GVSU MGT 495 Quiz #3

External Environment

The External Environment

comprises all the external factors and forces that have the potential to influence its performance. Is dynamic and complex, encompassing a range of influences from societal trends to competitive pressures. Understanding the external environment is crucial for organizations as it helps in identifying opportunities and threats, thereby guiding strategic decision-making.

General Environment (Macroenvironment)

This includes overall societal trends and events such as social, technological, demographic, and economic conditions. These factors are typically beyond the control of individual organizations but can have significant impacts on their operations.

Industry Environment (Competitive Environment)

This consists of organizations that collectively compete by providing similar goods or services. The industry environment is more specific to the organization’s immediate competitive landscape and includes direct competitors, suppliers, customers, and potential new entrants.

Why Does the Environment Matter?

Resource Provision, Opportunities and Threats, Strategic Decision-Makin

Resource Provision

The environment provides essential resources that organizations need to create goods and services. These resources can include raw materials, labor, capital, and technology.

Opportunities and Threats

The environment is a source of both opportunities and threats. Opportunities arise from favorable external conditions that can be exploited to achieve competitive advantage. Threats, on the other hand, stem from unfavorable conditions that can hinder an organization's performance.

Strategic Decision-Making

Environmental trends and events shape the strategic decisions made by executives. Understanding the environment helps leaders to anticipate changes, align their strategies accordingly, and steer their organizations toward success.

Level of Analysis

General Environment, Industry Environment, Competitor Environment

General Environment

This focuses on the broader societal factors that affect an organization. It includes trends and events that influence industries and organizations over the long term.

Industry Environment

This is concerned with the specific competitive pressures within an industry. It includes the dynamics between competing firms, suppliers, buyers, potential new entrants, and substitute products.

Competitor Environment

This focuses on the actions, intentions, and responses of competitors. Understanding competitors' strategies and predicting their future moves are essential for maintaining a competitive edge.

Focus of Analysis

Future Orientation, Factors Influencing Profitability, Competitor Dynamics

Future Orientation

Analyzing trends and projecting future changes help organizations to prepare and adapt proactively.

Factors Influencing Profitability

Understanding the forces that affect profitability within an industry can guide strategic decisions to enhance competitive advantage.

Competitor Dynamics

Predicting competitors' actions and responses is critical for developing effective strategies.

Process of Analysis

Scanning, Monitoring, Forecasting, Assessing

Scanning

Identifying early signals of environmental changes and trends through systematic information gathering. This step involves tracking and monitoring a wide range of sources for relevant data.

Monitoring

Detecting meaning through ongoing observations. This involves analyzing the gathered data to understand the significance of observed changes and trends.

Forecasting

Developing projections based on monitored changes and trends. This step involves predicting future conditions and their potential impacts on the organization.

Assessing

Determining the timing and importance of environmental changes for a firm’s strategies and management. This final step involves evaluating how these changes might affect the organization and deciding on the necessary strategic actions.

Outcome of Analysis

Opportunities and Threats

Opportunities

These are favorable conditions in the general environment that, if exploited effectively, can help an organization achieve strategic competitiveness. For instance, a new market opening up due to technological advancements represents an opportunity.

Threats

These are unfavorable conditions that may hinder an organization’s efforts to achieve strategic competitiveness. For example, new regulatory policies that increase operational costs pose a threat to profitability.

How can the general environment be analyzed?

the most comprehensive away is the PESTEL-G analysis

Political Segment

Centers on the role of governments in shaping business through policies, regulations, and trade agreements. Example: Changes in trade restrictions or tariffs can impact the cost of importing goods for a manufacturing company.

Economic Segment

Focuses on the economic conditions within which organizations operate, such as inflation, interest rates, and economic growth. Example: A high inflation rate can reduce consumer purchasing power, affecting retail sales.

Social Segment

Includes demographic trends (population size, age structure) and cultural trends (attitudes towards health, work-life balance). Example: An aging population might increase the demand for healthcare services.

Technological Segment

Concerns improvements in products and services through scientific advancements and innovation. Example: The growth of the internet and mobile technologies has transformed the way companies interact with customers.

Environmental Segment

Involves the physical conditions within which organizations operate, including climate change and sustainability concerns. Example: Increasing concerns about environmental sustainability can lead to stricter regulations and higher costs for companies in polluting industries.

Legal Segment

Centers on the legal framework within which businesses operate, including employment laws, health and safety regulations, and antitrust laws. Example: New consumer privacy laws can require significant changes in how companies handle customer data.

Global Segment

Includes relevant global markets, international political events, and cultural and institutional characteristics of global markets. Example: Political instability in a key market can disrupt supply chains and impact business operations.

Key Factors of the Political segment

Stability of Governments, Changes in Trade Restrictions and Tariffs, Tax Policies, Lobbying

Key Factors of the Economic Segment

Market Growth Rates, Consumer Demand, Inflation and Interest Rates, Trade Deficits or Surpluses, Budget Deficits or Surpluses

Key Factors of the Socio-Demographic Segment

Population Size, Age Structure, Geographic Distribution, Ethnic Mix, Income Distribution

Key Factors of the Socio-Cultural Segment

Attitudes and Approaches to Healthcare, Attitudes about Quality of Work Life, Diverse and Aging Workforce, Women in the Workplace, Environmental Concerns, Shifts in Work and Career Preferences, Shifts in Product and Service Preferences

Key Factors of the Technological Segment

Product Innovations, Rapid Technological Change and Disruption, Knowledge Application, Growth of the Internet, New Communication Technologies

Key Factors of the Environmental Segment

Sustainable Practices, Climate Change, Ecological and Social Interactions, Corporate Social Responsibility (CSR)

Key Factors of the Legal Segment

Employment Laws, Consumer Privacy Laws, Health and Safety Laws, Antitrust and Deregulations Laws

Key Factors of the Global Segment

Geopolitical Trend, Global Niche Markets, Growth of the Informal Economy, Cultural and Institutional Differences, Global Focusing

What is Industry?

a group of firms producing products that are the same or similar.

What is one of the most popular tools for analyzing the industry environment

Michael Porter's Five Forces

Michael Porter's Five Forces

Intensity of Rivalry Among Competing Firms, Threat of New Entrants, Bargaining Power of Buyers, Threat of Substitute Products, Bargaining Power of Suppliers

Intensity of Rivalry Among Competitors

Number of Competitors, Fixed Cost, Effectiveness of Product Differentiation, Buyer Switching Costs, Exit Barriers

Threat of New Entrants: Barriers to Entry

Investment in Production Processes, Effectiveness of Existing Product Differentiation, Importance of Proprietary Knowledge, Buyer Switching Cost, Incumbents’ Control of Distribution Channels

Threat of Substitute Products

Consumer's Switching Costs, Cost of Substitute Product Relative to Industry's Product, Quality of Substitute Product Relative to Industry's Product, Utility of Substitute Product Relative to Industry's Product, Rate of Improvement in Price-Performance Relationship of Substitute Products: Rapid improvements in substitutes increase the threat.

Bargaining Power of Suppliers

Number of Suppliers Relative to Industry Incumbents, Importance of Customer to Supplier, Differentiation of Suppliers' Products/Services, Switching Costs Incurred by Industry Incumbents, Threat of Forward Integration by Suppliers

Bargaining Power of Buyers

Number of Buyers Relative to Industry Incumbents, Purchase Volume of Buyers, Effectiveness of Industry Incumbents' Product Differentiation, Threat of Backward Integration by Buyers, Switching Costs Incurred by Industry Buyers