lecture 23 electronic business (mgt-485). recap – lecture 22 e-business strategy: formulation –...
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Contents to Cover Today E-Business Strategy: Formulation – External Assessment Key External Factors Relationships between key external factors and an organization Performing an External Audit Michael Porter’s Five Forces ModelTRANSCRIPT
Lecture 23
Electronic Business (MGT-485)
Recap – Lecture 22
• E-Business Strategy: Formulation– Internal Assessment• Value Chain Analysis• Linkages within the Value Chain• Value Chain Linkages in the Supply Chain• Linkages with Supplier Value Chain• The Buyer’s Value Chain
Contents to Cover Today
• E-Business Strategy: Formulation– External Assessment• Key External Factors• Relationships between key external factors and an
organization• Performing an External Audit• Michael Porter’s Five Forces Model
External Assessment
Also called:– External Audit– External Strategic Management Audit– Environmental scanning– Industry analysis
External Assessment
External Audit:– Identification and evaluation of trends and
events beyond control of single firm• Increased foreign competition• Populations shifts• Aging society• Information technology• Computer revolution
Purpose:
– Development of Finite List:• Opportunities• Threats to be avoided
Nature of External Assessment
Five (5) broad categories:
1. Economic forces2. Social, cultural, demographic, & environmental
forces3. Political, governmental, and legal forces4. Technological factors5. Competitive forces
Key External Forces
Relationships Between Key External Forces and an Organization
Key External Forces
CompetitorsSuppliers
DistributorsCreditors
CustomersEmployees
CommunitiesManagers
StockholdersLabor Unions
Special Interest GroupsProductsServices
Opportunities&
Threats
Performing an External Audit
Gather competitive intelligence on factors:– Social– Cultural– Demographic– Environmental– Economic– Political, legal, governmental– technological
Performing an External Audit
Sources of information include:– Internet– Libraries (corporate, university, public)– Suppliers– Distributors– Customers– Competition
Performing an External Audit
Key factors:–Vary over time–Vary by industry
Performing an External AuditVariables include:– Market share– Breadth of competing products– World economies– Foreign affiliates– Proprietary account advantages– Price competitiveness– Technological advancements– Interest rates– Pollution abatement
Key External Factors
Key External Factors:
1. Oriented to long-term & annual objectives2. Measurable3. Applicable to all competing firms4. Hierarchical
• Overall company• Divisional or functional areas
Michael Porter’s Five-Forces Model (Competitive Analysis)
Potential development of substitute products
Rivalry among competing firms
Bargaining power of suppliers
Potential entry of new competitors
Bargaining power of consumers
Michael Porter’s Five-Forces Model (Competitive Analysis)• Competitive Rivalry– Competitive rivalry is a good starting point to when analyzing a
particular industry. – If entry to an industry is easy then competitive rivalry is likely
to be high. – If it is easy for customers to move to substitute products for
example from coke to water then again rivalry will be high.– Generally competitive rivalry will be high if:
• There is little differentiation between the products sold by competitors.
• Competitors are approximately the same size of each other.• If competitors have similar strategies.• It is costly to leave the industry (exit barriers)
Michael Porter’s Five-Forces Model (Competitive Analysis)• Power of Suppliers– Suppliers are also essential for the success of an
organization as they provide businesses with the resources they need to produce their products and services.
– Supplier power can come from:• If there is one or just a few suppliers that can provide the
resources a business needs.• If it is expensive to move from one supplier to another
(known also as switching cost)• If there is no other substitute for the product provided by
the supplier.
Michael Porter’s Five-Forces Model (Competitive Analysis)• Power of Buyers– Buyers or customers can exert influence and control
over an industry in certain circumstances. – This happens when:• There is little differentiation over the product and
substitutes can be found easily by customers/buyers. • Buyers/customers are sensitive to price fluctuations.• Switching to another product is not costly for
customers/buyers.
Michael Porter’s Five-Forces Model (Competitive Analysis)• Threat of Substitutes– Are there alternative products that customers can
purchase instead of yours? – Alternative products that offer the same benefit as your
products? – The threat from substitute (competitor) products is high
when:• The price of the substitute (competitor) product falls.• It is easy for consumers to switch from one substitute product
to another.• Buyers are willing to substitute products from different
competitors.
Michael Porter’s Five-Forces Model (Competitive Analysis)• Threat of New Entrant– The threat of new organizations entering the
industry is high when it is easy for an organization to enter the industry i.e. entry barriers are low.
– When a new business is deciding whether to enter an industry it will look at:• How loyal customers are to existing products,• How quickly it can achieve economy of scales• Would it have access to suppliers and• Would government legislation prevent them or encourage
them to enter the industry.
Summary
• E-Business Strategy: Formulation– External Assessment• Key External Factors• Relationships between key external factors and an
organization• Performing an External Audit• Michael Porter’s Five Forces Model