Preview: Environmental Analysis 4 PEST Analysis 4 Industry & Market 4 Porter’s Five Forces Model 4 Generic Strategies 4 Environmental Analysis Overview 4 Industry Mindset

PEST Analysis Political Economic Social Technological - Need to look at trends in these that affect the organisation - In some texts, two other factors are considered: Legal and Environmental

Industry & Market The PEST Analysis looks at the general environment Next, it is necessary to examine the Organisation’s immediate environment – industry & markets The industry produces the goods and services; the market uses these goods/services Industry analysis is best addressed by Porter’s 5- Force Analysis – it is a form of competitor analysis

Porter: The Five Forces Model Risk of entry by potential competitors Risk of entry by potential competitors Rivalry Among Established Firms Rivalry Among Established Firms Threat of substitute products Threat of substitute products Bargaining power of suppliers Bargaining power of suppliers Bargaining power of buyers Bargaining power of buyers

Potential Competitors Defined Incumbent Companies Barriers to Entry  Brand Loyalty  Absolute Cost Advantages  Economies of Scale  Government Regulation Entry Barriers and Competition

Rivalry Among Established Companies 4 Industry Competitive Structure Consolidated One firm or one dominant firm. (monopoly) Fragmented Many firms. No dominant firm Few firms, Shared dominance (Oligopoly) The Continuum of Industry Structures

Rivalry Among Established Companies (Continued) 4 Demand Conditions vs.

Rivalry Among Established Companies (Continued) 4 Height of Exit Barriers in the Industry

The Bargaining Power of Buyers Is Highest When: Many Small Sellers - Few Large Buyers Buyers Purchase in Large Quantities Buyer Accounts for Large Percentage of Sellers’ Total Orders Buyers Can Switch Suppliers at Low Cost Buyers Purchase from Several Sellers at Once Buyers Can Vertically Integrate

Bargaining Power of Suppliers Is Highest When Sellers’ Product Has Few Substitutes and Is Important to Buyer When the Buyers’ Industry Is Not an Important Customer to the Suppliers When Differentiation Makes It Costly for Buyers to Switch Suppliers When Suppliers Can Vertically Integrate and Compete With Buyer When Buyers Can’t Vertically Integrate Backward and Supply Their Own Needs

The Threat of Substitute Products MILK

The Role of the Macro-Environment Potential competitors Potential competitors Rivalry Substitutes Substitutes Supplier power Supplier power Buyer power Buyer power

The Role of the Macro-Environment Potential competitors Potential competitors Rivalry Substitutes Substitutes Supplier power Supplier power Buyer power Buyer power Macro-Economic Environment

The Role of the Macro-Environment Potential competitors Potential competitors Rivalry Substitutes Substitutes Supplier power Supplier power Technological Environment Buyer power Buyer power Macro-Economic Environment

The Role of the Macro-Environment Potential competitors Potential competitors Rivalry Substitutes Substitutes Supplier power Supplier power Technological Environment Social Environment Buyer power Buyer power Macro-Economic Environment

The Role of the Macro-Environment Potential competitors Potential competitors Rivalry Substitutes Substitutes Supplier power Supplier power Technological Environment Demographic Environment Social Environment Buyer power Buyer power Macro-Economic Environment

The Role of the Macro-Environment Potential competitors Potential competitors Rivalry Substitutes Substitutes Supplier power Supplier power Political and Legal Environment Technological Environment Demographic Environment Social Environment Buyer power Buyer power Macro-Economic Environment

Porter’s Suggested Generic Strategies at the Business Level Cost Leadership Differentiation Focus - Avoid trying all. May end up stuck “Middle of the Road” - Could choose Cost Leadership or Differentiation, but choose (or not) to focus in each of the two