The Strategic Business Integration (SBI) Process

9/7/2016
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The Strategic Business Integration (SBI)
Process
Part 1‐A
ANALYZE THE ENVIRONMENT
Business Policy (BUSI 4940)
College of Business , University of North Texas
The Industry for Assignment 1
Retail Department Stores
NAICS 45211
9/7/2016
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The Strategic Business Integration (SBI) Process
SBI
Parts 1A & 1B
SBI
Part 2A
SBI
Part 2B
SBI
Part 3A
SBI
Part 3B
Analyze the
External
Environment of
the Firm
Analyze the
Strategy of the
Firm
Analyze the
Capabilities of
the Firm
Identify Strategic
Gaps
Develop New
Strategy
Identify Required
Capabilities
Changes
1. Prepare Complementary Functional
Plans
2. Develop an implementation Plan
Assess Financial
Viability
1A Criterion of
Consistency
Business Policy (BUSI 4940)
College of Business , University of North Texas
1A: ENVIRONMENTAL ANALYSIS
We attempt to understand the industry the firm is competing in….
What are the forces in the broader environment that impact the
industry?
What are the key survival factors (for any firm) in the industry?
What is the overall attractiveness of the industry (for future
investment)?
Very different for different industries. . .
9/7/2016
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Business Policy (BUSI 4940)
College of Business , University of North Texas
Analyze the Environment: What are we
trying to achieve?
The output of an environmental analysis must include
THREE things:
1. Identify key drivers of environmental change
2. Identify key survival factors for ANY firm in that
specific “environment”
3. Assess overall attractiveness of the environment for
future investment
Let’slearn how to assess each of these. . .
Business Policy (BUSI 4940)
College of Business , University of North Texas
Analyze the Environmental
Forces Environment
An analogy using Newton’s First Law
◦ Newton’s First Law: “An “object” will remains at rest, or
continues motion, unless acted upon by an external force”
◦ Hence, if the industry is our “object,” then, what we are
interested in, is the identification of forces that shape the
industry, thereby impacting all firms that operate in that
industry
9/7/2016
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Business Policy (BUSI 4940)
College of Business , University of North Texas
What are “Drivers of Change”?
 These are forces at play in the environment of
firms in a specific industry (e.g., the automobile
industry, the fast‐food industry, the airline
industry, etc.)
 These forces,
 Determine how firms currently operate and compete
in that that industry
 Shape how firms operate and compete in that
industry in the future
Business Policy (BUSI 4940)
College of Business , University of North Texas
Examples of “Drivers of Environmental Change”
Common categories of “drivers of change”:
â—¦ Changing buyer preferences
â—¦ Product innovation
â—¦ Service innovation
â—¦ Marketing innovation
◦ Diffusion of technical know‐how
â—¦ Increasing globalization of the industry
â—¦ Entry or exit of major firms in an industry
â—¦ Changes in cost and efficiency
â—¦ Legal/regulatory influences and government policy
â—¦ Changing societal concerns, attitudes, lifestyles
â—¦ Change in business risk and uncertainty
9/7/2016
5
Business Policy (BUSI 4940)
College of Business , University of North Texas
“Drivers of Environmental Change”
Answer the question:
What forces will my firm need to deal
with?
Business Policy (BUSI 4940)
College of Business , University of North Texas
What are “Key Survival Factors”?
Key Survival Factors are the “must haves.” These are areas
where any firm in that industry sector must demonstrate
competencies in order to survive
Exercise . . . Take 5 minutes
â—¦ Work with an individual sitting next to you to think about
the airline industry and try to identify two Key Survival
Factors that impact all firms in that industry
9/7/2016
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Business Policy (BUSI 4940)
College of Business , University of North Texas
Examples of “Key Survival Factors”
Common categories of “key survival factor”:
â—¦ Safety standards and that meets regulatory requirements
â—¦ Environmental standards and that meets regulatory requirements
â—¦ Distribution system for products or services
â—¦ Technology to enable efficient operations
â—¦ Capital capacity to meet needs
Business Policy (BUSI 4940)
College of Business , University of North Texas
“Key Survival Factors”?
Answer the question:
What are the critical factors
that any firm must have to
survive in this industry?
Basics needed to get in the
game, the ante
9/7/2016
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Business Policy (BUSI 4940)
College of Business , University of North Texas
Assessing “Overall Attractiveness of the
Environment for Future Investment”
Financial Attractiveness
â—¦ Industry profitability
â—¦ Level of investment required
â—¦ Risk
Market Attractiveness
â—¦ Market/product growth potential
◦ Concentration ratio (e.g., 4‐firm vs. 8‐firm)
Business Policy (BUSI 4940)
College of Business , University of North Texas
Assessing “Overall Attractiveness of the
Environment for Future Investment”
Would I invest my money in this
industry?
Would I recommend others invest
money in this industry?
Would I recommend my company
enter this industry?
9/7/2016
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Business Policy (BUSI 4940)
College of Business , University of North Texas
Recap . . . .
The objective of an environmental analysis is to:
1. Identify key drivers of environmental change
2. Identify key survival factors for ANY firm in that
specific “environment”
3. Assess overall attractiveness of the environment
for future investment
Business Policy (BUSI 4940)
College of Business , University of North Texas
Analyze the Environment: How do we do it?
The 3‐step analytical process
1. Collect Data
2. Organize and Analyze the Data
3. Make Recommendations
9/7/2016
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Business Policy (BUSI 4940)
College of Business , University of North Texas
Segmenting the Environment Before
Collecting Data
The International Environment
The Broad Environment
The Competitive
Environment
The
Firm
We will focus on the
“Broad Environment”
and the “Competitive
Environment “
Business Policy (BUSI 4940)
College of Business , University of North Texas
Segmenting the Environment Before
Collecting Data
The International Environment
The Broad Environment
The Competitive
Environment
The
Firm
We will focus on the
“Broad Environment”
and the “Competitive
Environment “
U.S.
focus
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Business Policy (BUSI 4940)
College of Business , University of North Texas
Collect Data
Start with….
UNT Library Web Address
BUSI 4940 “Course Page” on the UNT Library website
http://guides.library.unt.edu/busi4940?hs=a
 Plan to spend at least 3‐4 hours getting to know the industry.
 The more time you invest, the easier the next steps will be.
Part 1‐A
Analyze the Environment
Airline Industry Example
9/7/2016
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Business Policy (BUSI 4940)
College of Business , University of North Texas
What kinds of things would you want to
look for in your industry research?
 What is the NAICS code
 Size and make-up
 Financial Trends (Rev, Ratios, Profitability)
 How does the industry operate?
 What impacts performance?
Business Policy (BUSI 4940)
College of Business , University of North Texas
What is the size and make‐up of the Airline industry
U.S. Airline Industry: $190B in revenues (23% of Global)
• NAICS Code is 481 – U.S. Air Transportation
Domestic travel – 70%
International travel – 20%
Freight – 10%
• Highly concentrated top 4 = 70%
American, Delta, Southwest, United/Continental
• Industry segments – low cost, regional, national,
international
Source: Hoovers.com
9/7/2016
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Business Policy (BUSI 4940)
College of Business , University of North Texas
What are the financial trends in the airline industry?
 Special metrics in the industry
 Revenue Passenger Mile (+6%)
 Record load factors (80%)
 Increased traffic (2%)
 Average operating income is 0.5% – very low!
 Smaller airlines are more profitable (1.1%)
 Operating expenses represent 78% of revenues
 High cost structure – fuel, labor, equipment
 Marketing expenses less than 0.5% of revenues
 Record profit outlook – low gas pricing that were not passed on to the
passed on to customer through lower ticket prices
Source: http://www.strategyand.pwc.com/perspectives/2015-aviation-trends
Business Policy (BUSI 4940)
College of Business , University of North Texas
Part 1‐A Analyze the Environment
How does the industry operate and what
impacts the industry performance?
Travelers Routes & Gates Planes Operations
Sources referenced: – Clayton & Hilz, 2015. 2015 Aviation Trends, PWC.com.
– Report Center, 2015. Global Airline Industry – Analysis & Forecast. August 31, 2015
– Hoovers.com
9/7/2016
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Business Policy (BUSI 4940)
College of Business , University of North Texas
Two toolsto analyze the environment
P.E.S.T. ‐ A Tool to Collect Data on the “Broad
Environment.”
Porter’s Five Forces‐ A Tool to organize our data
on the “Competitive Environment
Business Policy (BUSI 4940)
College of Business , University of North Texas
P.E.S.T. ‐ A Tool to Collect Data on the “Broad
Environment.”
The broad environment impacts all firms (in all industries).
Macro forces in the broad environment.
â—¦Political
â—¦Economic
â—¦Social
â—¦Technological
9/7/2016
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Business Policy (BUSI 4940)
College of Business , University of North Texas
We use P.E.S.T – to organize our data on the
“Broad Environment”
This is a subjective exercise based on data collected and judgement.
Your answers may be different…..
Business Policy (BUSI 4940)
College of Business , University of North Texas
An exercise: A PEST Analysis
of the Airline Industry
 Work with an individual sitting next to you
 Think about PEST
 What political factors are present/changing?
 What economic factors are present/changing?
 What social‐cultural factors are present/changing?
 What technological factors are present/changing?
 Now, try to identify the three most prominent
underlying forces that shape/reshape the way
firms operate and compete in the Airline
Industry
Take 5
minutes
9/7/2016
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Business Policy (BUSI 4940)
College of Business , University of North Texas
P
S T
Political Economic E
Social Technological
PEST
Analysis
• – Customer service business
• – Millennial generation will drive
• changes
– Tele-communications – substitution
– E-commerce reservations/ticketing
– Operational efficiencies (scheduling) Source: Hoovers.com, Research and Markets, 2015.
Global Airline Industry 2013-2020, July 14, 2014
Government regulation (FAA, TSA, DOT)
Increases costs of operation
Decrease ease of doing business
Consolidation (DOT regulated)
Gates regulated
Source: Hoovers.com
Demand driven by consumer
confidence, economic growth
Source: Koenig & Mayerowitz, 2015. Analysis: Consolidation of
US Airline Industry Skift.com. July 14, 2015
Price sensitivity (oil price fluctuations,
competition)
Source: Clayton & Hilz, 2015. 2015 Aviation Trends. PWC.com
HIGH HIGH
MED MED
Choose the top three forces
Business Policy (BUSI 4940)
College of Business , University of North Texas
The 5‐Forces Model
Five forces that determine profitability/ attractiveness of the
competitive environment:
â—¦ Competitive Rivalry
â—¦ Threat of New Entrants
â—¦ Supplier Power
â—¦ Buyer Power
â—¦ The Threat of Substitute Products
NOTE: The weaker the combined forces, the greater the
opportunity for superior performance of firms in that industry!
9/7/2016
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Business Policy (BUSI 4940)
College of Business , University of North Texas
We use Porter’s Five Forces – to organize our data on
the “Competitive Environment” ‐> Strong/Weak
This is a subjective exercise based on data collected and judgement.
Your answers may be different…..
Business Policy (BUSI 4940)
College of Business , University of North Texas
An exercise: A 5‐Forces
Analysis of the Airline Industry
 Work with an individual sitting next to you
 Think about the following types of forces in the airline
industry
 Forces that alter competitive rivalry
 Forces that attract/deter new entrants
 Forces that alter the power of supplier
 Forces that alter the power of the buyer
 Forces that make substitute products more/less attractive
 Now, try to identify the three most prominent underlying forces that shape/reshape the way firms
operate and compete in the Airline Industry
Take 5
minutes
9/7/2016
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Business Policy (BUSI 4940)
College of Business , University of North Texas
Weak
Threat of
Substitutes
Strong
Supplier
Power
Strong
Buyer Power
Weak
Potential
Entrants
Strong
Industry
Rivalry
 High operating (fixed) costs
 Regulation for gates
 Customer price sensitivity Hoovers.com
 Capital costs
 Low profit margins
 Gate acquisition Source: Hoovers.com, Research and Markets, 2015.
Global Airline Industry 2013-2020, July 14, 2014
 Drive, train, ship, tele-conference
 Time-price trade-off Source: Hoovers.com
Three major supplies
 Fuel
 Labor
 Planes
Source: Hoovers.com
 Customer convenience
(Reservations)
 Customer Price
Sensitivity
Sources: Clayton & Hilz, 2015. 2015 Aviation Trends, PWC.com Report Ce
2015. Global Airline Industry – Analysis & Forecast. August 331
2015; Hoovers.com
Choose the top three forces
Business Policy (BUSI 4940)
College of Business , University of North Texas
Examples of Appropriately Specified
Forces
Well specified:
â—¦ Competitive rivalry is medium to high because the
industry is fragmented (there are “_x_” similarly sized
firms in the industry), the industry has experienced
“negative to zero” growth in the past four years, and the
industry’s products are in the mature stage of the PLC
(only 5 significant new product introductions by firms in
the industry last year).
Poorly specified:
â—¦ Competitive rivalry is high.
9/7/2016
18
Business Policy (BUSI 4940)
College of Business , University of North Texas
Analyze Data – Ask Why
• What are the underlying “causes” of the high level of
new product introductions in that industry?
1. Why? – The R&D expenditure in this industry is high
2. Why? – (a) Customers are demanding newer products
and (b) firms are willing to spend the money to satisfy
customer needs
3. Why? – (a) Customers needs are not fully satiated by
current products, and (b) past experience suggests
that money spent on “R&D” (i.e. intrinsic value
creation) provides better results than if it is spent on
“advertising” (i.e. perceived value creation).
“Conclusion”: Two causes identified:
â—¦ Unsaturated customer demand
â—¦ Significant ROI on R&D expenditure
Business Policy (BUSI 4940)
College of Business , University of North Texas
Identifying the Top Forces Across the
Broad and the Competitive Environment
Rank‐order and choose the 3 most
significant forces from among the 6
forces identified above.
9/7/2016
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Business Policy (BUSI 4940)
College of Business , University of North Texas
Top‐3 forces across BOTH the broad
(PEST) and the competitive (Five Forces)
environment
Source Details on the force Ranking Reason for the Ranking Top‐3 forces in the Broad Environment
2
5
4
Top‐3 Forces in the
Competitive Environment
1
3
2
6
3
3
= Top3
Business Policy (BUSI 4940)
College of Business , University of North Texas
Source Details on the force Ranking Reason for the Ranking Top‐3 forces in the Broad Environment
Government regulation – in general Increases cost and difficulty of
doing business
Economics – fuel price uncertainty Tight operating margins make fuel
price a key profit maker/breaker
Technological – new tech. to drive efficiency
and manage complexity of scheduling Critical to survival
Top‐3 Forces in the
Competitive Environment
Social/Competitive – price sensitivity of
consumer
Price is a key variable to profit, low
profit margins
Rivalry/Entry – Cost and difficulty of new gate
acquisition Important to expansion
Rivalry – High fixed operating costs
Makes efficiency critical, low
margins and margin of error
Airline Industry Example
9/7/2016
20
Business Policy (BUSI 4940)
College of Business , University of North Texas
Top‐3 Forces
 List the Top‐3 forces that result from the
analysis on the prior slide
 Force‐1 . . . . .. . . . . .
 Force‐2 . . . . .. . . . . .
 Force‐3 . . . . .. . . . . .
Business Policy (BUSI 4940)
College of Business , University of North Texas
Analyze How The Top‐3 Forces (1) Drive Future
Changes And (2) Alter Existing Key Survival
Factors In The Airline Industry
The Top‐3 forces in the
Airline Industry
(1) DOC
Predicted influence of these
forces on changes in how firms
will compete in the future
(2) KSF
Shape the Key Survival Factors in
the industry
1 Force 1 . . . . .
2 Force 2 . . . . .
3 Force 3 . . . . .
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Business Policy (BUSI 4940)
College of Business , University of North Texas
Analyze How The Top‐3 Forces,
Influence The Overall Attractiveness Of The
Airline Industry For Future Investment
 Start by characterizing the current performance
of the selected industry in terms of . . .
 “Financial” performance
 Industry profitability
 Level of investment
 Risk
 “Market” performance
 Market (or product) growth potential
 Concentration ratio (e.g., 4‐firm con. ratio)
Business Policy (BUSI 4940)
College of Business , University of North Texas
Analyzing How The Top‐3 Forces,
Influence The Overall Attractiveness Of The
Airline Industry For Future Investment
 Next, assess the impact of the Top‐3 forces on
the long‐term attractiveness of the industry
 Recap of changes that we predicted will be
caused by the Top‐3 forces
 What impact will these change have on the
financial attractiveness, and the market
attractiveness of the industry over the next 5‐10
years?
9/7/2016
22
Business Policy (BUSI 4940)
College of Business , University of North Texas
Make Recommendations (i.e., Accomplish
the Final Objective of the Exercise)
 Our 3‐part task is to analyze and describe how the
Top‐3 forces, that were identified in the prior
analysis,
 Drive change in the selected industry
 Generate/Shape key survival factors in the selected
industry
 Influence the overall attractiveness of the selected
industry for future investment
Business Policy (BUSI 4940)
College of Business , University of North Texas
Analyzing How The Top‐3 Forces,
Influence The Overall Attractiveness Of The
Airline Industry For Future Investment
 Finally, draw conclusions about,
 Expected influence of top‐3 industry forces on
future “Financial” performance of the industry
 Expected influence of top‐3 forces on future
“Market” performance of the industry
9/7/2016
23
Business Policy (BUSI 4940)
College of Business , University of North Texas
REEF questions
Please be ready . . . . .
â—¦ Correct Answer: 2 points
â—¦ Incorrect answer: 1 point
Business Policy (BUSI 4940)
College of Business , University of North Texas
Which of the following istrue based on the
Criterion of Consistency framework?
A. The environment directly influences
organizational capabilities.
B. Only certain variables can drive or
constrain strategy.
C. High consistency among the elements of
the framework will lead to successful firm
performance.
D. All of the above
Discussion Question
9/7/2016
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Business Policy (BUSI 4940)
College of Business , University of North Texas
Potential gapsin the “Criterion of Consistency”
framework must be constantly examined, since
firms operate in dynamic environments.
A. True
B. False
Business Policy (BUSI 4940)
College of Business , University of North Texas
The Criterion of Consistency framework formsthe basisfor a
comprehensive process ofstrategic analysis(we call it the SBI
process). It is appropriate to use the SBI process…
A. When current or anticipated performance is
poor.
B. On a periodic basis, such as once a year or,
as determined by senior management.
C. When the business confronts a sudden
perceived opportunity or threat.
D. All of the above
Discussion Question
9/7/2016
25
Business Policy (BUSI 4940)
College of Business , University of North Texas
The “outputs” of an environmental analysisshould
provide detailed descriptions of the _________ and
the _________ present in the environment
A. drivers of change, key survival factors
B. Strengths, weaknesses
C. fixed costs, variable costs
Business Policy (BUSI 4940)
College of Business , University of North Texas
“Key Survival Factors” represent,
A. areas where my firm must demonstrate
unique competencies in order to stay
profitable
B. areas that a select group of firms in that
industry sector must demonstrate
competencies in order to stay profitable
C. areas where any firm in that industry
sector must demonstrate competencies
in order to survive
DISCUSSION
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Business Policy (BUSI 4940)
College of Business , University of North Texas
Identification of Key Survival Factorsin an industry
allows my firm to…
A. determine a strategy that will ensure high
profitability over time
B. gain a competitive edge by understanding
factors that are not known to other firms
C. determine whether or not the industry is
likely to be profitable
D. understand the fundamental issues that ALL
firms in the industry must address and what
strategic approaches are possible
DISCUSSION
Business Policy (BUSI 4940)
College of Business , University of North Texas
PEST is an analysis of political, economic, social‐cultural
and technological forces that impact the firm.
A. True
B. False
9/7/2016
27
Business Policy (BUSI 4940)
College of Business , University of North Texas
The five forces analytic toolsuggeststhat the
attractiveness of the competitive environment is a
function of all the following factors except…
1. Buyers
2. Competitive rivalry
3. Suppliers
4. Economic environment
5. None of the above
Business Policy (BUSI 4940)
College of Business , University of North Texas
High barriersto entry and a high threat of retaliation by firms
in the industry ________ the threat of new entrants(as viewed
by firmsin the industry) and make the industry _________
profitable.
1. decrease, less
2. decrease, more
3. increase, less
4. increase, more
DISCUSSION
9/7/2016
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Business Policy (BUSI 4940)
College of Business , University of North Texas
I used my phone, computer, or tablet, to text,
communicate orsurf the web, at least ___
times during this classsession
1. I did no such thing!
2. Once
3. Less than 10 times
4. Probably more than 20 times. But who’s counting?!
Business Policy (BUSI 4940)
College of Business , University of North Texas
Next Time – SBI Part 1B (1)
 Part 1B (1) – Current Firm Strategy
 I will be creating teams for the class in the next couple days and
creating a seating chart
 The Industry/Firm for Team Assignment #1 ‐ Part 1
 The Department Store Industry / JCPenney
 Start your research here:
 UNT Library class page for BUSI 4940
 Follow instructions posted on Black Board