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The External Environment. Lecture Outline. Analysis of Macro Environment PESTEL Industry analysis 5 Forces Model Life-Cycle Model. Understanding the Environment- Issues. Diversity Many different influences Complexity Interconnected influences-

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Presentation Transcript
lecture outline
Lecture Outline
  • Analysis of Macro Environment
    • PESTEL
  • Industry analysis
    • 5 Forces Model
  • Life-Cycle Model
slide3

Understanding the Environment- Issues

  • Diversity
    • Many different influences
  • Complexity
    • Interconnected influences-
        • eg Information Technology changes the nature of work- changes lifestyles- alters consumer behaviour
  • Speed of change
    • Particularly ICT –means more and faster change
slide6

Macroenvironment – PESTEL (2)

  • Political
  • Government stability
  • Taxation policy
  • Foreign trade regulations
  • Social welfare policies
  • Economic
  • Business cycles
  • GNP trends
  • Interest rates
  • Money supply
  • Inflation
  • Unemployment
  • Disposable income
slide7

Macroenvironment – PESTEL (3)

  • Sociocultural
  • Population demographics
  • Income distribution
  • Social mobility
  • Lifestyle changes
  • Attitudes to work and leisure
  • Consumerism
  • Levels of education
  • Technological
  • Government spending on research
  • Government and industry focus on technological effort
  • New discoveries /developments
  • Speed of technology transfer
  • Rates of obsolescence
slide8

Macroenvironment – PESTEL (4)

  • Environmental
  • Environmental protection laws
  • Waste disposal
  • Energy consumption
  • Legal
  • Competition law
  • Employment law
  • Health and safety
  • Product safety
slide10

Key Aspects of PESTEL Analysis

  • Not just a list of influences
  • Need to understand key drivers of change
  • Focus is on future impact of environmental factors
  • Combined effect of some of the factors likely to be most important
likely future trends
Likely Future Trends
  • Portable Information Devices
  • Alternative Energy Sources-
    • Geothermal, hydroelectric
  • GM foods and farming
  • Growth of Woofies
  • Environmental Awareness
slide12

External Environment

  • Issues Priority Matrix
  • Identify likely trends:
    • Societal and task environments
      • Strategic environmental issues
  • Assess probability of trends occurring
    • Low to High
  • Ascertain likely impact of trends on the corporation
    • Low to High
slide13

Probable Impact on Corporation

Low

High

Medium

High

High

Medium

Priority

Priority

Priority

High

High

Medium

Low

Priority

Priority

Priority

Medium

Probability of Occurrence

Medium

Low

Low

Priority

Priority

Priority

Low

Issues Priority Matrix

porter s diamond
Porter’s Diamond
  • PESTEL factors differ from country to country –their competitive impact will differ from country to country
  • Porter’s (1990) suggests reasons why some countries are more competitive than others
slide15

Porter’s Diamond The Determinants of National Advantage

Source: M. Porter, Competitive Advantage of Nations, Macmillan, 1990.

porter s diamond1
Porter’s Diamond
  • Factor conditions
    • Education, infrastructure, cash, eg, Taiwan
  • Demand Conditions, eg, Japanese demand for quality.
  • Firm Strategy, Structure & Rivalry. Eg, Taiwan’s SME sector
  • Supporting Industries, eg Italy, leather, Silicon Valley computer related industry
scenario analysis
Scenario Analysis
  • How the business environment might develop in the future based on key environment changes around which there is a high degree of uncertainty.
  • Newspaper Industry
    • Influence of electronic media
  • Energy Industry
    • Environmental issues
    • Middle East Situation
slide18

Industry Analysis

Industry

A group of firms producing a similar product or service, such as soft drinks or financial services.

slide20

Industry Analysis (1)

  • Threat of New Entrants --
    • Barriers to entry:
      • Economies of Scale
      • Product Differentiation
      • Capital Requirements
      • Switching Costs
      • Access to Distribution Channels
      • Cost Disadvantages Independent of Size
      • Government Policy
slide21

Industry Analysis (2)

  • Rivalry Among Existing Firms --
    • Intense rivalry related to:
      • Number of competitors
      • Rate of Industry Growth
      • Produce or Service Characteristics
      • Amount of Fixed Costs
      • Capacity
      • Height of Exit Barriers
      • Diversity of Rivals
slide22

Industry Analysis (3)

  • Threat of Substitute Products/Services
    • Substitute Products:
    • Those products that appear to be different but can satisfy the same need as another product. To the extent that switching costs are low, substitutes can have a strong effect on an industry.
slide23

Industry Analysis

  • Bargaining Power of Buyers --
    • Buyer is powerful when:
      • Buyer purchases large proportion of seller’s products
      • Buyer has the potential to integrate backward
      • Alternative suppliers are plentiful
      • Changing suppliers costs very little
      • Purchased product represents a high percentage of a buyer’s costs
      • Buyer earns low profits
      • Purchased product is unimportant to the final quality or price of a buyer’s products
slide24

Industry Analysis

  • Bargaining Power of Suppliers --
    • Supplier is powerful when:
      • Supplier industry is dominated by a few companies but sells to many
      • Its product is unique and/or has high switching costs
      • Substitutes are not readily available
      • Suppliers are able to integrate forward and compete directly with present customers
      • Purchasing industry buys only a small portion of the supplier’s goods.
industry analysis1
Industry Analysis
  • The collective strength of these forces determines the ultimate profit potential of an industry.
  • The stronger each of these forces the more limited industries are in their ability to raise prices and increase profits
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