general motors
Define the environment in the context of business
Learn the difference between the general environment and the industry
Explain how PESTEL analysis is useful to organizations
Explain how five forces analysis is useful to organizations
Understand what strategic groups are
Chapter 3 Learning Objectives
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Environment: Set of external conditions and forces that have the potential to influence the organization
General environment (macroenvironment): Overall trends and events in a society such as - social trends, technological trends, demographics, and economic conditions
Industry (competitive environment): Consists of multiple organizations that collectively compete with one another by providing similar goods, services, or both
Environment
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The environment provides resources that an organization needs in order to create goods and services
The environment is a source of opportunities and threats for an organization
Opportunities: Events and trends that create chances to improve an organization’s performance level
Threats: Events and trends that may undermine an organization’s performance
The environment shapes the various strategic decisions that executives make as they attempt to lead their organizations to success
Why Does the Environment Matter?
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A tool that executives can rely upon, to organize factors within the general environment and identify how these factors influence industries and the firms within them
The Elements of the General Environment: PESTEL Analysis
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Political Factors
Political Factors
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Economic Factors
Economic Factors
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Social Factors
According to the Economist, 80 percent of consumer decisions in rich countries are made by women.
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Social Factors
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Technological Factors
How Xerox lost the PC to Apple:
http://www.youtube.com/watch?v=pMUtyfXyLSA
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Technological Factors
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Environmental Factors
Environmental Factors
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Legal Factors
Legal Factors
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Lime Market
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http://www.nytimes.com/2014/03/30/opinion/sunday/is-the-lime-an-endangered-species.html?_r=0
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Five forces analysis: Technique for understanding an industry, by examining the interactions among:
Competitors in an industry
Potential new entrants to the industry
Substitutes for the industry’s offerings
Suppliers to the industry
Industry’s buyers
Purpose of the analysis is to identify how much profit potential exists in an industry
Five Forces Analysis
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Porter’s Five Forces
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https://www.youtube.com/watch?v=X7w2LdG6bFE
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Competitors
Intense Rivalry
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Industry Concentration
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Potential Entrants
Economics of scale
Capital requirements
Access to distribution channels
Government policy
Differentiation
Switching costs
Expected retaliation
Cost advantages independent of size
Barriers to Entry
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Suppliers
Suppliers
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Buyers
Buyers
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Substitutes
Substitutes
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It assumes that competition is a zero sum game - the amount of profit potential in an industry is fixed
Collaboration is a possibility that five forces analysis tends to downplay
Doesn’t explain variation in performance within an industry
Limitations of Five Forces Analysis
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Strategic groups: Consist of a set of industry competitors, that have similar characteristics to each other but differ in important ways from the members of other groups
Narrows the focus by centering on subsets of the competitors, whose strategies are similar to each other
The analysis of the strategic groups in an industry can offer important insights to executives
Closest rivals
Alternative paths to success
Untapped opportunities
Mapping Strategic Groups
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Strategic Groups in the Restaurant Industry
An organization’s environment is a major consideration. The environment is the source of resources that the organizations needs. It provides opportunities and threats, and it influences the various strategic decisions that executives must make.
PESTEL analysis can be a useful tool in understanding an organization’s general environment.
Five Forces analysis can be a useful tool in understanding an organization’s industry environment.
Chapter 3: Key Takeaways
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