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STRATEGIC Click to edit Master subtitle style MANAGEMENT

Topic Assessing the Environment Chapter # 06
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Table of content

Introduction

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Characteristics of Environment 1) Uniqueness 2) Dynamic Nature 3) Variability of control

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Types of Environment 1) Internal Environment 2) External Environment

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Table of content

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External Forces

Competitive Environment Analyzing Industry Structure Porters 5 Forces Model

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Environment
ItClick to editas; is defined Master subtitle style surroundings in which an organization operates including air, water, land natural resources, flora, humans and their interrelation

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Organizational Environment
These external forces, conditions, events, situations and relationships on which the organization has little control are referred to collectively as the organizational environment.

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Characteristics of Environment

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No two organizations face exactly the same external environment For Example: Gerber and Heinz, who provide baby food to similar customer do not face the same external conditions

Uniqueness:

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Characteristics of Environment

Dynamic Nature:

Very few organizations face the same set of factors at the same magnitude because of ;

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Customer needs and taste changes

Legal obligations and restraint change, or

Organization simply grow and establish a distinct position relatively to competitors

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Characteristics of Environment

Variability of Control

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Organizations are not helpless in the face of environmental factors, but certainly some aspects of environmental change are more amenable than others to control or influence

This variability in control means that the organization may work to shape parts of its environment but that it may also have to alter strategy or even objectives while facing these environment obstacles

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Types of Environment

Internal Environment
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The conditions, entities, events, and factors within an organization that influence its activities and choices, particularly the behavior of the employees

All organizations have strength and weaknesses in the functional areas of business, no organization is equally strong or weak in all areas

For Example Maytag is known for excellent production and 12/31/12 product design, whereas Procter & Gamble is

Types of Environment

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The environment that refers to market conditions, economic and political issues on the local and national levels, demographic factors, and other forces outside of a business that affect the overall success of that business The external environment creates both risks and opportunities for a company

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External Forces

Five (5) broad categories: Click to edit Master subtitle style

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Economic forces Social, cultural, demographic, & environmental forces Political, governmental, and legal forces Technological factors
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Economic Forces
Click to edit Master subtitle style 1. Availability of credit
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Interest rates Inflation rates Federal government budget deficits Consumption patterns

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Click to edit patterns of individuals The behaviorMaster subtitle style and groups reflect their attitude, beliefs, and values.

Social, Cultural, Demographic, & Environmental Forces

Major impact on:

Products Services Markets Customers

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Political, Governmental & Legal Forces

Click to edit Master subtitle style 1) Tax rates
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Lobbying efforts Government regulation/deregulation Patent laws Tax law changes Special tariffs
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Technological Forces
Technology refers to the means chosen to Click to edit Master subtitle style do useful work

Technological trends include not only the glamorous invention that revolutionizes our lives, but also the gradual pain staking improvement in the methods, in materials, in design, in application, in diffusion into new industries in efficiency

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Competitive Environment
Click to edit Master subtitle style The competitive environment is the area in which the goals and objectives are actually pursued.

Constraints on strategic choices comes from the structure of the industry, competitors, strategies and the market

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Analyzing Industry Structure

Porters Five Forces Model: Click to edit Master subtitle style

According to porter, the nature of competitiveness in a given industry can be viewed as a composite of five forces. 1) Rivalry among competitive firms 2) Threat of new entrant 3) Threat of Substitutes 4) Power of Suppliers 5) Power of Buyer

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Rivalry Among Competitive Firms

Rivalry among competing firms is the most Click to edit Master subtitle style powerful of the five competitive forces.

The ongoing war between firms competing in the same industry for gaining customer share to increase revenues and profits.

Examples: In telecommunication industry firms are lowering their prices to increase consumer call ratio by minimize per minute profit margin but increasing overall company revenues.

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Threat of New entrants

Potential entry of new competitors is Click to edit Master subtitle style also the factor to intense the competition in the industry

Larger the pool of new entrants result in more changes of intense competition

Barriers to entry, however can restrict the firms from entering the market, more number of entry barriers will make it difficult for the new entrants to exploit 12/31/12 the opportunity of new market

Power of Suppliers
Supplier provides the input necessary for the Click to edit Master subtitle style production of the product or the delivery of the services by the industry

Powerful suppliers can reduce industry profitability by influencing cost, quality and availability of input

Supplier are powerful if; i. There are no substitutes for the input they provide ii. The industry does not generate significant volume for the supplier iii. The supplier provide credible threat of 12/31/12 forward integration

Power of Buyers
Buyers or Consumers are the final user of the Click to edit Master subtitle style products, performance of the companies totally depend upon the consumers.

Bargaining power of consumers is more especially when they are huge in number and consumers purchase in large quantity.

Rivals firms offer discounts, warranty and services to switch the consumer from one brand to another in same industry.

For Example: P & G have online portal to ask the customer about their views and new ideas 12/31/12 about the products of their desire

Threat of Substitutes
Industry sales and profitability are limited by Click to edit Master subtitle given what the customer will pay for a style level of quality or service when alternatives are available

The treat of substitution holds down industry profits by allowing buyers option

The treat of substitution is greater then; Substitutes provide about the same value for cost Buyers are in the habits of substituting
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Thanks
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