Midterm: Lesson 3

• Purpose of Environmental Analysis

  • To characterise the environment that can influence the business.
  • To identify threats and be prepared to handle them appropriately.
  • To identify opportunities and be prepared to benefit from them in a timely manner.
  • To identify competitive strengths and weaknesses.
  • To recognise competition in the market and how to compete more effectively.
  • To identify stakeholders and what they require from the organisation.
• Drawbacks of Environmental Analysis

  • New technology constantly changes the competitive environment by introducing new products and their placement in the markets.
  • A continuously weakening global economy has led to problems with the predictability of demand.
  • An increasing number of factors affect an organisation as national borders blur.
  • The emergence of high-growth economies (BRIC).
  • Regular environmental analysis is necessary if it is to have any relevance to the organisation.
• Tools of environmental analysis

  1. PEST analysis
  2. Porter's Five Forces Analysis
  3. Industry Life Cycle Analysis
  4. Competitor Analysis
  5. Porter's Diamond
• What is PEST Analysis

  Political Factors

  Economic Factors

  Social Factors

  Technological Factors
• Other variation of PEST

  PESTEL
• What is PESTEL?


  Political

  Economic

  Social

  Technological

  Environmental

  Legal
• PORTER’S FIVE FORCES MODEL

  1. Buyer power
  2. Supplier power
  3. Threat of substitute products or services
  4. Threat of new entrants
  5. Rivalry among existing competitors
• Buyer power

  high when buyers have many choices and low when their choices are few
• Competitive Advantage


  -providing a product or service in a way that customers value more than what the competition is able to do
• First Mover Advantage

  -significant impact on gaining market share by being the first to market with a competitive Advantage
• Supplier power


  -high when buyers have few choices and low when choices are many

  -Opposite of buyer power
• Threat of Substitute Products and Services

  -high when there are many alternatives for buyers and low when there are few alternatives
• Switching cost


  -can reduce the threat of substitute product and services
• Switching cost

  -a cost that makes buyers reluctant to switch to another product and services
• Switching cost

  Long-term contract with financial penalty

  Great service

  Personalized products based on purchase 
• Threat of new entrants

  -high when it is easy for competitors to enter the market and low when entry barriers are significant
• Entry barrier


  -product or service feature that customers have come to expect and that must be offered by an entering organization
• Example of Entry Barrier

  ex. Banking - ATM, online bill pay
• Rivalry among existing competitors

  -high when competition is fierce and low when competition is more complacent
• General Trend

  -is toward more competition in almost all industries
• IT has certainly intensified competition in all sectors of business