environment analysis 2.ppt

8/10/2019 Environment analysis 2.ppt

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Environmental Analysis


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Topics

Purpose of General Environmental Analysis Gathering Information

GeneralEnvironment

CompetitiveEnvironment Key Success Factors

Competitive Changes During Industry Evolution

Strategic Groups

National Competitive Advantage

InternalEnvironment

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Purpose of General Environmental

Analysis Organizations are affected by conditions

in the environment

Managers need to be aware of theseconditions in order to Take advantage of opportunitiesthat can leadto higher profits

Reduce the impact of threatsthat can harmthe organizations future

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Gathering Information forExternal Environmental Analysis

Managers need information in order to know

and develop an understanding about what is

happening in the external environment

Three approaches to information gathering:1. Scanning:general surveillance of environmental

changes; looking for early signals of changes

2. Monitoring:close attention to specific

developments that could affect the organization3. Competitive Intelligence:following actions of

competitors

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Sources of Environmental Data

Internal sources may also be a good source of data on customer needs,attitudes, and behavior. The organization's own records are the bestsource of data on current objectives, performance, and availableresources.

The sheer volume of available information on the economy, our population,and business activities is the major strength of most government datasources.

The articles and research reports that are available in periodicals andbooks provide a gamut of information about many organizations,industries, and nations.

Commercial sources are almost always relevant to a specific issue becausethey deal with the actual behaviors of customers in the marketplace.

The best approach to secondary data collection is one that blends data and

information from a variety of sources. If needed secondary data is not available, out of date, inaccurate or

unreliable, or irrelevant to the specific problem at hand, the manager mayhave little choice but to collect primary data through marketing research.

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Overcoming Problems with DataCollection

One of the most common problems is an incomplete orinaccurate assessment of the situation for which datais being gathered to address.

Another common difficulty is the expense of collectingenvironmental data.

A third issue is the time it takes to collectenvironmental data.

A final challenge is finding a way to organize the vastamount of data and information that are collectedduring the environmental analysis.

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Three Areas for Analysis

1. General Environment

2. Competitive Environment3. Internal Environment

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General & Competitive Environments

General Environment

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Competitive

Environment

Threat on new entrants

Bargaining power of suppliers

Bargaining power of buyers

Threat of substitute products

Competitive rivalry

Demographics

Political/Legal

Technological

Global

Sociocultural

Macoreconomic8


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GENERAL Environment

DEMOGRAPHICS Characteristics of a countrys population

Size of population and growth rate

Age distribution of population Education levels

Income distribution

Ethnic diversity

Geographic distribution

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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

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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

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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

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General Environment

GLOBAL International developments that can

impact a business

Rise of China as economic power Rising global trade and WTO

Intellectual property protection

Important political events: Iraq war

Search for low cost suppliers

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COMPETITIVE Environment

Managers must understand the conditionsof competition within their industry Porter Five-Forces Model of Competition(determining the attractiveness of an industry)

Key Success Factors Competitive Changes During industryEvolution

Strategic Groups

National Competitive Advantage

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Porters Five Forces Model ofCompetition

Substitute Products(of firms inother industries)

Suppliersof KeyInputs

Buyers

PotentialNew

Entrants

RivalryAmong

CompetingSellers


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Threat of New Entrants

Fundamental question: how easy is itfor another company to enter theindustry?

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

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Supplier Power

Fundamental question: how badly doesa supplier need your business?

Factors giving power to supplier: Supplier industry dominated by few firms

Buyer is not important to customer Suppliers product is important input tobuyers product

Suppliers products have high switching

costs Supplier can integrate forward and becomecompetitor of buyer

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Threat of Substitutes

Fundamental question: what otherproducts or services could perform thesame function as your products orservices?

Factors indicating high threat ofsubstitutes: Few switching costs for buyer

Price of substitute lower or quality higher

than for your products Firms offering substitutes have highprofitability

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Competitive Rivalry

Fundamental question: how intense iscompetition 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

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Four Basic Types of Competition

1. Brand Competitors: market products that aresimilar in features and benefits to the samecustomers at similar prices

2. Product Competitors: compete in the same

product class, but with products that aredifferent in features, benefits, and price

3. Generic Competitors: market very differentproducts that solve the same problem or satisfy

the same basic need4. Total Budget Competitors:compete for the

limited financial resources of the same customers

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Key Success Factors

In many industries, there are certainactions or practices that a businessmust follow in order to compete in theindustry.

May need effort to distinguish companyfrom competitors

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Examples of Key Success Factorsin Selected Industries

Pharmaceuticals research and personal selling

Beer advertising and distribution

Restaurant quality food and service

Retailer location and priced-for-quality

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Changes in Competition DuringIndustrys Evolution

Over time as an industry evolves, thenature and basis of competitionchanges

Five Stages Embryonicintroduction of product Growth Shakeout

Mature Declining

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Stages of Industry Life Cycle

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Time

Embryonic

Growth

ShakeoutMature Declining


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Requirements in Each Stage ofIndustrys Evolution

Embryonic: Know-how, educatingcustomers, opening distribution channels

Growth: Know-how for continued innovation,

financing, build demand

Shakeout: Dominant market position, lowcost producer, high capacity

Maturity: low cost production, brand loyalty

Declining: lowest cost production, reducecapacity

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Strategic Implications of theFive Competitive Forces

Competitive environment is unattract ivefrom the standpoint of earning goodprofits when:

Rivalry is strong

Entry barriers are low and entry is likely

Competition from substitutes is strong

Suppliers and customers have considerablebargaining power


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Strategic Implications of theFive Competitive Forces

Competitive environment is idealfrom a profit-making standpointwhen:

Rivalry is moderate

Entry barriers are high and no firm islikely to enter

Good substitutes do not exist

Suppliers and customers are in a weakbargaining position


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Strategic Groups

Companies do not compete against all

companies in an industry Companies compete against several other

companies that follow similar strategies

Astrategic group consists of those rivalswith similar competitive approaches in anindustry

Examples ways of competing: Price -- Range of products

Innovation -- Customers served

Research

Quality

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Procedure for Constructing aStrategic Group Map

STEP 1: Identify competitive characteristics thatdifferentiate firms in an industry from oneanother

STEP 2: Plot firms on a two-variable map using

pairs of these differentiatingcharacteristics

STEP 3: Assign firms that fall in about the samestrategy space to same strategic group

STEP 4: Draw circles around each group, makingcircles proportional to size of groupsrespective share of total industry sales

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E ample St ategic G o p Map of


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Example: Strategic Group Map ofthe Video Game Industry

TypesofVideoGame

Su

ppliers/Distrib

utionChannels

Overall Cost to Players of Video Games

Low(Coin-operated

equipment)

Medium(Console players cost

$100-$300)

High(Use PC)

Arcades

Home PCs

Video gameconsoles

Online/Internet

Sony, Sega,Nintendo, several

others

Arcadeoperators Publishers

of games onCD-ROMs

MSN Gaming Zone,Pogo.com,

America Online,

HEAT, Engage,Oceanline, TEN

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Nation-State and CompetitiveAdvantage

A country may provide a competitiveadvantage for a company

Need to identify national factors in order

to determine Where most significant competitors will comefrom

Where to locate production activities

Porters Diamond of Determinants ofNational Competitive Advantage

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Determinants of National CompetitiveAdvantage

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Strategy,

Structure &Rivalry

FactorEndowments

DemandConditions

Related andSupportingIndustries

NationalCompetitiveAdvantage


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Demand Conditions

Large growing markets provide foundationfor global competition

More significant, sophisticated and

demanding consumers force companies to

innovate and improve their products

Advances in products, services and

standards improve companies knowledge

and capabilities for selling in other worldmarkets

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Related and SupportingIndustries

Provide inputs and capabilities that help a

company to improve its own products and

capabilities

Helps reduce manufacturing costs through

cost-effective, timely methods

Ongoing exchange of knowledge through

research and development and jointprojects improves both suppliers and

companies

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Conclusions About

Determinants of NationalCompetitive Advantage

Firms succeeding in global markets first

succeeded in intense competition inhome countries

Competitive advantage for global firms

comes from continuous improvement,

innovation, and change.

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INTERNAL ANALYSIS How can we assess the resource capabilities?

Resource Based View

Each firm has three basic kinds of Resources Tangible assets

Fords Cash Reserves 3Ms Patents Georgia Pacific Land holdings Coca Colas formula

Intangible assets Nike - Brand Name Dell Reputation GE- Welchs Leadership

Organizational capabilities Dells Customer Service Sonys Product Development 3Ms Innovation


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How resources become valuable

Competitively Superior

WalmartsLogistics Allowed better pricing Resource Scarcity

OPECs Oil Reserves Finite oil reserves

Appropriability Who profits from a resource?

Mickey Mouse does not have an agent

Inimitability Pricelines pricing for air tickets

Wendys Drive Through

Path dependency - Steinway with Pianos

Causal ambiguity South West Airlines Economic Deterrence

Durability How long will the competitive advantage last?

Patentable products longer durability


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Value Chain Analysis

Disaggregates a business into sets of activities Primary Activities Inbound logistics --- Operations ----

Outbound logistics ---- marketing and Sales and service

Support activities General Administration, HRM, R&D,Systems Development

How to do a VCA Identify key activities

Allocate costs to each activity

Identify the activities that differentiate the firm

Examine the Value Chain

Different activities may be important industry and strategy

Importance of activities can vary based on a companyposition in a larger scheme of activities


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environment analysis 2.ppt

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