chapter 2 - the environment mgt 489

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Chapter Two The Environment Dr. Jashim U. Ahmed

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Chapter 2 - The Environment MGT 489 North South University

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  • Chapter Two

    The Environment

    Dr. Jashim U. Ahmed

  • Industry Analysis: Defining an Industry IndustryA group of companies offering products or services that are close substitutes for each other and that satisfy the same basic customer needsIndustry boundaries may change as customer needs evolve and technology changes SectorA group of closely related industries Market SegmentsDistinct groups of customers within an industryCan be differentiated from each other with distinct attributes and specific demandsIndustry analysis begins by focusing on the overall industry before considering market segment or sector-level issues

  • The Computer Sector: Industries and Market Segments

  • External Analysis requires an assessment of:Industry environment in which company operatesCompetitive structure of industryCompetitive position of the companyCompetitiveness and position of major rivals

    The country or national environments in which company competes

    The wider socioeconomic or macro-environment that may affect the company and its industry

    PESTLE

    External AnalysisThe purpose of external analysis is to identify the strategic opportunities and threats in the organizations operating environment that will affect how it pursues its mission.

  • PESTLE Analysis Political Factors Political Ideologies Controls on merger & acquisition activity Social and security policies Monopolies legislation Taxation policy Government stability and policy Civil unrest Others?

  • PESTLE AnalysisEconomic Factors The Challenge of a Global Economy Monetary policy GNP trends Inflation rates Employment (wage rates) Disposable income Budget deficits Others?

  • PESTLE Analysis Socio-Cultural Factors Demographics Social mobility/Diversity Lifestyle preferences New consumerism Levels of education Women in the workforce Attitudes about the QWL Social values Others?

  • PESTLE AnalysisTechnological Factors Speed of technology transfer New discoveries and innovations Effects of new Technology on business structure in the country ICT or IT Product Life Cycles (PLC) Focus of private & government supported R & D expenditures Others?

  • PESTLE AnalysisLegal Factors Specific laws Employment laws Trade unions policies Labor training laws Taxation laws International trade agreements, i.e. GATT, WTO, SAFTA, NAFTA etc. Other legislation?

  • PESTLE AnalysisEnvironmental/Ethical/Ecological Climate issues Environmental protection issues Human Rights issues Pollution Recycling and environmental friendly issues Hazard prevention Green environmental issues Others?

  • Porters Five Forces Model

  • Strategic Groups Within IndustriesStrategic Groups are groups of companies that follow a business model similar to other companies within their strategic group but are different from that of other companies in other strategic groups.Implications of Strategic Groups The closest competitors are within the same Strategic Group and may be viewed by customers as substitutes for each other.Each Strategic Group can have different competitive forces and may face a different set of opportunities and threats.Mobility Barriers factors within an industry that inhibit the movement of companies between strategic groupsInclude barriers to enter another group or exit existing groupThe basic differences between business models in different strategic groups can be captured by a relatively small number of strategic factors.

  • Strategic Groups in the Pharmaceutical Industry

  • ILC is a useful tool for analyzing the effects of an industrys evolution on competitive forces. Using the industry life cycle model, we can identify five industry environments, each linked to a distinct stage of an industry's evolution:Industry Life Cycle AnalysisEmbryonic industry just beginning to developRivalry based on perfecting products, educating customers, and opening up distribution channels.Growth first-time demand takes-off with new customersLow rivalry as focus is on keeping up with high industry growth.Shakeout demand approaches saturation, replacementsRivalry intensifies with emergence of excess productive capacity.Mature market totally saturated with low to no growthIndustry consolidation based on market share, driving down price.Decline industry growth becomes negativeRivalry further intensifies based on rate of decline and exit barriers.

  • Stages in the Industry Life CycleStrength and nature of five forces change as industry evolves

  • Limitations of Models for Industry Analysis Life Cycle IssuesIndustry cycles do not always follow the life cycle generalization.In rapid growth situations embryonic stage is sometimes skipped. Industry growth revitalized through innovation or social change.The time span of the stages can vary from industry to industry. Innovation and ChangePunctuated Equilibrium occurs when an industrys long term stable structure is punctuated with periods of rapid change by innovation.Hypercompetitive industries are characterized by permanent and ongoing innovation and competitive change. Company DifferencesThere can be significant variances in the profit rates of individual companies within an industry.In addition to industry attractiveness, company resources and capabilities are also important determinants of its profitability.Models provide useful ways of thinking about competition within an industry but be aware of their limitations.

  • The Role of the Macro-environmentChanges in the forces in the macro-environment can directly impact: The Five Forces Relative Strengths Industry Attractiveness

  • Competitive AnalysisThe behavior of Competitors limits its ability to pursue its Objectives,

    Changes within the market offer threats and opportunities to which the org. must respond,

    The structure of the sector in which the organization operates largely determines its Ability to make Profits.

    Courtesy of The University of Reading

  • The Five Forces Analysis: Key Questions & ImplicationsWhat are the key forces at work in the competitive environment?Are there underlying forces driving competitive forces?Will competitive forces changes?What are the strengths and weaknesses of competitors in relation to the competitive forces?Can competitive strategy influence competitive forces (e.g. by building barriers to entry or reducing competitive rivalry)?

  • Assignment: Brothers Furniture Ltd.The Brothers Furniture Ltd has established in 1985. It has only three branches in Gulshan, Uttara and Baridhara. The furniture company employed over 150 full-time employees with its annual turn over US $ 70, 000. The company manufactures wooden furniture and machine made wooden door, doorframe, stair rail, molding bit, wooden floor, kitchen cabinet etc. The Brothers Furniture Ltd has technical skills and experiences that have been praised in different international trade fairs in home and abroad. As a result sophisticated machines and technologies have been introduced in their Shahjadpur, Gulshan factory to cope with the demands of the customers. Nonetheless, in recent years the company is facing huge competition from other branded and non-branded furniture retailers. On basis on this general information get under the skin of the Brothers Furniture by competing this industry structure analysis (using M. E. Porters Five Forces) with your best assumption!

    Source: brothersbd.com

  • Brothers Furniture Ltd Rating: Low/Medium/High Threat of New Entrants Bargaining Power of Suppliers Rivalry against existing Competitors Bargaining Power of Buyers Threat of Substitute Products

    Please take 10 minutes to agree this analysis amongst your team - show comments and ratings against all 5 areas.

  • Thank you

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