The external environment Flashcards
Macroenvironment
An environment that effects all businesses
Microenvironment
One that effects a specific business or industry
PESTEL Analysis
A way to assess macroenvironment. Assesses threats and opportunities.
Can be politial, economical, social, technoligical, environmental or legal.
Porters 5 forces
A way to assess the microenvironment. The threat iof new entrants aqnd ways to keep them out.
Strength of threat depends on the current barrirs and the industries response to new entrants.
5 forces:
Scale economies- if fixed costs are high, to cover this you need a high number of sales which can deter.
Product differentiation - LArger firms will promote their products to crowd out the smaller businesses products.
Capital requirements - if capital investment requirements are high this is a deterrent.
Knowledge requirements - it’s harder to enter an industry that requires a high level of skill and knowledge.
Switching costs - the costs that a customer may have to incur to swtich from one supplier to another.
Access to distribution channels - New ones are hard to establish and existing ones are hard to access.
Strategic drift
An organisations strategies fail to address it’s strategic position, leading to a deterioration in perfomance.
The threat fo a substitute is high if
It offers an attractive replacement interms of cost and value
The buyers cost of substituting is low.
What factors determine the intensity of competition?
Market growth - rivalry is intensified when businesses are going for a larger market share.
Cost structure - Large fixed costs mean more competitive prices because any contribution is better than none.
Switching - suppliers will also switch if buyers can.
Capacity - May need to increase output in order to reduce unit costs.
Uncertainty - when one company is not sur eon the plans of another, they will make their own competitive plan to gain competition.
Strategic importance - firms will act competitivly is success if their target.
Exit barriers - make it difficult for an existing supplier to leave the industry. Redundancy payments, miche assets hard to resell, potential effect ont he rest of the group if supplies products, managers reluctant to admit defeat and government putting on pressure so that jobs are not lost.
Complementors
A 6th sense. An organisation that compliments your business to customers or suppliers. For example app developers to phones.
Critical success factors
The aspect of a service or product that is highly valued by customers and therefore an aspect that a business must excel at in order to outperform competitors
Market segmentation
The dividion of a market into groups of potential customers that may be treated similary for marketing purposes.
For example, a holdign company owning various hotel chains that cover form budget to upscale customers
Scenario planning
Constructing plausible views of how the business environment of an organisation might develop in the future, based on key drievrs for change.
