business environment dr. raj agrawal director aima
TRANSCRIPT
Business Environment
Dr. Raj Agrawal
Director
AIMA
Outline
Introduction The Company’s Macro-environment The Competitors Porter's Five Forces ModeL Internal Environment
Introduction
Definition:
The Company’s environment consists of "the actors and forces that affect management's ability to develop and maintain successful transactions with its target customers"
Introduction (cont’d)
Companies must evaluate both micro and macro-environment to identify any trends that may affect their strategies, and
opportunities that can be developed into competitive advantages
Porter's Five Forces model analyses market structures to determine market attractiveness taking into consideration the micro and macro environments in its construction
Company’s Macro-environment
Relates to the larger forces having an impact on society as a whole
A company has little influence on these forces and therefore can only adapt its marketing mix to account for the resulting opportunities and threats
What the Firm Might Do
What the Firm Can Do
External EnvironmentExternal Environment
Five Forces AnalysisFive Forces Analysis
Internal EnvironmentInternal EnvironmentResources, Capabilities and Core CompetenciesResources, Capabilities and Core Competencies
SustainableSustainableCompetitiveCompetitiveAdvantageAdvantage
Major forces of the macro-environment
Demographic Economic Natural Technological Cultural Political/legal
Demographic Environment
Demographic trends: Changing age structure Changing family structure Geographic shifts in population Higher education level & more white
collar job holders Increasing globalization of cities such
as Singapore
Economic Environment
Economic trends affecting consumers buying power and spending pattern
Change in per capital real incomeDisposable DiscretionaryIncome distribution
Savings & debt Consumer expenditures Change in interest rates and cost of living
Natural environment
Natural trends include those natural resources used in production or those affected by marketing activities
Raw material shortages Increase in energy cost Increase pollution levels Increase in Governmental intervention in
natural resource management
Technological Environment
Consists of forces that affect new technology, new product development and market opportunities
Faster pace of technological changeShorter PLC
Higher R&D budgets Concentration on minor improvements Increased regulations
Cultural Environment
Affect society's basic values, perceptions, preferences and behaviors
Core cultural values and beliefs Secondary cultural values Sub cultures
Legal and Political EnvironmentTrends in the legal and political environment
include Increased legislation regulating business
Singapore’s Fair Trading Act (impending) Changing government agency
enforcement Growth of public interest groups Regional groupings
ASEAN FTZ
Competitive Analysis
Who are the competitors? Do we know about our close competitors’
strengths and weaknesses? How detail should we analyze the
competition?Use a systematic approach Analysis competition at various levels
(next slide)
Industry Competition
Different industries can sustain different levels of profitability; partly due to the difference in industry structure
Porter’s Model of Industry Competition, commonly know as Porter’s Five Forces provides a framework for analyzing the influence of the forces on the industry to determine the industry’s profitability and competitiveness
Porter’s Model of Industry Competition
Industry degree of rivalry
BuyersSuppliers
Barriers to Entry
Substitutes
STRENGTHS
A STRENGTH is something a company is good at doing or a characteristic that gives it an important capability.
Possible Strengths: Name recognition Proprietary technology Cost advantages Skilled employees Loyal Customers
WEAKNESSES
A WEAKNESS is something a company lacks or does poorly (in comparison to others) or a condition that places it at a disadvantage
Possible Weaknesses: Poor market image Obsolete facilities Internal operating problems Poor marketing skills
STRENGTHS AND WEAKNESS FORM A BASIS FOR INTERNAL ANALYSIS
By examining strengths, you can discover untapped potential or identify distinct competencies that helped you succeed in the past.
By examining weaknesses, you can identify gaps in performance, vulnerabilities, and erroneous assumptions about existing strategies
TOOLS USEFUL IN ASSESSING
STRENGTHS AND WEAKNESSES?
Resources Capabilities Core Competencies and Competitive Advantage
RESOURCES
Inputs into a firm’s production process such as capital equipment, skill of individual employees, patents, finance, and talented managers Tangible Resources – Assets that can be seen
and quantified Intangible Resources – Family commitment,
networks, organizational culture, reputation, intellectual property rights, trademarks, copyrights
By themselves, resources do not create a strategic advantage for the firm.
CAPABILITIES
Capacity to deploy resources that have been purposely integrated to achieve a desired end state.
Primary base for the firm’s capabilities is the skills and knowledge of its employees.
Just because the firm has a strong capacity for deploying resources does not mean it has a competitive advantage
CAPABILITIES
Capacity to deploy resources that have been purposely integrated to achieve a desired end state.
Primary base for the firm’s capabilities is the skills and knowledge of its employees.
Just because the firm has a strong capacity for deploying resources does not mean it has a competitive advantage.
CORE COMPETENCIES
Resources and capabilities serve as a source of competitive advantage for a firm over its rival.
Not all resources and capabilities are core competencies.
Many suggest that firms should identify and concentrate on only 3 or 4 core competencies.
KEY VARIABLES
Valuable Capabilities Rare Capabilities Costly to Imitate Capabilities Non-substitutable capabilities
IDENTIFYING AND BUILDING CORE COMPETENCIES
Core competencies must be distinctive.Capabilities that are done better than
competitors Identifying core competencies is key to
development of sound strategy. We use the value chain to help identify
core competencies.
THE VALUE CHAIN
A framework for identifying core competenciesInside the firmIn the supply chain
Can be used toIdentify strengths and weaknessesIdentify sources of competitive advantageIdentify market opportunities
THE VALUE CHAIN
Strategic value analysis focuses on a firm’s relative value position vis-à-vis its rivals.
Strategic cost analysis focuses on a firm’s relative cost position vis-à-vis its rivals.
ResourcesResources
** TangibleTangible** IntangibleIntangible
CapabilitiesCapabilities
Teams of ResourcesTeams of Resources
Sources ofSources of
CoreCoreCompetenciesCompetencies
CompetitiveCompetitiveAdvantageAdvantage
StrategicStrategicCompetitivenessCompetitiveness
Above-AverageAbove-AverageReturnsReturns
CompetitiveCompetitiveAdvantageAdvantage
Gained throughGained throughCore CompetenciesCore Competencies
DiscoveringDiscoveringCoreCore
CompetenciesCompetencies
ValueChain
Analysis
ValuableRareCostly to ImitateNonsubstitutable
****
* Outsource
Criteria ofSustainableAdvantages
Discovering Core CompetenciesDiscovering Core Competencies