1. Define the environment in the context of business Learn the difference between the general environment and the industry Explain how PESTEL analysis is useful to organizations Explain how five forces analysis is useful to organizations Understand what strategic groups are Chapter 3 Learning Objectives 3-1

2. Environment: Set of external conditions and forces that have the potential to influence the organization – General environment (macroenvironment): Overall trends and events in a society such as - social trends, technological trends, demographics, and economic conditions – Industry (competitive environment): Consists of multiple organizations that collectively compete with one another by providing similar goods, services, or both Environment 3-2

3. The environment provides resources that an organization needs in order to create goods and services The environment is a source of opportunities and threats for an organization – Opportunities: Events and trends that create chances to improve an organization’s performance level – Threats: Events and trends that may undermine an organization’s performance The environment shapes the various strategic decisions that executives make as they attempt to lead their organizations to success Why Does the Environment Matter? 3-3

4. A tool that executives can rely upon, to organize factors within the general environment and identify how these factors influence industries and the firms within them The Elements of the General Environment: PESTEL Analysis 3-4

5. Political Factors

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7. Economic Factors

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9. Social Factors

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11. Technological Factors

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13. Environmental Factors

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15. Legal Factors

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17. Lime Market 17 NY Times Article

18. Five forces analysis: Technique for understanding an industry, by examining the interactions among: – Competitors in an industry – Potential new entrants to the industry – Substitutes for the industry’s offerings – Suppliers to the industry – Industry’s buyers Purpose of the analysis is to identify how much profit potential exists in an industry Five Forces Analysis 3-18

19. Porter’s Five Forces 3-19 Five Forces Video

20. Competitors

21. Intense Rivalry 21

22. Industry Concentration 22

23. Potential Entrants

24. Economics of scale Capital requirements Access to distribution channels Government policy Differentiation Switching costs Expected retaliation Cost advantages independent of size Barriers to Entry 24

25. Suppliers

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27. Buyers

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29. Substitutes

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31. It assumes that competition is a zero sum game - the amount of profit potential in an industry is fixed Collaboration is a possibility that five forces analysis tends to downplay Doesn’t explain variation in performance within an industry Limitations of Five Forces Analysis 3-31

32. Strategic groups: Consist of a set of industry competitors, that have similar characteristics to each other but differ in important ways from the members of other groups – Narrows the focus by centering on subsets of the competitors, whose strategies are similar to each other The analysis of the strategic groups in an industry can offer important insights to executives – Closest rivals – Alternative paths to success – Untapped opportunities Mapping Strategic Groups 3-32

33. Strategic Groups in the Restaurant Industry

34. An organization’s environment is a major consideration. The environment is the source of resources that the organizations needs. It provides opportunities and threats, and it influences the various strategic decisions that executives must make. PESTEL analysis can be a useful tool in understanding an organization’s general environment. Five Forces analysis can be a useful tool in understanding an organization’s industry environment. Chapter 3: Key Takeaways 34