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CHAPTER 4: Micro environment analysis - Coggle Diagram
CHAPTER 4: Micro environment analysis
Industries and markets
Industries
produce goods and services – the supply side of the economic system.
Markets
consume goods and services that have been produced by industries – the demand side
of the economic system.
The relationship between a business organization, its industry and markets
Analysis of its industry and markets
identify other industries where it may be able to deploy its core competencies;
understand the nature of its customers and their needs;
identify new markets where its core competencies may be exploited
identify threats from existing and potential competitors in its own and other industries;
understand markets from which it obtains its resources
The core competencies of a business in relation to
changing customer needs
competitors’ competencies
other market opportunities
Industry analysis
Industry analysis aims to establish the nature of the competition in the industry and the competitive
position of the business.
Porter’s five forces model
of industry analysis
the threat of new entrants to the industry;
the threat of substitute products;
the power of buyers or customers;
the power of suppliers (to businesses in the industry)
rivalry among businesses in the industry
Force 1:
The threat of new entrants to the industry
The capital costs of entry
Brand loyalty and customer switching costs
Economies of scale or scope available to existing competitors
Economies of scale primarily refers to reductions in the average cost associated with increasing the scale of operations for a single product type.
Economies of scope refers to lowering the average cost for a firm in producing
two or more products.
Access to input and distribution channels
The resistance offered by existing businesses
Government regulation
Force 2:
The threat of substitute products
The extent to which the price and performance of the substitute can match the industry’s product
The willingness of buyers to switch to the substitute
Switching costs: o increase the cost – to
the customer – of changing to a new supplier
Direct and indirect substitutes
Direct substitutes are those that are the same in substance
Indirect substitutes are those that are different in substance but can provide the same benefit
Force 3:
The bargaining power of buyers
The number of customers and the volume of their purchases
The number of businesses supplying the product and their size
Switching costs and the availability of substitutes
Force 4:
The bargaining power of suppliers
The uniqueness and scarcity of the resource that suppliers provide
How many other industries have a requirement for the resource?
Switching costs between suppliers
The number and size of the resource suppliers
Force 5
: The intensity of rivalry among competitors in the industry
The relative size of competitors
The nature of costs in industry sectors
The maturity of the markets served
The degree of brand loyalty of customers.
The degree of differentiation
Government regulation
The height of exit barriers
Limitations
of the five forces framework
It implies that suppliers, buyers and competitors are threats
It claims to assess industry profitability
It implies that the five forces apply equally to all competitors in an industry
An alternative approach to competitive and collaborative analysis
Competitive and collaborative arenas
● The industry – the industry within which the organization currently deploys its resources and competencies in producing products.
Resource markets – the markets from which the organization, its competitors and other industries obtain
their resources.
● Product markets – markets where the organization sells its products.
● Other industries – where businesses possess similar competencies to those of the organization
A resource-based approach to environmental analysis
Limitations of existing frameworks of analysis
The resource-based framework
the organization;
its industry;
product markets;
resource markets
other industries.
Strategic group analysis
What are strategic groups?
possessing similar competencies;
serving customer needs in the same market segment
producing products or services of similar quality
three steps involved in the analysis and graphical representation
Identify the important competitive dimensions in an industry, taking into account the information you
have available. Competitive dimensions are the specific factors the firms are using to compete within
the industry. The competitive dimensions might include factors such as quality (perceived or actual),
Construct two-dimensional plots of the competitive dimensions.
Analyse the firm’s position relative to competitors.
Competitor profiling
The strategic group analysis potentially enables an organization to identify its key competitors in a way that is easily communicated to both internal and external stakeholder group
Industry and market critical success factors
In any industry and its associated markets, there will be certain factors, which are of fundamental importance to the success of the businesses operating within that competitive environment