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Chapter 6: External environmental analysis - Coggle Diagram
Chapter 6: External environmental analysis
Intro: In depth look at PESTLE, P5F and the market analysis, in the slides look at the 4 interrelated activities
Scanning: Early signals of environmental changes and trends identified
Monitoring: Reason behind the changes and trends made by observation
Forecasting: Based on monitored changes and trends, what is the likely outcome to occur
Assessing: the timing and importance of the enviro changes and trends for organizations' strategies and their management are determined.
External Environment: Pg 126 the differents environments of an organisation
South African environmental Context:
Challenges and complexities that are facing in South Africa cannot separated form the broader international environment.
Socio-economic:
The new south africa 1994 slow growth from social transformation
Major threat and challenge for South African organisation is to manage the problem
Economic inequality, in SA was estimated to be 0,69, not much has changed, the strat is action is on page 127
Examples of effects on the business:
Demand for industrial and consumer products and services will be influenced, by changes of economics and social conditions.
Types of products needed by customers may result from changes in social environment.
Tough economic situation may require different types of service.
Main issue is the gini coefficient, this inequality influences the social cohesion, efficiency and economic growth.
Some of the main characteristics of external environment to orgs in the SA context incl:
The high expectations of some citizens of a decrease in this inequality
Growing impatience for a dramatic improvement in peopls quality of life
Fear of losing everything(leading into high violence and crime rates)
The Macro-environment, this is the referred to the PESTLE Analysis
Political:
the parameters within which organizations operate
The aims of government will influence on orgs
Political decisions can have a tremendous influence on the economy and social structure
Economic:
the health of the countries economy also effects affects individual orgs and industry
it influences the demand for goods and services
inflation, recessions, and intra influence the orgs
strat on page 131
Socio-cultural,
deals with the societies attitudes, and cultural
Social, cultural and demographic variables shape the way people live, work and produce and consume.
Culture in SA is not homogenous,(not the same overall culture)
Technological,
New products, process and materials
the places and relevant activities involved in creating new knowledge and translating that knowledge in new outputs, products, process
implications of technological innovation
Global climate changes present both opportunites and threats to orgs
Ecological;
Relationship between human beings and organization, one should consider the potential and actual changes in the physical environment
one should consider the actual changes in the physical environment and the influence these will have on orgs business practices if they intend to deal with these changes
Market environment
a group of orgs that produces products which are close to being substitute or a perceived substitute for the consumer, influencing one another in the course of competition, is known as an industry
Industry structure depends on certain traits that give the industry its unique characteristic and could be ided by analysising these 4 variables:
Concentration
Economies of Scale
Product differentiation
Barriers to entry
Threat of new entrants
It is important to identify new entrants, as they can threaten the market share.
main purpose of a new entrant is to gain sufficient market share in the industry.
resulting in a highly competitive market that could lead to decrease in revenue or lower returns for competing orgs.
2 factors influence whether new orgs will enter an industry:
Barriers to entry
Expected retaliation
best way to break the barrier is to locate market segments that are not adequately served by existing orgs
Barriers to entry:
economies of scale(perks of having a bigger company mean that cost are better, decrease per unit allows for the scale to increase)
Product differentiation
Capital requirements
Switching cost(the cost that a consumer incurs as a result of changing brands, suppliers or products.)
Access to distribution channels
Expected retaliation:
Fierce retaliation to be expected, with major shares belonging to pre-existing orgs.
Bargaining power of supplier,
orgs acquire inputs to resell them
Suppliers are the individuals and companies that provide an org with the input resources(raw mats, components parts, or labour) that the org needs to produce goods and services
Suppliers should be evaluated.
Bargain power of buyers, there is always a conflict between goals of customer and the goals of orgs
Threat of substitute products,
Sub products and services, if a product or service can fulfill the same needs as your product from a different industry
There are different situations where substitute pdts can cause indirect competition, this is when products could:
Fulfil the exact same purpose
Be partial substitutes to each other
Financial limitations cause a choice
Rivalry among competing orgs,
important competitors and their specific strengths and weakness in relation to the orgs strat position
In a competitor analysis, it is vitial for the org to understand:
Future goals of the competitors
their current strats
what the assumptions and beliefs of the industry are
What they are capable of.
Competitor analysis has important roles in strat planning. it helps the orgs:
Understand the competitive advantage or disadvantages relative to competitors.
Generate understanding of competitors past, present and future strats
Provide an informed basis to develop strats to achieve competitive advantage in the future
forecast returns on investments
Factors will influence the intensity of rivalry between or among competitors:
Numerous or equally balanced competitors
Slow industry growth
high fixed or storage costs
lack of differentiation or low switching cost
high exit barriers
iding competitors within an industry:
Variables that an org has to consider when iding current and potential competitors.
The similarity of the definition the scope
The similarity the consumer derives from the product or service the org offers
how committed the org is to the industry, as this shows their long-term goals and intentions
A method that an org can use to id its competitors is strat group mapping
Strat group mapping(orgs that are similar to each other, with tech, products and decisions)
Common mistakes in iding competitors;
Overemphasising current and known competitors and ignoring the threat of potential new entrants or international competitors
Focusing only on large competitors and overlooking the possible threat of smaller competitors
Assuming that competitors will continue to behave in the same way that they have in the past
Limitations of porters 5 forces:
Model claims to assess the profitability of the industry
The model implies that the five forces apply equally to all competitors in an industry
Product and resource markets are not adequately covered by the model