Analyzing the External Environment

Analyzing the External Environment - Analyzing the External...

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Unformatted text preview: Analyzing the External Analyzing the External Environment Rod Thirion Three Primary Elements Three Primary Elements General Environment Industry Environment Competitor Environment General Environment General Environment Trends in the broader society that influence an industry and the firms operating within it. Conditions that are outside the firm’s direct control. Has six primary elements (trends). General Environment Trends General Environment Trends 1. 2. 3. 4. 5. 6. Demographic Trends Economic Trends Political/Legal Trends Socio­cultural Trends Technological Trends Global Trends General Environment Trends General Environment Trends Easier to remember by changing to a P.E.S.T. analysis. S.T.E.P. if you want a more positive acronym. 1. 2. 3. 4. Political/Legal (includes Global Trends) Economic (includes Demographics & Global Trends) Socio­cultural (includes Demographics & Global Trends) Technological (includes Demographics & Global Trends) General Environment General Environment Political/Legal Trends Political stability Legal framework; contract enforcement & Antitrust Intellectual property protection Trade regulations & tariffs Favored trading partners Pricing regulations Taxation ­ tax rates and incentives Wage legislation ­ minimum, overtime, work week Mandatory employee benefits Industrial safety regulations Product labeling requirements General Environment Economic Trends Type of economic system in countries of operation Government intervention in the free market Comparative advantages of host country Exchange rates & stability of host country currency Efficiency of financial markets Infrastructure quality (communication, transportation, etc.) Skill level of workforce Labor costs Business cycle stage (e.g. prosperity, recession, recovery) Economic growth rate Discretionary income Unemployment rate Inflation rate Interest rates General Environment Socio­cultural Trends Demographics Class structure Education Culture (gender roles, etc.) Entrepreneurial spirit Health and Environmental Attitudes Leisure interests Customer wants and needs General Environment General Environment Technological Trends Recent technological developments Technology's impact on product offerings Impact on cost structure Impact on value chain structure Rate of technological diffusion (demographics) Impact on how services are delivered Communication General Environment What is Globalization? Economic globalization Political globalization Common ecological constraints Cultural values and institutions Globalization of communication Christopher CHASE­DUNN and Volker BORNSCHIER General Environment General Environment What is Globalization? Existence of a global infrastructure Global harmonization or convergence of some important characteristic feature “Borderlessness” Global diffusion of some initially localized phenomenon Geographical dispersion of core competences in some highly desirable activities. Jeffrey Hart Industry Environment Industry Environment Group of Firms producing similar products or services Five Forces Model (Michael Porter) Bargaining power of suppliers Threat of new entrants Rivalry between existing players Bargaining power of customers Threat ofsubstitutes The Five Forces The Five Forces Model of Competition Source: Crafting and Executing Strategy 14th edition, Arthur A. Thompson, et all. McGraw­Hill Irwin, 2006. Industry Environment Industry Environment Reduce Bargaining Power of Suppliers Partnering Supply chain management Supply chain training Increase dependency Build knowledge of supplier costs and methods Take over a supplier Industry Environment Industry Environment Reduce the Threat of New Entrants Increase minimum efficient scales of operations Create a marketing / brand image (loyalty as a barrier) Patents, protection of intellectual property Alliances with linked products / services Tie up with suppliers Tie up with distributors Retaliation tactics Industry Environment Industry Environment Reduce the Competitive Rivalry between Existing Players Avoid price competition Differentiate your product Buy out competition Reduce industry over­capacity Focus on different segments Communicate with competitors Industry Environment Industry Environment Reduce the Bargaining Power of Customers Partnering Supply chain management Increase loyalty Increase incentives and value added Move purchase decision away from price Cut put powerful intermediaries (go directly to customer) Industry Environment Industry Environment Reduce the Threat of Substitutes Legal actions Increase switching costs Alliances Customer surveys to learn about their preferences Enter substitute market and influence from within Accentuate differences (real or perceived) Competitor Environment Competitor Environment Strategic Intent – understand what their motivations & objectives are Scanning & accuracy are important; but interpretation is key! “Complementors” are companies that sell goods or services that are complementary to another firms good or service Competitor Environment Competitor Environment Customers Competitors & Substitutes Focal Company Suppliers Complementors ...
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This note was uploaded on 11/05/2011 for the course ACCOUNTING 101 taught by Professor Online during the Spring '11 term at Colorado Technical University.

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