Lecture 2 - External analysis Flashcards
How is the environment integral to strategy?
- MACRO: broader features and forces (PESTLE)
- MESO: industry-level competitive environment (5/6 forces, strategic groups)
- MICRO: firm level resources and capabilities (VRIO)
Who are competitors?
Firms with similar products/services aimed at the same customer group
Where are competitors?
- Industry: broad term of categories of sector or market
- Markets: Specific areas within an industry where firms compete more directly
- e.g. sports apparel market is a market within clothing industry
What is market positioning?
Originally Porter’s theory, how you place yourself within a market relative to competitors, how you achieve and maintain position
Why is industry analysis important?
To aid strategy, industry structure and competitive forces have effects on strategy
What are steps in industry analysis?
- Define industry clearly
- Identify actors of five forces, define different groups within them
- Determine underlying factors and total strength of each force
- Assess overall industry structure and attractiveness
- Assess recent and expected future changes of each force
- Determine your position in relation to five forces
P5F: What are Porter’s five forces?
- Threat of new entrants
- bargaining power of buyers
- threat of substitutes
- bargaining power of suppliers
- Rivalry among existing competitors
P5F: What is the threat of new entrants?
- How likely are companies to enter (return on capital > cost of capital)
- Restriction of entry
- Sunk costs (could allow hit-and-run entries)
- May put a cap on potential profits of an industry
P5F: what are some barriers to entry?
- High capital requirements
- Economies of scale or scope
- Access to key distributors
- Regulatory barriers
- Aggressive incumbent responses
P5F: what is the threat of substitutes?
- Closer a substitute the easier it is to switch to
- Performance/Price ratio
- Elasticity of demand with respect to price
- Important in market for inputs
P5F: what determines the bargaining power of suppliers?
- Raw materials vs sophisticated components
- Absence of/limited substitutes
- Credible threat of forward integration
P5F: What determines the bargaining power of buyers?
- Price sensitivity
- Importance/necessity of item
- Competition
- Size/concentration of buyers to suppliers
PF5: What is rivalry among existing competitors?
- Industry concentration
- Diversity of competitors in terms of power, size
- Extent of differentiation
- Exit barriers (highly specialised assets)
- Cost structure (fixed vs variable costs)
P5F: What are some advantages of P5F?
- Easy to use
- Useful predictor of return on revenues
- Emphasised importance of negotiating and bargaining power
- Goes beyond factors
- Goes beyond SWOT
PF5: What are some critiques of P5F?
- Too macro focused
- Oversimplification of value chains
- Fails to directly link to managerial action
- Doesn’t capture fluidity of industry boundaries
- ‘Self-contained’
What are network externalities?
- Linkage between users of product or tech that result in value of said product or tech being positively related to number of users
- Positive feedback loop
- Complementary products important
What is PESTLE?
- Political
- Economic
- Social
- Technological
- Legal
- Environmental
What are some critiques of PESTLE?
- Compartmentalises (factors may be linked)
- Fairly deterministic
- Static
What are black swan events?
Key events that can only be explained after they happen, small effects can have massive consequences
Why is scenario planning important?
To better prepare orgs for potential future events
What are some potential scenario outcomes?
- BAU
- Iterative change (events predict as predicted without major change
- Evolution
- Revolution
- Chaos
What are some drivers of industry development?
- Technological drivers
- Economic drivers
- Socio-cultural Drivers
- Political/Regulatory Drivers
- Socio-cultural drivers
- Suppliers
- Buyers
- New entrants
- Incumbent rivals
- Substitutes & complementors
What is compliance?
- Adapt to survive
- Understanding rules of the game and playing by them
- Failure to comply may mean demise
- Hard to do
What is choice?
- Going against the grain
- Innovate to break rules
- Capture attractive industry positions before others follow
