Unit 2 - Outside the organisation - analysing the external environment

Question 1

Explain the STEP framework?

Answer 1

Question 2

Explain PESTLE?

Answer 2

Question 3

Provide examples for political factors (PESTLE)?

Answer 3

Fahey and Narayanan (1986) suggested that the political factors of interest are those which describe the general political situation and the regulatory frameworks which guide conduct within political systems. Key themes may include:

• the relative stability of a political system, which may be recognisable at international, national or local levels
• relationships between key groups active in a political system
• the relative tendencies of government actors towards activism or involvement
• the relationships between a diversity of interest groups
• the nature of regulatory oversight and its role in achieving government policy at a supra-national or national level.

Question 4

Provide examples for Economic factors?

Answer 4

Fahey and Narayanan (1986) suggested that the important economic factors in a macroenvironmental analysis are those which affect the general economic wellbeing of an economy. These may include a variety of measures. For instance:

• the growth rate of gross national product (GNP)
• the relationships between GNP, exchange rates and interest rates
• the disposable incomes of consumers and their purchasing power.

They might also include:

• degrees of differences in regional or local economies and concentrations of wealth
• levels of employment
• the general rates of price, income or commodity inflation.

Question 5

Provide examples for sociological factors (PESTLE)?

Answer 5

In Fahey and Narayanan’s (1986) original work, sociological factors were seen to include:

• demographics
• life styles
• the values of a society.

Question 6

Provide examples for Technological factors (PESTLE)?

Answer 6

When they considered technological factors, Fahey and Narayanan were discussing the general rate of technological advancement taking place in a society at a certain time (Fahey and Narayanan, 1986, p. 28). The factors included the emergence of new products, processes or materials as a consequence of scientific activity and advancements, and their concentration or dissemination. As we have already noted, technological factors may also include the emergence of new business models, supported by new technological developments such as the internet or portable devices such as laptop computers and smart telephones; such business models have lower start-up costs and can move more rapidly to identify and satisfy gaps in demand.

Question 7

Provide examples for Legal factors (PESTLE)?

Answer 7

• employment
• access to materials
• quotas
• resources
• imports/exports
• taxation.

Question 8

Describe Porters 5 forces framework?

Answer 8

Question 9

Name barriers for Porters threat of new entrants? (5 forces)

Answer 9

• Economies of scale
• Product differentiation
• Capital requirements
• Cost disadvantages independent of size
• Access to distribution channels
• Government policy and regulation

Question 10

Describe supplier power (Porter’s 5 forces)?

Answer 10

The analysis of the relationship between organisations and their suppliers is analogous to that between organisations and their buyers; that is, one is the seller and one is the buyer in each case. There has been a growing trend towards a greater interdependence of suppliers and buyers. For example, in auto manufacturing, a smaller number of suppliers is increasingly responsible for the design as well as the supply of key components. Such a trend is likely to raise the costs of switching from one supplier to another and hence increase the power of suppliers relative to buyers.

Question 11

Describe buyer power (Porter 5 forces)?

Answer 11

Buyer power increases when buyers are more price-sensitive, and buyers are more price-sensitive when products or services are less differentiated. For example, consumers are more likely to be price-sensitive when buying relatively more commoditised items such as plain white T-shirts. Buyers are also more likely to be price-sensitive when the goods and services purchased represent a large proportion of costs, for example airlines and the cost of aviation fuel.

The bargaining power of buyers is also affected by their size and concentration, the level of information they have, and their ability to backwardly integrate (i.e., their ability to make the product themselves).

Question 12

Describe substitutes (Porter’s 5 forces)?

Answer 12

Substitutes limit the potential of an industry by placing a ceiling on the prices that can be charged. But what are substitutes? To define what we mean by substitutes, we need to be clear about the difference between ‘industries’ and ‘markets’. A market groups together firms whose products are close substitutes from the buyer’s perspective. In contrast, an industry refers to product groups which are close substitutes from the supplier’s viewpoint. Cars and trucks may all be part of the same auto industry with most firms in the industry making both types of vehicles. However, the customers for cars and trucks are different and would not see one as a substitute for the other.

Question 13

Describe 2 factors for Competitive rivalry (Porter’s 5 forces)?

Answer 13

Among the factors affecting the level of competitive rivalry are:

• the underlying market structure (type of competition, degree of concentration)
• the maturity of the industry.

Question 14

Describe the KSF by Grant?

Answer 14