Ch 3. External Analysis Flashcards
Explain what is meant by ‘organizations are open systems’.
Organizations:
- interact and respond to the environment
- they are interrelated and interdependent but function as a whole
- change in one causes a change in the other
- take inputs and process them into outputs
- distribute outputs in the environment
What are the organizational inputs?
hint: organizational resources
- financial resources
- physical resources
- human resources
- information resources
What is an external analysis?
The process of scanning and evaluating positive and negative trends/changes in the external environment.
What are the 2 perspectives on the organizational environment?
The environment as:
- a source of information
- a source of resources
When is the environment simple and when is it complex?
Simple = few components in the environment Complex = many components.
Many components lead to higher uncertainty and requires greater external analysis.
The scarcer the resources the …
more hostility and greater the uncertainty in the external environment.
What are the 2 external environmental sectors? And what do they entail?
- specific (competitors, suppliers, customers etc.)
- general (PESTEL/DESTEP)
What are the Porter’s Five Forces in a specific environment?
n.b. the model assesses opportunities and threats
- intensity of rivalry among firms
- risk of entry
- bargaining power of buyers
- bargaining power of suppliers
- threat of substitutes
What are the 8 conditions to intense rivalry?
- numerous or balanced competitors
- slow industry growth
- high fixed cost
- lack of differentiation or switching costs
- adding capacity in large increments
- diverse competitors
- high strategic stakes
- high exit barriers
What are strategic groups?
Firms in an industry that have similar strategies, resources and customers. They compete more directly.
Name some entry barriers for newcomers.
- economies of scale
- cost disadvantages (protected technology, location, suppliers)
- product differentiation
- capital requirements
- switching costs
- access to distribution channels
- government policy (regulations, safety requirements etc.)
What are the 5 elements of the macro-environment (general environment)?
- demographic
- economic
- socio-cultural
- technological
- political-legal
What are some benefits and challenges of an external analysis?
benefits:
- enables managers to act proctively
- key to planning, decision and strategy formulation
- able to adapt to T/O
- able to neutralize competitor moves
- higher organizational performance (ROA, profit)
challenges:
- time consuming
- imperfect information
