Learning Outcomes
At the end of this session you will: Understand the nature of the environment Be able to conduct an audit of the environmental influences Be able to analyse the competitive environment Understand how to identify the organisations competitive position Appreciate the nature of environmental analysis in practice
Steps in Environmental Analysis
Assess the nature of the environment Audit environmental influences Identify key competitive forces Identify competitive position Identify key opportunities & threats
Strategic Position
Approaches to Making Sense of the Environment Environmental Conditions
Simple Static
Complex
Historical analysis Forecasting
Decentralisation of organisations
Environmental Conditions
Scenario planning
Experience and learning
Dynamic
Audit of Environmental Influences
PEST analysis
Porters Diamond
PEST Analysis 1. What environmental factors are affecting the
organisation? 2. Which of these are the most important at the present time? In the next few years?
Political/leg al
Economic Sociocultural cal
Technologi
Monopolies legislation Environmental protection
laws
Political/le gal
Taxation policy Foreign trade regulations Employment law Government stability
Econo mic
Business cycles GNP trends Interest rates Money supply Inflation Unemployment Disposable income Energy availability and
cost
Population demographics Income distribution Social mobility Lifestyle changes Attitudes to work and
leisure
Sociocultural
Consumerism Levels of education Cultural factors
Govt spending on research Govt and industry focus of technological
effort
Technologi cal
New discoveries/development Speed of technology transfer Rates of obsolescence
Globalisati on refers to the belief that the world is becoming
a single market -
Ease of communications (travel, telecommunications) Some markets global for some time - economies of
scale -civilian aircraft, motor vehicle manufacture
More opportunities due to greater export orientation of developing countries Co's seeking opportunities in developing countries
as they start to industrialise
Shift towards service industries, move to low cost'
countries eg. clothing and textiles
Drivers of globalisation
Global market convergence Similar customer needs Global customers Transferable marketing Trade policies Technical stds Host govt policies Scale economies Sourcing efficiencies Country-specific costs High product development costs
Govt influence
Global strategies
Cost advtgs
Interdependence Competitors global High exports/imports Global competition
Competitive Advantage of Nations - Porter
Why does a nation become the home base for successful international competitors in an industry? Why are firms based in a particular nation able to create and sustain competitive advantage against the world's best competitors in a particular field? Why is one nation often the home for so many of an industry's world leaders?
Competitive Advantage of a Nation's Industries
Determined by the following factors and relationships between them:
Factor conditions (basic Vs.
advanced)
Demand conditions Related and Supporting Industries Firm Strategy, Structure and Rivalry
The Diamond of Competitive Advantage
Firm strategy, structure, rivalry
Factor conditions
Demand conditions
Related and supporting industries
The Competitive Environment
Porters Five Forces Analysis
Elements of Industry Structure
NEW ENTRANTS
INDUSTRY COMPETITORS SUPPLIERS
Intensity of Rivalry
BUYERS
SUBSTITUTES
Five Forces Analysis (1)
The threat of entry ... Dependent on barriers to entry such as: Economies of scale Capital requirements of entry Access to distribution channels Cost advantages independent of size (eg the experience curve) Expected retaliation Legislation or government action Differentiation
Five Forces Analysis (2)
Buyer power is likely to be high when: There is a concentration of buyers There are many small operators in the supplying industry There are alternative sources of supply Components or materials are a high percentage of cost to the buyer leading to shopping around Switching costs are low There is a threat of backward integration
Five Forces Analysis (3)
Supplier power is high when: There is a concentration of suppliers Switching costs are high The supplier brand is powerful Integration forward by the supplier is possible Customers are fragmented and bargaining power low
Five Forces Analysis (4)
Threat of substitutes Substitutes take different forms: Product substitution Substitution of need Generic substitution Doing without
Five Forces Analysis (5)
Competitive Rivalry is high when: Entry is likely Substitutes threaten Buyers or suppliers exercise control Competitors are in balance There is slow market growth Global customers increase competition There are high fixed costs in an industry Markets are undifferentiated There are high exit barriers
The life cycle model
Development Growth Shakeout Maturity Decline
Users/ buyers
Growing Few: trial Growing of early adopters: trial selectivity of purchase adopters of product /service Entry of competitor sAttempt to achieve trial Fight for Undifferen share -tiated products /services
Competitive Few conditions players
Saturation of users Repeat purchase reliance May be many Fight to maintain Likely price share cutting for Difficulties in volume gaining/ Shake-out of taking share Emphasis weakest competitors on efficiency /low cost
Drop-off in usage
Exit of some competitors Selective distribution
Five Forces Analysis: Key Questions and Implications
What are the key forces at work in the competitive environment? Are there underlying forces driving competitive forces? Will competitive forces change? What are the strengths and weaknesses of competitors in relation to the competitive forces? Can competitive strategy influence competitive forces (eg by building barriers to entry or reducing competitive rivalry)?