Chapter 4 - The organisational ecosystem: External environmental analysis

Question 1

Why has the business environment become more volatile?

Answer 1

Changing technology
Unpredictable demand
Globalisation
Development of high-growth, emerging economies
Geopolitical impact
Demographics
Customer Empowerment
Social Change
Digital technology
Automation
Sustainability

Question 2

What is the purpose of an environmental analysis?

Answer 2

Identification of threats and opportunities
Assessment of competition
Identification of strengths and weaknesses
Meeting stakeholder needs

Question 3

What does PESTEL analyse?

Answer 3

General macro-environment, identifying key drivers of change and hence sources of risk.

Question 4

Why is PESTEL good?

Answer 4

Good at identifying whether a market is growing/declining and why
Can be used to generate ideas for a position analaysis

Question 5

What does PESTEL stand for?

Answer 5

Political
Economic
Social
Technological
Environmental
Legal

Question 6

What does Porter’s five forces examine?

Answer 6

Organisations industry
Determine profit potential, both for the industry as a whole and for individual firms/SBUs.
An individual firm can better margins than competitors if it can deal more effectively with key forces.

Question 7

What are the limitations of the 5 forces model

Answer 7

Dynamic industries: may find little benefit from industry analysis
Outsider-in vs inside-out: difficult to apply for competence based businesses
Role of government: Some analysts add this as a 6th force
Collaboration: model assumes business operate idependently
NFP

Question 7

What is the industry ife cycle analysis?

Answer 7

Looks at the industry as a whole that the organisation operates in, or can be used to assess individual products or divisions with the organisations

Question 8

What are the four stages in the industry/product life cycle?

Answer 8

Introduction
Growth
Maturity
Decline

Question 9

When is price skimming appropriate?

Answer 9

When the product is known to have a price-inelastic demand

Question 10

When is penetration pricing appropriate?

Answer 10

Where the demand is thought to be price-elastic and when gaining market share is seen as more important than fast recovery of development costs

Question 11

What are some considerations in the product life cycle?

Answer 11

Offer a range of products at various stages of the life cycle
Competencies need to change
Life cycles are difficult to predict, can change quickly and will vary from one product to another
Management anticipation of decline can cause decline
SWOT varies across the life cycle
Strategies will need to change as the organisation progresses

Question 12

What is the usefulness of the life cycle model?

Answer 12

Improved strategic planning
Improved budgeting
Proactive approach

Question 13

What is competitor analysis?

Answer 13

Set of activities which examines the comparative postition of competing enterprises within a given strategic sector.
Seeks to:
Provide an understanding of the company’s competitive advantage/disadvantage
Help generate insights into competitors strategies
Give an informed basis for developing future strategies to sustain/establish advantages over competitors

Question 14

What are the three purposes of competitor analysis that Grant highlights?

Answer 14

Forecast competitors’ future strategies and decisions
Predict ocompetitors’ likely reactions to a firm’s strategic intiatives
Determine how competitor behaviour can be influenced to make it more favourable for the organisation

Question 15

What are the 3 steps to competitor analysis?

Answer 15

Identify Competitors
Analyse competitors
Develop cometitor response profiles

Question 16

What are the four types of competitors?

Answer 16

Brand competitors
Industry competitors
Form competitors
Generic competitors

Question 17

What is a brand competitor?

Answer 17

Sell similar products to the same customers we serve

Question 18

What is a industry competitor?

Answer 18

Sell similar products but in different segments

Question 19

What is a form competitor?

Answer 19

Sell products that satisfy the same need as ours though technically very different

Question 20

What is a generic competitor?

Answer 20

Compete for the same income

Question 21

What are the four types of competitor response profiles?

Answer 21

Laid back: does not respond
Selective: Reacts to attack in only selected markets
Tiger: always responds aggressively
Stochastic: No predictable pattern exists

Question 22

Why would we enter a foreign market?

Answer 22

Pressure from shareholders to increase ROCE
Saturated domestic markets making home expansion difficult
Opportunities as emerging markets arise with increases in economic income and spending power
Trade barriers coming down

Question 23

What are the risks arising from entering global markets?

Answer 23

Marketing mix adaptations
Cultures vary
Varying cost structures
Different competitive levels
Exchange rate volatility
Different economic situations
Political involvement
Political situation
Entry requirements

Question 24

What are the benefits of entering global markets?

Answer 24

Economies of scale
Management opportunities
Challenge to the traditional home cultural
Cheaper sources of raw materials
Market development
Risk reduction
Political sponsorship
Political power

Question 25

What ways can Porter’s diamond be used?

Answer 25

Organisation can understand what factors have caused it to be successful in its current country or countries of operation
Model can be used by the organisation to assess whether a particular country is suitable for expansion into
Governments can identify how to adjust their policies in order to attract or strengthen certain industries

Question 26

What are the four key factors (or dimension) identified by Porter?

Answer 26

Demand Conditions - home demand can lead to company developing significant advantages in the global marketplace
Related & Supporting industry - advantage conveyed by the availability of superior supplier industries
Factor conditions - supply of production factors that convey advantage
Strategy, Structure & Rivalry - different nations have different approaches to business in terms of structure and the intensity of rivalry that can take place

Question 27

What are two further factors that Porter pointed out that countries can use to produce world class firms?

Answer 27

Role of government - subsidies, legislation and education can all impact on the other four elements
Role of chance events - wars, civil unrest, chance discoveries and others

Question 28

Why would a strong position audit be needed?

Answer 28

Assess our company’s strategic capability in these new segments