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This 9 page Study Guide was uploaded by Rebecca Hart on Tuesday October 6, 2015. The Study Guide belongs to Business 1000 at University of Denver taught by Aaron Duncan in Summer 2015. Since its upload, it has received 31 views. For similar materials see Gateway to Business in Business at University of Denver.
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Date Created: 10/06/15
CoE Center of Excellence 10062015 Environmental Scanning o The External Environment of Business 0 O O O O The external environment of an organization refers to the forces and institutions outside the organization that potentially affect its performance External environmental forces are mostly beyond the control of the business Forces groups and institutions outside the organization Potentially affect the company s performance Mostly beyond the control of the business 0 A gure that shows various components of the Firm39s External Environment 0 0 Remote or General Environment Economic general health economy unemployment in ation interest rates etc Political government regulations etc Social social trends demographics cultural norms etc Technological electronics communications computers mobile etc Ecological physical planet climate etc Industry Environment Entry Barriers Buyer Power Supplier Power Substitute Availability Competitive Rivalryl Forces in the Porter s Five Forces Model of Industry Analysis 0 Operating Environment Competitors Customers Creditors Investors and nanciers Labor Suppliers 0 Environmental Scanning 0 quotEnvironmental scanning refers to possession and utilization of information about occasions patterns trends and relationships within an organization s external environmentquot Continuously collect data about the external environmental forces and assess their impact on the company Most experts consider the focus of environmental scanning to be on the external environment External environment consists of factors outside the company which have a direct or indirect impact and in uence on the company how it operates and how it will perform 0 Why Scan the Environment 0 O O 0 Any organization needs to have an eye on its external environment Scanning environment is a continuous process A company has to assess it external environmental conditions and assess the impact of any changes on the organization Environmental scanning acts as an early warning system to provide any present opportunities and threats as well as forecast future opportunities and threats 0 Opportunities and Threats O 0 Opportunities are external environmental conditions that may bene t a company if the company would act upon them and utilize its resources to take advantage of them Opportunities normally require company action to be bene cial o Threats wi negatively impact the company unless you prevent them from happening 0 Without a need or desire in the market your app will have very little chance of success 0 App Opportunity 0 O O For your app project you need to identify an opportunity or the presence of a need or want in the market Find a sweet spot and capture it Without a need or desire in the market your app will have very little chance of success Competitive Intelligence 0 Competitive Intelligence 0 O O 0 000 0 Competition is only one of the external environmental factors It is an important factor because competitive conditions will have a major impact on any company If there is little or no competition exists then a company can do better If there is erce competition then the company must differentiate its products and services and from its competitors and operate more effectively and efficiently to do well Competitive intelligence is a part of environmental scanning process With erce competition the company must differentiate its products and services Competitive Intelligence is a part of environmental scanning process Gathering information about competitors actions and plans is vital Constantly be on the look out for what the competitors are doing and what they may plan to do Anticipate their next move and take preemptive action Neutralize competitors actions Taking preemptive action Make counter moves 0 Competitive Intelligence is a part of broader competitive analysis process Understand broader external environment 0 Gauge competitors conditions and plans 0 Plan how you will face the challenges and opportunities that competitors may pose 0 Take preemptive proactive action 0 Or at least react Porter39s 5 Forces Model of Industry Analys o 1 What is an industry 0 Industry Conditions are an Important Part of the External Environment 0 A group of companies that produce similar products or provide similar service competing to attract the same customers 0 Compete for the same customer dollars RMBs Renminbi Yuan Chinese currency 0 Industry can be de ned very widely or narrowly Wide de nition Examples Auto industry Beverage industry Higher Education Industry Software Industry Narrow de nition Examples Passenger car industry Soft drink industry Bottled water industry Private colleges and universities industry App Industry 0 2 The Model Porter39s Five Forces Model of Industry Analysis 0 How do we analyze an Industry Porter s Five Forces Model is a Tool for industry analysis One of the most widely used tools to analyze an industry is Porter s Five Forces Model 0 Dr Michael E Porter Professor at Harvard Business School Introduced Porter39s 5 Forces Model Also the author of the Porter s Generic Strategies which is the next topic in this course 0 Written 27 books amp over 125 Articles The model Tool for industry analysis Determine the degree of attractiveness of an industry Indicate what forced determine the degree of competitiveness in the industry Should your company Move into the industry Expand in the industry Exit the industry 3 Reasons to Use Porter39s 5 Forces Model of Industry Analysis 1 Measure the level of competition rivalry in the industry How competitive is this industry 2 Assess the degree of attractiveness of the industry How attractive is this industry 3 To gauge the potential for pro tability of operating in the industry If we enter this industry what kind of Impact of Competition on Industry Attractiveness In general The more competitive the industry the less attractive and the lower its potential pro tability An industry with only one company is called a monopoly or monopolistic industry There is no competition a That is why a monopoly is usually more pro table than a very competitive industry A monopoly can establish its own prices within reason and be very pro table The Five Forces 1 Threat of new entrants new competitors 2 Buyer power 3 Threat of substitute productsservices 4 Supplier power 5 Rivalry among existing competitors Degree of competition a Competition is the last force to be analyzed because its conditions depends so much on the level of other 4 forces a Don t just memorize these in this order Understand what they mean Force 1 Threat of New Entrants New Competitors Force 1 Threat of New Entrants O Threat of new entrants competitors is high when there are low quotbarriers to entryquot Easier to enter the market No obstacle to entry into the industry In other words you can get into the industry very fast and with very little money App easy for anyone to develop and market an app threat of entry to the app market is very high Servicebased businesses Restaurants Web development industry The easier it is for new companies to enter the industry the more cutthroat competition there will be Factors that can limit the threat of new entrants Factors that can impact the threat of new entrants include 0 00000 0 Customer Royalty to a brand End users to switching cost to use another product Amount of seed capital Government regulation Access to distribution channels Time for new staff to acquire the necessary skills to do the work The higher these factors the lower the threat of new entrants to the industry A major barrier to entry is O O 0 High economies of scale Economics of scale refers to the lowering of per unit cost of production with higher levels of volume In other words as the volume of production of a product increases it costs less to produce each unit of the product Force 2 Buyer Power Buyer power is high with many choices for the customers It is easy to switch from one brand to another or from one store to the next Little difference between what each brand or company offers Switching cost for the customer is low or nonexistent Example of high buyer power industries OOOOOOOO Big box retailers Department stores Commodities foods Beertobacco Electronics You can buy from one company or another Buy one brand or another There is a lot of price matching and advertising in these industries Force 3 Threat of Substitutes Substitutes O A substitute is a product from a related industry that can replace an industry s product 0 Transportation Substitutes cars buses taxis airplanes bikes trains and feet walking 0 Drink juices or soft drinks instead of water 0 What is a substitute In the Porter s 5 Forces Model of Industry analysis Is Coke a substitute for Pepsi No both Coke and Pepsi are part of soft drink industry What is good substitute for all the products in the soft drink industry Substitutes for soft drinks include tap water bottled water juices coffee and tea and similar products that one can drink instead of soft drinks 0 Other Forms of Power Generation are Substitutes for Electricity There include Wind Water Dams Solar Nuclear Energy 0 Force 3 High Threat of Substitutes o Exist if the product is replaceable by another product from a different industry segment 0 Consumerdriven substitution Customers decide what to substitute for this industry s product not the company Force 4 Supplier Power 0 Suppliers 0 Supplier are those companies that provide labor components raw material nancesmoney equipment energy and so forth Diamonds DeBeers forJewelry Industry Oil Organization of Petroleum Producing Companies OPEC For Oil Companies Pharms Medicine medical area in general but changing for health care industry Supplier Power 0 The opposite of buyer power 0 Supplier power is high when there are few choices for companies in the industry to use as suppliers of what the industry players need to produce their products Force 5 Competition Rivalry among Existing Companies 0000 O Force 5 Final Force Rivalry Among Existing Competitors 0 Always the last force you should analyze because level of competition rivalry is greatly impacted by the other 4 forces 0 Rivalry among existing competitors is high when everyone has to spend a lot of money on advertising 0 There is a lot of price competition and price matching 0 Rivalry is high in industry were there a lot of companies with similar products and services Industries with High Levels of Rivalry o Airline Industry 0 Auto dealership 0 Most retailing o Rivalry is high in industry were there a lot of companies with similar products and services Rivalry is low 0 When there are few companies in the industry competing for the same customers 0 Local water supplier no choice 0 Local trash and waste industry 0 Waste Management company has few major competitors Summary External environment and its three components Environmental Scanning external forces Competitive Intelligence is a part of External Environmental Scanning and Assessment Learn about major competitors their actions and strategies to be able to counter attack Porter s 5 Forces Model Used to analyze an industry and not a single company Porter s 5 Forces Model is a tool to assess an industry s degree of rivalrycompetition its attractiveness and its potential for pro tability The ve forces in the model are Threat of new entrants or competitors depends on the barriers that exist to enter the industry Buyer or customer power Threat of substitutes Supplier power Final and most important is the degree of rivalry or competition in the industry
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