UBO - Lecture 05 - Organisations and The Competitive Environment

Lecture 5 Organisations and the Competitive
Environment
Understanding Business Organisations
V1.0 Visuals Handout Page 1
UnderstandingBusiness
NCC Education Limited V1.0
Understanding Business
Organisations
Lecture 5:
Organisations and the Competitive
Environment
Organisations and the Competitive Environment Lecture 5- 5.2
Scope and Coverage
This topic will cover:
The main forces that can affect organisational
performance
How to undertake a PEST analysis
The use of Porters five forces model to analyse
competitive environments
How to organise environmental analysis
The importance of managing stakeholder
expectations
Learning Outcomes
By the end of this topic, students will be able to:
Understand the environmental forces that exist at
different levels and how they can impact upon
organisational performance
D ib h PEST l i b d t id tif
Describe how a PEST analysis can be used to identify
environmental influences
Explain how Porters five forces analysis is used to
determine the competitive environment
Understand the importance of stakeholder analysis
Environment
A wide range of forces that
can affect organisational
performance
Environmental forces exist at
The Organisational Environment
different levels:
General (macro) environment
Competitive environment
Internal environment
Stakeholders
Political-legal factors
Economic factors
Socio-cultural factors
Technological factors
General (Macro) Environment
Buyers/customers
Suppliers
Competitors
Substitute goods or services
Competitive Environment
Substitute goods or services
Environment
To assess how the
environment has changed
To assess how it is likely
to change
Why is Environmental Analysis
Important?
to change
To identify what impacts
these changes are likely
to have on the
organisation, its
customers and markets
An analytical framework to identify and examine
the environmental influences of:
Political-legal factors
PEST Analysis
Identifying the General Environment
Economic factors
Socio-cultural factors
Employment law
Taxation policy
Company law
Privatisation/deregulationpolicies
Political-Legal Factors
Privatisation/deregulation policies
Environmental legislation
Health & safety regulations
Public expenditure controls
Government stability
Environment
Interest and inflation rates
Consumer confidence
The business cycle
Economic growth prospects
Economic Factors
Economic growth prospects
Unemployment rates
Disposable incomes
Labour costs
Energy availability and cost
Demographics
Values in society
Changing lifestyles
Changes in consumer tastes and preferences
Socio-Cultural Factors
Changes in consumer tastes and preferences
Levels of education
New product potential, creating new competition
Alternative means of providing services
New discoveries
Rates of government and industry expenditure on
Technological Factors
Rates of government and industry expenditure on
R&D
Changing communications technology
Rate of technology transfer
Environment
Considers forces in the
immediate competitive
environment
Five forces determine
th t t f titi
Porters Five Forces Analysis
the state of competition
in an industry
Collective strength of
five forces determines
industry profitability
The Five Forces of Industry
Competition
Intensity of current Bargaining power of Bargaining power of
Threat of new
entrants
Intensity of current
rivalry in the
industry
Bargaining power of
buyers
Bargaining power of
suppliers
Threat of
substitute
products
Force Upward pressure on
profitability
Downward pressure on
profitability
Bargaining power of
suppliers
Weak suppliers Strong suppliers
Bargaining power of Weakbuyers Strong buyers
Five Forces and Profitability
Bargaining power of
buyers
Weak buyers Strong buyers
Threat of new entrants High entry barriers Low entry barriers
Threats from substitute
products
Few possible substitutes Many possible substitutes
Competitive rivalry Little rivalry Intense rivalry
Environment
Static environment changes happen slowly
Dynamic environment changes occur rapidly
and affect many key forces
The Nature of the External
Environment
Simple environment - relatively straightforward
in terms of business processes and technology
Complex environment diversity of
environmental influences
Responsibility who will undertake the analysis? -
Often corporate planning departments
Data sources important that information is
collectedfromboth internal and external sources
Organising Environmental
Analysis
collected from both internal and external sources
Frequency of analysis usually a regular routine,
typically every three to five years
Forecasting and scenario planning based on
analysis of past trends, demographic
characteristics and assumptions
All organisations have a wide range of internal and
external stakeholders
Interests of different stakeholders may conflict
Some may have more influence than others
Stakeholder Analysis
y
Important to embrace stakeholder expectations but
recognise that the degree of priority given to each
is unequal and constantly changing
Environment
Shareholders
Growth in dividend payments
Growth in share price
Growth in net asset value
Suppliers
Examples of Stakeholder
Expectations
Suppliers
Timely payment of debt by company
Adequate liquidity
Integrity of directors
Government
Adhering to the countrys laws
Paying taxes
Customers
Price always competitive
Emphasis on product/service quality
Return and replacement policies
Employees
Examples of Stakeholder
Expectations (2)
Employees
Good compensation and benefits
J ob security
Opportunities for personal development
Lenders
Liquidity of the company
Potential to repay interest and capital on due date
Formal power exercised by stakeholders who
are members of influential bodies or committees
Resource power large manufacturers may
dictate product quality and prices
External Stakeholder Power
Expert power stakeholders with superior
knowledge of customers can dictate terms (design,
quality, price) to manufacturers
Environment
LEVEL OF INTEREST
Low High
Low
Stakeholder Mapping the
Power/Interest Matrix
A
Minimal effort
B
Keep informed
POWER
High
C
Keep satisfied
D
Key players
A wide range of forces that can affect organisational
performance
Environmental analysis is important in assessing changes
and identifying their likely impact
A PEST analysis is a common approach to analysing the
general en ironment
Summary
general environment
Porters five forces analysis can be used to determine an
industrys profitability
It is important to embrace the expectations of different
stakeholders, whilst recognising that some exercise more
power than others
References
Boddy, D. (2005), Management: An Introduction,
3rd edition, Prentice Hall, Chapter 3
Campbell and Craig (2005), Organisations and the
Business Environment, 2nd edition. Butterworth-
Heinemann, Chapter 20, pp 431-449
Environment
Lecture 5 Organisations and the
Competitive Environment
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