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4 env analysis.ppt

  1. Reasons why strategic plans fail • Inability to predict environmental reaction – What will competitors do • Fighting brands • Price wars – Will government intervene • Over-estimation of resource competence – Can the staff, equipment, and processes handle the new strategy – Failure to develop new employee and management skills • Failure to coordinate – Reporting and control relationships not adequate – Organizational structure not flexible enough
  2. Reasons why strategic plans fail • Failure to obtain senior management commitment – Failure to get management involved right from the start – Failure to obtain sufficient company resources to accomplish task • Failure to obtain employee commitment – New strategy not well explained to employees – No incentives given to workers to embrace the new strategy • Under-estimation of time requirements – No critical path analysis done • Poor communications – Insufficient information sharing among stakeholders – Exclusion of stakeholders and delegates
  3. Reasons why strategic plans fail • Failure to follow the plan – No follow through after initial planning – No tracking of progress against plan – No consequences for above • Failure to manage change – Inadequate understanding of the internal resistance to change – Lack of vision on the relationships between processes, technology and organization • Failure to understand the customer – Why do they buy – Is there a real need for the product – inadequate or incorrect marketing research
  4. The Company And its Environment
  5. “It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change” - Charles Darwin
  6. Environmental Analysis • Must be well-organized, systematic, and supported by sufficient resources (e.g., people, financial, information). • Should be an ongoing effort. • Can lead to better planning and decision making, should be combined with the manager's intuition and judgment to make the results of the analysis useful for planning purposes. • Perpetually analyzing data without making any decisions is usually not worth the added expense.
  7. Outcomes from External and Internal Environmental Analyses Examine opportunities and threats Examine unique resources, capabilities, and competencies (sustainable competitive advantage)
  8. The Firm’s External Environment THE FIRM Operating Environment (Global and Domestic) •Competitors •Labor •Suppliers •Customers Industry Environment (Global and Domestic) •Entry barriers •Supplier power •Buyer power •Substitute availability •Competitive rivalry •Creditors Remote Environment (Global and Domestic) •Economic •Social •Political •Technological •Ecological
  9. A Company’s Macroenvironment COMPANY
  10. Strategic Thinking & Analysis Industry and Competitive conditions •What are the industry’s dominant economic features? •What is competition like and how strong are the competitive forces? •What is causing the industry's competitive structure and business environment to change? •Which companies are the strongest/weakest position? •What strategic moves are rivals likely to make? •What are the key factors for competitive success? •Is the industry attractive and what are the prospects for above-average profitability? Company's own situation •How well is the company’s present strategy working? •What are the company's strengths, weaknesses, opportunities and threats? •Are the company's prices and costs competitive •How strong is the company’s competitive positions? •What strategic issues does the company face? Strategic Options for the Company •Go with the present strategy •Make improvements •Major strategic changes Choose the best Strategy •3 tests
  11. Economic Factors • Concern the nature and direction of economy in which a firm operates • Types of factors • General availability of credit • Level of disposable income • Propensity of people to spend • Prime interest rates • Inflation rates • Trends in growth of gross national product
  12. Industry’s key economic features Economic Feature Strategic Importance Market Size Small markets do not attract new competitors Large markets attract competitors- acquire companies Market growth rate Fast growth - new entry Growth slowdown – increased rivalry and shake out of weak competitors Capacity surplus or shortage Surplus – price and profit  Shortage – price & profit  Industry profitability High profit attract new entrants Depressed condition encourage exit Entry/exit barriers High barriers protect positions and profits of existing firms Low barriers, existing firms vulnerable to new entry
  13. Industry’s key economic features Economic Feature Strategic Importance Rapid technological change Raises risk factor, equipment and facilities may become obsolete before they wear out Capital requirement Big requirements create barrier to entry and exit, timing becomes important Economies of scale Increases volume and market share needed to be cost competitive Rapid product innovation Shortens life cycle Increases risk- opportunities for rivals to bring out next- generation products quicker
  14. Social Factors • Include beliefs, values, opinions, and lifestyles of people • Recent social trends • Entry of large numbers of women into labor market • Accelerating interest of consumers and employees in quality-of-life issues • Shift in age distribution of population
  15. Political Factors • Legal and regulatory parameters within which firms must operate • Types of factors – Trade decisions – Antitrust laws – Tax programs – Minimum wage legislation – Pollution and pricing policies – Administrative redtape
  16. Technological Factors • Types of changes • New products • Improvements in existing products • Manufacturing and marketing techniques • Role of technological forecasting • Foresees advancements and estimating their impact on organization’s operations • Alerts managers to impending challenges and promising opportunities
  17. Ecological Factors • Relationships among human beings and other living things and air, soil, and water • Current concerns • Global warming • Loss of habitat and biodiversity • Air, water, and land pollution • Responsibilities of firms • Eliminating toxic by-products of current manufacturing processes • Cleaning up prior environmental damage
  18. Porter’s Five Forces Suppliers Substitutes Industry Competitors Rivalry Among Existing Firms Potential Entrants Buyers Bargaining power of suppliers Threat of substitute products or services Bargaining power of buyers Threat of new entrants
  19. Porter’s Five Forces Force Effect Bargaining Power of Suppliers  Threaten to raise prices or reduce quality Bargaining Power of Buyers  Bargain down prices  Force higher quality  Play firms off of each other Threat of New Entrants  Keeps prices low Threat of Substitute Products  Products with similar function limit the prices firms can charge Intensity of Rivalry  Price competition  Advertising battles  Increase consumer warranties or service
  20. Rivalry • Numerous competitors-equal in size and capability • Slow industry Growth • Undifferentiated products • High fixed costs- use price cuts & other competitive weapons • Perishable products • High profit potential • High exit barriers • Low switching costs
  21. Rivalry • Tactics of competitive rivalry • Price competition • Product introduction • Wider selection of models / styles • More & different features • Higher quality • Stronger brand image • Bigger/better dealer network • Better customer service • Custom-made products • Advertising slugfests
  22. Four Basic Types of Competition • Brand Competitors: market products that are similar in features and benefits to the same customers at similar prices • Product Competitors: compete in the same product class, but with products that are different in features, benefits, and price • Generic Competitors: market very different products that solve the same problem or satisfy the same basic need • Total Budget Competitors: compete for the limited financial resources of the same customers
  23. Threat of New Entry--Entry Barriers • Factors that make it difficult if not impossible for other firms to enter a business – Brand loyalty – economies of scale – product differentiation – capital requirements – switching costs – access to distribution channels – cost disadvantages independent of scale – government policy
  24. Threat of Substitute Products • Products with similar function limit the prices firms can charge • Products with improving price/performance tradeoffs relative to present industry products
  25. Powerful Supplier 1. Few suppliers 2. Differentiated products 3. No substitutes 4. Integration possibilities 5. Small buyer 6. High switching costs
  26. Powerful Buyer • Large purchases • Low switching costs • Undifferentiated products • Small fraction of business • Industry’s product is unimportant to quality of buyers’ products or services • Industry’s product does not save buyer money • It earns low profits, creating incentives to lower its costs • Buyer has full information • Integration possibilities
  27. Complementors • Complementors: – Companies whose products are sold in tandem with another company’s products. – Increased supply of a complementary product collaterally increases demand for the primary product.
  28. Characteristics of an Attractive Industry • Threat of new entry is low (high entry barriers) • buyer power is weak • supplier power is weak • no good substitutes exist • rivalry is moderate