Chapter 3/ Week 3 (STEEP and Intro Porter's) Flashcards
(89 cards)
1
Q
Pearce, Robinson (2015). Strategic management PG 88-99
A
Pearce, Robinson (2015). Strategic management PG 88-99
2
Q
External environment
A
The factors beyond the control of the firm that influence its choice of direction and action, organizational structure, and internal processes
3
Q
External environment 3 interrelated subcategories
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1) Factors in the remote environment
2) Factors in the industry environment
3) Factors in the operating environment
4
Q
Remote environment
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Economic, Social, political, technological, and ecological factors that originate beyond and usually irrespective of, any single firm’s operating situation
5
Q
Economic factors
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Concern the nature and direction of the economy in which a firm operates
On both the national and international level, managers must consider the general availability of credit, the level of disposable income, and the propensity of people to spend
Prime interest rates, inflation rates, and trends in the growth of gross national product are other factors to consider
6
Q
Social Factors
A
Factors include: Beliefs, values, attitudes, opintions, and lifestyles of persons in the firms external environment, as developed from cultural, ecological, demographic, religious, educational, and ethnic conditioning
Social factors are dynamic, with constant change resulting from the efforts of individuals to satisfy their desires and needs by controlling and adapting the environmental factors
Largest change is women entering the workforce
2nd largest = quality of life issues such as: increased salaries, sabbaticals, flexible hours, lump-sum vacation plans
3rd largest is the shift in the age distribution of the population.
7
Q
Political factors
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These define the legal and regulatory parameters within which firms must operate.
Political constrains are placed on firms through fair-trade decisions, antitrust laws, tax programs, minimum wage legislation, pollution and pricing policies, administrative jawboning, and many other actions aimed at protecting employees, consumers, and the general public, and the environment.
Political actions designed to benefit and protect firms: such as patent laws, government subsidies, and product research grants
8
Q
Political activity also has significant impact on two governmental functions that influence the remote environment of firms:
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1) The supplier function
2) Customer function
9
Q
1) Supplier function
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Government decisions regarding the accessibility of private businesses to government owned natural resources and national stockpiles of agricultural products will affect profoundly the viability of the strategies of some firms
10
Q
2) Customer function
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Government demand for products and services can create, sustain, enhance,m or eliminate many market opportunities
11
Q
Technological factors
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To avoid obsolescence and promote innovation
12
Q
Technological forecasting
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The quais-science of anticipating environment and competitive changes and estimating their important to an organisation operations
13
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Ecological fators
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Most prominent factor in remote environment is the reciprocal relationship between business and the ecology
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Q
Ecology
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Relationships among human beings and other living things and the air, soil, and water that supports them
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Pollution
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Threats to life-supporting ecology caused principally by human activities in an industrial society
Big ones: global warming, loss of habitat and biodiversity, as well as air, water and land pollution
16
Q
Eco-efficiency
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Company actions that produce more useful goods and services while continuously reducing resource consumption and pollution
17
Q
4 key characteristics of eco0efficient corporations
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1) Firms are proactive, not reactive
2) Designed in, not added on
3) Imperative for eco-efficient strategy implementation
4) Encompassing, not unsular
18
Q
END OF Pearce, Robinson (2015). Strategic management PG 88-99
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END OF Pearce, Robinson (2015). Strategic management PG 88-99
19
Q
START OF: The strategically relevant factors in a company’s macro-environment; Pages 20-25
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STRAT OF: The strategically relevant factors in a company’s macro-environment; Pages 20-25
20
Q
Macro-environment
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Encompasses the broad environmental context in which a company’s industry is situated
21
Q
Macro-environment comprises of six principle components
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1) Political factors
2) Economical conditions in the firm’s general environment
3) Sociocultural forces
4) Technological factors
5) Environmental factors
6) Legal / regulatory factors
22
Q
PESTEL analysis
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Political Economic Technological Environmental Legal / regulatory
23
Q
Strategically relevant
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Important enough to have a bearing on the decisions the company ultimately makes about its long-term direction, objectives, strategy, and business model
24
Q
Political factors
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Pertinent political factors include matters such as tax policy, fiscal policy, tariffs, the political climate, and the strength of institutions such as the federal banking system. Some political policies affect certain types of industries more than others.
An example is energy policy, which clearly affects energy producers and heavy users of energy more than other types of businesses.
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Economic factors
Economic conditions include the general economic climate and specific factors such as interest rates, exchange rates, the inflation rate, the unemployment rate, the rate of economic growth, trade deficits or surpluses, savings rates, and per-capita domestic product. Some industries, such as construction, are particularly vulnerable to economic downturns but are positively affected by factors such as low interest rates.
Others, such as discount retailing, benefit when general economic conditions weaken, as consumers become more price-conscious.
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Sociocultural factors
Sociocultural forces include the societal values, attitudes, cultural influences, and lifestyles that impact demand for particular goods and services, as well as demographic factors such as the population size, growth rate, and age distribution. Sociocultural forces vary by locale and change over time.
An example is the trend toward healthier lifestyles, which can shift spending toward exercise equipment and health clubs and away from alcohol and snack foods. The demographic effect of people living longer is having a huge impact on the health care, nursing homes, travel, hospitality, and entertainment industries.
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Technological factors
Technological factors include the pace of technological change and technical developments that have the potential for wide-ranging effects on society, such as genetic engineering, nanotechnology, and solar energy technology.
They include institutions involved in creating new knowledge and controlling the use of technology, such as R&D consortia, university-sponsored technology incubators, patent and copyright laws, and government control over the Internet.
Technological change can encourage the birth of new industries, such as drones, virtual reality technology, and connected wearable devices.
They can disrupt others, as cloud computing, 3-D printing, and big data solution have done, and they can render other industries obsolete (film cameras, music CDs).
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Environmental factors
These include ecological and environmental forces such as weather, climate, climate change, and associated factors like flooding, fire, and water shortages.
These factors can directly impact industries such as insurance, farming, energy production, and tourism. They may have an indirect but substantial effect on other industries such as transportation and utilities.
The relevance of environmental considerations stems from the fact that some industries contribute more significantly than others to air and water pollution or to the depletion of irreplaceable natural resources, or to inefficient energy/resource usage, or are closely associated with other types of environmentally damaging activities (unsustainable agricultural practices, the creation of waste products that are not recyclable or biodegradable).
Growing numbers of companies worldwide, in response to stricter environmental regulations and also to mounting public concerns about the environment, are implementing actions to operate in a more environmentally and ecologically responsible manner.
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Legal and regulatory factors
These factors include the regulations and laws with which companies must comply, such as consumer laws, labor laws, antitrust laws, and occupational health and safety regulation. Some factors, such as financial services regulation, are industry-specific. Others affect certain types of industries more than others. For example, minimum wage legislation largely impacts low-wage industries (such as nursing homes and fast food restaurants) that employ substantial numbers of relatively unskilled workers. Companies in coal-mining, meat-packing, and steel-making, where many jobs are hazardous or carry high risk of injury, are much more impacted by occupational safety regulations than are companies in industries such as retailing or software programming.
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The five forces framework; Pages 26-40
The five forces framework; Pages 26-40
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The Five Forces Framework
These include
(1) competition from rival sellers, (Strongest force)
(2) competition from potential new entrants to the industry,
(3) competition from producers of substitute products, (4) supplier bargaining power, and
(5) customer bargaining power.
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Using the five forces model to determine the nature and strength of competitive pressures in a given industry involves three steps:
• Step 1: For each of the five forces, identify the different parties involved, along with the specific factors that bring about competitive pressures.
• Step 2: Evaluate how strong the pressures stemming from each of the five forces are (strong, moderate, or weak).
.• Step 3: Determine whether the five forces, overall, are supportive of high industry profitability.
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Rivalry _______ when buyer demand is growing slowly or declining.
increases
But in markets where buyer demand is slow-growing or shrinking, companies eager to gain more business are likely to engage in aggressive price discounting, sales promotions, and other tactics to increase their sales volumes at the expense of rivals, sometimes to the point of igniting a fierce battle for market share.
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Rivalry _____ as it becomes less costly for buyers to switch brands
increases
The less costly (or easier) it is for buyers to switch their purchases from one seller to another, the easier it is for sellers to steal customers away from rivals.
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Rivalry ______ as the products of rival sellers become less strongly differentiated
increases
When the offerings of rivals are identical or weakly differentiated, buyers have less reason to be brand-loyal—a condition that makes it easier for rivals to convince buyers to switch to their offerings.
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Rivalry is more intense when industry members have __________ inventory or significant amounts of idle production capacity, especially if the industry’s product entails high fixed costs or high storage costs.
too much
Whenever a market has excess sup-ply (overproduction relative to demand), rivalry intensifies as sellers cut prices in a desperate effort to cope with the unsold inventory.
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Rivalry _____ as the number of competitors increases and they become more equal in size and capability.
intensifies
When there are many competitors in a market, companies eager to increase their meager market share often engage in price-cutting activities to drive sales, leading to intense rivalry
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Rivalry becomes more intense as the diversity of competitors increases in terms of long-term directions, objectives, strategies, and countries of origin.
A diverse group of sellers often contains one or more mavericks willing to try novel or rule-breaking market approaches, thus generating a more volatile and less predictable competitive environment.
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Rivalry is stronger when high exit barriers keep unprofitable firms from leaving the industry.
In industries where the assets cannot easily be sold or transferred to other uses, where workers are entitled to job protection, or where owners are commit-ted to remaining in business for personal reasons, failing firms tend to hold on longer than they might otherwise—even when they are bleeding red ink.
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When rivalry is _____, the battle for market share is generally so vigorous that the profit margins of most industry members are squeezed to bare-bones levels.
strong
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When rivalry is ______, a more normal state, the maneuvering among industry members, while lively and healthy, still allows most industry members to earn acceptable profits.
moderate
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When rivalry is _______, most companies in the industry are relatively well satisfied with their sales growth and market shares and rarely undertake offensives to steal customers away from one another.
weak
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Just how serious the threat of entry is in a particular market depends on :
(1) whether entry barriers are high or low, and
| (2) the expected reaction of existing industry members to the entry of newcomers.
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The strength of the threat of entry is governed to a large degree by the height of the industry’s entry barriers.
High barriers reduce the threat of potential entry, whereas low barriers enable easier entry
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Entry barriers are high under the following conditions:
1) There are sizable economies of scale in production, distribution, advertising, or other activities
2) Incumbents have other hard to replicate cost advantages over new entrants
3) Customers have strong brand preferences and high degrees of loyalty to seller.
4) Patents and other forms of intellectual property protection are in place.
5) There are strong “network effects” in customer demand.
6) Capital requirements are high.
7) There are difficulties in building a network of distributors/dealers or in securing adequate space on retailers’ shelves.
8) There are restrictive regulatory policies.
9) There are restrictive trade policies.
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A second factor affecting the threat of entry relates
relates to the ability and willingness of indus-try incumbents to launch strong defensive maneuvers to maintain their positions and make it harder for a newcomer to compete successfully and profitably.
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Even high entry barriers may not suffice to keep out certain kinds of entrants:
those with resources and capabilities that enable them to leap over or bypass the barriers
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Substitutes do not include other brands within your industry;
this type of pressure comes from outside the industry
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Substitute products from outside the industry
are those that can perform the same or similar functions for the consumer as products within your industry.
For instance, the producers of eye-glasses and contact lenses face competitive pressures from the doctors who do correc-tive laser surgery.
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three factors determine whether the competitive pressures from substitute products are strong or weak. Competitive pressures are stronger when:
1. Good substitutes are readily available and attractively priced.
2. Buyers view the substitutes as comparable or better in terms of quality, performance, and other relevant attributes.
3. The costs that buyers incur in switching to the substitutes are low.
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1. Good substitutes are readily available and attractively priced.
The presence of readily available and attractively priced substitutes creates competitive pressure by placing a ceiling on the prices industry members can charge without risking sales erosion.
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2. Buyers view the substitutes as comparable or better in terms of quality, performance, and other relevant attributes.
The availability of substitutes inevitably invites custom-ers to compare performance, features, ease of use, and other attributes besides price.
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3. The costs that buyers incur in switching to the substitutes are low.
Low switching costs make it easier for the sellers of attractive substitutes to lure buyers to their offer-ings; high switching costs deter buyers from purchasing substitute products.
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Some signs that the competitive strength of substitute products is increasing include
(1) whether the sales of substitutes are growing faster than the sales of the industry being analyzed,
(2) whether the producers of substitutes are investing in added capacity, and
(3) whether the producers of substitutes are earning progressively higher profits.
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Suppliers with strong bargaining power are a source of competitive pressure because of their ability to
charge industry members higher prices, pass costs on to them, and limit their opportunities to find better deals.
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variety of factors determine the strength of suppliers’ bargaining power. Supplier power is stronger when
* Demand for suppliers’ products is high and the products are in short supply.
* Suppliers provide differentiated inputs that enhance the performance of the industry’s product.
* It is difficult or costly for industry members to switch their purchases from one supplier to another
* Industry members are incapable of integrating backward to self-manufacture items they have been buying from suppliers.
* Suppliers provide an item that accounts for no more than a small fraction of the costs of the industry’s product.
* Good substitutes are not available for the suppliers’ products.
* Industry members are not major customers of suppliers
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• Demand for suppliers’ products is high and the products are in short supply.
A surge in the demand for particular items shifts the bargaining power to the suppliers of those products; suppliers of items in short supply have pricing power.
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• Suppliers provide differentiated inputs that enhance the performance of the industry’s product.
The more valuable a particular input is in terms of enhancing the per-formance or quality of the products of industry members, the more bargaining leverage suppliers have.
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• It is difficult or costly for industry members to switch their purchases from one supplier to another
Low switching costs limit supplier bargaining power by enabling indus-try members to change suppliers if any one supplier attempts to raise prices by more than the costs of switching.
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• The supplier industry is dominated by a few large companies and it is more concentrated than the industry it sells to.
Suppliers with sizable market shares and strong demand for the items they supply generally have sufficient bargaining power to charge high prices and deny requests from industry members for lower prices or other concessions
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• Industry members are incapable of integrating backward to self-manufacture items they have been buying from suppliers.
As a rule, suppliers are safe from the threat of self-manufacture by their customers until the volume of parts a customer needs becomes large enough for the customer to justify backward integration into self-manufacture of the component.
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• Suppliers provide an item that accounts for no more than a small fraction of the costs of the industry’s product.
The more that the cost of a particular part or component affects the final product’s cost, the more that industry members will be sensitive to the actions of suppliers to raise or lower their prices. When an input accounts for only a small proportion of total input costs, buyers will be less sensitive to price increases.
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• Good substitutes are not available for the suppliers’ products.
The lack of readily avail-able substitute inputs increases the bargaining power of suppliers by increasing the dependence of industry members on the suppliers.
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• Industry members are not major customers of suppliers
As a rule, suppliers have less bargaining leverage when their sales to members of the industry constitute a big percentage of their total sales. In such cases, the well-being of suppliers is closely tied to the well-being of their major customers, and their dependence upon them increases. The bargaining power of suppliers is stronger, then, when they are not bargaining with major customers.
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Whether buyers are able to exert strong competitive pressures on industry members depends on
(1) the degree to which buyers have bargaining power and
| (2) the extent to which buyers are price-sensitive.
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It is important to recognize that
not all buyers of an industry’s product have equal degrees of bargaining power with sellers, and some may be less sensitive than others to price, quality, or service differences.
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Buyer bargaining power is stronger when
* Buyer demand is weak in relation to the available supply.
* Industry goods are standardized or differentiation is weak.
* Buyers’ costs of switching to competing brands or substitutes are relatively low
* Buyers are large and few in number relative to the number of sellers.
* Buyers pose a credible threat of integrating backward into the business of sellers.
* Buyers pose a credible threat of integrating backward into the business of sellers.
* Buyers have discretion to delay their purchases or perhaps even not make a purchase at all.
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• Buyer demand is weak in relation to the available supply.
Weak or declining demand and the resulting excess supply create a “buyers’ market,” in which bargain-hunting buyers have leverage in pressing industry members for better deals and special treatment.
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• Industry goods are standardized or differentiation is weak.
In such circumstances, buyers make their selections on the basis of price, which increases price competition among vendors.
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• Buyers’ costs of switching to competing brands or substitutes are relatively low
Switching costs put a cap on how much industry producers can raise prices or reduce quality before they will lose the buyer’s business.
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• Buyers are large and few in number relative to the number of sellers.
The larger the buyers, the more important their business is to the seller and the more sellers will be willing to grant concessions.
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• Buyers pose a credible threat of integrating backward into the business of sellers.
• Buyers pose a credible threat of integrating backward into the business of sellers.
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• Buyers pose a credible threat of integrating backward into the business of sellers.
The more information buyers have, the better bargaining position they are in. The mushrooming availability of product information on the Internet (and its ready access on smartphones) is giving added bargaining power to consumers, since they can use this to find or negotiate better deals. Apps such as ShopSavvy and BuyVia are now making comparison shopping even easier.
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• Buyers have discretion to delay their purchases or perhaps even not make a purchase at all.
Consumers often have the option to delay purchases of durable goods (cars, major appliances), or decline to buy discretionary goods (massages, concert tick-ets) if they are not happy with the prices offered. Business customers may also be able to defer their purchases of certain items, such as plant equipment or mainte-nance services.
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The following factors increase buyer price sensitivity and result in greater competi-tive pressures on the industry as a result
* Buyer price sensitivity increases when buyers are earning low profits or have low income.
* Buyers are more price-sensitive if the product represents a large fraction of their total purchases.
* Buyers are more price-sensitive when the quality of the product is not uppermost in their considerations.
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The most extreme case of a “competitively unattractive” industry occurs when all five forces are producing strong competitive pressures:
Rivalry among sellers is vigor-ous, low entry barriers allow new rivals to gain a market foothold, competition from substitutes is intense, and both suppliers and buyers are able to exercise considerable leverage
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Effectively matching a company’s business strategy to prevailing competitive conditions has two aspects:
1. Pursuing avenues that shield the firm from as many of the different competitive pressures as possible.
2. Initiating actions calculated to shift the competitive forces in the company’s favor by altering the underlying factors driving the five forces.
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Lecture and beyond
Lecture and beyond
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STEEP analysis
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Social / cultural
Technological
Economics
Ecological / environmental
Political
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"factor" is the generic term for
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Cause
Condition
Craze
Development
Drift
Dynamic
Event
Evolutio
Force
Issue
Leaning
Movement
Reason
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Step one: STEEP analysis
Set geographical context (global region, country)
Establish time period (How far to look back and how far into the future? Forecast future trends)
Keep an open mind: capture anything you can, even if it sounds foolish. Do not ignore relevant issues that are not foreseeable now
For IAP 1 scope is limited to Canada
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Step 2: STEEP analysis
Brainstorm STEEP factors
Clearly outline purpose for STEEP and scope
Choose one category first and identify as many factors as you can
When you get stuck, move to another category
Aim to put idea in correct idea (some fit into more than one category)
Consider different POV's on the industry (consider the consumers, manufacturers, distributors and sales channels, Government)
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Step 3: STEEP analysis
Evaluate STEEP factors
Estimate impact of each factor (does it work in their favour?) -How immediate is the issue?
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Step 4: STEEP analysis
Decide which STEEP factors are strategically relevant
Aim for top 10 - include sufficient explanation
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Steps to analyze the industry using porter's
1) Define the industry scope by process /product / market/ NAIC CODE
2) Identify the industry participants
3) Determine industry structure / pressure points for each of the 5 forces
4) Evaluate the overall strength of each force -- fierce, strong, moderate, or weak?
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Steps to Undertake STEEP Analysis
1) Establish scope and context
2) Brainstorm STEEP factors
3) Evaluate STEEP factors
4) Decide which STEEP factors are strategically relevant
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Grundy
His onion, which is a steep analysis, alluding to a industry value chain, mentioned vector analysis, micro forces analysis, switching porters forces to the middle to show how it affects more than incumbents, takled about driving forces and that they can be helpful to map them over time as many of these change of over time (ie buyer power),
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Diamond E strategy framework
What do we need to do (external analysis
What do we want to do (internal
What can we do (Internal) (resources and constraints)
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Role of government
For porters some think it should be a 6th force, porters doesn't agree as they can have a role in all 5 area and it varies by industry
