Macro-Environmental & Industry Analysis

Macro-Environmental & Industry Analysis

1. Macro-Environmental

   • major societal forces which confront the organisation
   • Social demographic and cultural trends Technical changes Economic conditions Policy, laws and regulations
   • SWOT
     • Strengths
       • understand your business
       • address weaknesses
       • deter threats
       • capitalise on opportunities take advantage of your strengths
       • develop business goals and strategies for achieving them.
       • Low cost analysis
     • Weaknesses
       • doesn't prioritise issues
       • doesn't provide solutions or offer alternative decisions
       • can generate too many ideas but not help you choose which one is best
       • can produce a lot of information, but not all of it is useful.
   • STEP, PEST & PESTL
     • Strengths
       • Provides a simple and easy-to-use framework for your analysis
       • . Involves cross-functional skills and expertise.
       • Helps to reduce the impact and effects of potential threats to your organization
       • . Aids and encourages the development of strategic thinking within your organization.
       • Provides a mechanism that enables your organization to identify and exploit new opportunities.
       • Enables you to assess implications of entering new markets both nationally and globally
     • Weaknesses
       • Users can oversimplify the information that is used for making decisions.
       • The process has to be conducted regularly to be effective and often organizations do not make this investment.
       • Users must not succumb to ‘paralysis by analysis’ where they gather too much information and forget that the objective of this tool is the identification of issues so that action can be taken.
       • Organizations often restrict who is involved due to time and cost considerations. This limits the technique’s effectiveness as a key perspective may be missing from the discussions.
       • Users’ access to quality external information is often restricted because of the cost and time needed to collate it. Assumptions often form the basis for most of the data used, making any decision made based on such data subjective.
   • Scenario Analysis
     • Strengths
       • Avoiding poor investment, allows investors & businessess to assess a potential investment situation
       • Planning for the future, looks at expected return and expected risk
       • Avoiding risk, helps businesses maintain risk comfort level
       • Protecting a return on investment, gives a good idea if something is worth the time and money
     • Weaknesses
       • Forecasting technique, predictive

2. Industry Analysis

   • Each industry has a distinctive structure, structure and attractiveness of the industry shapes the nature of comp interaction, strategy is formulated from the understanding of a companys structure
   • Porters 5 forces
     • Assesses attractiveness/ profitability of different industries. Industry structure determines profit level in industry. Complements said to be a 6th force s
     • Threat of New Entrants
       • 7 barriers to entry: Supply side economies of scale and experience curve advantages Demand-side benefits of scale Customer switching costs Capital requirements Incumbency advantages independent of size Unequal access to distribution channels Restrictive government policy
     • Threat of Substitutes
       • The threat of substitution affects the competitive environment for the organizations in that industry and influences their ability to achieve profitability because consumers can choose to purchase the substitute instead of the industry’s product.
     • Threat of Suppliers
       • When do suppliers have power: It is more concentrated than the industry it sells to. Industry participants face switching costs in changing suppliers. Suppliers offer products that are differentiated. There are no substitutes to what the supplier group provides. The supplier group can credibly threaten to integrate forward into the industry. The supplier group does not depend heavily on the industry.
     • Bargaining power of customers
       • It is concentrated or purchases in volumes that are large relative to the size of a single vendor. The industry’s products are standard or undifferentiated. Buyers face few switching costs in changing vendors. Buyers have a credible threat of integrating backward to produce the industry’s product themselves if vendors are too profitable.
   • Strategic Groups
     • Organisations within an industry or sector that have common characteristics in terms of following similar strategies or similar bases of competition
       • Characteristics for identifying strategic groups include the SCOPE OF ACTIVITIES (e.g. product diversity, geographical coverage, number of market segments served, distribution channels) and the level of RESOURCE COMMITMENTS (e.g. number of brands, marketing effort, vertical integration, relative quality, technological leadership, firm size)
     • Strategic Group Analysis
       • Understanding Comp
         • effort can be focused on direct competitors rather than broadly across the industry. This can also help to better establish the CRITICAL SUCCESS FACTORS that determine success or failure within that group.
       • Analysis of Opportunities
         • strategic groups analysis can also identify ‘white spaces’ or ‘blue oceans’ to be exploited or, conversely, ‘black holes’ that are impossible to exploit.
       • Analysis of Barriers to mobility
         • moving to a new strategic group often requires significant investment to acquire or develop new resources and capabilities.

3. Macro-Environmental