Market environment Flashcards
What is the process of internal analysis?
- Resources Audit
- Competencies: In separate activities through linked activities
- Core competencies: To out-perform the competition; to create new opportunity
- Assessing Balance: Resources, competencies, business units
- Identify key issues: SWOT and CSF
- Understanding strategic capabilities
Why is internal analysis a crucial part of developing a strategy?
It helps the organization to identify what it is capable of – what skills and assets it possesses. Understanding this will help the organization identify which strategies it is capable of implementing.
What is a resource audit?
Identifies the resources that are available to an organization and seeks to start the process of identifying competencies.
It attempts to assets relative strength or resource base–> quality, nature, and extent they are unique
What is M’s Model?
Suggests items in position audit can be categorized into factors beginning with the letter “M”
What are the factors in M’s model?
Manpower (HR) Money Management Machinery Markets Materials Methods Management Information Makeup
What are the alternative headings the factors in M’s model can be grouped under?
- physical or operational resources
- Human Resources
- Financial Resources
- Intangibles
Resources are combined together to achieve a competence. What is a competence?
A group of abilities, resources, or skills that enable the organization to act effectively.
What are core competencies?
Things the organization is able to do that are difficult for competitors to emulate.
They form the basis of competitive advantage.
They are referred to by Johnson and Scholes as “the order winners”.
What are threshold competencies?
Things that you do well simply enable you to compete in the market.
They do not give competitive advantage –if they are not satisfied, you will not even be considered by the customer.
They are referred to as “the order qualifiers”.
What is a competence audit?
Analysis of what competencies the organization has, as well as how well resources are being deployed to create them.
How would one categorize competencies as core or threshold?
Look at historical data
Look at industry norms
Benchmarking exercises (Usually undertaken by specialist teams)
What are critical success factors (CSFs)?
The limited number of areas in which results, if they are satisfactory, will ensure successful competitive performance for the business.
They are the vital areas where “things must go right” and where the business must outperform its competitors
What we have to be good at:
Should tie into corporate objectives
Problem: often vague
What are Key Performance Indicators (KPIs)?
Measurements for whether their CSFs are being met.
Rockhart claims there are four sources for CSFs, what are they?
- Industry
- The organization itself and its situation within the industry
- The wider environment – economy, political factors, consumer trends
- Temporal Organization Factors-unusually causing concern because they are unacceptable or need attention
How are CSF’s and competences slightly different?
CSF’s are what the organization NEEDS to be good at in order to compete in the market.
Competences are what the organization IS good at.
Note: they should be as closely aligned as possible to be successful
What are value drivers?
Activities or features that enhance the perceived value of a product or service by customers and which therefore create value for the producer.
Can be tangible or intangible
What is Porter’s value chain?
A means by which the activities within and around the organization are identified and then related to the assessment as a competitive strength.
Resources are of no value unless they are deployed into activities that are organized into routines and systems.
These activities are involved in the physical creation of the product, its transfer to the buyer and any after-sales service.
What are the five primary categories in Porter’s value chain?
- Inbound logistics
- Operations
- Outbound logistics
- Marketing and sales
- Service
Explain inbound logistics in Porter’s value chain.
Activities concerned with receiving, storing, and distributing the inputs to the product.
Includes: materials and handling, stock control and transport
Explain operations in Porter’s value chain.
transform these various inputs into a final product
i.e. machining, packing, assembling, testing, and control equipment
Explain outbound logistics in Porter’s value chain.
Relate to collecting, storing and distributing the product to buyers
Explain marketing and sales in Porter’s value chain.
Provide the means whereby consumers and customers are made aware of the product and transfer is facilitated.
Includes: sales admin, advertising, selling, and so on.
Explain service in Porter’s value chain.
Relates to those activities which embrace or maintain the value of a product such as installation, repair, training, and aftersales service.
Each of the primary activities in Porter’s value chain are linked to support activities. These support activities can be divided into four areas, what are they?
- Procurement
- Technology Development
- Human Resources Management
- Infrastructure
Explain procurement in Porter’s value chain.
The processes for acquiring the various resource inputs to the primary activities - not the resources themselves. As such it occurs though the organization.
Explain technology development in Porter’s value chain.
All value chain activities have a technological content even if it is just a “know how”
IT can affect product design or process and the way materials and labor are dealt with.
Explain human resource management in Porter’s value chain.
Involves all areas of the business and its involved recruiting, managing, training, developing, and rewarding people within the organization.
Explain Infrastructure in Porter’s value chain.
Refers to the systems of planning, finance, quality control, information management, etc.
What can Porter’s value chain be useful for?
Give managers a deeper understanding of precisely what their organization does
Identify the key processes within the business that add value to the end customer-strategies can then be created to enhance and protect these, and
Identify the processes that do not add value to the customer. These can then be eliminated, saving the organization time and money.
What are the value chain benefits?
Provides generic framework for analysis
Activities that are not adding value can be identified and addressed
Emphasis’ importance of grouping functions into activities and to think about relationships between activities
Clarifies organization is multifaceted and underlying activities need to be analyzed to understand its overall competitive position.
Instead of assuming SBU’s should act separately, the value chain identifies synergies between them and provides a tool to focus on the value rather than the parts.
What are the value chain criticisms?
More suitable to a manufacturing environment and can be difficult to apply to a service provider.
The value chain model was intended as a quantitative analysis. However, this is time consuming since it often requires recalibrating the accounting system to allocate costs to individual activities.
What is a value shop?
The alternative to value chain analysis for a professional services firm.
A workshop which mobilizes resources to solve specific problems:
Problem finding and acquisition
Problem solving
Choosing among solutions
Execution and control/evaluation
Why should an organization bother to spend time and money needed to undertake a complete environmental analysis?
Identification of threats and opportunities
Assessment of competition
Identification of strengths and weaknesses
Meeting stakeholder needs
What is PEST analysis?
Analyzes the general macro-environment, identifying key drivers of change and hence sources of risk.
Particularly good at identifying whether a market is growing/declining and why
Can also be used to generate ideas for a position analysis (SWOT), identifying opportunities and threats.
What does PEST stand for?
Political (including leage)
Economic
Social
Technological
*Also known as SLEPT (with legal issues added and TESTLE (with environmental issues added)
What are the political factors from the PEST model?
Change of government
New laws
Political union
War
Tax
Global political moves
What are the social factors from the PEST model?
Demography
Culture & lifestyle
Education
Income
Consumerism
What are the economic factors from the PEST model?
Interest rates
Exchange rates
Inflation
Unemployment
Balance of payments
Business cycle
What are the technological factors from the PEST model?
Rate of development and transfer
Innovation
Obsolescence
Changing cost base
What are the legal factors from the PEST(LE) model?
Health and safety legislation
Consumer laws
Data protection laws
Accounting regulations
What are the environmental factors from the PEST(LE) model?
Pollution
Wastage
Climate and climate change
What are the criticisms of PEST analysis
May quickly become irrelevant
Prone to bias
May be incomplete - “bounded rationality”
What is bounded rationality?
The difficulty for managers to correctly identify and understand every environmental issue that might affect the organization in the future.
Under Porter’s Five forces, what questions should an organization ask itself in regards to threats on new entrants?
This will depend upon the extent to which there are barriers to entry.
Which barriers exist?
What extent to which they are likely to prevent entry?
What is the organization’s position? is it trying to prevent or attempt entry?
According to Porter’s Five Forces, what barriers to entry might exist?
Economies of scale Capital requirement for entry Access to distribution channels Cost advantages independent of size Expected retaliation Legislation Differentiation Switching costs
According to Porter’s Five Forces, when is the bargaining power of buyers expected to be high?
When there is a concentration of buyers, particularly in the volume purchases of the buyer are high i.e grocery retailing
Also when the selling industry comprises a large number of small firms and the product is standard with little or no switching costs involved.
According to Porter’s Five Forces, when is bargaining power of suppliers likely to be high?
The input is important to the buying organization
The supplier industry is dominated by a few suppliers who have secure market positions and are not subject to competitive pressure
Supplier products are branded or involve switching costs
Supplier customers are highly fragmented with little buying power
Why are substitutes a threat?
Can render products obsolete
Can place a limit on price and change the basis of a product
Under Porter’s Five Forces, what is a desirable circumstance.
A situation where there are weak suppliers and buyers, few substitutes with high barriers to entry.
What are the stages of the product life cycle?
Introduction
Growth
Maturity
Decline
What are the characteristics of the introduction phase?
Purchased by innovators
High launch & marketing costs are likely
Production volumes will be low and product cost will be high
Buyers are unsophisticated
Competition is little if any
The price elasticity of demand will influence the pricing strategy
What are the characteristics of the Growth stage?
Sales for the market as a whole increase
New competitors, attacked by the prospects, enter to challenge “the pioneer”
New segments may be developed
Demand becomes more sophisticated
Competition levels increase
The market becomes profitable and cash flows increase to recover the initial investment in development and launch costs
There are many new customers with no preference who they buy from
IMPORTANT TO BUILD A BRAND DURING THIS STAGE
Prices often fall due to economies of scale and increasing competitive pressures.
Branding develops
What are the characteristics of the Maturity Stage?
Fully sophisticated demand
High levels of competition
Price becomes more sensitive
Demand reaches saturation
Over time, the organization might be vigilant to detect and anticipate changes in the market and be ready to undertake product or market modifications.
What are the characteristics of the decline stage?
Competition reduces as players leave
Price falls to attract business as sophisticated customers expect cheap prices
Slow harvesting must be balanced with straight divestment
Investment is kept to a minimum to make up any market share that may be left by departing competitors
There may be profitable nitches remaining after industrial death
How do you assess a market?
Assess the potential for demand
Assess the competition
Forecast the business environment
Forecast costs of development
Identify barriers to entry
What is sustainability of a business model?
How robust is the firm’s way of doing business, and the sources of inputs it uses and demand for the outputs it creates, to changes through time
What is an unsustainable business model?
Business is not viable in the long term and this means that investors, and other stakeholders, will reduce involvement with it and withdraw support
What are methods of forecasting?
Statistical models using past data
Think tanks
Delphi technique
International comparisons
Issues analysis
Values profiles
Scenario planning
Think tanks
A group of experts who speak in an unstructured environment about what they think will happen in the future
They can be challenged to give reasons for their views
These can help generate ideas
Think tanks can be multi-disciplinary, for example including technologists, sociologists, creative writers and representatives from audience segments
Delphi technique
This is an advancement on the think tank where the experts are polled to establish which future events are most likely
Each member assigns a probability to an event or change and these are arranged and the medium value taken
Outliers either side of the median are asked to explain the reasons for their disagreement with the consensus.
This stimulates debate and learning and improves the reliability of the forecast
Issues analysis
This looks for dynamics, or trends, that are affecting behavior independently or by their convergence
Values profiles
These are long term forecasts of social values through interviewing people, usually school age people
These can give a guide to the factors that will influence the viewing agenda in 10 or so years’ time
Scenario planning
This takes the other forecasts and assembles them into a picture, or several alternative pictures, of the future world of viewing
