ppt environment factors, strategix management

7/28/2019 Ppt Environment Factors, strategix management

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The Firms External Environment

Remote Environment (Global and Domestic)

Industry Environment (Global and Domestic)

Operating Environment (Global and Domestic)

Economic Social Political Technological

Ecological

Entry barriers

Supplier power

Buyer power

Substitute availability Competitive rivalry

Competitors

Creditors

Customers

Labor Suppliers

THE FIRM


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2Economic Factors

Concern nature and direction of economy inwhich a firm operates

Types of factors

General availability of credit

Level of disposable income

Propensity of people to spend

Prime interest rates

Inflation rates

Trends in growth of gross national product


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3Social Factors

Include beliefs, values, opinions, and lifestyles

of people

Recent social trendsEntry of large numbers of women into labor market

Accelerating interest of consumers and employees

in quality-of-life issues

Shift in age distribution of population


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4Political Factors

Define legal and regulatory parameters withinwhich firms must operate

Types of factors

Fair-trade decisions

Antitrust laws

Tax programs

Minimum wage legislation

Pollution and pricing policies

Administrative jawboning


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5Technological Factors

Focus on technological changes affecting industry

Types of changes

New products

Improvements in existing products

Manufacturing and marketing techniques

Role of technological forecasting

Foresees advancements and estimating their impact

Alerts managers to impending challenges and

promising opportunities


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6Ecological Factors

Involve relationships among human beingsand other living things and air, soil, and water

Current concerns

Global warmingLoss of habitat and biodiversity

Air, water, and land pollution

Responsibilities of firmsEliminating toxic by-products of current

manufacturing processes

Cleaning up prior environmental damage


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7Factors Used to Assess the International Environment

Economic Env. Level of economic development Population GNP Per capita income

Literacy level Social infrastructureNatural resources Climate

Membership in economic blocs Monetary and fiscal policies Wage and salary levels Currency convertibility

Inflation and interest rates Taxation system

Political System Form of government Political ideology

Stability of government

Strength of opposition parties Social unrest

Political strife and insurgency

Governmental attitude towards

foreign firms Foreign policy


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8Factors Used to Assess the International Environment

Legal Environment

Legal tradition

Effectiveness of legal system

Treaties with foreign nations

Patent trademark laws

Laws affecting business firms

Cultural Env.

Customs, norms, values,

beliefs

Language

Attitudes

Motivations

Social institutions

Status symbols

Religious beliefs


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Firms External Environment


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Industry/Competitive Environment

Harvard professorMichael E. Porter propelledthe concept of industry environment into theforeground of strategic thought and businessplanning.

The cornerstone of Porters work first appeared intheHarvard Business Review, in which heexplains the five forces that shape competition in

an industry. Porters well-defined analytic framework helps

strategic managers to link remote factors to theireffects on a firms operating environment.


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Competitive Forces Shape Strategy

The essence of strategy formulation is coping withcompetition.

Intense competition in an industry is neithercoincidence nor bad luck.

Competition in an industry is rooted in itsunderlying economics, and competitive forcesexist that go well beyond the established

combatants in a particular industry. The corporate strategists goal is to find a positionin the industry where his or her company can bestdefend itself against these forces or can influence

them in its favor.


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The Goal of Competitive Strategy

To Achieve a Defensible Position Against the

Competitive (Five) Forces that Are Constantly

Working to Erode Industrywide Profitability


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Competitive Forces

Any Entity (Group or Class of

Firms) that has the Potential to

Erode Profitability Among Firms

within an Industry


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Government Influence on the Model

We Consider the Influence of

Government as Felt through its

Role(s) as one of the Five Forces:

Government can be a Potential

Entrant, Supplier, Buyer, Substitute,

or Rival Firm


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Five Forces Driving Industry Competition


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Breakout Groups by Case

1. Define your Industry

2. Most Significant General Environmental Factor

3. Top Two More Significant of the Five Forces

You have 15 minutes!

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The Five Forces

Threat of Entry

Bargaining Power of Suppliers

Bargaining Power of Buyers

Pressure from Substitute Products

Rivalry Among Existing Firms

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Forces Affecting Entry Decision

Economies of Scale

Product Differentiation

Capital Requirements

Cost Disadvantages

Independent of Size

Access to Distribution

Channels

Government Policy

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Powerful Suppliers

A supplier group is powerful if: It is dominated by a few companies and

is more concentrated than the industry

it sells to

Its product is unique or at leastdifferentiated, or if it has built-up

switching costs

It is not obliged to contend with other

products for sale to the industry

It poses a credible threat of integrating forward into theindustrys business

The industry is not an important customer of the supplier

group

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Powerful Buyers

A buyer group is powerful if: It is concentrated or purchases in

large volumes

The products it purchases from the industry are standard

The products it purchases from the industry form acomponent of its product and represent a significantfraction of its cost

It earns low profits The industrys product is unimportant to the quality of the

buyers products or services

The industrys product does not save the buyer money

The buyers pose a credible threat of integrating backward

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Substitute Products

By placing a ceiling on the prices it can charge,substitute products or services limit the potential ofan industry

Substitutes not only limit profits in normal timesbut also reduce the bonanza an industry can reap inboom times

Substitute products that deserve the most attention

strategically are those that are subject to trends improving their price-performance

trade-off with the industrys product or

produced by industries earning high profits

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Jockeying for Position

Intense rivalry occurs when: Competitors are numerous or are roughly equal

Industry growth is slow, precipitating fights for market

share that involve expansion The product or service lacks differentiation or switching

costs

Fixed costs are high or the product is perishable, creating

strong temptation to cut prices

Capacity normally is augmented in large increments

Exit barriers are high

Rivals are diverse in strategy, origin, and personality

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Industry Analysis

& Competitive Analysis

An industry is a collection of firms that offersimilar products or services.

Structural attributes are the enduring

characteristics that give an industry its distinctivecharacter.

Concentration refers to the extent to which

industry sales are dominated by only a few firms. Barriers to entry are the obstacles that a firm

must overcome to enter an industry.

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Competitive Analysis

1. How do other firms define the scope of theirmarket?

2. How similar are the benefits the customers derive

from the products and services that other firmsoffer? The more similar the benefits of products or

services, the higher the level of substitutability

between them.3. How committed are other

firms to the industry?

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Direct/Operating Environment

Also called taskenvironment

Includes competitor positions and customer

profiling based on the following factors: Geographic

Demographic

Psychographic

Buyer Behavior

Also includes suppliers & creditors and HRM

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HR: Nature of the Labor Market

Access to personnel is affected by 4 factors: Firms reputation as an employer

Local employment rates

Availability of people with the needed skills

Its relationship with labor unions.

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Emphasis on Environmental Factors

Differing external elements affect different strategies atdifferent times and with varying strengths

Only certainty is that the effect of the remote andoperating environments will be uncertain until a strategy

is implemented Many managers, particularly in less powerful firms,

minimize long-term planning

Instead, they allow managers to adapt to new pressures

from the environment Absence of strong resources and psychological

commitment to a proactive strategy effectively bars a firmfrom assuming a leadership role in its environment

ppt environment factors, strategix management

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