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ENVIRONMENTAL INFLUENCES
The environment within which an organisation operates exerts three basic forms of influence upon the organisation.
- Threats and Opportunities
- Resources
- Pressure Groups
WAYS TO REACT TO ENVIRONMENTAL SITUATIONS
Do nothing - if convinced the problem is in-significant or short-term.
Monitor environment - But not respond
Increase flexibility - Contingency planning/product market development
Major strategic change - Situation is import/urgent.
ENVIRONMENTAL CHARACTERISTICS
Stable and unchanging - Can focus attention on past decisions and results. Correct past mistakes.
Stable with minor fluctuations - Cyclical or seasonal fluctuations within a stable structure.
Gradually changing - Organisation recognises that environment is being changed into something new and predictable.
Rapidly changing - Highly turbulent and unpredictable business. Strategic planning much more important.
EXTERNAL ANALYSIS OF THE MACRO ENVIRONMENT
PEST(EL)
- Political influences and events
- Economic influences
- Social influences
- Technological influences
- Environmental influences
- Legal influences
The output from this model will help an organisation form the opportunities and threats part of their corporate appraisal.
LoNGPEST
Lo - Refers to the local level in which the organisation operates.
N - Concerned with the home country in which it has its HQ
G - Represents the global view, everything outside the Lo/N
EXTERNAL ANALYSIS OF THE INDUSTRY/COMPETITIVE ENVIRONMENT
Porters Five Forces
(1) New Entrants - Will bring extra capacity and intensity competition.
(2) Rivalry Amongst Competitors - Existing competition and its intensity.
(3) Substitutions - This threat is cross industry
(4) Power of Buyer - Powerful buyers can force price cuts and/or quality improvement.
(5) Power of Suppliers - To charge higher prices.
PORTERS FIVE FORCES
Model uses
- To help management decide to enter a particular industry.
- To influence whether to invest more in an industry.
- To identify company strategy needed.
New Entrants
- Economies of scale
- Product differentiation
- Capital requirements
- Switching costs
- Restricted access to distribution channels
- Cost advantage of existing products
- Government policy
Rivalry Amongst Competitors
- Number and relative strength of competitors
- Rate of growth
- How easily buyers can switch between suppliers
- If exit barrier is high, competition will hang on until forced out
- Highly competitive if its presence in the market is a strategic need
- If high fixed costs are involved, companies will cut prices to retain volume
Substitutions
Substitutions limit the potential return by placing a ceiling on the price which firms in the industry can profitably charge.
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