U2 The Strategic Environment Flashcards
Where Are We in the Market Place? The Macro-Environment
Organizations do not exist in isolation—they exist ?
within the environment in which they operate.
The environment, in turn, influences ?
the corporate strategy.
A comparison can be made with the solar system, with our organization being ?
the center and various factors orbiting around it, just as the planets move around the sun.
Each of these factors influences our strategic plan.
The factors closer to the organization, ————————————————————————- are in the micro-environment.
namely competitors, substitute products, suppliers, and buyers,
The macro-environment consists of?
political,
economic,
social,
technological,
environmental,
and legal factors that influence how business is conducted.
Substitute products
Substitute products can be used as replacements for existing products.
Figure 2: The Macro-Environment of an Organization
Figure 2: The Macro-Environment of an Organization
Figure 2: The Macro-Environment of an Organization
The PESTEL analysis can be used to?
analyze the macro-environment of our organization.
PESTEL is an acronym of?
the first letters of all the factors in the macro-environment of an organization:
Political factors
Economic factors
Social factors
Technological factors
Environmental or ecological factors Legislative or legal factors
The PESTEL analysis is a strategic and qualitative method that helps to?
align the organization with its environment or with developments in the environment.
It also looks at changes in the environment that may influence the future success or failure of the organization.
PESTEL Analysis of an Airline
The following section applies a PESTEL analysis to?
an airline, exploring what is considered in each category.
Political factors
This involves :
an analysis and forecast of political developments and trends.
If the government enforces higher security standards in the airline industry, our company will have to invest more in ?
its security measures.
Investments in other projects will therefore need to be ?
reduced or cut completely.
This has a direct impact on the company strategy.
Economic factors
This involves:
This involves an analysis and forecast of economic developments and trends.
Changes in the price of oil will influence ?
the price of aviation gasoline. Since the price of gasoline is a critical factor for airline profitability, the oil price will have an influence on the bottom line of an airline company.
If gas prices go up, airlines are forced to increase ticket prices. This could lead to a decline in air travel, which impacts the strategy of an airline.
Social factors
This involves:
an analysis and forecast of socio-cultural developments such as trends in the areas of demography or changes in values of the customers.
In the western world, the population is aging and many retire earlier. As such, there are many more elderly people traveling today than in the past. Airlines have to ?
accommodate this customer group and cater to their specific needs by providing wheelchairs and luggage services.
Demography
Demography looks at the development of a population in terms of age, structure, etc.
Technological factors
This involves :
an analysis and forecast of technological developments and trends.
Check-in
Check-in is the process of registering travelers and their luggage in order to confirm their presence on the flight.
The check-in process for flights has changed through the widespread use of the Internet for this procedure. A few years ago,
a traveler had to be at the airport on time in order to go through the check-in process at the airline counter. There were often long lines in front of the check-in counters. Today, most airlines offer online check-in in order to process the passengers at the airport faster. Airlines are forced to invest in the technology required to support online check-in procedures, which again influences the strategic plan.
Ecological factors
This involves ?
an analysis and forecast of ecological developments and trends.
The airline industry is faced with flight restrictions over certain areas such as larger cities and nuclear power plants.
Therefore, they are forced to re-route planes and engage in major planning efforts to align operations with ecological developments.
This leads to stronger investments in the planning department and takes resources away from other departments.
Legal factors
This involves?
an analysis and forecast of legal developments regionally, domestically, or internationally.
Domestic airlines are often given preference when it comes?
to airport access.
Smaller airlines are thus forced to resort to?
smaller, more remote airports.
Cheaper charter airlines, such as Irish company Ryanair, build this factor into?
their strategy and operate from smaller airports.
The PESTEL analysis is?
comprehensive and extensive.
Its usage is not limited to one organization or one competitive situation;
it can also be applied to a team or a department within the organization.
A brainstorming session often forms part of a PESTEL analysis with the goal of ?
finding specific features or trends in any of the six areas.
These can then be evaluated to inform ?
a specific decision or situation.
The PESTEL analysis is therefore a tool that can be used for location decisions as well as?
for strategic decisions, such as the product portfolio or technological innovations.
In our case study,
the first three questions concern the macro-environment of Lars Bank.
The first question: “What business opportunities will the change in the legal framework open up for foreign financial services providers?”
addresses the political and legal aspects of such an investment in Turkey.
The changes in the legal framework for financing real estate should make it easier for?
European banks to finance real estate in Turkey.
The second question: “Is the market economically attractive?” looks at the economic aspects of an investment decision. Even if ?
the legal framework supports foreign investments, it might not be economically lucrative for the organization.
The third question: “Would Turkish customers accept foreign financial service providers?”
looks at the socio-cultural implications of the investment.
Financial services companies need to ?
establish a relationship of trust with the customer in order to succeed.
Despite today’s global markets, it might be difficult for a foreign bank to gain the trust of?
Turkish customers.
This question needs to be explored further before making the decision to enter the Turkish market.
Where Are We in the Market Place? The Micro-Environment
The direct environment in the market place impacting an organization is called ?
the micro-environment.
This includes?
the buyers or customers of an organization,
the competitors,
possible substitute products,
and the suppliers.
The Five Forces Model
Michael Porter’s (1979) Five Forces model takes a look at?
the micro-environment and helps analyze various strategies for the strategic planning process.
This model is built on the following assumptions.
==The foundation of the model is that the market’s attractiveness is defined by its structure.
== The structure of the market in turn impacts the strategic behavior of an organization operating in this market.
==Since the market structure is defined by the competition, the competitive strategy of an organization is decisive for its success.
Porter’s model analyzes the forces in the micro-environment that impact?
a specific market.
The information gained through this model analysis allows organizations to ?
make decisions regarding activities that influence forces in their micro-environment.
The attractiveness of a business is identified by the following five forces:
Buyers\/customers: analysis of their buying power
Competitors: analysis of the degree of rivalry among existing competitors
New market entrants: analysis of threats from new competitors
Substitutes: analysis of threats from substitute products
Suppliers: analysis of their negotiating power
The stronger these five forces are, the less
———————–the business is and the more difficult it is for an organization to build and maintain a ———————————-. These forces are now explained in greater depth.
attractive
competitive advantage
Buyers\/customers
Customers are the direct buyers of the products or services of?
an organization; however, they are not necessarily the consumers.
When buyers are powerful (i.e. they buy large amounts), they can enforce lower prices for the products. This would lead to?
a decrease in the profits of the organization.
Consumer
The consumer is the individual using the product or service. In many families, mothers are often the grocery shoppers who buy the chocolate. In this instance, the mother is the direct buyer; however, it is the children who are the consumers of the chocolate.
Buyers have purchasing power over an organization when:
They buy large quantities.
The producer has high fixed costs and little flexibility in lowering the price for the product or service.
The product is undifferentiated and can easily be replaced by substitute products.
The switch to an alternative product is simple and inexpensive.
The margins are relatively small.
The customers could produce the product or service themselves.
The product or service is not of high value to the customer.
The customer knows the production cost of the product.
A backward integration is possible for the customer. Backward integration means that the customer produces the product or service themselves by buying the company or developing it.
Margin
Margin is the difference between the production costs and the sales price.
Competition
This force describes the intensity of the competition among the current players in the market.
High competitive pressure, which is often reflected in?
price competition,
leads to shrinking margins and profits for all the organizations in the business.
price competition, leads to shrinking margins and profits for all the organizations in the business.
–There are numerous companies of similar size in the market.
–The companies have similar strategies.
–The business sector shows little growth and therefore an increase in sales is only possible if business is taken away from a competitor.
–The products or services offered in the market are undifferentiated and therefore all companies compete on price.
–The exit barriers for the organization to leave the business and switch to a different business are very high (e.g. highly specialized machines or personnel are required to produce the product or service).
