2. An Organisation's Environment Flashcards
What is the PESTEL model?
Looks at at environmental influences that are large and powerful:
The macro-environment
What does PESTEL stand for?
- Political
- Economic
- Social
- Technological
- Ecological/environmental
- Legal
Describe political environmental influences.
For example:
- Joining/leaving the EU
- Political tensions
- War
- Alliances
- Change of government
Describe economic environmental influences.
For example:
- Interest rates
- Exchange rates
- Tax rates
- Global economy health
Describe social environmental influences.
Aka demographic change.
For example:
- Many western countries have decreasing number of young people compared to old people.
- Taste/fashions/fads (e.g. veganism)
- Expectation for easily available travel (flights)
- Streaming services more popular than TV (Netflix)
Describe technological environmental influences.
For example:
- Banks need fewer branches
- Bookshops and music shops affected by Amazon
- Information on customer preferences
- Movement to electric vehicles
Describe ecological environmental influences.
For example:
- Airlines under pressure for high emissions
- Pressure for effective waste disposal
Should improve long-term sustainability.
Describe legal environmental influences.
For example:
- Consumer protection
- Employment protection
- Safety laws
What is Porter’s 5 Forces model?
A framework to analyse industry sectors and industry attractiveness.
What is industry attractiveness?
How easily a business will be able to make reasonable profits?
What are reasonable profits?
A profit large enough to compensate investors for their risk while making enough to reinvest to keep the company successful.
What are the five forces of Porter’s 5 Forces model?
- Rivals/competitors
- Customers/buyer pressure
- Suppliers
- Potential entrants
- Substitute products
Describe competition (Porter’s 5 Forces).
- Ranges from perfect competition to monopoly.
- Perfect competition is where selling prices are governed by market prices.
- The seller with monopoly can mostly determine the price, and this will govern the demand.
When might a monopoly be bad?
If you have a monopoly of something nobody wants.
How might a business gain a monopoly?
By taking over rivals or forcing them out of business by lowering prices temporarily.
Describe buyer pressure (Porter’s 5 Forces).
- If buyers are powerful, they can exert pressure on prices, quality and delivery time.
- Having fewer customers will make them more powerful
How might a business decrease the power of buyers?
- By having lots of buyers
- By making it hard for them to switch between suppliers. Can do this by creating switching costs/impediments
Describe suppliers (Porter’s 5 Forces).
- Buying components from a monopoly supplier can be disadvantageous
- They could raise prices
- They could be taken over by rival, leaving you with no supplies.
- Combat this by trying to multi-source supplies, set up own supply organisation or take over an existing supplier.
Describe potential entrants (Porter’s 5 Forces).
- Are on the edge of the industry and may be attracted into it by potential for good profits.
- They can be deterred if there is a legal monopoly or regulations.
- E.g. banking is hard to get into because of regulatory authorities that need to give permission. Other deterrents include high initial capital requirement, and expert knowledge.
Describe substitute products (Porter’s 5 Forces).
- Usually arise from advance of technology.
- Can catch businesses off-guard.
- Can’t really be avoided.
- Most old industries have to join the new industry.
- E.g. landline companies thought they almost had monopoly due to cost of laying landlines, but mobile phones meant that coverage could be achieved with lower expense.
What is Porter’s value chain?
A method used to examine how a business makes profits or margin.
Describe the Porter’s value chain diagram.
- Looks like a house turned 90° clockwise.
- The bottom half has the primary activities next to each other horizontally.
- The top half has the secondary/support activities above and below each other vertically.
- The right side (roof of house) represents profit or margin.
What are the primary activities in Porter’s value chain?
Equate to direct costs
- Inbound logistics
- Operations
- Outbound Logistics
- Marketing & Sales
- Service
What are the secondary/support activities in Porter’s value chain?
Equate to indirect costs
- Infrastructure
- Technology & development
- Human resources management
- Procurement
