if
one organization is remarkably similar to another, its managers will invariably view the environment
differently to managers in other organizations, and draw different conclusions about the impact and
consequences of the external environment. An environment, let's not forget, which is turbulent and ever
changing. If we accept that this is the case, ongoing analyses of the environment makes plain common
sense bringing a number of benefits. Including identifying those influences, bringing about change,
anticipation of opportunities and threats. Enabling managers to acquire greater understanding over the
external environment and facilitating better planning and ongoing management. And it would make
sense to also identify and assess the organization's strengths and weaknesses in the context of how the
ever-changing environment might impact upon it. To help in doing all this, there are a number of
techniques which are available, and have been shown to be very useful. Key amongst those techniques
are PEST analysis, sometimes with its scope extended to be called PESTLE, and SWOT analysis.
PEST, or PESTLE analysis, is about examining the external environment in the context of factors
impacting on an organization in the areas of political, economic, sociocultural, and technological
influences. Increasingly, the impact of legal and environmental factors are being analyzed, extending
PEST to PESTLE. A further subanalysis sometimes takes place at the local, national and global levels,
leading to the acronyms Long PEST or Long PESTLE. Indeed, through the inclusion of whatever an
organization thinks is important in its environment, and perhaps ethical and demographic aspects, the
acronym might be presented with the letters extended in different orders. SWOT analysis is another
useful technique. This helps the managers of an organization to identify and understand its strengths
and weaknesses and to establish the opportunities open to it and the threats it faces. From an
international perspective, the airline industry might be seen as an appropriate setting against which to
set the ideas of PESTLE and SWOT analysis. Take the example of Ryanair. Originally a small low cost
airline, it was faced with the challenge of entering an airline market dominated by established big
players. It started in 1984, flying one route between Waterford in the Republic of Ireland to London
Gatwick with one 15-seater airplane. It has grown enormously since then. Profits after tax in 2010 were
305 million euros and they've since grown to be over 1.2 billion euros in 2016. It's achieved its growth
through a constant analysis of its external and internal environments. Looking at the changing business
environment, identifying opportunities and threats, and being aware of both its strengths and
weaknesses. The Brexit referendum vote in the UK in 2016 has been constantly analyzed and
evaluated. And Ryanair has been developing strategies to alleviate the potential impact. It faces other
periodic challenges associated with, for example, air traffic control strikes, and has developed ways of
engaging with such challenges. Another example may be found in HSBC, the international bank. It
operates in many countries around the world. Its operations will be impacted by government policies
and regulations in the countries in which it operates. It will be affected by changing economic
conditions, and moves towards increased mobile banking using technology. The international
environment needs to be constantly analyzed and evaluated in the context of the bank's strengths and
weaknesses. Other organizations operate internationally, some on a large scale, others on a very small
scale. But all are impacted to a lesser or greater degree by the changing environment. And much better
to be proactive rather than reactive. I recently purchased some furniture from a small UK based
manufacturer. They use UK labor, but many of the materials are from other countries. And issues
associated with currency exchange rates have at times impacted them both positively and negatively.
On one occasion they produced an operating profit, but adverse movements in exchange rates caused
the final profit to actually be, unfortunately, a loss. Clearly, we should explore the analytical models.
Here, we explore the nature and applications of those techniques in some detail. And in so doing we
consider PEST in a little more detail first. [MUSIC]

PESTLE ANALYSIS
[MUSIC] PEST, PESTLE, STEEPLE, whichever acronym is used to reflect the fact that's being
analyzed. As analyses, they are undoubtedly useful to organizations. The core analysis makes sense. A
further analysis is also useful. This involves analyzing the factors at local, national, and global levels,
turning the acronym PEST into LoNGPEST. The local level is the area, the city or region, in which an
organization operates. The national level is the home country in which the organization is based, often
where its headquarters are based. The global level refers to anything outside of the local and national
spheres. It's important to understand the differences between the terms international and global. An
organization operating in and being influenced by the global level of its external environment will often
be trading in another country. Thus, the organization will be impacted by its own domestic laws and
culture, but also by those of the countries it's trading in. International as a term tends to reflect issues
that occur between nations. Global as a term tends to cover many of the issues which through
globalization tend to affect all parts of the world in similar and simultaneous ways. Let's take a closer
look at a framework for LoNGPEST analysis through a template. An appropriate template should
capture at a minimum political, economic, sociocultural, and technological influences, and categorize
them into local, national, and global levels. The extension to PESTLE, involving legal matters and
environmental issues, makes sense. So let's identify some typical influences. We can look at some
typical political influences, perhaps deregulation policies, taxation policies, although they would
connect with economic influences as well. Health and safety regulations, they could result from
government intervention. Public expenditure limits, particularly if you're dealing with health
organizations or local authorities, state governments. And environmental legislation and green policies
inspired by government, motivated by government. But again, they would have a crossover link with
the environmental matters. Stability of government itself, that's really important. Typical economic
influences might include interest rates, the rate of inflation. Are we in a period of boom or a period of
recession? And levels of disposable incomes. Do people have more money in their pocket to spend, or
less money in their pocket to spend? And materials and labor costs. And finally, perhaps
unemployment levels. High unemployment levels will clearly have an influence, as will low
unemployment levels. Typical socio-cultural influences might include changes in demographics, a
younger population, an aging population, or perhaps both. Changing lifestyles, more leisure time. And
the levels of education, lots of degree-educated people or not. And changing consumer preferences.
What about attitudes to work-life balances? Some typical technological influences could include, well,
progress in scientific discoveries. We wouldn't have got anywhere if we hadn't had those.
Improvements in telecommunications. The impact of technology on, first of all, production, then on
supply chains, and on delivery to consumers. Typical legal influences could include, obviously,
corporation law, company law, employment law. Codes of conducts, which are often voluntary, but are
in a sense quasi legal. Consumers' appetite for litigation. Some countries, consumers just want to take
you to court if they possibly can. And then in some countries where you have a federal and a state
relationship, federal versus state conflicts. And we mentioned it before, taxation laws which are under
economics but are also a consequence of legal influences. Typical environmental influences could
include, well, climate change. These days, everybody seems to be talking about climate change,
whether they believe in it or not. They're talking about it, and that clearly has a influence on companies'
policies and actions. What about issues connected to water supplies, and then to energy supplies? And
overall, the view on ethics, ethical standards within corporations. [MUSIC]

PESTLE ANALYSIS CASE STUDY

Let's have a look at the Pestle analysis for Rolls Royce. Remember, Pestle. Originally, we start with P-
E-S-T and then we add the L-E, and we look at that in more detail in a moment. What you're about to
see a) it's a non exclusive list of factors, these are the ones that jumped into our minds initially and b)
note how many of them are of course interlinked, they're not actually stand alone. To remind us what
we mean by Pestle, P for political, E for economic, S for sociocultural, T for technological, L for legal
and E for environmental. If we start now by having a look at the political influences, some typical
political influences which might influence the Rolls Royce business, would include, for example, the
aspirations of governments to improve the commercial infrastructure and tourism through air traffic, I
think particularly in larger geographical regions and, of course, governments taxing air travel. A
number of governments have put tax premiums upon air travel. Indeed some of them linking them to
the different classes of travel: economy, premium economy and business class travel. Economic
influences. Well, of course, there's the general economic circumstances in general. What's going on,
what's happening to the economy? Is it at a boom time? In which case people have more disposable
income and also businesses, organizations perhaps looking for greater activity, and so there'll be more
travel, particularly air travel, but, of course, it could be vice versa if it's not a boom time. Also, they
may have links with the tourist travel as well. Additionally, if you're living in good economic times,
then more businesses are likely to be more willing to invest in new technologies and that applies to
airplane companies and aircraft manufacturers, including engine designers and manufacturers. In terms
of sociocultural, this is all about the demographics, the changing demographics, and if you think about
it, we talk about a global world now. We say the world is getting smaller so there could be more people
wanting to travel around the world. The younger people, who maybe have a little bit of time on their
hands between school and university, some people looking for gap years, you've got too as what they
refer to as silver-haired retirees, who maybe have some disposable income in their pockets and also
more time on their hands and want to travel the world. Having said that, another important aspect
within the sociocultural element is potential problems with anti-airplane pressure groups that will link
with the environmental elements as well. Some technological influences, again, perhaps, linking with
the environmental aspect to show that they are interlinked. There are pressures to have new
technologies, which certainly improve power, but also emissions, reducing emissions, reducing noise,
lower energy consumption. All of those, if you get them right, could impact, hopefully positively if you
do it the right way, upon competitive advantage. Something else. Technology wise, well, e-
communication modes, the advancements that are taking place there. Some business people in
particular now might be saying, do we really need to spend that money on air travel? Could some of
those meetings take place not face to face in person to person sense, but through all sorts of e-
communication modes? Some legal influences. Safety legislation, absolutely paramount, increasingly
noise legislation, power legislation, and the emissions legislation. Once again we're seeing that these
aren't standalone. They do link with other elements. The environmental element, well, emissions and
noise legislation. We've spoken about those. We've referred to those already. You've got a number of
environmental pressure groups growing now. Then, because E in the environment also subsumes the
word ethics, very importantly and quite rightly so, ethics in the conduct of business is becoming even
greater. We're looking here at a Rolls Royce Pestle analysis and Rolls Royce was investigated in 2016-
17 for alleged corruption, but I'll say no more about that at this moment in time. Now, what we've seen
here is a non-exclusive list of factors and it may be, in your considerations, that you came up with
others and that's absolutely fine. Do remember, of course, that over a period of time, factors may
disappear. They may wane, they may have less influence, but, of course, other ones may actually
increase in the degree of influence that they have, and also other new ones, which weren't there before,
might actually appear in the future.

SWOT MATRIX ABC

[MUSIC] The external environment offers opportunities to organizations, but also presents threats. It
makes sense to identify and evaluate these. At the same time, if an organization internally has
weaknesses, it may not be able to take advantage of opportunities, or just not be able to cope with the
changes happening all around it. Of course, internally it is also likely to have strengths, and these
should be identified and evaluated, and taken advantage of. The identifications and evaluations of each
of these are often aided by use of a matrix referred to as a SWOT matrix. Capturing an internal,
external analysis. Some credit the development of this tool to Albert S.Humphrey in the 1960s. And
since that time, it has proved to be a really useful tool to a whole range of organizations, as they plan
for and manage their activities and operations. The matrix captures the strengths, weaknesses,
opportunities, and threats, and analyzes them by their location, internal or external, and by their nature,
harmful or helpful. Of course drawing up such a template is one matter, populating each of the
quadrants is another. So, to populate our quadrants let's take the example of the idea of developing a
new recycling facility. Look at the strengths, the weaknesses, the opportunities, and the threats. Well,
let's look at the opportunities first. Well, it may be that in the market there are recycling facilities
elsewhere, but they're currently limited and demand for recycling is high. That's clearly an opportunity.
There may also be, you never know, the possibility of by-products. Well, the strengths to enable us to
do this, take advantage of this opportunity. Perhaps we've got a very experienced management team
and we've also got sound relationships with suppliers and consumers. But, of course, there may be
some weaknesses. This expansion will not come at a very low cost, there could be high startup costs
involving a degree of capital expenditure and, maybe, the recruitment of expensive specialized staff.
And, of course, constructing a new facility is going to take a degree of time. And of course ultimately,
in the longer term, there could be some threats not least because government may take a different view
to regulations and scrutiny and may pass new laws to that effect. [MUSIC]

THE IMPORTANCE OF THOROUGH ANALYSIS

[MUSIC] In undertaking a PEST analysis, it's important to be rigorous. Many checklist exist to help in
doing this. The Chartered Management Institute, the CMI, suggests that you should identify the most
important, the most relevant issues and then decide who should collect and how. This involves
identifying the sources of information and setting about gathering that information. Findings should
then be analyzed and placed in the context of strategic options. And all of this should be disseminated
to relevant parties. At the same time, the SWOT analysis should be undertaken and analyzed in the
context of the PEST analysis. Of course, we must always remember that doing all of this on just the
one occasion is not enough as the world is ever changing. Just as the analyses are completed, the world
will change. And thus, the analyses will be impacted. Oh dear, managing is such a challenge! [MUSIC]

WEEK 3-Analysing the Immediate Competitive

Environment
ANALYZING THE NEAR ENVIRONMENT
[MUSIC] Any product of service goes through a natural life cycle. That cycle could be short, some are
fashioned clothing, for example, or much longer, airplane engines, or televisions. The life cycle starts,
develops, matures, becomes very mature, and then declines. Of course, it may be that the particular
product of service starts but goes nowhere. And disappears from the market very quickly costing the
seller lots of money. Think about some examples from yesterday and even today. Where has the
typewriter gone? It was superseded by word processors but they, in turn, were quickly over taken by
PCs and then laptops. Laptops are now having to compete with tablets. Video Recorders and Players
for home use were once all the fashion but were overtaken by DVD players. There are those who
would say, DVDs have certainly passed their sell by date with online services now replacing them.
Plastic records were replaced by CDs, and they too are rapidly being replaced by downloads and other
online services. Conventionally, it's suggested that there are five stages in a product life cycle.
Introduction, Growth, Maturity, Saturation, and then unfortunately, Decline. The global dimension has
added to the significance of the product life cycle. Competitors can now enter markets more quickly
once they've found a way in and gain a foothold, and then sometimes almost a stranglehold. The
international context has caused what we're perhaps seen as stable and predictable product life cycles to
change dramatically. With often shorter life cycles and more dangers lurking in the introduction and
growth stages, making new products and services more vulnerable. For these reasons alone, it would be
worth investigating the theory, nature, and application of the product life cycle. Another important
reason for doing so, is that it helps an organization to understand the impact on profits and cash flow at
any one stage in the cycle. On a chart, the five stages can be represented against the horizontal access
for time, and a vertical access for money. Remember, the stages are introduction, growth, maturity,
saturation, and decline. During the introduction stage, sales may be very low, but will start to increase
during the growth stage, stabilizing during the maturity stage, but tending to start to decline towards the
end of saturation period, and then declining completely. Following the sales patterns, with low sales
during the introduction stage, profits may actually be losses. And because of expenses, will of course
always be lower than sales. But by the decline stage, profits fall away and may turn into losses. The
cash flow follows a similar pattern with negative cash flows during the introduction stage and even the
growth stage sometimes. But they're after increasing although lagging behind profits because of cash
having to be spent in advance, and costumers paying at some point in the future. By the decline
stage,cash flow is decreasing rapidly. Marketing strategies play a major role in helping organizations to
generate better sales figures in each of the stages of the life cycle, with consequences for sales, profits,
and cash flows. As long ago as 1970, Bruce Henderson, from the Boston Consulting Group, developed
what is now a much used and much valued approach to categorizing products and services in different
stages of the life cycle. This approach is formally called the Boston Consulting Group Matrix, and the
Boston Box for short. It relates the rate of market growth to relative market share. During the
introduction stage, as sales take off but market share is still low, the product or service may be seen as
a question mark as its future is still uncertain. As the question mark product or service starts to grow
and gain market share, it becomes a star. If market share growth continues by the maturity stage, the
star becomes a cash cow with high profits and strong cash flow. When products and services are
declining, they may be seen as being dogs with no additional sales growth and low market share. Of
course, increasing sales and market share growth rates will have an impact on the product life cycle. In
particular, to avoid declining sales, actions should be taken before the end of the saturation stage. In
1987, Igor Ansolf, developed his customer growth matrix, sometimes called Ansoff's Growth Matrix.
This matrix suggests that an organization's attempts to grow are linked to whether it markets new or
existing products, in new or existing markets. The analysis, which we look at in detail later, generates a
series of potential strategies which take account of the positions of a product or service on the product
life cycle at any one time, and its position within the Boston Box. The strategies revolve around first,
market penetration, selling more of existing products or services into existing markets. A second
strategy is market development, selling existing products or services into new markets. A third
approach, a third strategy is product development, selling new products into existing markets. The
fourth and final strategy is diversification, selling new products or services into new markets. These
three models have proved useful over a long period of time to organizations as they seek to compete,
survive, and prosper in the turbulent environment, that is the modern business environment. Let's
investigate further, starting with a reading concerning the product life cycle. [MUSIC]

BOSTON BOX REVIEW

[MUSIC] The Boston Box seeks to relate and analyze and review on an ongoing basis the rate of
market growth of a product or service to its relative market share. Here, we look at the logistics and
significance of this type of analysis focusing on question marks, sometimes referred to as problem
children, stars, cash cows and dogs. The matrix considers growth rate low to high on a vertical axis and
relative market share from high to low on a horizontal axis. The growth rate is the degree to which the
numbers of potential customers in the market are growing or not. The relative market share looks at
relative to competitors, does the product or service being sold have a high or low market share.
Question marks problem children are products or services with a low share of a high growth market.
They consume resources that generate little in return in way of both profits and cash flow. Efforts to
stimulate acquisition of greater market share suck in large sums of money. Eventually, the question
arises as to whether progress will be made or not. The key but hard questions are, which products and
services should receive more investment and which should be allowed to fade away? Stars of products
and services to be found in high growth markets with a relatively high share of that market. Stars tend
to generate high amounts of value, at least initially. The challenge is to maintain and increase that value
turning them into cash cows and preventing them from the coming stars to fall from the sky. Cash cows
are low growth products or services but with a high market share. This tends to be mature, successful
products, as such there is relatively little need for investment. That said to maintain continuing profit
and associated cash flow they need to be managed well, on an ongoing basis, and to prevent them
going into decline too soon. Products and services which are dogs are those with a low market share in
unattractive low-growth markets. They may generate enough cash to break even, but they're usually not
worth investing any more money in. After a while, dogs are usually closed down or sold off. And so
having gained a broad understanding of the Boston Box, a reading will provide further insight.
[MUSIC]
ANSOFF’S GROWTH MATRIX
[MUSIC] Ansoff's product market growth matrix seeks to help in the analysis concerning how to grow
in the context of whether to market new or existing products in new or existing markets. There are four
broad categories of ways of approaching stimulus to growth. One is market penetration. Another is
market development. The third is product development. And the fourth, diversification. Let's look at
how these four approaches are captured within the matrix. The matrix considers growth rate low to
high on the vertical axis and relative market share from high to low on a horizontal axis. The growth
rate is the degree to which the numbers of potential customers in the market are growing or not. The
relative market share looks at relative to competitors does the product or service being sold have a high
or a low market share. Market penetration refers to a strategy focusing on selling existing products into
existing markets. It pursues four main objectives. One is to maintain or increase the market share of
current products and services. This is often achieved via a combination of advertising, sales promotion
and competitive pricing strategies. Another is to achieve a dominance of growth markets through
aggressive promotions and pricing strategies which makes competitors wince with pain. Yet another is
to provide incentives for existing customers to buy more or perhaps through loyalty reward schemes. A
market penetration strategy, has the attraction of focusing on markets and products already known well,
along with well known customers and competitors. Little new market research is required. Market
development, concerns a growth strategy with a focus on selling existing products into new markets. A
typical examples of this being implemented include, new geographical markets. Perhaps exporting an
existing product or service to a new region or country. Changing some characteristics of an existing
product or service or product packaging. Developing new distribution channels perhaps transitioning
from retail outlets to online retailing. Using different pricing policies to target different customers or
new market segments. On a comparative basis, market development is riskier than market penetration
as new markets are involved. Another strategy is to introduce new products into existing markets.
Product development. This is invariably challenging as it may demand development of new
competencies and to develop modified products to appeal at least hopefully appeal to existing markets.
It requires research and development and innovation. A clear understanding of existing and changing
customer needs in a very competitive market being first to market. This strategy is well suited to a
situation where products or services need to be differentiated in order to remain competitive.
Diversification involves marketing new products or services in new markets and is as a consequence
inherently very risky. Given that the market will to a degree be unknown no matter how good the
market research. To be successful, a diversification strategy must be clear about the benefits to be
gained and understand the risks. Where risk and reward trade offs are well assessed, diversification can
bring great rewards. Now that we know at least a little about Ansoff's customer growth matrix, we can
consider a view on the practicalities of how the strategies might be implemented. In so doing, we look
at Jenkins customer centric idea. Jenkins suggests, that in the contexts of existing and new customers
and existing and new products and services there are four broad types of customer growth options. One
option focuses on existing products and services and existing customers. Customer loyalty has a major
role to play here. Loyalty cards and discount vouchers and codes for existing customers are often used
here. The idea of customers extension is concerned with bringing new products and services to existing
customers. Product and service development is often used here. Some organizations extend the
development idea to diversification but this can be expensive and risky. Customer acquisition is about
expanding the number of customers for existing products. An appropriate way forward here is to
expand customer numbers in home markets where there is growth for expansion. If not, international
markets may be considered. Although again, this might be expensive and risky. Customer
diversification involves selling new products or services to new customers and is very risky. It can be
expensive in that often a new process sometimes involving new technology is required. Using new
technology however, can be advantageous as expansion into new markets with new products has been
shown to be successful through the use of e-commerce, breaking down international borders and
cultural barriers. It is often easier to retain existing customers buying existing products and services
than to embark on expensive risky strategies. And so, with insights into Ansoff's and Jenkins ideas, the
next step involves finding out more through a short reading. [MUSIC]

REINFORCING KEY ELEMENTS

[MUSIC] We've looked at a number of models, which have been shown to be of use to organizations as
they seek to make sense of the ever-changing and constantly challenging business environment. An
environment full of competitors, customers who change their minds, and a seemly endless stream of
new products and services entering the market. The product life cycle of any product or service must be
understood as there are implications for customers, sales, profits, cash, and strategies to cope with
business environment changes which may impact on the organization's competitive position. This is
increasing the case in a world which has become smaller in some senses through globalization. The
product life cycle's five stages of introduction, growth, maturity, saturation, and decline, steer, indeed
sometimes dictate, the financial position of an organization. The Boston Box categorizes products and
services on the base of the rate of market growth and volume of market share. It uses groupings of
question marks, those problem children, stars, cash cows, and dogs. The customer growth matrix sets
out four different options for achieving sales and customer growth. These are concerned with the trade-
offs and balances between existing and new products and services and existing and new markets. In
assessing the trade-offs, including a clear understanding of both the financial and risk related
consequences is necessary. Additionally, the aspects of customer loyalty, customer extension, customer
acquisition, and diversification must be examined in detail. Although the models may appear to be
stand alone, that is far from the truth. They are interconnected through interdependencies and those
relationships, are ignored by organizations at their peril and invariably to their cost. [MUSIC]

WEEK 4- Analysing the Wider Competitive

Environment
INTRODUCTION
[MUSIC] Organizations exist in arenas which are competitive in that they, to state the obvious, to a
lesser or greater degree, face competition. This applies to all types of organizations, but is especially
the case for commercial organizations. It makes sense to examine and analyze the nature and scope of
competition in the industry or sector in which an organization is situated. And once the analysis is
complete, and findings available, the question arises of what to do about matters. Of course, as ever, all
of this is easier said than done. However, there are two helpful models, two analytical tools, which
have proved really useful to organizations as they seek to do all of that. Both were developed by
Michael Porter. One is referred to as Porter's 5 Forces, and the other as Porter's generic strategies for
competitive advantage. The 5 Forces Model identifies 5 forces driving competition. The state of
competitive rivalry between existing and potential competitors in an industry or sector, the threat of
new entrants, the threat of substitute products or services, the bargaining power of buyers and the
bargaining power of suppliers. If any of the last four change in any way, the state of competitive rivalry
is also likely to be impacted upon and changed. The impact of globalization has been to heighten
competition in many sectors. Technology, with its ability to cross borders, has generated different
states of competition in many areas. The banking sector, social media, call centers, support activities,
even sport has been revolutionized. For example, US based and UAE based organizations now own
Premier League football clubs in England. And countries, such as China, are able to lure established
football players away from European clubs with the promise of both high financial rewards and a
prospect of breaking new boundaries in a new environment. The EU and the USA introduced an open
skies policy in 2008 designed to open up the air travel market between the USA and Europe to easier
entry, and thus, at least in theory, to introduce the possibility of competition. International activities
have also helped in diversifying risk, spreading those risks more widely. Improved supply chains, and
more demanding customers, especially in the context of price, have also changed the competitive state
of play. For example, for those who drink alcohol, champagne has traditionally being viewed as the
drink of choice. Sparkling wine has started to overtake champagne sales, changing the state of
competitive rivalry. Many governments have sought to open up traditionally monopolistic industries,
water, electricity, gas, telecommunications to competition through privatization, leading to a very new
set of dynamics. To operate successfully in an industry or sector awash with competition, organizations
should identify, adopt and implement a relevant and appropriate competitive strategy. Porter suggests
that the strategy adopted is the outcome of an analysis, looking at whether competition should be based
on cost or added value, and whether a mass market or a niche market is the focus. The analysis will,
according to Porter, lead to the adoption of a strategy based on cost leadership, differentiation, cost
focus or differentiation focus. First, we explore the nature and application of the 5 Forces Model.
[MUSIC]

PORTER’S FIVE FORCES

[MUSIC] The five forces model captures five key forces that drive competitive power, supplier power,
buyer power, threat of substitution, threat of new entry and the state of competitive rivalry. The model,
is in essence, a simple one. Indeed, it could be said that once dissected and examined, it's a predictable
model. Simple and or predictable, it doesn't matter. It's a proven powerful tool for understanding where
power lies in the context of competition in an industry or sector. If an organization understands the
strength or weakness of its current competitive position relative to other competitors, other players in
the market, life might be just that little easier to deal with. Supplier power is concerned with the power
of suppliers to drive up the prices of your inputs, making them more expensive. Buyer power, on the
other hand, is about the degree of power of your customers to drive down your prices. The threat of
substitution requires an assessment to the extent to which different products and services can be used in
place of your own. The threat of new entry is concerned with the ease, or otherwise, with which new
competitors can enter your market. Competitive rivalry, this is about the strength of competition in the
industry or sector. You can assess each on the diagram by, for example, using a series of plus, that's
positive signs, with saying one positive sign for very little impact, increasing up to three or five to
reflect difficult situations. You can then start to explore how to readjust the balance in your favor.
[MUSIC]

Porter's Five Forces continued

So let's look at the influences on Rolls-Royce arising from the application of Porter's Five Forces
model. Remember, what we're trying to do is establish the state of competitive rivalry in the industry in
which Rolls-Royce operates. What we'll see here are some of the influences, not necessary being
exhaustive list, certainly not an exclusive list, it's non exclusive. Let's start with the threat of new
entrants. Well if you think about it, designing and manufacturing airplane engines aero design, it's
challenging, it's difficult, it's costly. The barriers to entry are actually high. There's the specialized
nature, advance nature of design. Research and development costs a fortune. Customer confidence is
really important after all, if you're sitting on an airplane and you look out the window, you want to
have some degree of assurance that, that plane isn't going to stop working or indeed drop off, that will
lead to market reputation brand. And to make sure that happens there's needs to be extensive testing for
the safety of engines and that in itself is very costly. Barriers to entry are really high. If we think about
substitutes, well actually for an airplane engine itself at present at least, in the future that might change
who knows, the present, there's no real substitute on an airplane for an aero engine. And the threat of
substitutes particularly in the context of global travel threats substitute for air transport are very low. Of
course it may well be that some business travel is reduced because organizations and their staff are
finding new ways of using e-communication in particular to not have to do those face-to-face, person-
to-person meetings. Also, in some geographical locations, if you think about China, if you think about
linking the U.K. to continental Europe, the height, the growth of high speed train travel will clearly
have an impact upon air travel itself and that may have an impact upon the design, manufacture, and
sale of airplane engines. Having said that, there seems to be not just a growth in high-speed train travel,
but there seems to be an almost incessantly increasing demand for air travel. Think about the
bargaining power of buyers, well I guess the reality is there are low numbers of potential buyers of new
aircraft because there's a finite number of airline companies. In that context, what that means is that the
buyers of aircraft engines are essentially price makers not price takers. As price makers, they can have
a great deal of influence on driving down the market price for new engines, and indeed the power of
buyers has increased in recent years as many airlines have become global carriers. And if we think
about the bargaining power of suppliers, well in this industry, suppliers have very limited power. There
are a large number of very small suppliers and being small as is the norm, doesn't equate with power.
Engine manufacturers themselves have been quite innovative in their approach to sourcing strategies
with a number of them not just having one single sourcing strategy, but adopting dual or even more
sourcing strategies and that limits supply power still further. Having said that, there are some suppliers
who do have a degree of influence and a more a relatively more powerful, and that's because they're
involved in the supply of high-specification, electronic-controlled equipment, absolutely essential to
the functioning of a good effective engine.

COMPETITIVE STRATEGY
[MUSIC] In seeking to adopt an appropriate competitive strategy, Porter uses a matrix of generic
strategies. The matrix looks at the competitive scope, broad target and narrow target, and the use of
cost or leadership as a source of competitive advantage. Cost leadership is about selling a standard
product or service to a mass market. Differentiation concerns selling an added value product or service
to a mass market. Cost focus attends the idea of selling a low cost product or service to a niche market.
Differentiation focus deals with selling an added value product or service to a niche market. And
deciding to adopt cost leadership, differentiation or cost focus, we need to find out just a little bit more
about each. In deciding to focus on cost leadership, the organization is taking an active decision to
compete on price rather than particular features. The context for such an approach is an imperative for
economies of scale. Efficiency is key, as is close control of operating costs. Do be aware however that
low cost does not always achieve extra sales. Consumers must still perceive the product or service as
value for money. Differentiation is about offering a product or service which is distinct through its
characteristics and or utility. Porter himself sees it as something unique beyond simply offering a low
price. This can promote customer loyalty and facilitates the opportunity to charge a higher price. Cost
focus targets a narrow market segment. Some companies target age groups. Others, types of leisure
pursuits. And others, geographical locations. [MUSIC]

SUMMARY
And so we see just how useful both of Porter's models can be. The Five Forces model analyzes the state
of competition and informs organizations about what's happening now and what influences their future
strategies. And the Generic Strategies model enables decisions to be made about the focus of a future
strategy. And as always in this ever changing world, just when you think you've done all you need to
do and have completed your analysis and your selection of a future strategy, it will all change as,
paradoxically, the one constant in life is change. [MUSIC]