INTRO TO ENVIRONMENT ANALYSIS
You want to go to a specific restaurant in Toronto. You put the address into your old school
GPS, what else should you consider so that you arrive?
● Weather condition
● Parking conditions
● Traffic conditions
● But can we control them? No, but what can we do?
○ Leave earlier
○ Take another route
○ Effectively what you can control, is the choices that you make.
○ Depends on the internal factors that you face:
■ Preferences for a scenic route?
■ Ability to drive off-road?
■ Money for tolls roads?
■ Enough gas in the tank?
Business models give structure to your thinking and analysis. Different models serve
different purposes.
The Diamond E:
● A model that Is an analytical framework for making strategic decisions
● Relevant enough to solve any business problem
● Like a SWOT analysis but with more details
1. Strength and Weaknesses: Management Preferences, Organization,
Resources
2. Opportunities and Threats: Strategy, Environment
● Principal logic: Principal logic – consistency and alignment, internal consistency
→ good execution (if you don't have internal consistency, you can have a great
plan... but you just won't make it happen!), external alignment → right strategy for
environment (strategy must make sense given the situation to pursue
opportunities)
1. Internal consistency = organization, management preferences,
resources :right; how well is the company in executing their strategy
● Questions:
1. Is our current strategy aligned with future opportunities & threats?
2. What new strategies are feasible and worthwhile?
3. What are our strengths and how can we use them for competitive
advantage given the environment?
4. What do we need to execute a strategy? Can we get it? Where are we
inconsistent?
● Application:
1. First step: Deal with strategy-environment linkage, assess forces at
work and their implications, adjust internal or adjust strategy
2. Second step: Look internally, what do we want and what can we do?
,● Strategy: The plan the business uses to pursue opportunities & avoid threats
○ Focuses on the internal (what can we do) and external (environment,
what should we do)
○ Strategy models: Ansoff Matrix, Porter's Generic Strategies
○ Examples:
■ P&G Strategy in 2000: internal inconsistency, had way too
much products, way too hard to market all those products,
did not have enough resources to market all resources.
Externally, the market (consumers) did not care about the
so many products P&G made. Then a new CEO came in,
and said "What do customers actually want?" And his
strategy was to sift out the product offering to the most that
are in demand, while paying attention to the environment
(competitive scene in cosmetics industry, so this new CEO
decided it wasn't worthwhile to chase it → lack of
marketing, capability for cosmetics). Ultimately, sold off lots
of product lines.
■ Ikea Strategy (consistency): People are buying furniture,
but their expectations were constantly changing (wanted
sleek, needed compact furniture as many young families
didn't have big houses). This generation couldn't afford the
advice "buy expensive furniture!", BUT, they still wanted to
retain on style! This generation also wanted instant
gratification (buying furniture would be instant, not wait a
month for the box comes). The generation also wanted
functional furniture (very good use, functional use). So,
IKEA strategy → make functional furniture that customers
can easily take with them. IKEA also made their products
as generic as possible to market to all markets. They
capitalized on their internal strengths
, ○Questions:
■ What should we do? What can we do?
● Management preferences:
○ Vision, mission statement, preferences, and biases, management
priorities
○ Look at a company's history and way of running things, and look who's
in charge, what is their background?
○ Questions:
■ What does management want?
■ Ambitions?
■ Objectives?
■ What are its priorities?
■ How comfortable is it with risk?
■ Does it value or is it more comfortable with some
capabilities and strategies than others?
■ Does it value some capabilities or resources more than
others?
● Organization:
○ Culture - "who" are we
■ Conservative (e.g. banks): "Not taking any chances! We
have to be safe, conservative, and trustworthy."
■ Risk takers (e.g. startups): "Taking all risks possible,
valuing innovation, comfortable with drastic change"
○ Capabilities – what are we good at?
■ Apple: "Good at user experience"
■ Capabilities can develop because management
preferences can consider a certain capability a priority.
○ Structure – how do we divide work?
○ Questions:
■ What are we good at as an organization? Capabilities
gaps?
■ Are we organized so that we can efficiently and effectively
execute our strategy? Are we organized around our most
important success drivers? Specialist (efficiency) vs.
generalist (integrative)? Customer vs product vs function?
■ What do we value or not? (i.e innovation vs. Stability)
■ What do we feel safe doing and spending our time on? Ie.
Is it safe to express new ideas? Are they valued? Should I
be spending time on my job only or does management
support new initiatives?
● Resources:
○ Human
■ Skills and talents you hire for are driven by the capabilities
you want to develop and management preferences
○ Capital (includes intangible assets, like reputation, patents, etc.)
■ Buildings, factories, equipment
You want to go to a specific restaurant in Toronto. You put the address into your old school
GPS, what else should you consider so that you arrive?
● Weather condition
● Parking conditions
● Traffic conditions
● But can we control them? No, but what can we do?
○ Leave earlier
○ Take another route
○ Effectively what you can control, is the choices that you make.
○ Depends on the internal factors that you face:
■ Preferences for a scenic route?
■ Ability to drive off-road?
■ Money for tolls roads?
■ Enough gas in the tank?
Business models give structure to your thinking and analysis. Different models serve
different purposes.
The Diamond E:
● A model that Is an analytical framework for making strategic decisions
● Relevant enough to solve any business problem
● Like a SWOT analysis but with more details
1. Strength and Weaknesses: Management Preferences, Organization,
Resources
2. Opportunities and Threats: Strategy, Environment
● Principal logic: Principal logic – consistency and alignment, internal consistency
→ good execution (if you don't have internal consistency, you can have a great
plan... but you just won't make it happen!), external alignment → right strategy for
environment (strategy must make sense given the situation to pursue
opportunities)
1. Internal consistency = organization, management preferences,
resources :right; how well is the company in executing their strategy
● Questions:
1. Is our current strategy aligned with future opportunities & threats?
2. What new strategies are feasible and worthwhile?
3. What are our strengths and how can we use them for competitive
advantage given the environment?
4. What do we need to execute a strategy? Can we get it? Where are we
inconsistent?
● Application:
1. First step: Deal with strategy-environment linkage, assess forces at
work and their implications, adjust internal or adjust strategy
2. Second step: Look internally, what do we want and what can we do?
,● Strategy: The plan the business uses to pursue opportunities & avoid threats
○ Focuses on the internal (what can we do) and external (environment,
what should we do)
○ Strategy models: Ansoff Matrix, Porter's Generic Strategies
○ Examples:
■ P&G Strategy in 2000: internal inconsistency, had way too
much products, way too hard to market all those products,
did not have enough resources to market all resources.
Externally, the market (consumers) did not care about the
so many products P&G made. Then a new CEO came in,
and said "What do customers actually want?" And his
strategy was to sift out the product offering to the most that
are in demand, while paying attention to the environment
(competitive scene in cosmetics industry, so this new CEO
decided it wasn't worthwhile to chase it → lack of
marketing, capability for cosmetics). Ultimately, sold off lots
of product lines.
■ Ikea Strategy (consistency): People are buying furniture,
but their expectations were constantly changing (wanted
sleek, needed compact furniture as many young families
didn't have big houses). This generation couldn't afford the
advice "buy expensive furniture!", BUT, they still wanted to
retain on style! This generation also wanted instant
gratification (buying furniture would be instant, not wait a
month for the box comes). The generation also wanted
functional furniture (very good use, functional use). So,
IKEA strategy → make functional furniture that customers
can easily take with them. IKEA also made their products
as generic as possible to market to all markets. They
capitalized on their internal strengths
, ○Questions:
■ What should we do? What can we do?
● Management preferences:
○ Vision, mission statement, preferences, and biases, management
priorities
○ Look at a company's history and way of running things, and look who's
in charge, what is their background?
○ Questions:
■ What does management want?
■ Ambitions?
■ Objectives?
■ What are its priorities?
■ How comfortable is it with risk?
■ Does it value or is it more comfortable with some
capabilities and strategies than others?
■ Does it value some capabilities or resources more than
others?
● Organization:
○ Culture - "who" are we
■ Conservative (e.g. banks): "Not taking any chances! We
have to be safe, conservative, and trustworthy."
■ Risk takers (e.g. startups): "Taking all risks possible,
valuing innovation, comfortable with drastic change"
○ Capabilities – what are we good at?
■ Apple: "Good at user experience"
■ Capabilities can develop because management
preferences can consider a certain capability a priority.
○ Structure – how do we divide work?
○ Questions:
■ What are we good at as an organization? Capabilities
gaps?
■ Are we organized so that we can efficiently and effectively
execute our strategy? Are we organized around our most
important success drivers? Specialist (efficiency) vs.
generalist (integrative)? Customer vs product vs function?
■ What do we value or not? (i.e innovation vs. Stability)
■ What do we feel safe doing and spending our time on? Ie.
Is it safe to express new ideas? Are they valued? Should I
be spending time on my job only or does management
support new initiatives?
● Resources:
○ Human
■ Skills and talents you hire for are driven by the capabilities
you want to develop and management preferences
○ Capital (includes intangible assets, like reputation, patents, etc.)
■ Buildings, factories, equipment
