Presentation on theme: "Analyzing the environment"— Presentation transcript:
1 Analyzing the environment ObjectivesTo analyze the 5-forcesTo evaluate the 5-forces modelTo investigate the application of environmental scanning and scenario planning
2 Demographic Economic Socio cultural Technological Global Industry environment threat of new entrantsPower of SuppliersPower of BuyersProduct SubstituteIntensity of RivalrySocio culturalPolitical/ LegalTechnologicalGlobal
3 What environmental factors are affecting the organization? Which of these are the most important at the present time? In the next few years?Political/ Legal Economic factors● Monopolies legislation ● Business cycles● Environmental protection laws ● GNP trends● Taxation policy ● Interest rates● Foreign trade regulations ● Money supply● Employment law ● Inflation● Government stability ● Unemployment● Disposable income● Energy resources and cost
4 What environmental factors are affecting the organization? Which of these are the most important at the present time? In the next few years?Socio-cultural factors Technological● Population demographics ● Government spending on research● Income distribution ● Government and industry focus on● Social mobility technological effort● Lifestyle changes ● New discoveries/ development● Attitudes to work and leisure ● Speed of technology● Consumerism ● Rates of obsolescence● Levels of education
5 Key questions to ask regarding the external environment What are the industry’s dominant economic traits?What competitive forces are at work in the industry and how strong are they?What are the drivers of change in the industry and what impact will they have?Which companies are in the strongest/ weakest positions?
6 Key questions to ask regarding the external environment … Who is likely to make what competitive move next?What key factors will determine competitive success or failure?How attractive is the industry in terms of its prospects for above-average profitability?
7 Michael Porters’s Five Forces Model Analysis Bargaining Power of BuyersThreat of Forward IntegrationCan Influence Price/ VolumeFew SuppliersHigh Switching costsBargaining Power of SuppliersBackward IntegrationFew BuyersExcess SupplyInfluence Price/ VolumeHigh Switching CostsCompetitive RivalryThreat of Substitute ProductsThreat of New EntrantsPrice WarQuality DiffFeaturesCustomer ServiceEasy AccessLow PriceBetter QualityReplacement PhenomenonGovt. RegulationCapital IntensiveCost DisadvantagesTechnology Barriers
8 Rivalry among competing sellers Usually the most powerful of the five forcesCheck which weapons of competitive rivalry are most actively used by rivals in jockeying for positionPriceQualityPerformance features offeredCustomer serviceWarranties/ guaranteesAdvertising/ promotionsDealer networksProduct innovation
9 What causes rivalry to be stronger? Lots of firms, more equal in size and capabilitySlow market growthIndustry conditions tempt some firms to go on the offensive to boost volume and market shareCustomers have low costs in switching brandsOne or more firms initiates moves to bolster their standing at expense of rivalsA successful strategic move carries a big payoffCosts more to get out of business than to stay inFirms have diverse strategies, corporate priorities, resources, and countries of origin
10 The Industry is Highly competitive if the following conditions prevail High Threat of SubstitutesLow Entry BarriersHigh Bargaining Power of BuyersIntense Competitive RivalryThe Industry is less competitive if the Following Conditions PrevailLow Threat of SubstitutesHigh Entry BarriersLow Bargaining Power of BuyersModerate Competitive Rivalrye. g.Video RentalsTelecome. g.Bio PharmaBio Fertilizers
11 Implications: Future Strategy Absurd to stop abruptly after analyzingThe external environment using the 5 force modelDevelop strong alliance with buyers/ suppliersAchieve cost efficiencyAdopt superior technologyCompetitive pricingDeliver value to customer
12 Environmental scanning Monitoring and interpreting sweep ofSocialPoliticalEconomicEcologicalTechnological eventsTo spot budding trends that could eventually impact industry
13 Environmental scanning … Its purpose is toRaise consciousness of managers about potential developments that couldHave an important impact on industry conditionsPose new opportunities and threats
14 Competitor Analysis Framework ResponseWhat will our competitors do in the Future?Where do we held an advantage over our competitors?How will this change our relationship with our competitors?Future ObjectivesHow do our goals compare with our competitors goals?Current StrategyHow are we currently competing?Does this strategy support changes in the competitive structureCapabilitiesWhat are our strengths & weaknesses?How do we rate compared to our competitors?
15 Identifying industry key success factors Answers to three questions pinpoint KSFsOn what basis do customers choose between competing brands of sellers?What must a seller do to be competitively successful – what resources and competitive capabilities does it need?What does it take for sellers to achieve a sustainable competitive advantage?KSFs consist of the 3-5 really major determinants of financial and competitive success in an industry
16 Example: KSFs for the brewery industry Utilization of brewing capacity – to keep manufacturing costs lowStrong network of wholesale distributors – to gain access to retail outletsClever advertising – to induce beer drinkers to buy a particular brand
17 Example: KSFs for the aluminum industry Locating plants close to end-use customer – to keep costs of shipping empty cans lowAbility to market plant output within economical shipping distancesLocating plants closer to bauxite reservesCaptive power plants