4. External environmental analysis Flashcards
Purpose of environmental analysis?
- Identification of threats and opportunities
- Assessment of competition and how to out-compete others
- Identification of strengths and weaknesses
- Meeting stakeholder needs
Criticisms of PESTEL analysis?
- issues identified may quickly become irrelevant
- analysis process is prone to bias (different managers may have different ideas)
- bounded rationality
Porter’s five forces?
- Rivalry among competitors
- New entrants
- Power of suppliers
- Substitutes
- Power of buyers
Limitations of 5 force model?
- Dynamic industries (little benefit & irrelevant quickly)
- Collaboration (assumes independent operation & ignores collaboration = joint ventures/alliances)
- Outside-in vs. inside-out (difficult to apply to innovative companies)
- NFPs (5 forces focuses on profitability -> not the goal for everyone)
- Role of government (should be the 6th force, e.g government subsidies may disrupt competition)
Phases of industry/product life cycle?
- Introduction
- Growth
- Maturity
- Decline
Introduction stage
Purchased by innovators
High marketing/launch costs
Low volumes
Buyers unsophisticated
Little amount of competitors
Price skimming
Price elasticy influences pricing strategy
Price skimming or penetration pricing
Growth stage
Sales for the market as a whole increases
New competitors challenging the pioneer
New segments may be developed
Demand becomes sophisticated
Competition increases
Market becomes profitable & cash flows increase
New customers with no preference of who they buy from
Important to build brand at this stage
Prices fall due to economies of scale
Maturity stage
Market growth slows
Fully sophisticated demand
High level of competition
Prices become sensitive
Demand reaches saturation -> market share from competitors
Decline stage
Number of customers falls
Competition reduces
Prices fall
Investments kept to a minimum -> take up market share from leaving competitors
May be profitable niches
Usefulness of life cycle model
Improved strategic planning
Improved budgeting
Proactive approach
Purposes of competitor analysis?
Forecast competitors’ future strategies/decisions & reactions to strategic initiatives
How competitor behaviour can be influenced to be more favourable
Framework for competitor analysis
- Identify competitors (brand/industry/form/generic)
- Analyse competitors (objectives/strategy/assumptions/resources & competencies + predictions
- Competitor response profiles (laid back, selective, tiger, stochastic)
Porter’s diamond -> why used?
Why some nations are more competitive than others.
Why some industries within some nations are more competitive than others.
Relative attractiveness of different countries to a particular industry.
Porter’s diamond (dimensions)?
Factor conditions (supply side)
Demand conditions
Related & supporting industry (value chain & system)
Strategy, structure & rivalry (competition element)
Other (role of government [subsidies/legislation/education] + role of chance events [wars/civil unrest/chance discoveries])
Proter’s diamond criticism
Applied only to developed countries
Doesn’t adequately address role of multinational corporations
Focuses on manufacturers, banks, management consultancy firms
Focus is on a domestic country
Not all firms from a given country are succesful
