7793304 external environment analysis

8/9/2019 7793304 External Environment Analysis

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SESSION 2


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Topics for discussion

Formulation of Strategy

Company Mission, Vision

Formulating a mission statement Social Responsibility

Analyzing the business environment

PEST

Industry level analysis

Porters industry analysis : Five forces model,game

theory, Theory of Complementarity


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Mission of a company sets apart a company from other

companies in the same area of business


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Vision

Mission

Objectives

Plans

Policies

Goals

Strategies andTactics

Stakeholders / founder

Top Management

Unit Together with the Top Management

Unit Manager with the approval of the

superior

Each Organizational level In conformity

with other unit policies

Individual Managers in conformity with

unit Policies

Individual Managers in conformity with

unit goals

Determined by

Organizational Direction


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VISION STATEMENT OF CARGILL

Our Purpose is to be the global leader in nourishing people

We will harness our knowledge and energy to provide goods

and services that are necessary for life, health and growth.Our mission is to create distinctive value

We will succeed in business only by creating value for our

customers, our suppliers, employees, shareholders and

neighbors. We will build stronger customer relations andcreate solutions: Explore, Discover, Create, Deliver.


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Our approach is to be trustworthy, creative and enterprising

We build customer relationships on integrity. We develop

solutions that our customers need. We are forward- thinking and

action oriented.

Our performance measures are : engaged employees, satisfied

customers, enriched communities and profitable growth

Engaged employees focus on satisfying customers and aecommitted to livable, sustainable communities. With

accomplishments, we enjoy the profitable growth necessary to

sustain performance over time.


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VISION

Vision comprises of two main components

Core ideology What we stand for and why we exist

Envisioned future what we aspire to become, to achieve, to

create

Characteristics:

The vision needs to be specific so that the scope of the

interpretations is minimized.It needs to be efficiently communicated effectively

It should try to streamline and correlate the personal

goals of the employees with the organizational goals to the

extent possible


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It differentiates the company from its competitors

It defines the business(es) that the company wants

to be in, not necessarily the one(s) it is in

It is inspiring

It is relevant to all the stakeholders in the firm, not

just stakeholders and managers

It attempts to ensure that the organization

behaves in the way that it promises it will by

defining the purpose for which the firm exists

It seeks to clarify the purpose of the organization

why it exists.

Characteristics of a good mission statement


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Amission statement usually attempts to answer the following

questions

What is our reason for being? What is our basic purpose

What is unique or distinctive about our organization?

Who are, or should be our principal customers, clients?

What are or what should be our principal economicconcerns?

What is likely to be different ( from the existing state) about

our business three to five years in the future?

What are the basic beliefs, values, aspirations and

philosophical priorities of the firm?

As the business grows the company may redefine its

mission statement


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KEY ELEMENTS OF A MISSION STATEMENT

Competitive arenas: the business and

geographic arenas where the company

will compete

View of the future

The anticipated regulatory,

competitive and economic environment

in which they compete

Source of competition advantage: the

skills that the company will

develop/leverage to achieve its vision;

a description of how the company

intends to succeed

Fundamental Intentions

A statement of the role thatcompany will seek to adopt:

a description of what the

company hopes to

accomplish as means to

gauge future success


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The indispensable components of a mission statement

The basic product

The primary market

Principal technology

Mission statement of Pfizer Inc.

We will become the worlds most valued company to

patients, customers, colleagues, investors, business

partners and the communities where we work and live.


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Company goals: indicate the desired future state that a

company attempts to realize.

To be meaningful the goals :

Should be precise and measurable

should address important issues

Should specify a time period in which they should beachieved

The goals

Should address both financial and non financial issues

Should facilitate reasonable tradeoffs

They can be reached through stretch

They cut across financial areas


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The company philosophy and values give a

framework / boundary for individual actions aimedat achieving corporate goals. It reflects the basic

beliefs, values, aspirations, guiding principles and

philosophical priorities that the strategic decision

makers are committed to emphasize in their

management of the firm.

The company philosophy of Sun Microsystems

we believe human development to be the worthiest

of the goals of civilization for nurturing growth in

the capabilities of people.


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Public Image

Johnson & Johnson products are regarded as safe

products

Sonys as quality products

Company self concept know itselfSocial Responsibility-

Economic must do

Legal have to doEthical should do

Discretionary might do


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INFOSYS:

Infosys foundation concerned with serving the

underprivileged in the society. It focuses on improving healthand education

Orphanages in Orissa

Free girls hostel etc

SUN MICROSYSTEMS:

Volunteer teams that work on issues such as the environment,

education, homeless and hunger.

Sun Microsystems Foundation Inc - an NPO

To act as a vehicle for the community investment efforts

Sun employees train teachers at schools to utilize efficiently

the grants received from the company


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Analyzing The Business

Environment


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ExternalEnvironment: consists of all the conditions

and forces that affect an organization's strategic options

and define its competitive situation

Operatingenvironment

Industry environment

Remote Environment

The three interactive segments of the ex

ternal environment


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EnvironmentalVariables

Internal Environment

Structure

Culture

Resources

Task Environment

Societal Environment

Socio-CulturalForces

EconomicForces

Political-legal

ForcesTechnological

Forces

Suppliers

Employees

Labor unions

Competitors

Trade Associations

CommunitiesCreditors

Customers

Social Interest

Groups

Government

Shareholders


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RemoteBusiness

Operational


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ExternalEnvironment

PoliticalEnvironment

Antitrust laws,Fair trade decisions, Pollution and

Pricing policies, Administrative activities and many other

activities aimed at protecting the consumers and the local

environment

The political activities also influence

The supplier function

The customer function

The competitor function


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Economic Environment

Crucial Macroeconomic trends that need to be taken into

consideration : GNP, General availability of credit, the

level of disposable income and the propensity to spend at

national and international levels

SocialEnvironment

Changes in values, beliefs, attitudes, opinions and

lifestyles increasing women at work

The cultural, demographic, religious, educational and

ethnic conditioning of individuals


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TechnologicalEnvironment

Factors related to materials and machines

used for manufacturing goods and services

Cost of technologyRate of change of technology

Receptivity to new technology

Technological innovations


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Industry level analysis


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Porters Industry analysis: Five forces model

Industry competitors

Rivalry among existing

firms

Potential entrants

Suppliers Buyers

Substitutes

Bargaining power

of suppliersBargaining power

of powers

Threat of

substitute products

or services

Threats from new

entrants


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Threat of new entrants

Barriers to entry

Economies of scale

Product differentiation

Capital requirements

Cost disadvantages independent of size

Access to distribution channels

Government policies

Intensity of rivals

Number and size

Exit barriers to the loyalty of the old players to the industry

despite low returns


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The bargaining power of buyers

The buyers are powerful under the following circumstances

when the suppliers are many and the buyers are a few and

largeWhen the buyers purchase in large quantities

When the suppliers industry depends on the buyers for a

large percentage of its total orders

When the buyers can switch orders between supply

companies at a low cost, thereby playing companies off

against each other to force down prices


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When it is economically feasible for the buyers to

purchase the input from several companies at a time

When the buyers can use the threat to provide for

their own needs through vertical integration as a

device for forcing down prices


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The bargaining power of suppliers

When the product that they sell has few substitutes and isimportant to the purchasing company or buyer

When no single industry is a major customer for the suppliers

When products in the industry are differentiated to such anextent that they are not easily substitutable and its costly for a

buyer to switch from one supplier to another

To raise prices, the supplier can use the threat of vertically

integrating forward into the industry and competing directly

with buying company.

The buyer companies cannot use the threat of vertically

integrating backward and supplying their own needs as a

means to reduce input prices


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Example : Intel worlds largest manufacturer

of microprocessors manufacturers of personal

computers are dependent on the single largestsupplier of of computer chips

Threat of substitute products

Coffee tea soft drinks


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Game theory

Elements of a game:

Players: rival companies

Actions: choices available

Information

Strategies: guidelines that tell the decision maker

which action to choose at each point of the game

Outcomes: results such as price wars

Payoffs : potential benefits

Equilibria: stable result which need not always be

beneficial


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AssessingAnother players likely behavior

analyzing the game through the other

players eyes

Techniques

Fishbowl

Red team / blue team

Future mapping


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Concept ofComplementarity

Two variables in addition to five factors

Import competitionMultimarket contact


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The Value net by Braden burger and Nalebuff

Customers

Competitors ComplementorsCompany

Supply

7793304 external environment analysis

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