3.1b analysis & considerations Flashcards
what is a SWOT analysis?
a strategic tool
-a business performs an internal and external audit before the business develops and implements a strategy
what does SWOT stand for?
S - strength
W - weakness
O - opportunities
T - threats
SWOT:
(internal aspects)
strengths, weaknesses
SWOT:
(external aspects)
-opportunities
-threats
what does internal refer to in a SWOT analysis?
things that are attributes of the business
internal audit:
could include collecting opinions of employees, assessing skills shortages or reviewing different departments
external audit:
might involve a thorough investigation into the economy, market conditions and the actions of competitors through market research
key points about swot analyses:
-unique to each business
-dynamic (must regularly update)
what are the strengths of a business?
what the business is good at
examples of strengths in a swot analysis:
-qualities that separate the business from rivals
-internal resources such as skilled staff or a particular innovation
-assets such as capital, patents or intellectual property
-a loyal customer base
-effective leadership
what are the weaknesses of a business?
(swot analysis)
what the business does poorly
examples of weaknesses in a swot analysis:
-ways that the business lags behind competitors
-resource or capital limitations including labour and finance
-lack of a competitive advantage
-lack of a USP
what are opportunities?
(SWOT analysis)
options a business may exploit to enjoy further success
examples of opportunities in a swot analysis:
-few competitors exist
-a changing legal or political environment positively impacts on business processes and decisions
-social developments create an emerging need for the businesses products
what are threats?
(swot analysis)
hazards that could damage business performance
examples of threats in a swot analysis:
-new or emerging competitors are gaining market share
-a changing legal or political environment negatively impacting on business processes and decisions
-social or technological developments threaten obsolescence of products
-negative press coverage
-changing customer attitudes towards the business
benefits of swot analysis:
-helps strategy making
-low-cost & simple
-can be combined with other decision-making models
drawbacks of swot analysis:
-classification is subjective
-doesn’t offer clear solutions
-using one to develop strategy doesn’t guarantee success (there could be poor implementation)
-quick environmental change could make the actions taken after the analysis null
what is a pestle analysis?
examines the external factors that are likely to impact a business
what does PESTLE stand for?
P - political
E - economic
S - social
T - technological
L - legal
E - environmental
explanation of political
(pestle)
the extent to which local and national government is expected to influence the business
examples of political effects:
-fiscal policy (government spending & taxation)
-trade restrictions
explanation of economic:
(pestle)
the extent to which economic indicators are expected to directly impact business
examples of economic factors:
-inflation
-exchange rates
-cost of living
-the stage of the business cycle
-unemployment levels / customer income levels
-interest rates
explanation of social:
(pestle)
the extent to which personal attitudes and values, culture and demographic change are expected to affect the business including
examples of social factors:
-demographic changes
-lifestyle changes
-trends, fashions and tastes
explanation of technological:
(pestle)
the extent to which technological change and innovation are expected to impact the business
examples of technological factors:
(pestle)
-production and distribution processes
-online presence
-e commerce
-ability to reduce costs (automation)
explanation of legal:
(pestle)
the extent to which changes in law and regulations are expected to impact the business including
examples of legal factors:
(pestle)
-minimum wage
-health & safety
-equality act
explanation of environmental
(pestle)
the extent to which changes in attitudes and government policy towards environmental protection impact the business
examples of environmental factors:
(pestle)
-changing infrastructure (eg: change to lean towards green transportation networks)
-green technology
-carbon emissions
-supply chain
-disposal of waste
-changes in climate
what does ‘changing competitive environment’ mean?
the structure of the market in which a business operates is likely to change over time
different ways that a market can change:
-new entrants
-new products
-consolidation
-growth of the internet
-changes in consumer tastes
-legal changes
-globalisation
changes in market structure: new entrants
as new entrants arrive the market will become more competitive
changes in market structure: new products
businesses will need to innovate in order to keep up with rivals
changes in market structure: consolidation
-at times businesses may fail and leave a market, others may then take control of the available market share
-businesses may also merge or be subject to a takeover
-when this happens the dynamic in a market can shift significantly
changes in market structure: growth of the internet
(+example)
the growth of the internet has increased the number of competitors businesses face in the majority of markets
(example: until the early 2000’s UK supermarkets were dominated by a few giants (tesco, sainsburys and ASDA)
↳ the entry of businesses such as ALDI and LIDL has made the market more competitive
changes in market structure: changes in computer tastes
(+ examples)
consumer tastes and preferences are changing more rapidly leading to short product life cycles and a requirement for businesses to innovate to compete
(example: the growth in fast fashion has meant that many clothing retailers must now constantly update their product ranges rather than rely on seasonally focused product selections)
changes in market structure: legal changes
the legislation (laws) may change likely leading to fewer (or more) barriers to entry for new businesses
changes in market structure: globalisation
(+ example)
-globalisation has increased competition with rivals from around the world
(eg: between 1970 and 2010 trade barriers around the world were reduced and customers were able to buy an increasing number of motor vehicle brands
↳ by 2015 more than half of all cars sold in the UK were manufactured by Japanese companies)
3 main types of market structure:
-highly competitive markets
-uncompetitive markets
-oligopoly
what is a highly competitive market?
-it exists where there is perfect competition
-this is where there are many firms who are able to compete on a number of levels through differentiating what they do
what is an uncompetitive market?
may exist where one business dominates - a monopoly
what is an oligopoly?
-where a few large businesses may dominate the market (oligopoly)
-there is a high level of interdependence
↳ the actions of one business will have a significant impact on its rivals
who devised porter’s five forces?
michael porter
what are porter’s five forces?
the reasons for fluctuations in profitability in different markets / framework for analysing the nature of competition within an industry
list out each of porter’s five forces:
-threat of new entry
-bargaining power of buyers
-bargaining power of suppliers
-threat of substitutes
-industry rivalry
how does porter’s five forces benefit a business?
-porter argued that once a business fully understands the pressures in the context of their business, they can take strategic decisions to achieve and sustain a competitive advantage
-it can help a business to decide which strategy to use
-it can help a business to align their employees to a goal
-it can help a new business to decide whether a market is worth entering (profitable)
p5f: what will happen if new entrants movie into an industry?
(threat of new market entrants)
if new entrants move into an industry
they will gain market share & rivalry will
intensify
p5f: barriers to entry
(threat of new market entrants)
-the position of existing firms is stronger
if there are barriers to entering the
market
-if new competitors can enter an industry quickly and without investing a lot of money, then the barriers to entry are low and
what are barriers to entry?
the costs or other obstacles that stop new competitors from easily entering an industry
p5f: when is the threat of new entrants high?
(threat of new market entrants)
if barriers to entry are low
(high barriers = low threat if market entrants)
p5f: what is the effect of a high threat of market entrants?
-the market will contain a large number of rival businesses
-lower market share, profits and prices
examples of barriers to entry:
-economies of scale → reduced prices (price wars)
-patents/copyright
-customer/brand loyalty
-exclusive distribution channels
markets that are easy to enter vs difficult to enter
easy:
tutoring, hairdressing
difficult
pharmaceuticals, sports clothing
p5f: what is the bargaining power of buyers?
the power that buyers have to negotiate terms and prices
p5f: when are buyers powerful?
-there is little difference between products offered by competitors and the business
-there are few buyers but many sellers
-it is easy for buyers to switch between competitors
p5f: buyers power when there are few of them:
(bargaining power of buyers)
-when a business sells to a small number of customers those customers have high power to negotiate lower prices
-the business has few options when it comes to customers
-it will have to price and sell products according to customer demands
p5f: is high or low bargaining power of buyers favourable for a business?
low
p5f: ways to overcome high bargaining power of buyers:
-develop a USP / differentiate
-lower prices to attract customers.
-find new customers
p5f: what is bargaining power of suppliers?
the power suppliers have to negotiate terms and prices
p5f: when is the price of supplies likely to fluctuate?
if the supply of a commodity fluctuates
p5f: when is supplier’s bargaining power high?
-few suppliers
-the supplier’s product is essential for production
-the supplier is able to integrate vertically and sell direct to the business’s customers
-low availability of substitute suppliers
-offering a scarce supply
supplier power: a business has a lot of choices
supplier power will be low:
if the business has lots of supplier choices, it’s likely to be able to shop around for lower prices
p5f
supplier power: few suppliers / scarce supply
the supplier has significant power:
-the business has little choice over the source of its suppliers
↳ it is likely to have to pay high prices for its components and accept suppliers’ terms and conditions
p5f: how does high supplier power affect a business?
if the supplier forces up the price paid for
inputs, profits will be reduced
p5f: ways to overcome high supplier power
-build strong relationships with suppliers
-agree on a long-term contract of supply with favourable conditions
-backward vertical integration
-maximise economies of scale → decrease cost per unit
what is a substitute?
a product or service that meets the same customer need
p5f: what is threat of substitution?
the ability of a customer to switch to buying a similar product from a different business
p5f: when is the threat of substitutes high?
-a change in social changes causes an alternative product to be preferred
(eg: new healthy trend → coconut oil instead of sunflower oil)
-alternative products exist
-alternative prices fall
-customers can easily switch to a substitute
p5f: what does a high threat of substitutes lead to for a business?
lowered demand → could lead to a need to lower prices which could cause further issues
p5f: when is the threat of substitutes low?
where substitution is unlikely
p5f: what does a low threat of substitutes lead to for a business?
the business has significant market power:
-it is likely to be able to charge a high price for its products
-it may be less inclined to innovate
p5f
ways for a business to overcome high subsritute power:
-develop customer loyalty
-develop a USP
-lower prices to attract/keep customers
(cost leadership)
-try to meet customer needs better than competitors do
example of the threat of substitution in a market:
(smartphones)
-smartphones have become the substitute for a wide range of standalone goods including calculators, cameras and portable computers
-in the case of cameras many manufacturers have moved away from selling low price devices and now focus on high-end, specialist products for serious photography enthusiasts
p5f: what is intensity of rivalry?
the level of competition and rivalry between businesses within the market
p5f: when are businesses likely to enter a market?
as markets grow and become more attractive, new businesses may enter the market, increasing the competitive rivalry
p5f: when is competition high in a market?
-easy entry to matkets
-easy customer switching
-little differentiation of products
-slow growth of the market
-low customer loyalty
p5f: key issues with highly competitive markets:
-profit margins are squeezed
-prices may have to be decreased
p5f: ways for businesses to overcome being in competitive markets
-lower costs of production and prices to compete (cost leadership)
-differentiating
-takeover, merger or strategic alliance
-increase marketing
characterstics of low profit industries:
-strong suppliers
-strong (buyers)
-low entry barriers
-many opportunities for substitutes
-intense rivalry
examples of low profit industries:
-cafes
-airlines
characteristics of high profit industries:
-weak suppliers
-weak buyers
-high entry barriers
-few opportunities for
substitutes
-little rivalry
examples of high profit industries:
-pharmaceuticals
-soft drinks
