Chapter 3 - Environment and Uncertainty Flashcards
PEST
LoNGPEST
Political Economical Social Technological
&
LoCAL
National
Global
PEST limitations
External environment is more dynamic
Becomes time consuming and costly to update
Should help to identify key opportunities and threats (not just influencing factors)
Bounded rationality implies the Org likely misses something
Environment is influence by internal actions as well
Porter’s 5 forces
Rivalry Consumer power Supplier power Substitutes Entrants
Barriers for new entrants
Economies of scale Product differentiation Capital requirements Switching costs Access to distribution channels Access to resources Expected retaliation by competitors
Customer power
volume criticality to customer standard or special item customer's own profitability ability to bypass skills of purchasing staff importance of quality to customer
Bargaining of suppliers
number of suppliers new entrants number of customers substitution switching costs differentiated product
Rivalry
market growth market structure capacity cost structure uncertainty exit barriers
5 forces by porter limits
firms rather collaborate than compete
industry vs firm (a firm might perform different than the whole industry)
dynamic industries - R&D can change industries
defining the industry - boarders are not clear
Definition of competitor analysis
Identification and quantification of real strength and weaknesses.
Key competitor analysis questions
objectives strategy assumptions resources and competences response profile
Environment Change Triggers
indirect: 5
direct: 3
indirect
- economic cycle
- regulatory change
- change customer expectations
- technology changes
- changed communication
direct
- new entrants
- intenser competition
- change supply chain
General Driver for Environmental Change
globalisation
natural environment
changing workplace structure
advanced communication technology
Priorisation change drivers
importance vs urgency
low-low: other issues (monitor)
low-high: lower priority (monitor & analyse)
high-low: higher priority (monitor, analyse, contingency)
high-high: major issue (highest priority - analyse in detail and develop a strategy)
Concept for deal with risk
TARA
Transfer, Accept, Reduce, Avoid
Environmental analysis: why it matters
opportunities and threats
a lot of variety and hard to understand
with audits identify influencing factors
need of ongoing environmental scanning
Definition uncertainty
Inability to predict the outcome from an activity due to a lack of information about the required input/output relationship or about the environment within which the activity takes place.
Complexity and Dynamism
Complexity: variety of influences, knowledge, interconnections
Dynamism: changing environments
Impact of uncertainty
planning horizon will be shortened strategies might be conservative emergent strategies might be encouraged increased information needs might follow multiple strategies
Real options (3)
as well occurring as (2)
considerations (3)
follow-on
option to abandon
option to wait
input mix option: used different combinations of input factors
output mix option: select different outputs from same raw material
level uncertainty
duration of option
interest rates
Black Scholes Model
A mathematical model of a financial market containing derivative investment instruments. From the model, one can deduce the Black–Scholes formula, which gives a theoretical estimate of the price of a option.
Gap analysis definition and 2 Q’s
A comparison between an entities ultimate objective and the expected performance from projects, both planned and under way, identifying means by which identified difference or gap might be filled.
What are the targets?
What would the Org achieve as is?
Different gaps (4)
demand
distribution (lack of access)
product (failure or product decisions)
competitive (failing price or promotion)
4P’s of marketing mix
product
price
place
promotion
Filling the gap (2)
improved efficiency
growth
Issues with gap analysis
inflation
risk profile
filling the gap at any costs
Forecasting vs Projection definition
Projection is an expected future trend pattern obtained by extrapolation. it is principally concerned with quantitative factors whereas a forecast includes judgements to predict future events and their quantification for planning purposes.
Statistical Projections
Usage and Con’s
trend analysis
time series analysis
regression analysis
econometrics (leading indicator, span between indicator and the market change)
Con's: past relationship relationship assumed where none exists no considering special events variations of business cycles underestimation of uncertainty potential bias (inappropriate assumptions or deliberate actions)
Judgmental Forecasts
individual forecasts
Genius forecasts
likely driven by recent experience - cheap to get
Consensus forecast
Jury forecasts: panel of experts Think tank: unstructured, speculative Delphi: anonymous, questionnaire (costly) Brainstorming Derived demand: costly and complex
Market forecast
The forecast for the market as a whole.
Sales Potential
An estimate of the part of the market that is within the possible reach of a proudct.
Scenario planning
Building plausible views about how the business environment of an organisation might develop in the future, based on sets of key drivers for change about which there isa high level of uncertainty.
10 steps in scenario planning
define scope identify major stakeholders basic trends key uncertainties initial scenario for uncertainties check consistency learning scenarios (expand to full version), involve mgmt Identify research needs develop quantitative models use scenario to develop competitive strategy
marco scenario
macro eco or political scenario
The uses of scenarios
examine external environment
conduct industry analysis
compare competencies and capabilities with future needs for the different scenarios
As future unfolds and scenarios fall of the table, adopt strat options
Industry scenarios
internal view of future industry structure
Choosing scenarios
A. Assume the most probable B. Hope for the best C. Hedge D. Flexibility E. Influence
Scenario vs rational plan
Scenarios do not pretend to predict a particular outcome.
LRP
Goal based
Issue based
Foresight
Identifying possible ways in which the future can develop (technology, R&D)
5 C’s in foresight
Communication: multiple departments
Concentration: focus on the long term
Co-ordination: among departments and development plans
Consensus: creating about priorities
Commitment: to make the necessary changes
Stages for foresight projects (possibilities)
monitoring - current trends
analysis - understand change drivers
projection - anticipate the future
transformation - draw implications
Techniques to improve foresight
- scenario planning
- issues analysis
- Delphi method
- Cross-impact analysis (address interdependencies)
- Morphological analysis: create ranges of opportunities
- Relevance trees: future state backwards based on actions, events, circumstance required to be in place
- Visioning: Potential future stage discussion
- Opportunity mapping: analyze for gaps
- Trend extrapolation
- Role-playing
Game theory
Strategy as interactions between organizations and its competitors
Requires competitor analysis
gain insight into strategies and future decisions
predict competitors likely reactions
determine competitors action influencing own firm
Strategic intelligence
What a company needs to know about its business environment to enable it to anticipate e change and design appropriate strategies that will create business value for customers and be profitable in new markets and new industries in the future.
Sources of strategic intelligence
internal: sales force, market research, management info sys
external: media, export consultants, trade journals, trade associations, Government business development agencies, patent office, stockbrokers, special consultancies, internet, annual reports of competitors
Environment Databases
MIS
Newspapers
Public databases
Legislation and Regulations updates
Data: competitive economic political legal social technological geographical energy supply stakeholder data
Market research establishes:
size of potential market
potential market segmentation
main competitors
customer behaviour (these are CSF)
