Opportunity and Threat of External Environment

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  • Opportunity and Threat of External Environment

    1. 1. OPPORTUNITIES AND THREATS OF EXTERNAL ENVIRONMENT Ram & Som
    2. 2. AIM & OBJECTIVETo discuss the organization as an open system andassess the impact of a number of environmental forcesTo understand the opportunity-driven strategydepends upon an ability to manage, and to manage in,the business environmentTo examine the threat of the business and implementprocess to the strategic plan of the organization
    3. 3. TABLE OF CONTENTS External environment General environment Industry environment Competitor environment SWOT analysis Potential opportunities and threats in the external environment Company Analysis Conclusion References
    4. 4. EXTERNAL ENVIRONMENTT he exter nal environmentcomprises of all the entities thatexist outside its boundary, but havesignificant influence on its growthand survival. An organization haslittle or no control over itsenvironment but needs toconstantly monitor and adapt tothese external changes, a proactiveor reactive response leads tosignificantly different outcome Gupta, 2009
    5. 5. TYPES OFEXTERNAL ENVIRONMENT Direct interactive this environment has an immediate and firsthand impact upon the organization. Indirect interactive this environment has a secondary and more distant effect upon the organization
    6. 6. EXTERNAL ENVIRONMENT ANALYSISScanning Identifying early signals of environmentalchanges and trendsMonitoring Detecting meaning through ongoingobservations of environmental changes and trendsForecasting Developing projections of anticipatedoutcomes based on monitored changes and trendsAssessing Determining the timing and importance ofenvironmental changes and trends for firm’s strategiesand their management
    7. 7. EXTERNAL ENVIRONMENT ANALYSIS Analysis of general environment Analysis of industry environment Analysis of competitor environmentThe ExternalEnvironment Strategic Intent Strategic mission
    8. 8. ANALYSIS OF THE EXTERNAL ENVIRONMENTGeneral Environment Focused on the futureIndustry Environment Focused on factors and conditions influencing a firm’s profitability within an industryCompetitor Environment Focused on predicting the dynamics of competitors’ actions, responses and intentions
    9. 9. GENERAL ENVIRONMENTDimension in the broader society that influence an industryand the firms within it Demographic Economic Political/Legal Sociocultural Technological Global Thomson/South-Western, 2007
    10. 10. GENERAL ENVIRONMENTDemographic Segment Population size Age structure Geographic distribution Ethnic mix Income allocation
    11. 11. GENERAL ENVIRONMENTEconomic Segment Inflation rates Interest rates Trade deficits or surplusses Budget deficits or surplusses Personal saving rate Business saving rates Gross Domestic Product
    12. 12. GENERAL ENVIRONMENTPolitical/Legal Segment Government stability Taxation policy Foreign trade regulations Social welfare policies Employment law Health and safety
    13. 13. GENERAL ENVIRONMENTSociocultural Segment Workforce diversity Attitudes to work and leisure Consumerism Level of education Concerns about environment Social mobility
    14. 14. GENERAL ENVIRONMENTTechnological Segment Product innovation Applications knowledge New communication technologies Government and industry focus on technological effort Government spending on R&D expenditures
    15. 15. GENERAL ENVIRONMENTGlobal Segment Importance political events Critical global markets Newly industrialize country Different cultural and institutional attributes
    16. 16. Economic GlobalIMAGINE YOU HAVE A COMPANY WHICH FACTORS WOULD YOU CONSIDER FIRST AND LAST WHY?Political Sociocultural Technological
    17. 17. INDUSTRY ENVIRONMENTThe set of factors directly influencing a firm and itscompetitive actions and competitive responses Threat of new entrants Bargaining power of suppliers Bargaining power of customers/ buyers Threat of product substitutes Intensity of rivalry among competitors
    18. 18. PORTER’S FIVE FORCES
    19. 19. THE PURPOSE OF FIVE FORCES ANALYSIST h e F i v e Fo r c e s a r eenvironmental forces thatimpact on a company’sability to compare in a givenmarketThe purpose of five-forcesanalysis is to diagnose theprinciple competitivepressures in a market andassess how strong andimportant each one is
    20. 20. THREAT OF NEW ENTRANTS Barriers to entry Economies of scale High differentiate products or well-known brand names Capital requirements High consumer switching costs Assess the distribution channels Cost advantages independent of scale Government policy Expected retaliation
    21. 21. THREAT OF NEW ENTRANTS
    22. 22. BARGAINING POWER OF THE SUPPLIERSupplier power increase when Suppliers are large and few in number Suitable substitute products are not available Individual buyers are not large customer of suppliers and there are many of them Suppliers’ goods are critical to the buyers’ marketplace success Suppliers’ products create high switching costs Suppliers pose a threat to integrate forward into buyers’ industry
    23. 23. BARGAINING POWER OF THE SUPPLIER
    24. 24. BARGAINING POWER OF BUYERS/CUSTOMERSBuyer power increase when Buyers are large and few in number Buyers purchase a large portion of an industry’s total output Buyer purchase are significant portion of a supplier’s annual revenues Buyer’s switching costs are low Buyer can pose threat to integrate backward into the seller’s industry Buyer has full information
    25. 25. BARGAINING POWER OF BUYERS/CUSTOMERSeBay & Walmart Defense contractors
    26. 26. THREAT OF PRODUCT SUBSTITUTESThe threats of substitute products increase when Buyers face few switching costs The substitute product’s price is lower Substitute product’s quality and performance are equal to or greater than the existing productDifferentiated industry products that are valuedby customer reduce this threat
    27. 27. THREAT OF PRODUCT SUBSTITUTES
    28. 28. INTENSITY OF RIVALRY AMONG COMPETITORSIndustry rivalry increase when There are numerous or equally balanced competitors Industry growth slows or declines There are high fixed costs or high storage costs There is a lack of differentiation opportunities or low switching costs When the strategic stakes are high When high exit barriers prevent competitors from leaving the industry
    29. 29. INTENSITY OF RIVALRYAMONG COMPETITORS
    30. 30. INTERPRETING INDUSTRY ANALYSIS Low entry barriersSuppliers and buyershave strong position Unattractive Industry Strong threats from substitute products Low profit potential Intense rivalry among competitors
    31. 31. INTERPRETING INDUSTRY ANALYSIS High entry barriersSuppliers and buyershave weak position Attractive Industry Few threats from substitute products High profit potential Moderate rivalry among competitors
    32. 32. INDUSTRY ANALYSIS Supermarkets
    33. 33. SUPERMARKETS SUMMARYThreats of new entry HighPower of suppliers MediumPower of buyers Medium/ HighThreat of substitutes MediumExisting rivalries Intense
    34. 34. COMPETITOR ENVIRONMENTCompetitor intelligence The ethical gathering of needed information and data that provides insight into A competitor’s direction (future objective) A competitor’s capabilities and intentions (current strategy) A competitor’s beliefs about the industry (its assumption) A competitor’s capabilities
    35. 35. COMPETITIVE ANALYSIS Who are your competitor? Do you know about your close competitors’ strengths and weaknesses? How detail should we analyse the competition? Use a systematic approach Analysis competition at various levels
    36. 36. SWOT ANALYSISStrengthsWeaknessesOpportunitiesThreats Albert S.Humphrey, 1960s
    37. 37. THE PURPOSE OF SWOT ANALYSIS It is easy-to-use tool for developing an overview of a company’s strategic situation It forms a basis of matching your company’s strategy to its situation
    38. 38. OPPORTUNITIES & THREATSOpportunity A condition in the general environment that, if exploits, helps a company achieve strategic competitivenessThreat A condition in the general environment that may hinder a company’s efforts to achieve strategic competitiveness
    39. 39. WHY IS IT IMPORTANT TO KNOW THE COMPANY OPPORTUNITIES AND THREATS?
    40. 40. OPPORTUNITY & THREATSOpportunities and threats form a basis for external analysis By examining opportunities, you can discover untapped markets, and new products or technologies, or identify potential avenues for diversification By examining threats, you can identify unfavorable market shifts or changes in technology, and create a defensive posture aimed at preserving your competitive position
    41. 41. EXAMPLE OF THREAT AND OPPORTUNITIES The strength of economy effectsThe economy the level of demand This includes shareholders, andCapital markets their satisfaction with company success Changes in structureLabour market Availability of skills Influence of trade unions
    42. 42. EXAMPLE OF THREAT AND OPPORTUNITIES Robotics in manufacturing Technology Computers Information technology Changing population - by ageSociocultural environment Changing tastes and values Regional movements Special industry initiatives Government The legal environment
    43. 43. EXAMPLE OF THREAT AND OPPORTUNITIES Suppliers Availability and cost of suppliers Changes in preferences andCustomers purchasing power Changes in competitive strategiesCompetitors Innovation Effects of good and bad publicity,The media drawing attention to companies, products and services
    44. 44. IDENTIFY INDUSTRY KEY SUCCESS FACTORS1. Identify2. Draw conclusion3. Translate into strategic action
    45. 45. CAN YOU THINK OF ANYCOMPANY THAT ADAPT ITS STRATEGY WELL WITHEXTERNAL ENVIRONMENT?
    46. 46. CASE STUDY SAMSUNGMOBILE & TABLET
    47. 47. SAMSUNG GALAXY S10 millions sold globally30 millions sold SamsungGalaxy S & S IIApprox $500
    48. 48. SAMSUNG GALAXY MINI In trend Preferences (white/black) Functional Cheap (only $175)
    49. 49. SAMSUNG GALAXY NOTE Mix of phone & tablet Come with a stylus $799.99
    50. 50. SAMSUNG GALAXY TAB Tablet market Smaller than iPad $600
    51. 51. 3 YEARS AGO
    52. 52. THIS YEAR
    53. 53. DISCUSSIONAnalyse Samsung’s strategy? What do you thinkabout their strategy?List Samsung opportunities and threatsWhat do you think will challenge Samsung in thefuture?
    54. 54. SAMSUNG OPPORTUNITYOffer product variation, grab all different type ofmarkets - opportunity to growDemand for cellphones driven by the service providersor carriersLowering the price of a phone by just $20 in manycountries could increase its affordability by 43%
    55. 55. SAMSUNG THREATSAggressive competitors such as iPhone, HTC, Nokiaand Windows phone etc.Keeping track of the new trends in the market but theprice is much more cheaper than competitorsNot an accessory in the fashion statement
    56. 56. CONCLUSIONIt is important for company to pay attention toexternal environmentThe research in external environment is essential forthe businessThe company that adapt its strategy to the changes ofexternal environment is likely to be more competitivein the business
    57. 57. REFERENCESMarketing Institute Singapore. External Environment in the Asia Pacific Region. [ppt.]My Strategic Plan (2010). Internal and External Analysis. Available at http://mystrategicplan.com/resources/internal-and-external-analysis/ [Accessed on October 15, 2011].Cliffsnotes, (2000-2011). The External Environment, Principles of Management. Available at http://www.cliffsnotes.com/study_guide/The-External-Environment.topicArticleId-8944,articleId-8859.html[Accessed on October 13, 2011].Gupta, A., (2009). Organization External Environment, Practical Management. Available at http://www.practical-management.com/Organization-Development/Organization-s-External-Environment.html[Accessed on October 13, 2011].Samsung, (2010). Samsung. Available at http://gsg.samsung.com/ [Accessed on October 15,2011].Strategic CFO, (2009). Porter’s Five Forces of Competition. Available at http://www.wikicfo.com/Wiki/Porters%20Five%20Forces%20of%20Competition.ashx [Accessed on October 15, 2011].Thompson, J. & Martin, F., (2010). Strategic Management: Awareness and Change. UK: South-WesternCENGAGE Learning.
    58. 58. THANK YOUFOR YOUR ATTENTION

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