Chapter 4 – The external environment

Question 1

Name some risk and uncertainties that we face in our daily lives - think ETH.

Answer 1

• Environmental influences: organisation needs to consider CSR and unexpected events
• Technological influences: we need to allow for uncertainties of technological advance.
• Human influences: human beings natural competitiveness – organisations are a collection of individuals

Star TV is a good example - low-cost American and English TV programmes to rich Asian elite via satellite tech > later suffered losses due to ease of access to these types of programmes

Question 2

What is the macro far environment?

Answer 2

The macro (far) environment is the general environment outside of the organisation that includes factors that managers can neither control nor influence.

Question 3

Why are Megatrends the biggest problem for macro thinking?

Answer 3

These are significant changes that can be slow to form but which have significant impact, e.g. the changing age of populations in different countries with its resultant impact upon the available workforce.

Question 4

When assessing macro thinking, we must assess which two factors?

Answer 4

Changeability: the degree to which the external environment is likely to change – e.g. always will be a low level of changeability within the market for basic food products such as bread or milk; whereas there is a high level of changeability within the potential use of AI

Predictability: the degree to which such changes can be predicted – e.g. there is a low level of predictability in the potential timing of a cure to incurable diseases, whereas there is a higher level of predictability with consumers acceptance of new electronic gadgets available in the marketplace

Question 5

What is PESTEL?

Answer 5

• Political - consideration of the influence and role that government might play in the wider operational marketplace
• Economic - impact of interest rates, currency exchange rates and other economic growth rates from the country where the organisation is based
• Socio-cultural – social and cultural issues – may include demographics, age distribution, level of education, distribution of wealth, change of cultural attitudes, etc
• Technological - Technology push or market pull and diffusion
• Environmental - CSR – sustainability and stewardship, global warming and public conscience
• Legal – law and regulations

Question 6

What is micro-thinking (near environment)?

Answer 6

The micro (near) environment can be sub-divided into competitors and markets and the industry sector. This includes customers, suppliers and competitors, and whilst managers can’t control it, they can influence it.

Question 7

What three ways can we conduct a micro analysis?

Answer 7

• Economics dynamic
• Business lifecycle i.e. introduction, growth, maturity or decline
• Porter’s five forces

Question 8

Name the concepts relating to economics dynamic

Answer 8

• Monopoly - indicates a lack of competition and the industry is dominated by one firm.
• Oligopoly - refers to a market that has only a small number of competitors. Companies operating in such markets tend not to compete on price, favouring differentiation strategies.
• **Monopolistic competition **refers to a competitive market where there are many rivals with easy entry and exit to the market.
• Perfect competition refers to a market structure with many sellers and where buyers and sellers have perfect knowledge of market conditions.
• Hyper competition refers to a situation in which there is a lot of very strong competition between companies, markets are changing very quickly, and it is easy to enter a new market, so that it is not possible for one company to keep a competitive advantage for a long time. This leads to price cutting and deep discounting, which can be very unprofitable.

Question 9

At the growth stage of a business lifecycle, what can a company expect?

Answer 9

• Continued focus on strategic planning, anticipation of maturity levels
• Consolidation of market positioning
• Potential for good profitability as long as costs are contained
• Competitors showing significant interest

Question 10

At the maturity phase of a business cycle, what can a company expect?

Answer 10

• Strategic planning for volume maintenance and anticipation of decline
• Maintenance of market share
• Prices and profit margins are likely to decrease as market matures
• Competitors focused on product differentiation

Question 11

At a decline stage of a business cycle, what can a company expect?

Answer 11

• Strategic planning for either the next growth phase or new products or markets
• Minimisation of loss of volume
• Potential for losses unless costs can be reduced in line with volume
• Competitors will be assessing their own position, potentially leading to opportunities

Question 12

What are Porter’s five forces?

Answer 12

1. Existing competition (today) – rivalry between the current players – economic dynamic
2. Supplier bargaining power – how easy is it for the suppliers to increase their prices?
3. **Customer bargaining power **– When you deal with only a few shrewd customers, they have more power, but your power increases if you have many customers
4. **Potential new entrants **– economies of scale, sunk costs, product differentiation, customer persuasion, government policy, organisational strength
5. Substitute products – direct alternative or different branding

Question 13

What is market segmentation?

Answer 13

Johnson (2017) introduced the idea of market segmentation where you can divide markets into sub-groups of potential customers who may be treated differently for marketing purposes e.g. b2b market may be different to b2c market