Ch 4 - External Environmental Analysis

Question 1

Purpose of External Analysis

Answer 1

• ID opps and threats
• Id S + W
• assess competition
• meet stakeholder needs

Question 2

Problems with external analysis

Answer 2

• increased volatiluty and rate of change
• more volatility due to changes intech / increased globalisation / unpredictable demand
• • So VIPT to undertake PEST regularily

Question 3

Criticiisms of PEST

Answer 3

1) Becomes obsolete quickly
2) Prone to bias
3) May be incomplete

Question 4

What is Porters 5 Force Analysis

Answer 4

• Examines Org Industry (Threat of NE, Buersm Suppliers, Subs, competitive rivalry)
• Big growing industry not determinant of high profits. 5 forces do
• Strong collectively - low profitability overall

Question 5

Criticisims of 5 Forces

Answer 5

• Distracts from seeing customers as potential partners
• may take too long for some industries
• Outside in V inside out - may be difficult for competency based orgs e.g hi tech
• ignores role of Gov
• Doesnt help NFP’s
• Ingores collaboration potential - assumes orgs act individually

Question 6

What does industry life cycle analyisis help with

Answer 6

• To suggest strategies orgs should consider in order to compete( whole org / individual products / divisions etc)

Question 7

Industry Life Cycle Analysis - Introduction

Answer 7

Overview
Purchased by innovators
high launch costs inititally
little competition
production volume low while product cost high
buyers unsophistacted
Pioneer Companies often required to sell the concept
PED effect strategy e.g Skimming or penetration
Early entry is risky but could get MS increase

Question 8

Industry Life Cycle Analysis - Growth Stage

Answer 8

• Sales for the market grow
• NEw comp enters
• new segments may open up
• demand / customers become more sophisticated
• Comp increases
• market becomes profitable
• many new consumers with no pref who they buy from
• prices often fall due to EoFs / competitiion

Question 9

Industry Life Cycle Analysis - Maturity Stage

Answer 9

Growth slows

• fully spohisticated demand
• high competition
• price sensitive
• demand saturated
• desirable to have high ms now
• Be ready to modify

Question 10

Industry Life Cycle Analysis - Decline

Answer 10

• No. Of Customers Fall
• competition reduces as they leave
• pricess fall -
• “slow” harvesting needs balancing with divest decisions
• investment minimised
• may be profitable niches

Question 11

Life Cycle Analysis Considerations

Answer 11

• Offer range of products at stages. mature will fund new etc
• competencies need to change e.g innovation early, cost / efficiency later
• mgmt anticipation of decline can cause decline - reduce investment etc.
• strategies will change

Question 12

Life Cycle Strategy - Intro strategy 4 ps

Answer 12

Product - Offer Basic Product
Price - Cost Plus
Promotion - build Awareness
Place - Limited

Question 13

Life Cycle Strategy - Growth strategy 4ps

Answer 13

Product - Extensions and warranty
Price - Penetration
Promotion - Awareness to mass market
Place - Growing

Question 14

Life Cycle Strategy - Maturity strategy 4ps

Answer 14

Product - Diversity
Price - Matching
Promotion - Stress brand differences
Place - Maximising

Question 15

Life Cycle Strategy - Decline strategy 4ps

Answer 15

Product - Phase out weak
Price - cutting
Promotion - reduce to level that would maintain loyal
Place - limited

Question 16

Life Cycle Strategy - Usefulness

Answer 16

1) Improved Planning - e,g how demand not forever
2) Budgeting - understand when products use /gen cash
3) Proactive

Question 17

What does competitor analysis seek t do

Answer 17

1) provide understanding of comp adv/ disadv
2) help generated insights into comp strategies past / present and potential
3) provide informed basis for developing future strategies

Question 18

Grants 3 Purposes of Competitor Analysis

Answer 18

1) Forecast competitor decisions / strategies
2) predict likely reactions to initiatives
3) determine how comp behavious can be infleunced to achieve more favourable outcomes

Question 19

Competitor Analysis Framework Step 1

Answer 19

Id Competitor
Brand - similar to comp
Industry - similar products different segments
Form - differ product same needs (speed boat v car)
Generic - compete for same income but different

Question 20

Competitor Analysis Framework Step 2

Answer 20

Anayse Competitors (result in predictions what strategye change likley to implment / how will they change ? )

• Objecties (goals etc)
• Strategy (how compete , where)
• Assumptions (what assumption comp holds)
• resources and competencies

Question 21

Competitor Analysis Framework Step 3

Answer 21

Develop Profiles 
Laid Back - Doesnt respond 
Selective - reacts only selectively 
Tiger - Responds Aggresively 
Stoicastic - Predictable

Question 22

Global Competition - Risk of entering new market

Answer 22

varied cultures
varied cost structures 
different competitive levels 
exchange rate volatilty 
different economic situations 
Political involvement 
Political situation

Question 23

Global Competition - Benefits of new market access

Answer 23

• EoS
• Cheaper Mats
• Mgmt Opps
• Political Sponsorship
• Market Development
• Risk Reduction - portfolio spread

Question 24

Competitive Advantage of Nations - Porters Diamond. Discuss.

Answer 24

4 Factors
1) Factor Conditions - Supply side
basic (unsustainable) can lead to advance factors. Human, physical, capital etc

2) Demand Factors
- Sophisticated home demand = increased product quality

3) Related and Supporting Industry
- Superior supplier industries

4) Strategy, Structure and Rivalry

Question 25

Porters Diamond - he noted two other events. What were they

Answer 25

1) Role of Gov

2) Chance Events

Question 26

Criticism to Diamond

Answer 26

• FDI doent increase competition.
• Doesnt look at multinationals
• Non enough on service based companies
• too much focus on domestic country not target .