BUSS1000 Chapter Notes - Chapter 3: Scenario Analysis, Scenario Planning, Switching Barriers
5 Jun 2018
School
Department
Course
Professor
Environment presents both opportunities and threats
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Highest level layer
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Government support for national carriers
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Security control
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Restrictions on migration
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Political
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PESTEL framework: identify key drivers of change
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Macro - environment:
Exploring Corporate Strategy: text and cases
Thursday, 22 March 2018
10:47 AM
Lecture Page 1
Restrictions on migration
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Natural growth rates
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Fuel prices
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Economic
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Rise in travel by elderly
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Student international study exchanges
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Social
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Fuel efficient engines and airframes
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Security check technologies
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Teleconferencing for business
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Technological
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Noise pollution control
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Energy consumption control
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Environmental
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Restrictions on mergers
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Legal
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technological develops can change economic factors (new jobs)
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Many factors are linked
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Scenarios = plausible alternative views of how the business environment of an organisation
might develop in the future
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Typically use PESTEL analysis and key drivers for change to forecast changes
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Scenario planning does not attempt to predict the unpredictable (only to consider)
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Managers evaluate and develop strategies for each scenario
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Monitor environment for changes and adjust strategies
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Building Scenarios:
Important to consider changes in industries that impact success of company strategies
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Industry = group of firms producing same principle product
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Sector = same service
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Managers must consider competitive forces in industry and sector
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Industries and Sectors
Originally developed to assess profit potential of different industries
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Competitive Forces: Michael Porter's Five Forces Framework for industry analysis
Lecture Page 2
Originally developed to assess profit potential of different industries
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Provide starting point for strategic analysis
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Threat of entry (into an industry )
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Threat of substitutes (to industry product/service)
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Power of buyers (of product/service)
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Extent of rivalry (between competitors)
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Five forces:
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When five forces are high --> industry is not attractive to compete in
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Which industry to enter or leave
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What influence can be exerted
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How competitors differently affected
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Implications:
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Choosing right industry
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Converging industries
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Complementary products (buy products together and are worth more to sell separately)
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Limitations:
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How easy it is to enter the industry influences degree of competition
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High barriers --> good for existing competitors (prevents new ones coming in)
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Amount of barriers to entry
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Scale and experience (EOS/experience)
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Access to supply or distribution channels (control over supply/ownership)
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Expected retaliation (from existing firms to prevent entry)
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Legislation/government action (patent protection)
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Differentiation (compared to competition)
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Barriers include:
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Threat of entry:
Substitutes = product/service that offer a similar benefit to an industry product/service by a
different process
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Can reduce demand for a product, customer switches to alternative
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Price/performance ratio = Substitute is still a threat even if more expensive, as long as it
offers performance advantage for customers value
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Extra industry effects = substitutes come from outside the industry, not be confused
with competitor threats within the industry
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Two points
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Threat of substitutes:
Customers/buyers can have high bargaining power that their suppliers cannot make a lot of
profits
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Concentrated buyers (few large customers account for majority of sales)
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Low switching costs (buyers can easily switch suppliers)
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Buyer competition threat (if buyer has/obtains facilities itself)
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Buyer power can be high from conditions prevailing:
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The power of buyers:
Suppliers = those who supply organisations with materials/equipment needed to produce
product/service
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Concentrated suppliers = few producers dominate supply
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High switching costs = expensive/disruptive to move to another supplier
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Supplier competition threat = suppliers have power where that can cut out buyers who
act as intermediaries
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Supplier power can be high if:
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Most organisations have multiple supplies to avoid threat
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The power of suppliers:
Competitive rivalry:
Lecture Page 3
Document Summary
Many factors are linked technological develops can change economic factors (new jobs) Scenarios = plausible alternative views of how the business environment of an organisation might develop in the future. Typically use pestel analysis and key drivers for change to forecast changes. Scenario planning does not attempt to predict the unpredictable (only to consider) Managers evaluate and develop strategies for each scenario. Important to consider changes in industries that impact success of company strategies. Industry = group of firms producing same principle product. Managers must consider competitive forces in industry and sector. Competitive forces: michael porter"s five forces framework for industry analysis. Originally developed to assess profit potential of different industries. When five forces are high --> industry is not attractive to compete in. Complementary products (buy products together and are worth more to sell separately) How easy it is to enter the industry influences degree of competition. High barriers --> good for existing competitors (prevents new ones coming in)
