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F12 course and enviro models student version

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F12 course and enviro models student version

  1. 1. BU 111: Fall 2012 Course Model &Environmental Analysis Models
  2. 2. Opening Thoughts“It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.” Charles Darwin
  3. 3. Learning Objectives • Understand the relationship between the firm and its external environment – Course model – Diamond-E model • Describe what an external analysis is • Explain how to do an external analysis – PEST factors – Porter’s five forces model – Data sources • Understand the benefits and challenges of doing an external analysis
  4. 4. Planning Organizing Critical Success Factors Stakeholders Economic Marketing EX Top Management TE L RN NA AL Social Vision Operations Finance Political R TE IN Mission Human Technological Resources Strategy Middle Management First-Line ManagementControlling Directing
  5. 5. Critical Success Factors • Achieving financial performance • Meeting customer needs • Building quality products and services • Encouraging innovation and creativity • Gaining employee commitment • Creating a distinctive competitive advantage
  6. 6. Diamond-E Framework• Identifies key variables to be considered in strategic analysis Management Preferences Organization Strategy Environment Resources
  7. 7. Strategy-Environment linkage• Strategy: what opportunities the business is pursuing – determines needed resources, organizational capabilities, and management preferences• critical linking variable• each variable related to the rest• any variable can either drive or constrain strategy• Principal logic – CONSISTENCY or alignment• First task - deal with strategy-environment linkage – Assess forces at work and their implications
  8. 8. Principal Logic • Importance of Consistency between variables • Examples: – P&G Strategy in 2000 (inconsistency) – Ikea Strategy (consistency) • Note: Absolute alignment is not realistic
  9. 9. Strategy-Environment Linkage • First task: Deal with strategy-environment linkage • Assess forces at work and their implications Examples: - Digital Camera Market: Canon vs. Kodak
  10. 10. Quick Review: Course Model& Diamond-E • What factors make up the external environment? • What are the components of the Diamond-E model? -What is the most important linkage within it?
  11. 11. External analysis
  12. 12. How to do an external analysis• General environment – PEST model – considers political, economic, social/demographic, and technological factors – Identifies general trends and changes• Specific environment – Porter’s Five Forces - analyzes five important sources of competitive pressure and intensity; predicts profitability of industry• Look for data, statistics, trends, forecasts, expert opinions, etc.
  13. 13. PEST - Political-LegalElements:• Laws, regulations• Taxes• Trade agreements or conditions• Political system• Political stabilityGovernment can create incentives, constraints, or support/bail out when neededAffects uncertainty, risk, and costs faced by firm
  14. 14. PEST – EconomicElements:• Economic growth – GDP and standard of living• Economic stability – inflation, unemployment &&• Trade balance – importing vs. exporting• National debt – government borrowing• Interest rates - the higher, the less ppl buy• Exchange ratesInfluences costs, potential sales, and financial uncertainty
  15. 15. PEST – SocialElements:• Customs, values, attitudes, and demographic characteristics• Influences customer preferences• Influences worker attitudes and behaviours• Influences standards of business conduct • Ethics, social responsibility, stakeholder managementAffects how we live, work, consume and produce
  16. 16. PEST – TechnologicalElements:• Internet affects buying, selling, communication• Information technologies affects information access, inter-firm cooperation, cycle times• Computer technologies have changed our products and how we design and build• Not limited to computers and informationAffects what we produce/what it can do, affects how we produce and how we sellDemands constant learning and scanning
  17. 17. Questions to answer from PEST• Do the economic conditions support my business?• What legal protection do I have or laws do I have to consider?• What demographic and social trends affect my business and how?• What technological forces affect me now and in the future? How do they assist or constrain?• What opportunities or threats does the environment possess?
  18. 18. Porter’s Five Forces POTENTIAL ENTRANTS INDUSTRY COMPETITORS SUPPLIERS BUYERS Rivalry Among Existing Firms SUBSTITUTES
  19. 19. Porter’s Five Forces• Suppliers – Fewer suppliers, high switching costs, low attractiveness of substitute suppliers, high threat of forward integration means = increased bargaining power (ex. Our choice of only bell or rogers) – Bargaining power increases costs of inputs – Use strategic alliance or internal supply• Potential Entrants – Can cause big changes – Ease of entry = more intense competition – Barriers = capital intensity, technology, know-how/who,
  20. 20. Porter’s Five Forces• Substitutes – Many substitutes = increased competition – Puts ceiling on price that can be charged – Pressure increases as price of substitutes and switching costs decline• Buyers perspective – Few or concentrated buyers, standardized products, low switching costs, discretionary purchases = increased bargaining power – Reduces price that you can demand
  21. 21. Porter’s Five Forces• Rivalry among existing firms “Nothing focuses the mind better than the constant sight of a competitor who wants to wipe you off the map.” - Wayne Calloway– Results in price competition and increased costs– Most powerful of five forces– Causes: • Many competitors of equal size/capability • Growth rate of industry • Consumers switching costs • Products are commodities or are perishableCaveat: Power and relevance of a force will vary by industry
  22. 22. Value of Five Forces Model http://www.youtube.com/watch?v=mYF2_FBCvXw
  23. 23. Questions to answer with Five Forces analysis1. Is the industry a realistic place for a new venture to enter? If yes, then...2. Can we do a better job than incumbents at avoiding or diminishing factors that suppress industry profitability?3. Is there a unique position we can pursue?4. Is there a superior business model that incumbents would find hard to duplicate?
  24. 24. Sources of InformationSome library databases:• Standard and Poors NetAdvantage – – Provides Industry Trends, Industry Ratios, and lots of key industry data• GMID – market share data by company and brand; industry growth data• DataMonitor – five forces analysis and SWOT• FPInfomart – Canadian data
  25. 25. Benefits of External Analysis
  26. 26. Challenges of External Analysis
  27. 27. Learning Objectives Summary • Understand the relationship between the firm and its external environment – Course model – Diamond-E model • Describe what an external analysis is • Explain how to do an external analysis – PEST factors – Porter’s five forces model – Data sources • Understand the benefits and challenges of doing an external analysis

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