1. Importance of Analyzing the Ex- ternal Environment
-Managers can mitigate threats.
-Managers can leverage opportunities.
-Gain understanding of
... [Show More] potential im- pacts.
-Understand the source / proximity of factors.
2. The PESTEL Model -Groups environmental factors into six segments:
--Political
--Economic
--Sociocultural
--Technological
--Ecological
--Legal
These factors can create:
--Opportunities
--Threats
3. Political Factors -Processes & actions of government bodies
-Firms can shape this factor through:
--Lobbying
--Public Relations
--Contributions
--Litigation
Example: Tesla
-Has a build-to-order sales model
-Cuts out dealers
-Dealers are lobbying for new legislation
4. Economic Factors
-Largely macro-economic Examples include:
--Growth rates
--Levels of employment
--Interest rates
--Price stability
--Currency exchange rates
5. Sociocultural Factors Society's cultures, norms, and values
-Are constantly in flux
-Differ across groups
Demographic trends
-Present opportunities and threats
-Population characteristics related to age, gender, family size, ethnicity, sex- ual orientation, religion, and socioeco- nomic class
6. Technological Factors Application of knowledge
-To create new processes
-To create new products
Innovations in process technology:
-Lean manufacturing, Six Sigma quality, and biotechnology
Innovations in product technology:
-Smartphones, computer tablets, and high-performing electric cars such as the Tesla Model S
7. Legal Factors Official outcomes of political processes:
-Laws
-Mandates
-Regulations
-Court decisions
Industry deregulations affect multiple in-
dustries:
- Airlines, telecom, energy, and trucking
Governments can achieve desired out- comes:
-To buy electric vehicles the government offers a £2000 subsidy.
8. Porters five forces Analyses the nature of competition in the industry in terms of how much power a firm enjoys over consumers, competi- tors and suppliers.
9. Threat of Entry The risk that potential competitors will enter an industry
Lowers industry profit potential:
-Incumbents lower prices
Incumbents spend more to satisfy exist- ing customers.
Entry barriers:
-Obstacles blocking others from enter- ing
-A significant predictor of industry profit potential
10. Types of Entry Barriers (6) 1. Economies of scale
2. Customer switching costs
3. Capital requirements
4. Access to distribution channels
5. Product differentiation
6. Cost disadvantages (independent of size)
11. Power of Suppliers Pressures that industry suppliers can exert on an industry's profit potential
12. Bargaining Power of Suppliers Is High When
13. Bargaining Power of Buyers Is High When:
Lowers industry profit potential if:
-Suppliers demand higher prices for their inputs
-Suppliers reduce quality
-Concentrated (or limited) supplier in- dustry
-Suppliers not dependent on industry for majority of revenue
-Incumbent firms face supplier switching costs
-Suppliers offer differentiated products
-There are no supplier substitutes.
-Suppliers can forward-integrate into the industry.
-Buyer concentration (few buyers)
-Substitutes
-Price/total purchases
-Importance of quality
- Product differentiation
-Backwards integration
-Intermediate buyers vs. end users
-The industry's products are standard- ized or undifferentiated commodities.
-low or no switching costs.
14. Power of Buyers (Customers) Pressure customers put on an industry
by demanding:
-A lower price or
-Higher product quality
15. Threat of Substitutes Products or services outside an industry
meeting the needs of current customers
Examples:
-internet shopping - 20% of shopping now done online.
16. Threat of Substitutes is High When:
-Energy drinks vs. coffee
-E-mail vs. express mail
-Wireless telephone vs. landline
-Videoconferencing vs. business travel
The substitute offers an attractive price-performance trade-off.
The buyer's cost of switching to the sub- stitute is low
17. Rivalry Among Competitors The intensity with which companies in
the same industry jockey for market share and profitability
Other 4 forces put pressure on this rival- ry
-The stronger the forces, the higher the intensity.
Intensity determined by (covered next):
-Competitive industry structure
-Industry growth
-Strategic commitments
-Exit barriers
18. Competitive Industry Structure The number and size of its competitors
The firms' degree of pricing power
The type of product or service (com- modity or differentiated product)
The height of entry barriers
19. Monopoly One firm
Considerable pricing power Unique product
Very high entry barriers
Resulting industry: profit extracted
20. Industry Growth Affects intensity of rivalry among com- petitors
During periods of high growth:
-Consumer demand rises
-Price competition among firms de- creases
--They focus on capturing new cus- tomers
--They are not focused on taking prof- itability away from each other
During periods of negative growth:
-Rivalry is fierce
-Rivals can only gain at the expense of one another
21. How to Apply the Five Forces Model
22. Shortcomings of Models Dis- cussed
Define the relevant industry.
Identify the key forces - group them. Identify the drivers of each force.
-Are they strong or weak?
Assess overall industry structure. Profit potential
They are static
-Just a snapshot
-But black swan events happen sudden-
23. Why conduct an industry analy- sis?
ly
-Information can become obsolete
Models don't explain why performance differences occur in an industry.
-Internal analysis is required (next chap- ter.)
Identify drivers and sources of industry profitability
Devise strategies for changing industry structure
24. Porter's Five Forces Model Groundwork for a strategic agenda of
action
-Highlights the critical strengths & weak- nesses of the industry
-Helps with the positioning of the firm in its industry
-Clarifies the changes that yield the greatest payoff
-Identifies most significant opportunities & threats
In short, helps the firm deal with compe- tition
Defining the industry to analyze is criti- cal
Not too narrow, not too broad
25. Threat of entry is high when... -Customer switching costs are low
-Capital requirements are low
-Incumbents do not possess proprietary technology or established brand equity
-New entrants expect that incumbents cannot / will not retaliate
26. The power of suppliers is high when
-Incumbent firms face significant switch- ing costs when changing suppliers
-Suppliers offer products that are differ- entiated
-There are no readily available substi- tutes for the products/services offered by the supplier
-Suppliers can credibly threaten to for- ward-integrate
27. Threat of substitutes is high when Substitute offers an attractive price-per-
formance trade-off
Buyer's cost of switching to the substi- tute is low
28. The power of buyer is high when There are a few large buyers
Each buyer purchases large quantities relative to the size of a single seller Industry's products are standardized / undifferentiated commodities
Buyers face little or no switching costs Buyers can credibly threaten to back- ward-integrate
29. The rivalry among existing com- petitors is high when...
-There are many competitors in the in- dustry
-Competitors are roughly the same size
-Industry growth is slow, zero, or even negative
-Exit barriers are high
-Products/ services are direct substi- tutes - that is little to no differentiation among product offerings
30. Five forces model 1. threat of entry
2. power of suppliers
3. power of buyers
4. threat of substitutes
5. rivalry among existing competitors
31. Watch fantastic 6 min video to en- https://www.youtube.com/watch?v=3AD-M5
hance understanding.
32. What is the Composition of the macro-environment? PESTLE ap- proach.
33. The E in PESTLE, is Economic. Name 4 economic factors that are important from a business per- spective.
34. Switching costs are a example of a barrier to entry. (1 of 6 barriers to entry). Explain switching costs.
35. Limitations of Porters 5 Forces Model (5)
36. The market/task environment is comprised of (4 -S.I.C.C)
. political-legal
. economic
. sociocultural
. technological
. legal, linked to political
. ecological (the natural environment). political-legal
(1) the growth rate of the economy
(2) the level of interest rates
(3) the currency exchange rates
(4) price inflation
Are once off costs customers have to in- cur when they switch from one supplier's product /service to another
1) The model claims to assess the prof- itability of the industry.
2) The model implies that the five forces apply equally to all competitors in an industry.
3) Product and resource markets are not adequately covered by the model.
4) The model can never be applied in isolation.
5) The model assumes that the rela- tionship between competitors is always hostile.
Compromises of suppliers, intermedi- aries, customers and competitors.
37. No, but management can influence the effect of the 4 variables (S.I.C.C)
Does management have control over the 4 variables in the mar- ket/task environment?
38. What is the most important task
through changes in the organization's strategy.
to identify, evaluate and exploit oppor-
of management in the market/task tunities and to develop the marketing
environment?
39. What are 2 common mistake in identifying competitors?
40. There are 5 stages in competitive intelligence - Name stage 1. "P"
41. There are 5 stages in competitive intelligence - Name stage 2. "C"
42. There are 5 stages in competitive intelligence - Name stage 3. "A"
strategy of the organization in such away that competitors and other vari- ables of this external environment do not present a threat to the organization
1) overemphasizing current and known competitors and forgetting about new entrants or international competition 2)concentrating on the large organisa- tions and forgetting about the small, as- suming competitors will behave in the same way
(1) P - Plan.
Determine client needs, establish re- quirements and develop a plan.
(2) C - Collect and process data.
Collect data from inside and outside the firm,
conduct an initial classification of the collected data and process the data pro- duction.
(3) A - Analyse.
Analyse the data in order to generate effective informational outputs and out- comes, involving the skilful application of a variety of techniques in order to make sense of intelligence.
43. There are 5 stages in competitive intelligence - Name stage 4. "D I"
44. There are 5 stages in competitive intelligence - Name stage 5. "E & C"
45. The 5 stages in competitive intel- ligence - P, C, A, D I, E&C
(4) DI - Disseminate Intellegence
Disseminate intelligence. Present or provide the insights generated to the customer/client.
(5) E&C - Evaluate and control
Obtain feedback and assess whether the process satisfied the client's pre- sent and ongoing needs, and possibly restarting the process if the client is dis- satisfied
Stage 1) Plan
Stage 2) Collect and process data Stage 3) Analyse
Stage 4) Disseminate Data Stage 5) Evaluate & Control [Show Less]