Strategic Business Environment Concepts

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Questions and Answers

What is the primary difference between the external approach and the internal approach in strategic management?

The internal approach centers on market trends.

The external approach seeks attractive market opportunities. (correct)

The external approach focuses on internal capabilities.

The internal approach emphasizes environmental factors.

Which framework is explicitly mentioned as a tool for analyzing the macro-environment?

SWOT Analysis

Porter's Five Forces

PESTEL Framework (correct)

BCG Matrix

What term refers to environmental factors that significantly influence industries and sectors?

Key Drivers for Change (correct)

Market Interactions

Strategic Internal Elements

Operational Benchmarks

Scenario analysis in environmental analysis emphasizes which of the following?

Weak Signals Learning Signup and view all the answers

Which of the following is not typically included in a comprehensive PESTEL analysis?

Social media trends Signup and view all the answers

What is the main goal of identifying megatrends in business environments?

To understand long-term shifts and influences. Signup and view all the answers

What aspect of the business environment provides organizations with their means of survival?

External environmental factors Signup and view all the answers

Which question does not align with strategic self-reflection regarding an organization’s position?

What rivals are doing? Signup and view all the answers

How does scenario analysis differ from alternative futures forecasting?

Scenario analysis extends into the distant future and avoids probabilistic calculations. Signup and view all the answers

What is the primary purpose of developing scenarios in scenario analysis?

To explore potential events and their impacts. Signup and view all the answers

What do 'key drivers for change' refer to in the scenario creation process?

Factors that influence the direction of strategic planning. Signup and view all the answers

What does Porter's five forces framework evaluate?

The attractiveness of an industry based on competitive forces. Signup and view all the answers

Which of the following best describes the term 'industry'?

A group of firms producing similar products or services. Signup and view all the answers

What is a potential result of high competitive forces in an industry?

Reduced overall attractiveness of the industry for new entrants. Signup and view all the answers

What is the relationship between industries and markets?

An industry comprises firms that serve specific markets with similar products. Signup and view all the answers

Which component of Porter's five forces might involve negotiating supply prices?

Power of suppliers Signup and view all the answers

What is the impact of high barriers to entry in an attractive industry?

They reduce the threat of new competitors. Signup and view all the answers

Which factor is essential in determining the threat of substitutes in an industry?

The price/performance ratio of alternatives Signup and view all the answers

What misconception might managers have regarding the threat from substitutes?

Substitutes are always from within their industry. Signup and view all the answers

How do concentrated buyers influence buyer power?

They give buyers more negotiating leverage. Signup and view all the answers

Which of the following best describes extra-industry effects related to substitution threats?

They come from products or services outside the current industry. Signup and view all the answers

What role do expected retaliations play in the threat of new entrants?

They can deter new entrants from entering the market. Signup and view all the answers

What should incumbents in an industry consider regarding rivalry?

Rivalry can be influenced by substitute products as well. Signup and view all the answers

Which of the following does NOT reduce buyer power?

Differentiated products that reduce comparisons Signup and view all the answers

What happens when buyers have high power in a market?

They can request product improvements or lower prices. Signup and view all the answers

Which factor increases supplier power according to the content?

High switching costs for the buyer. Signup and view all the answers

How does competitive rivalry typically affect incumbents in an industry?

It can result in reduced profitability due to price competition. Signup and view all the answers

What is one contributing factor to fierce price competition within industries experiencing low growth?

Growth at the expense of rivals. Signup and view all the answers

Which of the following indicates a market with high exit barriers?

Declining industries with excess capacity. Signup and view all the answers

In a commodity market, firms may engage in price cuts primarily due to:

High levels of competitive rivalry. Signup and view all the answers

Which type of industry is characterized by a lack of direct competitors with similar offerings?

Monopolistic industries. Signup and view all the answers

What is a common outcome when firms experience high fixed costs in an industry?

Firms may cut prices to increase sales volumes. Signup and view all the answers

What characterizes an oligopolistic industry?

A few firms dominating and significant power over buyers Signup and view all the answers

What is a defining aspect of hypercompetitive industries?

Constant changes and aggressiveness among competitors Signup and view all the answers

Which of the following best describes a complementor?

An organization that enhances the value of another's product Signup and view all the answers

Which industry would be most likely characterized by perfect competition?

A market with numerous firms offering identical products Signup and view all the answers

What does the concept of cycles of competition refer to?

Sequences of moves and counter-moves among competitors Signup and view all the answers

In terms of industry analysis, what is one primary challenge identified?

Recognizing the constant change of industry boundaries Signup and view all the answers

What is the five forces analysis primarily used for?

Determining the profitability and competitive dynamics Signup and view all the answers

What is a high-level effect of hypercompetition on companies?

Increased instability leading to low profitability Signup and view all the answers

Study Notes

The Environment

The environment is what gives organisations their means of survival.
External approach focuses on attracting marketplace opportunities.
Internal approach focuses on strategic capabilities to build distinctive strategies and superior performance.

Strategic Position

Strategic positioning involves understanding "Who am I?", "Who can I be?", and "Where am I?".
Potential considers the environment.
Strategic capability is important.
Ambition is vital for strategic purpose.
Culture and strategy drive the results.
Ambitions should be considered in terms of "Who do I want to be?".
Judging criteria should be established for "How do I judge things?".

Layers of the Business Environment

Layers of the business environment can be seen in a concentric circle structure where the outer ring consists of the macro-environment, followed by industry (or sector), then competitors and finally the organisation, in the middle.
Markets lie outside the organisation, in the outer ring.

Macro-environment Analysis Tools

PESTEL analysis is used to evaluate the macro-environment.
PESTEL analysis encompasses market and non-market factors.
Analysis tools include forecasting (prediction emphasis), scenario analysis, megatrends, inflexion points, and weak signals.

Industry Analysis

The industry environment consists of suppliers, competitors, and customers, all influenced by the natural environment, demographics, and social forces.
Environmental analysis precedes industry analysis.

PESTEL Framework

The PESTEL framework provides a structured evaluation tool.
Factors considered include environmental, economic, population, technological, weather, and discriminatory laws.

Example: PESTEL Analysis of Tesla

Political factors have supported Tesla's growth and expansion.
Government incentives have strengthened its financial performance, driven by environmental sensitivity.
Economic factors relate to the company's growth and profitability.
The electric car sector is a boost for the global economy.
Socio-cultural factors demonstrate and mold the population, thus aiding marketers in understanding their target audience.
Environmental factors highlight Tesla's support for expanding environmental programmes.
Legal factors are required for Tesla as it expands operation in other countries and has to maintain compliance.

Competitive Forces—The Five Forces Framework

Porter's model describes five competitive forces which measure industry attractiveness.
These forces are the threat of entry, threat of substitutes, buyer power, supplier power and competitive rivalry.
Industries with high levels of these forces are less attractive.
The five forces analysis can set an agenda for actions that control excessive rivalry in a particular industry.

The Five Forces Framework

This framework includes potential entrants, rivalry among existing firms, threat of substitutes, bargaining power of buyers, and bargaining power of suppliers.

Structural Determinants

Various factors affect each force, and these are known as structural determinants.
Factors include, for example, capital requirements, product differentiation, cost conditions, and retaliation.

Threat of Entry

The threat of entry is based on the barriers new entrants have to overcome to participate in an industry.
The barriers to entry can include scale & experience, access to supply & distribution channels, expected retaliation, legislation/government action, and differentiation.

Threat of Substitutes

A substitute is a product/service which offers similar benefits with different process approaches, e.g. aluminium instead of steel in automobiles; or trains instead of cars.
The price/performance ratio is critical to substitution threats.
Extra industry effects are the core of substitution effect.

Buyer Power

Buyers are the organization's immediate customers.
Concentrated buyers, low switching costs, and buyer competition can affect the power of buyers.

Supplier Power

Suppliers provide what is needed to produce/deliver products or services
Supplier power includes concentrated suppliers, high switching costs, and the threat of supplier competition.

Competitive Rivalry

Competitive rivalry involves organisations with similar products aimed at the same customers (not substitutes).
Intensity of rivalry affects the welfare of incumbent firms (existing ones) and industries.

Forces Affecting Rivalry

The severity of competitive rivalry depends on the balance of factors like competitor balance (size), industry growth, fixed costs, and exit barriers.

Dynamics of Industry Structure: The Industry Life Cycle

The dynamics of industry structure are characterized by stages like development, growth, shake-out, maturity, and decline, with each stage having particular market size, rivalry, typical five forces, and key factors.

Solar Industry Example

The solar industry's growth is presented in a graph that shows the adoption curve for solar PV power producers.

Cycles of Competition

Competition cycles involve counter-moves known as cycles of competition.
These cycles can create hypercompetition for various participants, leading to lower profitability.

Identifying Key Success Factors

Identifying key success factors requires understanding customers' needs and analyzing competition, focusing on how to survive competition, and obtaining superior competitive positioning.

Value Net

A value net visually represents organisations and their related factors (customers, competitors/substitutes, company, and complementors/suppliers).
It's a tool to understand opportunities for cooperation and competition.

Value Net Model for Air Traffic Management System

The model shows the components necessary for the function of an air traffic management system.
The model includes customers, competitors, suppliers, and complementors.

Types of Industry

Industries are classified into various types, including monopolies, oligopolies, hypercompetitive industries, and perfectly competitive industries.

Implications of Five Forces Analysis

Organizations use the analysis to decide which industries to enter or leave, the amount of influence to exert and how competitors will be affected.

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Description

This quiz explores key concepts of the business environment, focusing on strategic positioning, organizational capabilities, and market opportunities. Delve into the layers of the business environment and understand how internal and external factors influence organizational survival and performance.