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10.1Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Understanding Organisational Context 2e
Slides by Claire Capon
Chapter 10
The competitive environmentEnvironmental linkages
Assessing the nature of competition
Competitive strategies
10.2Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Environmental linkages
Within-to-within linkages
Outside-in and inside-out linkages
Outside linkages
10.3Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Figure 10.2 Environmental linkagesSource: Based on Emery, F E and Trist, E L (1965) ‘The causal texture of organisational environments’ in Human Relations 18: 21–32.
10.4Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Within-to-within linkages
• Within-to-within linkages are internal dependencies
• Internal dependencies can be co-operative or confrontational in nature
10.5Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Outside-in and inside-out linkages
• Outside-in and inside-out linkages are called transactional dependencies
10.6Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Outside-in and inside-out linkages
• Transactional dependencies are:
- links in and out of the organisation
- the dependencies between the organisation and its external
environment
10.7Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Outside linkages
• Outside linkages are called causal textures and are linkages or dependencies which are external to the organisation
10.8Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Outside linkages
• Causal textures are concerned with the cause and effect relationships between elements or bodies in an organisation’s external environment
10.9Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Assessing the nature of competition
The five forces of competition
10.10Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Figure 10.3 The five forces that determine industry profitabilitySource: Reprinted with the permission of The Free Press, a division of Simon & Schuster, from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E Porter. Copyright © 1985 by Michael E Porter.
10.11Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Questions - threat of new entrants
• Which companies are potential entrants to the industry?
• Which industries are potential new entrants currently operating in?
10.12Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Answers - threat of new entrants
• The threat of new entrants will be greatest if the industry is attractive
10.13Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Answers - threat of new entrants
• An attractive industry has:
- no high capital set-up costs
- market growth
- a sufficient customer base to support new entrants
- good profit opportunities
10.14Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Questions - threat of substitute products
• Which industry provides present and potential substitutes?
• What is the impact of substitutes on the company and the industry?
10.15Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Answers - threat of substitute products
• Substitute products and services will be a threat if:
- customers perceive them to perform the same
function
- they offer better value for
money
10.16Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Questions - buyers and buyer power
• Who buys the company’s products and services?
• How powerful are the buyers with regard to the company?
10.17Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Answers - buyers and buyer power
• Buyers are powerful if:
- alternative sources of supply exist
- they exercise their power and shop around
10.18Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Questions - suppliers and supplier power
• Who supplies the company’s inputs?
• How powerful are the suppliers with regard to the company?
10.19Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Answers - suppliers and supplier power
• Suppliers are powerful if:
- there are few suppliers
- the cost of switching from
one supplier to another is high
10.20Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Competitive strategies
• Decision 1:
- is competition to be based on cost/price or added
value?
• Decision 2:
- is a broad or narrow target market to be served?
10.21Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Competitive strategies
• The competitive strategies which arise from decisions 1 and 2 are:
- cost leadership
- differentiation
- cost focus
- differentiation focus
10.22Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Figure 10.4 Generic strategiesSource: Porter, Michael E (1965) Competitive Advantage, Free Press.
10.23Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Cost leadership
• Selling a standard product to a mass market
• A number of suppliers will
- supply a similar product
- charge similar prices
10.24Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Cost leadership (cont)
• MOST competitors attempting to follow a cost leadership strategy will:
- have average costs
- make an average profit
10.25Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Cost leadership (cont)
• However, the SUCCESSFUL cost leader will have:
- below-average costs
- better than average profits
10.26Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Figure 10.6 Cost, profit and price relationships for cost-based competitive strategies
10.27Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Differentiation
• Selling an added value product to a mass market
• Added value can be in any aspect of the product which customers will pay for
10.28Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Differentiation (cont)
• Added value could be in:
- quality of inputs
- packaging and labelling
- image
- promotion
10.29Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Differentiation (cont)
• Costs are:
- average in areas which do not add value
- extra for added value
- higher overall
10.30Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Differentiation (cont)
• A differentiation strategy allows:
- a higher price to be charged
- a higher profit margin
10.31Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Cost focus
• Selling a low-cost product to a niche market
• Customers are very price sensitive
10.32Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Cost focus (cont)
• Cut costs where possible:
- inputs
- processing
- packaging
- delivery
- promotion
10.33Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Figure 10.7 Cost, profit and price relationships for differentiation-based competitive strategies
10.34Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004
Cost focus (cont)
• Overall lower costs
• Charge an overall lower price
• Small profit
• Average profit still possible