Strategic Management

• Four ways to conduct macro-environment analysis:

  Scanning, Monitoring, Forecasting, Assessing
• Scanning


  macro-environments for warning signs and possible environmental changes that will affect the organization
• Monitoring 


  environments for specific trends and patterns;
• Forecasting


  future directions of environmental changes;
• Assessing


  current and future trends in terms of the effects such changes would have on the organization.
• STEEP Analysis


  The complexity of the macro-environment makes it necessary to divide the forces at work into the five broad categories.
• Social Influences-includes social, cultural, and demographic influences.

  Social Influencesincludes social, cultural, and demographic influences. ultural, and demographic influences.
• Technological Influences


  include products, processes, ICT, communications, and transport.
• Environmental Influences


  include waste disposal, pollution, resource use, and energy consumption.
• Economic Influences


  include fiscal and monetary policy, incomes, living standards, and exchange rates influences.
• Political Influences


  includes governmental, legal, and regulatory influences.
• When managers carry out a STEEP analysis as part of a strategic analysis (and the same is true of students examining a case study) they would normally examine how each factor might impact upon:

  *The internal parts of an organization

  *An organization’s markets

  *The industry in which the organization competes
• The internal parts of an organization


  the effects of STEEP factors on the organization’s core competencies, strategies, resources, value system and the organization’s functional areas (operations, marketing, human resources and finance).
• An organization’s markets


  the effects of STEEP factors on product markets (e.g. market size, structure, segments, customer needs and wants, etc.) and the resource markets for human resources, financial resources, etc.
• The industry in which the organization competes


  the effects of STEEP factors on the five competitive forces (buyer power, supplier power, threat of entry, threat of substitutes, competitive rivalry.
• Industries


  produce goods and services (the supply side of the economic system).
• Markets


  consume goods and services that have been produced by industries (the demand sideof the economic system).
• Industry analysis 


  aims to establish the nature of the competition in the industry and the competitive position of the business.
• Porter’s five forces model of industry analysis


  a framework for analysing the nature and extent of competition within an industry.
• Porter (1985)


  He argued that there are five competitive forces which determine the degree of competition within an industry. Understanding the nature and strength of each of the five forces within an industry assists managers in developing the competitive strategy of their organization.
• The capital costs of entry


  The size of the investment required by a business wishing to enter the industry (or industry sector) will be an important determinant of the extent of the threat of new entrants.
• Brand loyalty and customer switching costs


  When customers are loyal to particular brands, then potential new entrants will encounter resistance in trying to enter the industry.
• Economies of scale or scope available to existing competitors


  If existing competitors are already obtaining substantial economies of scale, it will give them an advantage over new competitors who will not be able to match their lower unit costs of production.
• Access to input and distribution channels


  New competitors may find it difficult to gain access to channels of distribution, which will make it difficult to provide their products to customers or obtain the inputs required.
• The resistance offered by existing businesses


  If existing competitors choose to resist strongly it will make it difficult for new organizations to enter the industry.
• Government regulation


  In some situations new competitors are prevented from entering the market by government or intergovernmental regulation.
• The extent to which the price and performance of the substitute can match the industry’s product


  Close substitutes whose performance is comparable to the industry’s product and whose price is similar will be a serious threat to an industry.
• The willingness of buyers to switch to the substitute


  Buyers will be more willing to change suppliers if switching costs are low or if competitor products offer lower price or improved performance.
• The number of customers and the volume of their purchases


  The fewer the buyers and the greater the volume of their purchases, the greater will be their bargaining power.
• The number of businesses supplying the product and their size


  If the suppliers of a product are large in comparison to the buyers, then buying power will tend to be reduced.
• Switching costs and the availability of substitutes


  If the costs of switching to substitute products are low (because the substitutes are close in terms of functionality and price), then customers will be accordingly more powerful.
• The uniqueness and scarcity of the resource that suppliers provide


  If the resources provided to the industry are essential to it and have no close substitutes then suppliers are likely to command significant power over the industry.
• How many other industries have a requirement for the resource?-

  If suppliers provide a particular resource to several industries then they are less likely to be dependent upon one single industry. Thus, the more industries to which they supply a resource, the greater will be their bargaining power.
• Switching costs between suppliers


  In some cases switching between suppliers may be difficult and costly.
• The number and size of the resource suppliers


  If the number of organizations supplying a resource is small and the number of buyers is large, then the power of the suppliers over the organizations will be greater in any industry.
• The relative size of competitors


  When competitors in a sector are of roughly equal size there is a possibility that rivalry is increased as the competing companies try to gain a higher degree of market dominance but profits fall as a result of this increased rivalry.
• The nature of costs in industry sectors


  If sectors of an industry have high fixed costs in that they are capital intensive, rivalry amongst competitors may become more intense as price-cutting becomes a way of filling capacity.
• The maturity of the markets served


  If the market is mature and thus only growing slowly competition is likely to be more intense than a market that is still growing vigorously.
• The degree of brand loyalty of customers


  If customers are loyal to brands then there is likely to be less competition and what competition there is will be non-price. If there is little brand loyalty then competition will be more intense.
• The degree of differentiation


  Where products can be easily differentiated rivalry is likely to be less intense whereas where differentiation is difficult rivalry is likely to be more intense.