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External Analysis, definition, G8: michella, stephen, caroline, albert -…

- - - - suppliers and buyer
    - - apps for smartphone
      - videos for video player
      - games for game console
      - gasoline for car
    - - definition
        
        systematic approach to looking at the different types of factors and the structural features of an industry
        
        it aims to explain and predict industry profitability
      - utility
        
        provides deep insights into the reasons why industries are more or less profitable
        
        can help managers make decisions about resource allocation,
        
        help managers figure out where and how they can intervene strategically to improve the attractiveness or profitability of their industry
      - different between pharmaceutical and airline industry
        
        case example
        
        premier leage
        
        revenue sharing
        
        limit competition over player salary
        
        centralized tv deals
        
        structure-conduct-performance paradigm
        
        firm conduct
        
        Advertising R&D spending New product development Pricing and Capital investment Bargaining
        
        perfomance
        
        economics profit
        
        industry structure
        
        Product differentiation Buyers and sellers Barriers to entry Cost structures Demand growth Switching costs
        
        5 force frame work
        
        threat of substitute
        
        bargaining power of buyer
        
        rivalry among industry firm
        
        bargaining power of suppliers
        
        threats of new entrant
    - - broad view
      - narrow view
      - example of industry
        
        pharmaceutical drugs
        
        food
        
        tobacco
- - - - Scale and scope economies
        
        The more goods produce the cheaper it gets per unit
        
        Goods per unit decline when produce a few different products together
      - Learning curve economies
        
        Goods cost decline overtime as the company learns through producing more and more goods overtime
      - Capital requirements
        
        Some industry required huge investment to get into the industry
      - Product differentiation
        
        Costumers are loyal to existing products and brands
        
        Intangible products attributes and emotional attachment
      - Access to distribution channels
        
        Shelf space may be limited
        
        Logistics of distribution may be difficult
      - Other advantages: raw material access,favorable location,regulation,proprietary,technologies and processes.
        
        Privileged access to raw materials or favorable location
        
        Government regulations make it costly to enter
        
        Difficult to imitate technologies and processes
    - - Existing firms respond with aggressive pricing,new product,etc
      - Reputation for retaliation,slow industry growth and high exit costs make retaliation more likely
      - Stronger firms with resources and excess capacity are better able to retaliate
  - - - Industry concentration is low
      - Product differentiation is low
      - Fixed/storage costs are high
      - Demand growth is low
      - Over capacity is high
      - Exit barriers are high
    - - Competition is based on price, it is easily matched by rivals and lowers profit for all firms
  - - - Meet similar needs
      - Better cost structure
      - More innovative or value providing
      - Improving quickly in cost or performance
  - - - Buyers are concentrated
      - Product is not important for buyer quality or performance
      - Few switching cost for the buyer
      - Buyers can backward integrate
  - - - Suppliers are concentrated
      - Suppliers face few substitute products
      - Suppliers can forward integrate
      - The suppliers’s product is important for the focal industry
      - Suppliers product are differentiated or present high switching costs
  - - - Rivalry:perishable,high fixed cost,undifferentiated service
      - Entry:easy to lease plane and crew,buy/lease gates and landing slots
      - Suppliers:fuel and labor suppliers have some bargaining power
      - Buyers,substitute;matter to a lesser extent
    - - Entry barriers:R&D investment,patents,marketing regulatory capabilities/access
      - Rivalry:differentiated product,patent protected,brand loyalty
      - Buyers:vital health need,fragmented decision making,insurance coverage
      - Substitutes:generics were less competitive until recent year
      - Suppliers:mostly commodities
    - - profits in an industry are susceptible to the weakest of the five forces.
      - An industry with five moderately strong forces will be more profitable than one with four very strong ones and one very weak force.
      - the weakest of the five forces called the pivotal force for industry profitability.
        
        what is 'Pivotal force"
        
        Force that represents greatest threat from competition
        
        Increasing or mitigating this threat has direct impact on profitability
        
        How to cope with pivotal force
        
        Monitoring pivotal forces and underlying structural attributes.
        
        Strategically intervene to reshape the industry.
      - strengthening the weakest force can improve profitability of the industry.
    - - identifying the industry and who the 5 forces are;
        
        which firms are the competitors and which ones make substitutes.
        
        which is the potential entrance
      - Develop an assessment of the "strength" of each force
      - Examine the structural attributes of each force
      - Combine analysis of all 5 forces for overall assessment of profitability
      - Examine dynamics;
        
        changes in structural attributes over time
    - - it is a complementary for products or services given to a firm, that gives success in the industry
      - Compliments as the conceptual opposite of substitutes
      - Compliment has potential for competition
    - - Not being clear about industry definition.
      - Using too broad or too narrow and industry definition.
      - Not keeping track of actors in each force.
      - Simply describing the factors in each force, ignoring structural attributes.
      - Focusing just on heart attributes (scale or capital) and not enough and behavioral ones (risk, brand loyalty).
      - Using one force to explain another.
      - Stopping with the five forces, and not evaluating overall profitability.
      - Assessing profitability as an average of the five forces.
      - Confusing shot-run Industry profits with long-run profitability.
      - Not examining dynamics or implications for managerial action.
  - - - how to understand it
        
        Insights from PESTEL analysis of my car environment
        
        Changes over the product life cycle
    - - Mostly static framework, can be extended to dynamics
        
        Built on a foundation of competition over value or surplus, doesn’t provide much insight into value creation and innovation.
        
        Require some sophistication to use.
        
        But, advances beyond opportunities and threats (SWOT) and even PESTEL
- - - - values and culture
      - demographic trends
      - aspiration and expectations
    - - disruption new bussines models
      - Trends in R&D and innovation
      - process and operational innovation
    - - climate change
      - pollution, sustainability
      - Conservation
    - - employment
      - inflation interest and exchange rates
      - growth
      - economic inequality
    - - antitrust, labor, liability (tort)
      - international treaties and law
      - courts (multiple jurisdictions)
    - - includes;
        
        government levels
        
        state, local, national regional
        
        Political sensitivity
        
        political stability, security, and corruption