management
tiancaigu
2.pptxStrategic management
MGMT 490
Yongseok Jang, Ph.D.
Assistant Professor of Entrepreneurship
Chapter 3-1
External Analysis
1
Meeting Outline
3.1 The PESTEL Framework
3.2 The Five Forces Model
3.3 Changes over Time: Industry Dynamics
MACRO
MICRO
Doesn’t a PESTEL do the same as a SWOT analys?
3
EXTERNAL ANALYSIS
INDUSTRY ANALYSIS
Five Forces Model
COMPETITOR ANALYSIS
Strategic Group Mapping
PESTEL Framework
3.1 The PESTEL Framework
Framework to scan, monitor, and evaluate important external factors/trends impacting a firm in its quest for competitive advantage.
Factors are interdependent.
KEY CONCEPTS
3-‹#›
4
Exhibit 3.1 The Firm Embedded in Its External Environment
Are some external factors more important than other when it comes to maintaining competitive advantage ?
What is firms’ general environment?
3-‹#›
Instructors:
Some thoughts on relevant end of chapter discussion questions,
Why is it important for an organization to study and understand its external environment? It is important because it can affect the industry and firm’s performance. The PESTEL framework, for instance, is helpful because it acts as a guide, allowing managers to mitigate threats and leverage opportunities accordingly.
5
Political/Legal Factors
Political environment
Processes/actions of government that can influence the decisions and behavior of firms
Legal environment
Laws, mandates, regulations, and court decisions – all of which can have a direct bearing on a firm’s profit potential
What is the difference between legal and political factors?
3-‹#›
Instructors:
Relative to the chapter opener on Tesla the text notes the benefits of the U.S. government offering $7,500 in federal tax credits to consumers purchasing a new all electric vehicle. Some states also have such incentives. Other countries including China and several in the EU also offer such incentives.
6
Political/Legal Factors
3-‹#›
Instructors:
Relative to the chapter opener on Tesla the text notes the benefits of the U.S. government offering $7,500 in federal tax credits to consumers purchasing a new all electric vehicle. Some states also have such incentives. Other countries including China and several in the EU also offer such incentives.
7
Political/Legal Factors: Q1
Examples of some political factors that have played a huge role in business?
3-‹#›
Instructors:
Relative to the chapter opener on Tesla the text notes the benefits of the U.S. government offering $7,500 in federal tax credits to consumers purchasing a new all electric vehicle. Some states also have such incentives. Other countries including China and several in the EU also offer such incentives.
8
Political/Legal Factors Q2
Draw the line between political and legal factors..?
3-‹#›
Instructors:
Relative to the chapter opener on Tesla the text notes the benefits of the U.S. government offering $7,500 in federal tax credits to consumers purchasing a new all electric vehicle. Some states also have such incentives. Other countries including China and several in the EU also offer such incentives.
9
Economic Factors
Economy-wide phenomena, consisting of the following five macroeconomic factors affecting firm strategy:
Growth rates
Interest rates
Levels of employment
Price stability (inflation and deflation)
Currency exchange rates
How can companies accurately predict external factors that are hard to anticipate such as economic?
3-‹#›
Instructors:
Many students will see these as major considerations for firms. The text provides several short examples for highlighting each of these factors in case the students are unsure of the meaning of these important concepts.
Some of the other PESTEL forces may need additional classroom discussion to help students see their relevance to business organizations.
10
Economic Factors
Example of recent deflation?
3-‹#›
Instructors:
Many students will see these as major considerations for firms. The text provides several short examples for highlighting each of these factors in case the students are unsure of the meaning of these important concepts.
Some of the other PESTEL forces may need additional classroom discussion to help students see their relevance to business organizations.
11
Economic Factors
What is currency exchange rate?
In chapter 3 page 69 currency exchange rate it says that if the Chinese yen value goes up, then the product that it imports becomes more expensive, and the purchasing power increases, why is that?
3-‹#›
Instructors:
Some thoughts on relevant end of chapter discussion questions,
Why is it important for an organization to study and understand its external environment? It is important because it can affect the industry and firm’s performance. The PESTEL framework, for instance, is helpful because it acts as a guide, allowing managers to mitigate threats and leverage opportunities accordingly.
12
Sociocultural Factors
Sociocultural factors
Capture cultures, norms, and values for society; are dynamic and differ across groups.
3-‹#›
Instructors:
There is an end of chapter small group exercise related to this topic that you may find helpful. The following are some thoughts on this exercise from the IM.
End of Chapter Small Group Exercise 1 (page 91)
This exercise facilitates a discussion that pushes beyond analysis to include the formulation and implementation stages of the strategic management framework. Instead of accumulating an array of data from a PESTEL analysis as a list of macroenvironment factors that impact the industry environment, this exercise allows you to focus on one PESTEL factor, sociocultural for the packaged food industry to develop one threat, “societal concern for healthy eating, particularly for children, is reducing product demand”. Then you move to the next step to discuss what a particular firm (Kraft) in that industry should do in defend itself against that industry threat, in other words, you formulate a strategy.
13
Sociocultural Factors
Demographic trends
Capture population characteristics related to age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class.
Is PESTEL model the ultimate external factors building environment? It might be true in western countries but I think that there will be more other factors in Eastern countries, such as, religions.
3-‹#›
Instructors:
There is an end of chapter small group exercise related to this topic that you may find helpful. The following are some thoughts on this exercise from the IM.
End of Chapter Small Group Exercise 1 (page 91)
This exercise facilitates a discussion that pushes beyond analysis to include the formulation and implementation stages of the strategic management framework. Instead of accumulating an array of data from a PESTEL analysis as a list of macroenvironment factors that impact the industry environment, this exercise allows you to focus on one PESTEL factor, sociocultural for the packaged food industry to develop one threat, “societal concern for healthy eating, particularly for children, is reducing product demand”. Then you move to the next step to discuss what a particular firm (Kraft) in that industry should do in defend itself against that industry threat, in other words, you formulate a strategy.
14
Technological Factors
Technological factors
Capture the application of knowledge to create new processes and products.
Innovations in process technology
Nanotechnology revolution
(Initial stages) Major upheaval for several industries – medical devices to new-age materials for earthquake-resistant buildings.
3-‹#›
Instructors:
Relative to the chapter opener on Tesla the text notes the tremendous advances in new products such as the Tesla Roadster and Model S. The text also provides an example of rapid industry changes in the mobile smartphone industry.
You may want to note with the students that Chapter 7 addresses the effect of technological factors in greater detail.
15
Technological Factors
Technological factors
AI & Nanotechnology revolution
3-‹#›
Instructors:
Relative to the chapter opener on Tesla the text notes the tremendous advances in new products such as the Tesla Roadster and Model S. The text also provides an example of rapid industry changes in the mobile smartphone industry.
You may want to note with the students that Chapter 7 addresses the effect of technological factors in greater detail.
16
Technological Factors
Technological factors: distance working/learning
Nowadays, when the advance in technology allow the employees to commute and work at home or long distance. How do the managers will manage the employees engagement and loyalty to the company efficiently?
3-‹#›
Instructors:
Relative to the chapter opener on Tesla the text notes the tremendous advances in new products such as the Tesla Roadster and Model S. The text also provides an example of rapid industry changes in the mobile smartphone industry.
You may want to note with the students that Chapter 7 addresses the effect of technological factors in greater detail.
17
Ecological Factors
Broad environmental issues, e.g., the natural environment, global warming, and sustainable economic growth
Business and natural worlds are interdependent and inextricably linked.
Managing these relationships in a sustainable manner directly influences the continued existence of human societies and the organizations we create.
3-‹#›
Instructors:
Relative to the chapter opener on Tesla the text notes Tesla Motors is addressing environmental concerns regarding the carbon emissions of gasoline-powered cars by building zero-emission battery-powered vehicles. However still needing to be addressed- How to generate the necessary power to sustainably charge the cars as many areas use carbon generating power plants such as coal to create electricity for consumers and businesses.
18
Ecological Factors
3-‹#›
Instructors:
Relative to the chapter opener on Tesla the text notes Tesla Motors is addressing environmental concerns regarding the carbon emissions of gasoline-powered cars by building zero-emission battery-powered vehicles. However still needing to be addressed- How to generate the necessary power to sustainably charge the cars as many areas use carbon generating power plants such as coal to create electricity for consumers and businesses.
19
Ecological Factors
I have used a PEST model. Why is it important to Ecological and Legal into the model?
Where do we draw the line between ecological and legal factors when dealing with environmental impact?
3-‹#›
Instructors:
Relative to the chapter opener on Tesla the text notes Tesla Motors is addressing environmental concerns regarding the carbon emissions of gasoline-powered cars by building zero-emission battery-powered vehicles. However still needing to be addressed- How to generate the necessary power to sustainably charge the cars as many areas use carbon generating power plants such as coal to create electricity for consumers and businesses.
20
PESTEL: Exercise
Can you do a PESTEL on any company? I feel as if some companies won’t be affected by such things as politics or sociocultural.
3-‹#›
Instructors:
Relative to the chapter opener on Tesla the text notes Tesla Motors is addressing environmental concerns regarding the carbon emissions of gasoline-powered cars by building zero-emission battery-powered vehicles. However still needing to be addressed- How to generate the necessary power to sustainably charge the cars as many areas use carbon generating power plants such as coal to create electricity for consumers and businesses.
21
MACRO
MICRO
22
EXTERNAL ANALYSIS
INDUSTRY ANALYSIS
Five Forces Model
COMPETITOR ANALYSIS
Strategic Group Mapping
PESTEL Framework
What: A framework for identifying the five forces that determine industry profit potential and help shape firm competitive strategy
How: Managers can predict industry profit potential and position their firms for sustainable competitive advantage.
3.2 Industry Structure and Firm Strategy:
The Five Forces Model
Can you explain how firms in the same industry can be affected differently by the five forces?
3-‹#›
Instructors:
The five forces model is one of the most widely used tools in strategy. It is worth spending some time on it.
Michael Porter wrote his original work on the subject over 30 years ago. However, he updated this work in 2008 and you may want to
review his article in HBR for more details on the model. (Porter, M. E. (2008), “The five competitive forces that shape strategy.”)
Here is a link to a 13 minute video of Dr. Porter discussing this updated HBR article. He uses the context of the airline industry (Strategy Highlight 3.2) and the soft drink industry to make his major points.
http://www.youtube.com/watch?v=mYF2_FBCvXw
23
Exhibit 3.2 Porter’s Five Forces Model
3-‹#›
24
Q: Would management really put a company at risk by going to war with its rivals?
3.2 The Five Forces Model: Q1
Q: what’s good example of a supplier forward integration into a customer company’s industry?
3-‹#›
Instructors:
The five forces model is one of the most widely used tools in strategy. It is worth spending some time on it.
Michael Porter wrote his original work on the subject over 30 years ago. However, he updated this work in 2008 and you may want to
review his article in HBR for more details on the model. (Porter, M. E. (2008), “The five competitive forces that shape strategy.”)
Here is a link to a 13 minute video of Dr. Porter discussing this updated HBR article. He uses the context of the airline industry (Strategy Highlight 3.2) and the soft drink industry to make his major points.
http://www.youtube.com/watch?v=mYF2_FBCvXw
25
Q: In regard to barriers to entry, what are some industries that are notoriously difficult to break into? What are some industries that have few/weak entry barriers?
3.2 The Five Forces Model: Q3
Q: Does the Potter's Five Force model have limitations? Can it analyze nonprofit organizations?
Static, Industry Specific, Ignores firm specifics/non-market forces
3-‹#›
Instructors:
The five forces model is one of the most widely used tools in strategy. It is worth spending some time on it.
Michael Porter wrote his original work on the subject over 30 years ago. However, he updated this work in 2008 and you may want to
review his article in HBR for more details on the model. (Porter, M. E. (2008), “The five competitive forces that shape strategy.”)
Here is a link to a 13 minute video of Dr. Porter discussing this updated HBR article. He uses the context of the airline industry (Strategy Highlight 3.2) and the soft drink industry to make his major points.
http://www.youtube.com/watch?v=mYF2_FBCvXw
26
Rivalry among Competitors
Jump to Appendix 4 long image description
Intensity of rivalry determined by
Competitive industry structure
Industry growth
Strategic commitments
Exit barriers
Rivalry: Industry Competitive Structures
Jump to Appendix 4 long image description
Which one of the 3 structure, ‘perfect competition, monopolistic, oligopoly’ is the most beneficial to customers?
Rivalry: Exhibit 3.3 Industry Competitive Structures
Q: What us the major differences between Perfect Competition and Monopolistic Competition?
Imperfect information vs perfect
Price makers vs price takers
Differentiation vs Identical
Q: Examples of each industry competitive structure?
Rivalry: Exit barriers
Jump to Appendix 4 long image description
Q: How do exit barriers affect a firm?
A: Exit barriers; the obstacles that determine how easily a firm can leave that industry
Fixed costs (economic)
Contractual obligations (economic)
Emotional attachment (social) ex) Michigan
Ripple effects (social) ex) Michigan
Changes over Time: Industry Dynamics
Industry Dynamics
FF provides only a snapshot.
Leaders need information about:
Changing speed of an industry
Rate of innovation
Industries aren’t stable over time.
Since industry dynamics can change over time how often should a firm perform these types of analysis (PESTEL, Porter’s five forces, strategic group mapping)
Industry Consolidation
Consolidated industries are more profitable.
Mergers and acquisitions make this possible.
Results in higher industry profitability
33
Industry Convergence
When unrelated industries satisfy the same need
Example: Media Industries
Progress in IT, telecommunications, digital media
Has united computing, communications, content
Content providers are adapting:
Newspapers, magazines, TV, movies, radio, music
New forms of content media:
Amazon’s Kindle, Apple’s iPad, Google’s Chromebook
34
Recap
3.1 The PESTEL Framework
3.2 The Five Forces Model
3.3 Changes over Time: Industry Dynamics
MACRO
MICRO
36
EXTERNAL ANALYSIS
INDUSTRY ANALYSIS
Five Forces Model
COMPETITOR ANALYSIS
Strategic Group Mapping
PESTEL Framework
