What is the external environment?
The factors beyond the control of the firm that influence its choice of direction and action, organizational structure, and internal processes
What is the firm’s environment comprised of?
Remote environment
Industry environment
Operating environment
What does the operating environment entail?
- competitors
2.creditors - customers
- labour
- suppliers
What does the industry environment entail?
- entry barriers
- supplier power
- buyer power
- substitute availability
- competitive rivalry
What does the environment entail?
- economic
- social
- political
- technological
- ecological
What is the remote environment?
Economic, social, political, technological, and ecological factors that originate beyond, and usually irrespective of, any single firm’s operating situation
What are some economic factors in the remote environment?
- Prime interest rates
- Inflation rates
- Trends in the growth of the gross national product
- Unemployment rates
- Globalization of the economy
- Outsourcing
What are some social factors in the remote environment?
Beliefs & Values
Attitudes & Opinions
Lifestyles
Where are social factors developed from?
- Cultural conditioning
- Ecological conditioning
- Demographic makeup
- Religion
- Education
- Ethnic conditioning.
What are three profound social changes of the remote environment?
- Entry of large numbers of women into the labor market
- Accelerating interest of consumers and employees in quality-of-life issues
- Shift in the age distribution of the population
What are some political factors in the remote environment?
- Fair-trade Decisions
- Antitrust Laws
- Tax Programs
- Minimum Wage Legislation
- Pollution and Pricing Policies
- Administrative jawboning
What are the two governmental functions that political activities has a signifcant impact on?
- Supplier function
- Customer function
What is technological forecasting?
The quasi-science of anticipating environmental and competitive changes and estimating their importance to an organization’s operations
What is eco-efficiency?
Company actions that produce more useful goods and services while continuously reducing resource consumption and pollution
Who propelled the industry environment?
Michel E Porter
How can the industry environment be defined?
The general conditions for competition that influence all businesses that provide similar products and services
How do competitive forces shape strategy?
- The essence of policy formulation is coping with competition.
- Intense competition in an industry is neither coincidence nor bad luck.
- Competition in an industry is rooted in its underlying economics, and competitive forces exist that go well beyond the established combatants in a particular industry.
- The corporate policy analysts’ goal is to find a position in the industry
where his or her company can best defend itself against these forces or can influence them in its favor
What are some common barriers of entry in the industry environment?
- Economies of Scale
- Product Differentiation
- Capital Requirements
- Cost Disadvantages Independent of Size
- Access to Distribution Channels
- Government Policy
What makes a supplier group powerful?
- It is dominated by a few companies and is more concentrated than the industry it sells to
- Its product is unique or at least differentiated, 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 the industry’s business
- The industry is not an important customer of the supplier group
What makes a buyer group powerful?
- It is concentrated or purchased in large volumes
- The products it purchases from the industry are standard
- The products it purchases from the industry form a component of its product and represent a significant fraction of its cost
It earns low profits - The industry’s product is unimportant to the quality of the buyers’ products or services
- The industry’s product does not save the buyer money
- The buyers pose a credible threat of integrating backwards
Intense rivalry in the industry environment 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 policy, origin, and personality
What are some key questions to ask in internal analysis and competitive analysis
- What are the boundaries of the industry?
- What is the structure of the industry?
- Which firms are our competitors?
- What are the major determinants of competition?
What is an industry?
An industry is a collection of firms that offer similar products or services
What are structural attributes
Structural attributes are the enduring characteristics that give an industry its distinctive character
