Management

C
External Forces

Source
David Boddy (2008) Management, An
Introduction, 4th edition, Pearson Education Ltd,
Harlow.
ISBN 978-0-273-71106-3

External forces

General environment
Competitive environment
Stakeholders
Managers
Should interpret these forces (not objective
realities)
Should respond by changing internal elements

External Forces affect industry profitability

General environment

Figure 3.5

Identifying environmental influences PESTEL analysis

Political and economic

Political
Governments shape what business can do
Taxation, pollution, regulation

Economic
Wealth and stage of development
Wage levels, interest rates, consumer confidence
E.g. compare attractiveness of manufacturing in
two countries

Social and technological

Social
Demographic trends, consumer fashions,
family structures, attitudes (e.g. to heavy
drinking in UK vs Continental Europe)

Technological
Physical infrastructure, transportation,
communications technologies
E.g. convergence of data, video and voice
technologies opening vast markets

Environmental and legal

Environmental (natural)
Natural resources, pollution and the effects of
climate change on business (threats and
opportunities)

Legal
The framework within which companies operate
employment, financial or governance regulations

Using PESTEL
Focus NOT on drawing up a long list of factors, but
agreeing on critical ones that seem most relevant to
the company you are studying
People interpret factors subjectively, as well as
noting objective realities
Many pay particular attention to socio-cultural
factors, and how they differ between nations
Draw conclusions and use your brain!

Change and complexity in the external

environment

Figure 3.6

Types of environment

Strategies in complex dynamic

Competitive Environment
External forces affecting the direct
environment of a company
Analyze to know what is most
important
Basis for making choices and setting
Strategy
Model: Porters 5 forces

Porters five forces model

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Threat of new entrants

Legal restrictions
Which permits apply?

Fewer new
Accreditations?
entrants =
higher profit

Economies of scale

Can a new entrant start on a small scale?

Entry Barriers
Knowledge base? High Investments?

Access to distribution
Products to end users? Is distribution available?

IP protection
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Competition
(Un)balance in market
Who is doing what, how are market shares developing?
(Nielsen, intercompany comparisons)

Market growth
How is the market as a whole developing?

Capacity and fixed costs

Is existing capacity utilized?

Differentation
Are new customers coming into reach?

Exit?
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Never ever underestimate

the competition

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Intensity of rivalry
amongst competitors
Greater rivalry = lesser profit
Rivalry increases when

many firms, but none dominant

market growing slowly, so firms fight for share
high fixed costs encourage overproduction
loyalties (family businesses or political support)
prolong overcapacity

E.g. airlines, agriculture, Nokia and new

mobile suppliers?

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Buyer Bargaining power

Concentration on buying side
Buying groups, or simply scale (Volkswagen
Lopez)

Number of competitors
Loyalty, availability of alternatives, uniqueness

Efforts of customer
Is your added value priced correctly?

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Bargaining power of buyers

(customers)
Greater power of buyers = less profit to seller
Power of buyer increases if:
Buyer takes high percentage of suppliers sales
Many alternative products or suppliers available
Product a high percentage of buyers costs,
creating incentive to seek alternatives
Cost of switching to other suppliers is low

E.g. online products, major supermarkets like

Wal-Mart, Tesco

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Supplier Power
Dependence
Only one supplier? Trouble.

Widely spread base

Is it possible to find more suppliers?

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Bargaining power of
suppliers
High power of supplier = less profit to buyer
Power of supplier is high if:
Buyer takes small percentage of sales
Few alternative products or suppliers (distinctive
product keeps buyers loyal) available
Product a low percentage of buyers costs, little
incentive to seek alternatives
Cost of switching suppliers high

E.g. luxury brands, business software

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Substitution
Replacement
Who still remembers what a fax machine is? Or
an analog camera?

Changing pattern
From SUVs to small cars to hybrids

Different choice
From fixed telephone lines to mobile
From telephone lines to cable

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Substitutes
Easy to substitute = less profit to supplier
Substitution becomes easier if:
Buyers willing to change buying habits
Technological developments enable new
products and services
Transport costs fall
New suppliers enter the market

E.g. online media, new materials

Example De Beer Refinish

Barriers: Color
Collection
Distribution

Many small B2B

customers

Many
knowledgeable
suppliers
None

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Using the model

Subjective interpretation as well as
objective realities
Forces contradict/balance each other
Managers can consciously try to shape
them as part of their strategy
Competitive forces affected by those in
the general environment

Using Porters Five Forces

model
Analyze the forces, identify High,
Middle, Low
Then apply critical thinking, use your
brain
Come up with conclusions
Lets try an example:
Nokia, Apple, Dell, ZARA

Nokia case
Page 100: answer the questions.

CUSTOMERS

SUPPLIERS

EMPLOYEES

STAKE
HOLDERS

SHAREHOLDERS

ENVIRONMENT

BPT 2009 Marco vd Woude

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Stakeholders
People or groups with expectations of the
organisation
Customers, communities, government

How to manage these conflicting interests?

Campbell balance all stakeholders
Argenti satisfy shareholders
A pragmatist satisfy powerful stakeholders

Evaluate their relative power (Fig. 3.8)

Companies influence stakeholders - Siemens

Stakeholder mapping

Figure 3.8

Stakeholder mapping the power interest matrix

Whose interests to serve?

You can satisfy some people all the
time
You can satisfy everybody some of
the time
You cannot satisfy everybody all the
time

Preparation for next class

Apply Pestel and 5 Forces to Nokia
case chapter 3
Work alone or in groups, whatever
you prefer
Make sure I understand who worked
with whom
Marco.vanderwoude@han.nl