Topic 2 Revision Notes

Transcription

1 Topic 2 Revision Notes The Environment: The industrial organisations (I/O) Paradigm: Is a theory based around the belief that organisations either succeed or fail depending upon their fit with their industry and external environment (ie rather than internal operations). That is, they succeed based upon the nature of the industry. Therefore it is extremely important that organisations understand the dynamics of the environment and industry they operate in. The External (Macro) Business Environment: The PESTEL Framework: PESTEL helps to provide a list of potentially important environmental issues that influence an organisations strategy PESTEL analysis looks at the key drivers for change; ie it looks at the trends and opportunities in the business environment It categorizes environmental factors into six key types: Political Factors: Economic Factors: Social Factors: Technological Factors: -Taxation changes -Foreign trade regulations -Interest rates -Personal disposable income -Exchange rates -Unemployment rates Relates to changing cultures and demographics -Changes in culture and consumption patterns -Lifestyle changes -Ageing population Relates to new discoveries and technological developments -Developments on the internet

2 Ecological Factors: Legal Factors: This refers to green environmental issues -Pollution -Waste & Recycling -Energy consumption Includes legislative and regulatory constraints or changes -Competition law -Trade law -Employment law When using the PESTEL analysis it is important to identify factors which are important currently, but it is also important to consider which factors will become more important in the next few years External Factor Evaluation Matrix (EFE Matrix) Steps to a structured PESTEL Analysis: 1. List key external factors the key drivers for change 2. Weight from 0-1 in terms of strategic importance 3. Rate effectiveness of firm s current strategies in addressing external factors (1. Poor to 4. Superior) 4. Multiply weight by rating 5. Sum weighted scores 6. The total weighted score will range between =poor response, 4=very effective response to environmental factors.

3 Scenarios: Scenarios are plausible views of how the environment of an organisation might develop in the future based on the PESTEL Analysis An organisation will typically develop a few alternative scenarios (2-4) to explore and evaluate strategic options. This should include both potential positive outcomes and consequences that may arise from each scenario. Industries/Sectors/Competition & Markets: Industries, markets & sectors defined: An industry is a group of firms producing products and services that are essentially the same -EG Automobile industry A market is a group of customers for specific products or services that are essentially the same -EG Market for luxury cars A sector is a broad industry group. It is used often in the public sector. -EG Health sector Competitive Forces in an Industry Porter s Five Forces Framework: Porter s five forces framework helps identify the attractiveness of an industry in terms of five competitive forces: Competitive Rivalry: Threat of New Entrants: Threat of Substitutes: Buyer Power: Competitive rivals are organisations with similar products and services aimed at the same customer group and are direct competitors in the same market -EG Coca Cola & Pepsi The degree of rivalry increases when: -Competitors are aggressive -The exit barriers are high -There is a low level of differentiation Barriers to entry are the factors that new to be overcome by new entrants if they are to compete. The threat of entry is low when the barriers to entry are high. The main barriers to entry include: -Economies of scale & Fixed costs -Experience and learning -Legislation or government restrictions (eg licensing) -Access to supply and distribution channels Substitutes are products or services that offer a similar benefit to consumers Customers will switch to alternatives if: -The price or performance of a substitute are superior -The substitute benefits from an innovation that improves customer satisfaction If buyers are too powerful, then they can demand cheap prices or product/service improvements which may reduce the organisations profits Buyer power is likely to be high when: -Buyers have low switching costs (eg ease of switching from mac to pc) -Buyers can supply their own inputs (eg buy own water) -The buyers are concentrated (ie few of them)

4 Supplier Power: Powerful suppliers can reduce an organisation s profits Supplier power is likely to be high when: -The suppliers are concentrated (ie few of them) -Suppliers provide a specialist or rare input -Switching costs are high Implications of Five Forces Analysis: -Identifies which markets are attractive to enter, or which markets the organisation should leave -The five forces have different impacts on different organisations. That is, large firms can deal with barriers to entry more easily than small firms Issue in Five Forces Analysis: -Converging industries: EG High tech organisations, where industries overlap (eg mobile phones, cameras, etc) -Complementary organisations: may enhance the attractiveness of a business to customers or suppliers (eg Microsoft and McAfee computer security systems) Types of Industries: Monopolistic Industry: Oligopolistic Industries: -An industry with one firm and therefore no competitive rivalry -It is a firm with a dominant position in the market -EG Google -An industry dominated by a few firms with limited rivalry and in which the firms have power over buyers and suppliers (eg Boeing & Airbus, Windows & Mac, Woolworths & Coles, Internet Explorer & Firefox & Chrome, IPhone & Samsung) The Industry Life-Cycle:

5 Strategic Groups: Strategic Groups are organisations within an industry or sector with similar strategic characteristics, following similar strategies or competing on similar bases Strategic group analysis helps understand strategic opportunities; that is identify attractive strategic spaces within an industry. It also helps understand direct competitors within a strategic group, rather than the whole industry. Market Segments: A market segment is a group of customers who have similar needs -Where these customer groups are relatively small, such markets are called niches -Not all segments are attractive or viable market opportunities evaluation is essential Bases for market segmentation:

6 Critical Success Factors (CSFs): Critical success factors are those factors that are particularly valued by customers and/or provide a significant advantage in terms of cost Critical success factors are likely to be an important source of competitive advantage if an organisation has them (or a disadvantage if an organisation lacks them) Blue Ocean Thinking: Blue Oceans are new market spaces where competition is minimized Blue ocean thinking involves management thinking outside of the square to be different by finding or creating market spaces that are not currently being served Red Oceans: Red Oceans are where industries are already well defined and rivalry is intense.