Chapter 3 MAZ
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Transcript Chapter 3 MAZ
Miles A. Zachary
MGT 4380
Lecture
The relationship between an organization and its
environment
Evaluating the general environment
Evaluating the industry environment
Strategic groups
General environment exercise
Short Exam Review / Q&A
Group simulation time
The environment is composed of the external
conditions and factors that affect an organization
Two (2) sets of environments:
General environment-includes overall trends and events
in society
Social
Demographic
Economic
Industry environment-consists of multiple
organizations that collectively compete by providing
similar goods, services, or both
Any action a firm takes changes the world around
them
Most firms are limited to affecting their own industry
Some firms have the ability to affect the more general
environment (e.g. Apple, Intel, IBM)
Why is understanding the environment important?
Provides access to resources (open systems approach)
Source of opportunities and threats
Shape strategic decisions (e.g. goals set, creating a
business)
Opportunities are events and trends that create
chances to improve an organization’s performance
level
Threats are events and trends that may undermine an
organization’s performance
Note that both opportunities and threats are based on
external conditions; strengths and weaknesses are
based on internal conditions
Most environmental events and trends create
opportunities and threats for firms—the question is
“which are important?”
Evaluating the general environment involves looking
beyond a firm’s industry to the larger environmental
landscape
A simple way to compartmentalize a general
environment analysis is using PESTEL
PESTEL is an anagram that examines six different parts
of the general environment
PESTEL stands for (1) political, (2) economic, (3)
social, (4) technological, (5) environmental, and (6)
legal trends
Political Factors
Tax policies
Changes in trade restrictions and tariffs
Government stability
Economic Factors
Interest rates
Inflation
Currency markets
Unemployment rates
Disposable income
General growth or decline
Social Factors
Demographics
Cultural trends
Obesity
Consumer activism
Technological Factors
Revolutionary technological changes (e.g. internet,
USB)
Automation
Delivery
Software
Environment Factors
Natural disasters
Weather patterns
Legal Factors
Legislation
Torts
Discrimination
Antitrust
The industry a firm operates influences a firm’s
strategy
Porter’s 5 Forces analysis is a tool from which a firm
can analyze the factors that exert industry pressure
Competitor Rivalry
Threat of New Entrants
Threat of Substitutes
Buyer Power
Supplier Power
Firms face competitive pressures and attempt to
maneuver around competitors using a variety of
actions
Pricing
Marketing
New Product Development
Scale/Capacity
Operations
Signaling
Other
The competitive rivalry within a given industry is high
given:
Firms are roughly equal in size and power
Industry growth rate is slow
Competitors are not suitably differentiated
Fixed costs are high
Exit barriers are high
Existence of excess capacity
Capacity needs to expand to be efficient
Perishable products
These factors are often a function of market structure
(e.g. monopoly, oligopoly, pure competition, etc…)
These are threats from possible firms entering a
competitive industry
Often a function of:
Economies of scale
Capital requirements
Access to distribution channels
Government policies
Differentiation
Switching costs
Expected retaliation
Cost advantages independent of size (e.g. patents,
trademarks, brands, etc…)
Substitutes are offerings from other industries that
fulfill the same need or a very similar need as an
industry’s existing products or services
Substitutes can be disastrous to industries
In most industries, firms must continually innovate to
avoid being substituted for another industry’s product
or service
Suppliers provide inputs that competitors in an
industry need to create goods and services
Suppliers can gain power if:
Suppliers are few in number and highly concentrated
No viable substitutes exist
Industry members rely heavily on suppliers
High switching costs
A suppliers products are differentiated
Suppliers
While buyers in most markets are “price-takers”,
buyers can still leverage power over industry
competitors when:
Few buyers exist relative to suppliers
When goods/services are standardized or
undifferentiated
Little to no switching costs
High percentage of buyer’s costs; buyers search for
better
Buyers are able to backward integrate into the market
Competitor goods/services are of little importance
(elastic demand)
Assumes a zero-sum competitive environment
When firms make a profit, they do so at the cost of
another firm
Relationships are depicted as adversarial
Ignores strategic alliances or joint-venture relationships
Similarly, suppliers and buyers are depicted as
adversarial
Many firms must forge valuable relationships with their
suppliers to increase profitability
Strategic groups are sets of firms within a given
industry that follow similar strategies
Differ in important ways from members of other
groups
Strategic groups are important because:
Often identify a firm’s closest rivals
Different strategies pursued by firms in a given group
show alternatives to success (equifinality)
Gaps in the map can reveal gaps in the industry; areas
were entrepreneurs or entrepreneurial firms can
capitalize on