External Analysis
STM 3
Dr C Shambu Prasad, August 4, 2025
Contents
1. Your Strategy needs a Strategy - Martin Reeves
2. The Strategy Diamond – Hambrick and Fredrickson
3. External environment – General & Industry
4. Environmental analysis
5. PESTLE
6. Porter’s Five Forces and industry structure
YOUR STRATEGY NEEDS
A STRATEGY
Martin Reeves, Claire Love and Phillip Tilmanns
HBR 2012
SM Dr CSP 3
Strategies and Industry Structure
Oil Industry Internet software
• Few surprises • Frequent innovations and
• Predictable (geopolitical forces, companies
incomes, GDP etc.) • High pace, can change rapidly
• High entry barriers • CA reading and responding,
adopting to signals
• Different time scales, different
tools
BCG survey of 120 companies 10 major sectors - aware of need, but strategy suited to
predictable and stable environments
SM Dr CSP 4
Finding the Right Strategic Style
• Begins with assessment of your industry, style too
• Predictability
• How far into the future & how accurately can you forecast demand, corporate
performance, competitive dynamics, and market expectations?
• Malleability
• To what extent can you or your competitors influence those factors?
• Dairy industry examples
• Conventional only two categories – predictable and mutable
SM Dr CSP 5
Classical – Be Big
• Predictable but hard for your company to change.
• Five forces, growth share matrix analyses.
• Strategic planning as stand alone function- good analytical,
quantitative skills. Exxon Mobil, Shell – long term Demand and supply,
five years out to plan production capacity plans. (Coca-cola, Mars)
• Multiyear financial forecasts. Extraordinary events like Gulf or
Ukraine, Trump Tariffs war can dent plans
SM Dr CSP 6
Adaptive – Be Fast
• Classical strategy can become obsolete in weeks
• Constantly refine goals and tactics. Goal not to optimize efficiency,
engineer flexibility.
• Planning cycles less than a year – rough hypothesis than blueprints
• Fashion retailing – Zara, flexible supply chain – 1400 suppliers work with
designers and marketers. Can ship garment in 2-3 weeks (4-6 industry avg)
• If hit ramp production, else don’t lose much (15% mark down on inventory
vs 50% industry)
• Relationships among planners, designers, manufacturers.
• Competitive environment as given
7
SM Dr CSP
Visionary – Be First
• Know the future and predict the path to realizing it. Edison and
electricity; Jobs and smartphones (Nano!)
• Big bets … environment can be molded, goal clear not many options
open, time and plan
• UPS and online delivery – cross functional team, $ 1 billion a year to
integrate its core package tracking with web providers….by 2000 UPS
snapped 60% of e-commerce delivery market.
SM Dr CSP 8
Shaping – Be the orchestrator
• High growth industries, low entry barrier, high innovation rates –
demand hard to predict. A company can shift course through
disruption. Goal shape unpredictable environment to its advantage
• Short or continual planning cycles (Flexibility key)
• These organizations don’t just adapt; they actively collaborate with
other players (partners, competitors, customers) to co-create or
reshape the market ecosystem
• Focus beyond boundaries of own company, rallies ecosystem of customers,
suppliers, markets. Lobbying, partnerships
• Facebook vs Myspace. Opened its platform to outside developers in
2007. 2008, 30,000 applications 2010 (550,000).
SM Dr CSP 9
Avoiding the Traps
3 of 4 execs agree that they needed to employ different
strategies but largely used classical and visionary
1. Misplaced confidence: Can control uncertainty, 80% believed
that achieving goals depends on their own actions
2. Unexamined habits: 80% articulate a goal and analyse how
to get there. 70% value accuracy over speed of decisions
(environment fast moving), 90% develop annual plans
3. Culture mismatches: Company values efficiency and
elimination of variation
• Undermine opportunity to experiment and learn
• Being more thoughtful about metrics – industry youthfulness,
concentration, growth rate, innovation rate and rate of
technology change – all increase malleability
SM Dr CSP 10
Five Approaches to Strategy
SM Dr CSP 11
SM Dr CSP 12
Approach Unpredictable/ Driver Strategy Process Markets
Malleable
Classical I can predict it, but Be Big Analyze – Plan – Execute Top down planning, Oil, Cosmetics, Mature
I can't change it Big beats Goal: Sustainable Competitive actionable blueprints, markets with long planning
strict follow up horizons
small Advantage
Optimize Efficiency Shell, Mars
Adaptive I can't predict it, Be Fast Explore – Enable – Evangelize – Manage a portfolio of Fashion, Telecom
and I can't change Fast beats Exploit experiments. Empower Zara, Google, 3M
it people to experiment.
slow Goal: Build and renew serial
temporary advantage
Engineer Flexibility
Shaping I can't predict it, Be the Engage – Orchestrate – Evolve Shape the industry with Ecosystems, Software,
but I can change it Orchestrator Goal: Shape an industry early in others, but orchestrate Internet services, Emerging
the ecosystem markets
Create and its development with others
exploit Cooperate & Be flexible Facebook, Uber, Alibaba
Visionary I can predict it, and Be First Envisage – Build – Persist Envisage the end point, Automotive, Consumer
I can change it Be first and Goal: Create an industry by inspire and execute fast electronics
and persistent
capitalize applying a bold vision at the right Tesla, Apple, Ikea
time
Imagine & Stay course
Your Strategy needs a Strategy - Martin Reeves Andre de Wit & Peter Bassa (2019) 13
2. The Strategy Diamond – Hambrick and Fredrickson 2001 AME
What Makes Strategy Truly Strategic?
• “Most executives have a general sense of their strategy’s elements, but
they often haven’t thought rigorously about how the pieces fit together.”
• A good strategy is a central, integrated, and internally consistent set of
choices.
• These choices must reinforce each other; misalignment weakens execution.
• Trade-offs matter: choosing one arena, vehicle, or economic logic excludes
others—you can’t be everything to everyone.
• S – art of the general. Three Is – Intentional, informed and integrated
• Without coherence, even well-intentioned strategies become disjointed
action plans.
3. Understanding the Firm’s External Environment
• Affects competitive actions and responses firms take to outperform
competitors.
• Today’s external environment:
• Technological changes & continuing growth of information gathering and
processing capabilities
• Rapid sociological changes affect labour practices and the products consumers
demand
• Governmental policies and laws as well as financial regulatory systems affect
where and how firms choose to compete and increase the complexity of financial
transactions
The External
Environment
General Environment
Industry Environment
Competitor environment
The General Environment – PESTLE
• Firm has little ability to predict trends and events, can’t control
• 6 segments - demographic, sociocultural, political/legal, technological, economic, and global – PESTLE,
STEEPLE
• Demographic:
• observable population characteristics: levels and growth of age, density, sex, race, ethnicity, education, geographic region,
and income.
• Sociocultural
• values, beliefs, lifestyles of a society, women in workforce and diversity
• Political/Legal Segment
• How society creates and exercises power, including rules, laws, and taxation policies
• Technological Segment
• innovation and state of knowledge in industrial arts, engineering, applied sciences, Govt support
• Economic Segment
• characteristics of the economy, Interest rates, trade and budget deficits/ surplus, savings rate
• Global Segment
• influences from foreign countries, capital markets – GATT, NAFTA, RCEP, Tariffs etc.
• Environmental
• Firm’s footprint, energy consumed
The Impact of General Environmental Trends on Various Industries
PESTLE Analysis of Tata Steel: Insights from the
Narendran Interview (2025)
Factor Insights from Interview
- EU governments (UK, Netherlands) offer policy incentives and support for green steel- India’s policy
Political
support is emerging but still behind, no penalty for emissions yet
- Green steel costs $100–$300 more/ton vs. coal-based steel- High capital intensity and thin EBITDA
Economic
margins constrain green transition- Internal carbon pricing of $40/ton despite short-term EBITDA hits
- Strong push on diversity and inclusion: >100 transgender employees, women-only mining shifts-
Social
Employee and union sensitization to sustainability through leadership workshops
- Piloting breakthrough technologies like EASyMelt to reduce coke use and CO₂ by up to 50%- Supporting
Technological
carbon capture, utilization, and storage (CCUS)- Use of digital factories (WEF Lighthouse recognition)
- Navigating regulations on mining, workplace safety, gender inclusion, and decarbonization- Advocated
Legal
successfully for changes to labor laws for women shift workers
- Major emitter: steel sector = 8% of global CO₂ emissions- Initiatives: scrap-based steel plants, circular
Environmental value chains, biodiversity restoration at mine sites- India-specific sustainability push (e.g., Ludhiana scrap
plant sourcing/consuming locally)
4. External Environmental Analysis
to increase understanding of the general environment, firms complete an external
environmental analysis.
Scanning • Identifying early signals of environmental
changes and trends
Monitoring • Detecting meaning through ongoing
observations of environmental changes and
trends, Mayo Clinic in 1990s
Forecastin • Developing projections of anticipated
g outcomes based on monitored changes and
trends Ruchir Sharma Scenario planning
Assessing • Determining the timing and importance of
environmental changes and trends for firms’
strategies and their management
Creating the Environmentally Aware Organization
Successful managers must be aware of what’s
going on outside their company
Environmental Scanning
• surveillance of a firm’s external
environment to predict environmental
changes and detect changes already under
way
• Knowing your business and your customer
as well as keeping an eye on what’s
happening around you
Leading firms – Proctor and Gamble
(consumer spending) Caterpillar (EME)
Ram Charan, CEOs need to have perceptual acuity – “ability to sense what is coming before the fog clears”
Competitive Intelligence
• A firm’s activities of collecting and interpreting data on competitors, defining and
understanding the industry, and identifying competitors’ strengths and
weaknesses.
• News and Financial Platforms:
• The Ken, The Morning Context, Bloomberg, Reuters, Financial Times, The Economic Times, Mint
• Market & Industry Platforms:
• CB Insights, Statista, Crunchbase, PitchBook, Tracxn, Redseer, Gartner, Forrester
• Social and Professional Media:
• LinkedIn (company posts, hiring trends), X (formerly Twitter), Reddit (industry subreddits), YouTube
(company channels, reviews)
• Tech Tools:
• Google Trends, Semrush, SimilarWeb (web traffic), AlphaSense, Thinknum, Owler
• Public Databases & Reports:
• Company 10-Ks, Annual Reports, MCA filings, investor presentations, UN Comtrade, IndiaStat
SWOT Analysis
• Tried-and-true tool of strategic analysis
• S& W - internal conditions of the firm
• heightened concern with fitness, which is a threat to some
companies (e.g., tobacco) and an opportunity to others
(e.g., health clubs)
• Strengths May Not Lead to an Advantage
• Focus on the External Environment Is Too Narrow
• current customers, technologies, and competitors.
• Gives a One-Shot View of a Moving Target
SWOT is not a starting point —
• static assessment. doesn’t tell you much about the plot
it’s a synthesis. Use it after you
• Overemphasizes a Single Dimension of Strategy scan, monitor, and sense the
landscape.
• Toyota, excessive emphasis on cost control
4. Industry Environment
• An industry is a group of firms producing products
that are close substitutes.
• The industry environment is a set of factors that
directly influences a firm and its competitive actions
and responses:
• How companies gather and interpret information
about their competitors is called competitor
analysis.
• Understanding the firm’s competitor
environment complements the insights
provided by studying the general and industry
environments.
• 5 forces most used analytical tool for examining the
competitive environment.
Porter’s Five Forces Model
Forces that Shape Strategy
Key Idea: “How Competitive Forces Shape Strategy”
• “The job of the strategist is to understand and cope with competition.
….managers define competition too narrowly, as if it occurred only
among today’s direct competitors. Yet competition for profits goes
beyond established industry rivals to include four other competitive
forces as well: customers, suppliers, potential entrants, and
substitute products. ….all five forces defines an industry’s structure
and shapes the nature of competitive interaction
within an industry.”
• M Porter Harvard Business Review, March–April 1979, updated 2008
• industry structure determines average profitability
What are the five forces?
Five Forces from Tata Steel Narendran interview
Force Key Points (from Tata Steel Interview)
Threat of New Entrants High capital intensity and global supply chains
Low to moderate High switching costs, economies of scale, and brand loyalty
Technological and regulatory barriers to entry
Bargaining Power of large-scale mining operations provide some control over raw materials
Suppliers Use of lower-quality domestic coking coals reduces import dependence
Moderate Raw material beneficiation improves quality/cost
Reliance on global logistics for iron ore/coal
Bargaining Power of Buyers’ willingness to pay more for green steel is currently low in India
Buyers Significant market share in segments like auto steel (50%)
Increasing Strong Indian consumer brands (Tiscon) influence demand
Price sensitivity due to cost and competition
Threat of Substitute Limited substitutes for steel in infrastructure/mobility
Products Growing focus on scrap-based and green steel alternatives
Low to moderate Circular economy practices (repair, reuse, recycling) increasingly important
Emerging technologies (EASyMelt) reduce environmental impact
Rivalry Among Existing Several large, closely matched players: SAIL, JSW Steel
Competitors Ongoing capacity expansions
High Low differentiation and price competition
Strong competitive moves
Global and domestic pressures
The General and Industry Environments
• An analysis of the general environment • In combination, the results of these three
focuses on environmental trends and analyses influence the firm’s:
their implications. • Vision
• An analysis of the industry environment • Mission
focuses on the factors and conditions • Values
influencing an industry’s profitability • Choice of strategies
potential. • Competitive actions and responses it will
• An analysis of competitors is focused on take to implement those strategies
predicting competitors’ actions,
responses, and intentions.
Preparation for next class
• Group 2 to review “Transient Advantage” submit electronically by
9pm on Aug 5th
• Everyone to read and come prepared for the case “Reliance Jio”
• All groups to email a 1 page summary of key issues from case facts by
10 pm on Aug 5th (avoid using AI tools and read and discuss case
amongst yourselves)
• All submissions to have naming Gp2_Reliance.docx etc. Improperly
named files will not be opened, graded