External and Task Environment Analysis PDF

External Environmental Analysis Khursheed Yusuf 1  Purpose of External Environmental Analysis Gathering Information for External Environmental Analysis General Environment Lecture Competitive Envir...

External Environmental Analysis Khursheed Yusuf 1  Purpose of External Environmental Analysis Gathering Information for External Environmental Analysis General Environment Lecture Competitive Environment Topics Key Success Factors Competitive Changes During Industry Evolution Strategic Groups National Competitive Advantage 2  Purpose of External Environmental Analysis Organizations are affected by conditions in the environment Managers need to be aware of these conditions in order to – Take advantage of opportunities that can lead to higher profits – Reduce the impact of threats that can harm the organization’s future 3  Managers need information in order to know and develop an understanding about what is happening in the external environment Gathering Three approaches to information Information gathering: for External – Scanning: general surveillance of Environmental Analysis environmental changes; looking for early signals of changes – Monitoring: close attention to specific developments that could affect the organization – Competitive Intelligence: following actions of competitors 4  Two Areas for Analysis General Competitive Environment Environment 5 The General and Competitive Environment General Environment Demographics Competitive Global Environment Political/Legal Threat on new entrants Bargaining power of suppliers Bargaining power of buyers Threat of substitute products Sociocultural Competitive rivalry Technological Macoreconomic 6  General Environment Demographics Characteristics of a country’s population – Size of population and growth rate – Age distribution of population – Education levels – Income distribution – Ethnic diversity – Geographic distribution 7  General Environment Political/Legal Political and legal conditions affecting business – Government policies toward business – Investment incentives – Business regulation: labor, environment – Education priorities – Budget conditions and plans 8  General Environment Technological Technological developments relevant to a business – Telecommunications – Internet – On-line training – Product and process innovations 9  General Environment Macroeconomic Impact of the economy on business – Size and change in gross domestic product – Per capita income levels – Inflation rate – Interest rates – Foreign trade deficit or surplus – Unemployment – Rates of saving and investment 10  General Environment Sociocultural Influence of values, beliefs, and lifestyles of a country on business – Family relationships – Attitudes about work – Living arrangements – Styles of entertainment – Attitudes toward health 11  Competitive Environment The essence of strategy The corporate strategists’ Managers must understand formulation is coping with goal is to find a position in the conditions of competition. the industry where his or competition within their her company can best industry defend itself against these forces or can influence them in its favor. Porter Five-Forces Model of Competition (determining the attractiveness of an industry) Key Success Factors Competitive Changes During industry Evolution Strategic Groups National Competitive Advantage 12  Defining an Industry Industry – A group of companies offering products or services that are close substitutes for each other Competitors – Rival companies that serve the same basic customer needs 13  Defining an Industry Sector – A group of closely related industries Market segments – Distinct groups of customers within a market that can be differentiated from each other based on their distinct attributes and demands Changing industry boundaries 14  The Computer Sector: Industries and Segments 15 Five Forces Driving Industry Competition 16  Threat of New Entrants Fundamental question: how easy is it for another company to enter the industry? Factors making easy entry to industry – Low economies of scale – Low product differentiation – Low capital requirements – No switching costs for buyer – Easy access to distribution channels – Little government regulation 17  Supplier Power Fundamental question: how badly does a supplier need your business? Factors Suppliergiving power industry to supplier: dominated by few firms Buyer is not important to customer Supplier’s product is important input to buyer’s product Supplier’s products have high switching costs Supplier can “integrate forward” and become competitor of buyer 18 Threat of Substitutes Fundamental question: what other products or services could perform the same function as your products or services? Factors indicating high threat of substitutes: – Few switching costs for buyer – Price of substitute lower or quality higher than for your products – Firms offering substitutes have high profitability 19  Buyer Power Fundamental questions: How badly does a buyer need your products or services? Factors contributing to high buyer power: – Few buyers compared to the number of sellers – Buyers purchases high relative to seller’s sales – Products are undifferentiated – Buyer has low switching costs – Buyer has low profits – Buyer can “integrate backward” and supply the product to itself 20 Competitive Rivalry Fundamental question: how intense is competition in the industry? Factors leading to high competitive rivalry: – Numerous or equally balanced competitors – High fixed costs – Slow industry growth – Lack of differentiation or switching costs – High strategic stakes – High exit barriers 21 Strategic Implications of the Five Competitive Forces Competitive environment is unattractive from the standpoint of earning good profits when: Rivalry is strong Entry barriers are low and entry is likely Competition from substitutes is strong Suppliers and customers have considerable bargaining power 22  Key Success Factors In many May need effort An individual Key success industries, there to distinguish company does factors are not are certain company from not have key the source of a actions or competitors success company’s practices that a factors!!!! competitive business must advantage – follow in order to they are compete in the requirements industry. for competing in an industry and do not give any firm a competitive 23 advantage  Examples of Key Success Factors in Selected Industries Pharmaceuticals: Restaurant: quality Retailer: location research and food, service, and priced-for-quality personal selling location, notoriety 24 Stages in the Industry Life Cycle 25  Embryonic: Know-how, educating customers, opening distribution channels Growth: Know-how for Requirements continued innovation, financing, in Each Stage build demand of Industry’s Shakeout: Dominant market Evolution position, low cost producer, high capacity Maturity: low cost production, brand loyalty Declining: lowest cost production, reduce capacity 26