Business Environment

Dr. Raj Agrawal

Director

AIMA

Outline

Introduction The Company’s Macro-environment The Competitors Porter's Five Forces ModeL Internal Environment

Introduction

Definition:

The Company’s environment consists of "the actors and forces that affect management's ability to develop and maintain successful transactions with its target customers"

Introduction (cont’d)

Companies must evaluate both micro and macro-environment to identify any trends that may affect their strategies, and

opportunities that can be developed into competitive advantages

Porter's Five Forces model analyses market structures to determine market attractiveness taking into consideration the micro and macro environments in its construction

Company’s Macro-environment

Relates to the larger forces having an impact on society as a whole

A company has little influence on these forces and therefore can only adapt its marketing mix to account for the resulting opportunities and threats

What the Firm Might Do

What the Firm Can Do

External EnvironmentExternal Environment

Five Forces AnalysisFive Forces Analysis

Internal EnvironmentInternal EnvironmentResources, Capabilities and Core CompetenciesResources, Capabilities and Core Competencies

SustainableSustainableCompetitiveCompetitiveAdvantageAdvantage

Major forces of the macro-environment

Demographic Economic Natural Technological Cultural Political/legal

Demographic Environment

Demographic trends: Changing age structure Changing family structure Geographic shifts in population Higher education level & more white

collar job holders Increasing globalization of cities such

as Singapore

Economic Environment

Economic trends affecting consumers buying power and spending pattern

Change in per capital real incomeDisposable DiscretionaryIncome distribution

Savings & debt Consumer expenditures Change in interest rates and cost of living

Natural environment

Natural trends include those natural resources used in production or those affected by marketing activities

Raw material shortages Increase in energy cost Increase pollution levels Increase in Governmental intervention in

natural resource management

Technological Environment

Consists of forces that affect new technology, new product development and market opportunities

Faster pace of technological changeShorter PLC

Higher R&D budgets Concentration on minor improvements Increased regulations

Cultural Environment

Affect society's basic values, perceptions, preferences and behaviors

Core cultural values and beliefs Secondary cultural values Sub cultures

Legal and Political EnvironmentTrends in the legal and political environment

include Increased legislation regulating business

Singapore’s Fair Trading Act (impending) Changing government agency

enforcement Growth of public interest groups Regional groupings

ASEAN FTZ

Competitive Analysis

Who are the competitors? Do we know about our close competitors’

strengths and weaknesses? How detail should we analyze the

competition?Use a systematic approach Analysis competition at various levels

(next slide)

Industry Competition

Different industries can sustain different levels of profitability; partly due to the difference in industry structure

Porter’s Model of Industry Competition, commonly know as Porter’s Five Forces provides a framework for analyzing the influence of the forces on the industry to determine the industry’s profitability and competitiveness

Porter’s Model of Industry Competition

Industry degree of rivalry

BuyersSuppliers

Barriers to Entry

Substitutes

STRENGTHS

A STRENGTH is something a company is good at doing or a characteristic that gives it an important capability.

Possible Strengths: Name recognition Proprietary technology Cost advantages Skilled employees Loyal Customers

WEAKNESSES

A WEAKNESS is something a company lacks or does poorly (in comparison to others) or a condition that places it at a disadvantage

Possible Weaknesses: Poor market image Obsolete facilities Internal operating problems Poor marketing skills

STRENGTHS AND WEAKNESS FORM A BASIS FOR INTERNAL ANALYSIS

By examining strengths, you can discover untapped potential or identify distinct competencies that helped you succeed in the past.

By examining weaknesses, you can identify gaps in performance, vulnerabilities, and erroneous assumptions about existing strategies

TOOLS USEFUL IN ASSESSING

STRENGTHS AND WEAKNESSES?

Resources Capabilities Core Competencies and Competitive Advantage

RESOURCES

Inputs into a firm’s production process such as capital equipment, skill of individual employees, patents, finance, and talented managers Tangible Resources – Assets that can be seen

and quantified Intangible Resources – Family commitment,

networks, organizational culture, reputation, intellectual property rights, trademarks, copyrights

By themselves, resources do not create a strategic advantage for the firm.

CAPABILITIES

Capacity to deploy resources that have been purposely integrated to achieve a desired end state.

Primary base for the firm’s capabilities is the skills and knowledge of its employees.

Just because the firm has a strong capacity for deploying resources does not mean it has a competitive advantage

CAPABILITIES

Capacity to deploy resources that have been purposely integrated to achieve a desired end state.

Primary base for the firm’s capabilities is the skills and knowledge of its employees.

Just because the firm has a strong capacity for deploying resources does not mean it has a competitive advantage.

CORE COMPETENCIES

Resources and capabilities serve as a source of competitive advantage for a firm over its rival.

Not all resources and capabilities are core competencies.

Many suggest that firms should identify and concentrate on only 3 or 4 core competencies.

KEY VARIABLES

Valuable Capabilities Rare Capabilities Costly to Imitate Capabilities Non-substitutable capabilities

IDENTIFYING AND BUILDING CORE COMPETENCIES

Core competencies must be distinctive.Capabilities that are done better than

competitors Identifying core competencies is key to

development of sound strategy. We use the value chain to help identify

core competencies.

THE VALUE CHAIN

A framework for identifying core competenciesInside the firmIn the supply chain

Can be used toIdentify strengths and weaknessesIdentify sources of competitive advantageIdentify market opportunities

THE VALUE CHAIN

Strategic value analysis focuses on a firm’s relative value position vis-à-vis its rivals.

Strategic cost analysis focuses on a firm’s relative cost position vis-à-vis its rivals.

ResourcesResources

** TangibleTangible** IntangibleIntangible

CapabilitiesCapabilities

Teams of ResourcesTeams of Resources

Sources ofSources of

CoreCoreCompetenciesCompetencies

CompetitiveCompetitiveAdvantageAdvantage

StrategicStrategicCompetitivenessCompetitiveness

Above-AverageAbove-AverageReturnsReturns

CompetitiveCompetitiveAdvantageAdvantage

Gained throughGained throughCore CompetenciesCore Competencies

DiscoveringDiscoveringCoreCore

CompetenciesCompetencies

ValueChain

Analysis

ValuableRareCostly to ImitateNonsubstitutable

****

* Outsource

Criteria ofSustainableAdvantages

Discovering Core CompetenciesDiscovering Core Competencies