F12 course and enviro models student version
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This document discusses models for analyzing a firm's external environment, including the course model, Diamond-E model, PEST analysis, and Porter's five forces. It explains how to conduct an external analysis by evaluating political, economic, social, technological factors and the competitive forces in an industry. The benefits of external analysis are understanding opportunities and threats, while challenges include obtaining accurate, up-to-date information.
F12 course and enviro models student version
- 1. BU 111: Fall 2012 Course Model & Environmental Analysis Models
- 2. Opening Thoughts “It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.” Charles Darwin
- 3. Learning Objectives • Understand the relationship between the firm and its external environment – Course model – Diamond-E model • Describe what an external analysis is • Explain how to do an external analysis – PEST factors – Porter’s five forces model – Data sources • Understand the benefits and challenges of doing an external analysis
- 4. Planning Organizing Critical Success Factors Stakeholders Economic Marketing EX Top Management TE L RN NA AL Social Vision Operations Finance Political R TE IN Mission Human Technological Resources Strategy Middle Management First-Line Management Controlling Directing
- 5. Critical Success Factors • Achieving financial performance • Meeting customer needs • Building quality products and services • Encouraging innovation and creativity • Gaining employee commitment • Creating a distinctive competitive advantage
- 6. Diamond-E Framework • Identifies key variables to be considered in strategic analysis Management Preferences Organization Strategy Environment Resources
- 7. Strategy-Environment linkage • Strategy: what opportunities the business is pursuing – determines needed resources, organizational capabilities, and management preferences • critical linking variable • each variable related to the rest • any variable can either drive or constrain strategy • Principal logic – CONSISTENCY or alignment • First task - deal with strategy-environment linkage – Assess forces at work and their implications
- 8. Principal Logic • Importance of Consistency between variables • Examples: – P&G Strategy in 2000 (inconsistency) – Ikea Strategy (consistency) • Note: Absolute alignment is not realistic
- 9. Strategy-Environment Linkage • First task: Deal with strategy-environment linkage • Assess forces at work and their implications Examples: - Digital Camera Market: Canon vs. Kodak
- 10. Quick Review: Course Model & Diamond-E • What factors make up the external environment? • What are the components of the Diamond-E model? -What is the most important linkage within it?
- 12. How to do an external analysis • General environment – PEST model – considers political, economic, social/demographic, and technological factors – Identifies general trends and changes • Specific environment – Porter’s Five Forces - analyzes five important sources of competitive pressure and intensity; predicts profitability of industry • Look for data, statistics, trends, forecasts, expert opinions, etc.
- 13. PEST - Political-Legal Elements: • Laws, regulations • Taxes • Trade agreements or conditions • Political system • Political stability Government can create incentives, constraints, or support/bail out when needed Affects uncertainty, risk, and costs faced by firm
- 14. PEST – Economic Elements: • Economic growth – GDP and standard of living • Economic stability – inflation, unemployment && • Trade balance – importing vs. exporting • National debt – government borrowing • Interest rates - the higher, the less ppl buy • Exchange rates Influences costs, potential sales, and financial uncertainty
- 15. PEST – Social Elements: • Customs, values, attitudes, and demographic characteristics • Influences customer preferences • Influences worker attitudes and behaviours • Influences standards of business conduct • Ethics, social responsibility, stakeholder management Affects how we live, work, consume and produce
- 16. PEST – Technological Elements: • Internet affects buying, selling, communication • Information technologies affects information access, inter-firm cooperation, cycle times • Computer technologies have changed our products and how we design and build • Not limited to computers and information Affects what we produce/what it can do, affects how we produce and how we sell Demands constant learning and scanning
- 17. Questions to answer from PEST • Do the economic conditions support my business? • What legal protection do I have or laws do I have to consider? • What demographic and social trends affect my business and how? • What technological forces affect me now and in the future? How do they assist or constrain? • What opportunities or threats does the environment possess?
- 18. Porter’s Five Forces POTENTIAL ENTRANTS INDUSTRY COMPETITORS SUPPLIERS BUYERS Rivalry Among Existing Firms SUBSTITUTES
- 19. Porter’s Five Forces • Suppliers – Fewer suppliers, high switching costs, low attractiveness of substitute suppliers, high threat of forward integration means = increased bargaining power (ex. Our choice of only bell or rogers) – Bargaining power increases costs of inputs – Use strategic alliance or internal supply • Potential Entrants – Can cause big changes – Ease of entry = more intense competition – Barriers = capital intensity, technology, know-how/who,
- 20. Porter’s Five Forces • Substitutes – Many substitutes = increased competition – Puts ceiling on price that can be charged – Pressure increases as price of substitutes and switching costs decline • Buyers perspective – Few or concentrated buyers, standardized products, low switching costs, discretionary purchases = increased bargaining power – Reduces price that you can demand
- 21. Porter’s Five Forces • Rivalry among existing firms “Nothing focuses the mind better than the constant sight of a competitor who wants to wipe you off the map.” - Wayne Calloway – Results in price competition and increased costs – Most powerful of five forces – Causes: • Many competitors of equal size/capability • Growth rate of industry • Consumers switching costs • Products are commodities or are perishable Caveat: Power and relevance of a force will vary by industry
- 22. Value of Five Forces Model http://www.youtube.com/watch?v=mYF2_FBCvXw
- 23. Questions to answer with Five Forces analysis 1. Is the industry a realistic place for a new venture to enter? If yes, then... 2. Can we do a better job than incumbents at avoiding or diminishing factors that suppress industry profitability? 3. Is there a unique position we can pursue? 4. Is there a superior business model that incumbents would find hard to duplicate?
- 24. Sources of Information Some library databases: • Standard and Poors NetAdvantage – – Provides Industry Trends, Industry Ratios, and lots of key industry data • GMID – market share data by company and brand; industry growth data • DataMonitor – five forces analysis and SWOT • FPInfomart – Canadian data
- 25. Benefits of External Analysis
- 26. Challenges of External Analysis
- 27. Learning Objectives Summary • Understand the relationship between the firm and its external environment – Course model – Diamond-E model • Describe what an external analysis is • Explain how to do an external analysis – PEST factors – Porter’s five forces model – Data sources • Understand the benefits and challenges of doing an external analysis
Editor's Notes
- #6: Employee’s are foundation – they are the people who try (or not) to achieve these factors A motivated and committed employ is key (one who takes pride in his work) Without a distinct difference in a product between companies, than it is just a price war which has low profitiblilty
- #7: Key components in a strategic analysis Management Preferences – Has bias, approaches, desires (Human) Aggressiveness/ conservation of the person models their input Organization – culture, capabilities, structure, leadership Resources – HR, Capital R, Financial R
- #8: Determines what the business is pursuing and not pursuing If some people in one level are conservation and another level people are aggressive, this will effect the model If one component is lacking, it negatively effects the whole framework Bu111 focus’ on stretegy-enviroment
- #9: P&G CEO – put too many new products out, company suffered Ikea -
- #10: Canon- took a lot of risk to invest in digital technology Kodak – Kodak did not and now they are trying to make up
- #11: Strategy is the crucial piece that holds the 2 together -Internal and environment
- #12: External Environment – Main two we discuss – General and Specific
- #14: Laws, regulations – e.g product labels in both English and French, wages, certification processes Taxes (extension of Govt. and Law) – the taxes on certain institutions and on certain things, taxes on waste disposal etc. Trade agreements or conditions – Some can positively and some and negatively effect trade, e.g Toyota set up shop in Canada to avoid tariff on cars Political System – ours is stable, which helps trade- Over the last few years, there is a lot more government involvement
- #15: -for National debt, companies are competing with govt. for borrowing money. -When our dollar went from 0.60 to par with US dollar -companies buying us items are happy – its more affordable -companies that sell us dollar items are -companies that
- #16: These factors can change from one region to another (varies from country to country) Affects attitude and loyalty of employees Which industries can benefit the most from these elements, alternative energies,
- #17: Internet has changed the way we sell, buy goods and communicate w each other allows companies to work better with other companies, suppliers, customers Products have been more advanced and completes more tasks and are put out faster changed how we design, build and use products New technologies can make products and companies obsolete (cell phones that do so many things now hurt the companies that offered products that do some of those things)
- #18: No, some flourish when the economy is great and others when its tight. Ex luxury cars and groupon
- #19: -Tool for industry analysis The more competition, lower the profitability
- #20: Suppliers *when supplier have more power, we have less profit (we buy supplies for more)* -the lower the power of supplier (bargaining power), the more attractive the industry (more profitable) -the more important of a customer you are, the more power you get -you might consider buying out the supplier because of the instability of power (if it makes sense and affordable) Ex industry with low supplier power, food industry (lots of choices) high – automotive industry manufacturers Potential Entrants -how easy is it to start up in a certain industry -more new entrants can change things up, bring new technology -more competition, less profits Ex easy to get into, hair salon hard banks, internet
- #21: Substitutes - ex few substitutes, prescription drugs high substitutes, beverages - ex of substitutes would be eye surgery (as it gets cheaper) vs glasses
- #23: -video talks about 5 forces - zero sum and positive sum good for venture project
- #25: -sources that contains data that isn't Google-able -examples of
- #26: Puts manager into the right mindset Allows for change for the better All resources like HR, actual resources
- #27: Forecast and not fact, not always accurate and can lead you to make the wrong decision