2-1

Environmental Analysis

Managers must understand how the environment affects their organization

It is difficult to predict how certain events will affect both the environment and the organization which creates uncertainty

2-2

Environmental Scanning

Searching and sorting through information about the environment

Commonly asked questions Who are our current competitors Are there few or many entry barriers to our

industry? What substitutes exist for our product or service? Is the company too dependent on powerful

suppliers? Is the company too dependent on powerful

customers?

2-3

The Competitive Environment

A smaller environment that includes the specific organizations with which the organization interacts

Includes: rivalry among

current competitors threat of new

entrants threat of substitutes power of suppliers power of customers

2-4

Rivalry Among Current Competitors

Step one: Identify the competition Small domestic firms Strong regional

competitors Companies exploring

new markets Overseas firms New entries to the

market Step two: How do

they compete?

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2-5

RTE Breakfast

Price Different outlets

Mass Merchandisers WalMart Costco Sams Club

2-6

Threat of New Entrants

New entrants into an industry compete with established companies

By creating barriers to entry (conditions that prevent new companies from entering an industry) the threat of new entrants is less serious Barriers to entry include government policy,

capital requirements, brand identification, cost disadvantages, and distribution channels

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2-7

RTE: Barriers to Entry

Brand identification Product proliferation Shelf space based upon historic sales volume

2-8

Threat of Substitute Products

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2-9

Power of Suppliers

Suppliers provide the resources needed for production

Organization are at a disadvantage if they become overly dependent on any powerful supplier Switching costs are fixed costs buyers face if

they change suppliers Supply chain management is the process of

managing the entire network of facilities and people that obtain raw materials from outside the organization, transform them into products, and distribute them to customers

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2-10

Power of Customers

Customers purchase the products or services an organization offers Final consumers are those individuals that

purchase products in their finished form Intermediate consumers are individuals who

purchase raw materials or wholesale products before selling them to final customers

Customers can demand lower prices, higher quality, unique product specifications, or better service

Customers are powerful if they make large purchases or if they can easily find alternative places to buy

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2-11

Environmental Scanning

2-12

Environmental Uncertainty

Managers do not have enough information about the environment to understand or predict the future

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2-13

Independent Action

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2-14

Cooperative Action

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2-15

Strong Cultures

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