Environmetal Analysis
Profound understanding of the competitive environment is critical ingredient of a successful strategy. It helps the industry to uncover opportunities and threats, provides information about the nature of competition, reveals options for collaboration, and helps us design more effective strategies.
Two types of environment
- Business or general or macro environment
-Industry environment The business environment of the firm consist of all the external influences that affects its decision and performance.
Environmental influences can be classified into political, economic, social and technological , environmental and legal factors (“PESTEL”) . Continuous scanning of the whole range of external influences might seem desirable but such extensive environmental analysis incurs high cost and creates information overload. The prerequisites for effective environmental analysis is to distinguish the vital from merely important. To do this let us return to the first principles. For the firm to make profit it must create value for customers. Hence, it must understand its customers. Second, in creating value the firm acquires goods and services from suppliers. Hence, it must understand its suppliers and manage relationship with them. Third the ability to generate profitability depends on the intensity of competition. Hence, the firm must understand completion.
Thus, the core of the firms’ business environment is formed by its relationship with three sets of players: customers, suppliers and competitors. This is industry environment. The starting point for industrial analysis is a simple question: what determines the level of profit in an industry? The profit earned by the firms in an industry are thus determined by three factors:
- the value of the product to customers
- the intensity of competition
- the bargaining power of producers relative to their suppliers and buyers. Analysing industry attractiveness The basic premise that underlies
Two types of environment
- Business or general or macro environment
-Industry environment The business environment of the firm consist of all the external influences that affects its decision and performance.
Environmental influences can be classified into political, economic, social and technological , environmental and legal factors (“PESTEL”) . Continuous scanning of the whole range of external influences might seem desirable but such extensive environmental analysis incurs high cost and creates information overload. The prerequisites for effective environmental analysis is to distinguish the vital from merely important. To do this let us return to the first principles. For the firm to make profit it must create value for customers. Hence, it must understand its customers. Second, in creating value the firm acquires goods and services from suppliers. Hence, it must understand its suppliers and manage relationship with them. Third the ability to generate profitability depends on the intensity of competition. Hence, the firm must understand completion.
Thus, the core of the firms’ business environment is formed by its relationship with three sets of players: customers, suppliers and competitors. This is industry environment. The starting point for industrial analysis is a simple question: what determines the level of profit in an industry? The profit earned by the firms in an industry are thus determined by three factors:
- the value of the product to customers
- the intensity of competition
- the bargaining power of producers relative to their suppliers and buyers. Analysing industry attractiveness The basic premise that underlies