Analyzing the environment

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Analyzing the environment

• The environment
• Macro-environment PESTEL framework and the key
  drivers of change
• Analysing industries Five forces framework
  Porter
• Analysing competition
• Analysing consumers
• Strategic gaps and Opportunities and Threats

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1. The enviroment
Layers of the business environment
The macro environment
Industry (or sector)
Competitors
The organisation
Markets (consumers)
The five forces frame work
The PESTEL Analysis
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The PESTEL Framework

• Economic factors
• Business cycles
• GNP trends
• Interest rates
• Money supply
• Inflation
• Unemployment
• Disposable income

• Technological
• Government spending on
• research
• Government and industry
• focus on technological effort
• New discoveries/developments
• Speed of technology transfer

• Environmental
• Environmental
• protection laws
• Waste disposal
• Energy consumption

The Organisation

• Legal
• Competition law
• Employment law
• Health and safety
• Product safety

• Socio cultural factors
• Population demographics
• Income distribution
• Social mobility
• Lifestyle changes
• Values and culture
• Attitudes to work and leisure
• Consumerism
• Levels of education

• Political
• Government stability
• Taxation policy
• Foreign trade regulations
• Social welfare policies

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The industry Life cycle (Michael Porter)
Intro-duction
Growth
Maturity
Decline
Industry sales
Time
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The five forces framework (Michael Porter)
Analysis of industry attractiveness
Potential entrants
Threat of entry
Industry Competitors (rivalry among existing
firms)
Suppliers
Buyers
Bargaining power
Bargaining power
Threat of substitutes
Substitutes
http//www.quickmba.com/strategy/porter.shtml
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Analysis of industry attractiveness
Threat of Potential entrants is low if
economies of scale are high, If there is much
product differentiation, if much capital
required, If high switching costs, is access to
distribution channels is not easy, If high costs
are required, if governments protect a market
Buyers have more power If buyers are
concentrated If the product is undifferentiated If
backward integration possible If the selling
price for the organisation is unimportant to the
total cost of the buyer
Suppliers have more power If few suppliers If
there are no substitutes If forward integration
is possible If the suppliers prices form a
large part of the total costs of the
organisation
Industry Competitors (rivalry among existing
firms)
Substitutes
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The threat of substitutes

• 3 types of substitutes
• Product-for-product substitution
• Substitution of need
• Generic substitution
• Analyze
• The possible threat of obsolescence
• The ability of the customers to switch to the
  substitute
• The cost of providing some extra aspect of the
  service that will prevent switching

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Competitive rivalry

• The degree of competitive rivalry is affected by
• The extent to which competitors are in balance
• Industry growth rates, low industry growth,
  company growth is realised by taking market
  shares from competitors
• High fixed cost, price wars, low margins
• High exit barriers, excess capacity, increased
  competition
• Differentiation, if products are
  undifferentiated, competitors have difficulty to
  distinguish themselves, customers switch easly,
  rivalry increases

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The five forces framework Apple computers
Potential entrants Low Macintosh corporate
culture is preserved by the company. The know
how and the technology is protected
Buyer power Low Apple buyers are Generally
devoted to the brand, they do not search
alternatives Special target group which
guarantees stability
Supplier power None all Apple products are
designed, developed and produced by Apple
computer
Competitive rivalry
Threat of substitutes High For non professional
the products of Apple are more expensive Low for
passionate computer users Apple is unique
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The five forces framework

• Must be used at the level of strategic business
  units (and not at the level of the whole
  organisation)
• Understanding the connections between competitive
  forces and the key drivers in the
  macro-environment is essential
• The five forces are not independent

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Strategy implication from the 5 forces model

• Is there a case for changing the strategic
  relationships with suppliers?
• Is there a case for forming a new relationship
  with large buyers?
• What are the key factors for success that drive
  an industry and influence its strategic
  development?
• Are there any technological developments that
  rivals are working on that could change the
  nature of the environment?

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Competitor Analysis
Identify competitors
What is their current strategy?
Awareness Availability Product quality Technical
assistance Market share Commercial
capabilities Preferences
Which to attack or to avoid?
What are their strenghts weaknesses?
What are their objectives?
How would they react?
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Identify competitors strategies

• Analyse the competitors per strategic group an
  industry with similar strategic characteristics,
  following similar strategies or competing on a
  similar bases.
• Example for a toy manufacturer, there are three
  groups of competitors
• French, spanish and portugese middle size toy
  producers
• Big international companies like Matel or Hasbro
• Low cost companies in Asia (China and Taiwan)

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Sources of competitor information

• Secondary information sources
• Internal sources
• Annual reports
• General business publications
• Consultants
• Trade associations
• Electronic data services
• Primary information sources
• Sales force and customers
• Employees
• Suppliers
• Trade shows

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Customers

• Who they are?
• Which segments exist? How attractive are they?
• Why do they buy?
• How they make purchase decisions?
• Where they purchase?
• When they buy?
• Understanding what customers value
• Critical success factors those product features
  that are particulary valued by a group of
  customers and therefore, where the organisation
  must excel to outperform competion

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Customer analysis

• Analyzing
• Current customers
• Competitors customers
• Former customers
• People who have never purchased the product

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Priority in analysis

• Customer comes first
• Immediate competition
• Broader environment

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Opportunities and Threats

• The identification of opportunities and threats
  can be valuable when deciding on strategic
  choices.
• Managers should seek opportunities in the
  competetive environment that is not being fully
  exploited by competitors (strategic gap)