Lecture4 Business Policy1

8/2/2019 Lecture4 Business Policy1

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Environmental Scanning and

Industry Analysis


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is the monitoring, evaluating and

disseminating of information from the

external and internal environments to

key people within corporation.

Environmental Scanning


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The Components of a Companys

Macro-Environment

MACROENVIRONMENT

The Economy

at Large

COMPANY

Suppliers Substitutes

Buyer

s

New

Entrants

Rival

Firms

IMMEDIATE INDUSTRY

AND COMPETITIVE

ENVIRONMENT


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Competitors

Suppliers

Distributors

CreditorsCustomers

Employees

Communities

Managers

Stockholders

Labor UnionsSpecial Interest Groups

Products

Services

Key

External

Forces

Opportunities

&

Threats

Key External Forces & the

Organization


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PEST analysis

What environmental

factors are effecting

organization?

Which of these are

the most important at

the present time?

Whish of these canbecome important in

the next few years?


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Political /

Legal

Economic Social Technological

Environmental

regulation andprotection

Economic growth

(overall; byindustry)

Income distribution

(change indistribution of

disposable income)

Government

spending onresearch

Taxation

(corporate,

consumer)

Monetary policy

(interest rates)

Demographics (age

structure of the

population; gender;

family size andcomposition;

changing nature of

occupations)

Government and

industry focus on

technological

effort

International

trade regulation

Government

spending (overall

level; specificspending priorities)

Labor / social mobility New discoveries

and development

Consumer

protection

Policy towards

unemployment

(minimum wage,

unemployment

benefits, grants)

Lifestyle changes

(e.g. Home working,

single households)

Speed of

technology

transfer


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PEST analysis: some principles andconclusions:

Things that make activity more difficult for peopleor organizations raise the cost of doing business.

The higher the cost of doing business in a region,

the more project profitability is squeezed or

eliminated. And the lower the amount of economic activity,

the poorer and less capable societies tend to be.

Wherever there is rapid or major change in an

area, there are likely to be new opportunities andthreats that arise.

Few situations are perfect: it is up to us to make

the most of the situation in which we find

ourselves.


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The Issues Priority Matrix

Probable Impact on Corporation

High Medium Low

High

priority

High

priority

Medium

priority

High

priority

Medium

priority

Low

priority

Medium

priority

Low

priority

Low

priority

ProbabilityofOccurren

ce

High

Medium

Low


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The Five-Forces Model of Competition (Porters

approach)

Potential developmentof substitute products

Rivalry amongcompeting firms

Bargaining powerof suppliers

Potential entry of newcompetitors

Bargaining powerof consumers


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The stronger that each of these fiveforces is, the more limited is the

ability of established companies toraise prices and earn greater profitswithin their industry.

Strength of forces may change

How the Five-Forces shape

Competition within an Industry


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Threats of new competitors entering the market. The

threat of entry depends on the presence of entry

barriers and the reaction that can be expected from

existing competitors.

The possible barriers to entry: economies of scale

product differentiation

capital requirements switching costs

access to distribution channels

cost disadvantages independent of size

governmental policy

Potential entry of new

competitors


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Intensity of rivalry among firms in the industry.

Corporations are mutually dependent.

Intense rivalry is related to the presence of several

factors:

number of competitors

rate of industry growth

product or service characteristics

amount of fixed costs capacity

height of exit barriers

diversity of rivals

Rivalry among competing firms


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Substitute products or services are those

products/services that appear to be

differentbut can satisfy the same need asanother product/service.

Substitutes limit the potential returns ofan industry by placing a ceiling on the

prices firms in the industry can profitably

charge. (M. Porter)

Potential development of

substitute products


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Is Pepsi Cola a substitute fora Coca-Cola?


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A buyer or a group of buyers is powerful if:

a buyer purchases a large proportion of thesellers product or service (oil filters purchased bya major auto maker)

alternative suppliers are plentiful because theproduct is standard or undifferentiated (gasstations)

changing suppliers costs very little

a buyer earns low profits and thus sensitive to

costs and service differences (grocery stores) the purchased product is unimportant to the final

quality or price of buyer products or services(electric wire bought for use in lamp).

Bargaining power of consumers


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Suppliers can affect an industry through their ability

to raise prices or reduce the quality of purchased

goods and services:

the supplier industry is dominated by a few companies,

but it sells to many (petroleum industry)

its product or service is unique and/or has built up

switching costs (Word software)

substitutes are not readily available (electricity)

suppliers are able to integrate forward and compete

directly with the present customers (Intel can make PCs)

a purchasing industry buys only a small portion of the

supplier groups goods and services and its

unimportant for supplier

Bargaining power of suppliers


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The Five-Forces Model of Competition

An unattractive industry is one in which intenserivalry already exists among competitors, there

are substantial threats in terms of new

competitors and substitute products, and

suppliers and buyers are very powerful in

bargaining over prices and quality.

An attractive industry is one with less intense

competition, few threats from new entrants or

substitutes, and low bargaining power amongsuppliers and buyers.

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Lecture4 Business Policy1