Transcript The Competitive, Technological, Political, and Social

The Competitive,
Technological, Political,
and Social-Cultural
Environment
Learning outcomes
 By studying this section students will be able to:
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describe and analyse an organization’s competitive
environment
describe and analyse an organization’s
technological environment
describe and analyse an organization’s political
environment
describe and analyse an organization’s
sociocultural environment
The external environment
 The main factor that affects most business is the
degree of competition – how fiercely other
businesses compete with the products that another
business makes.
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The other factors that can affect the business are:
Social – how consumers, households and communities
behave and their beliefs. For instance, changes in
attitude towards health, or a greater number of
pensioners in a population.
Economic – how the economy affects a business in
terms of taxation, government spending, general
demand, interest rates, exchange rates and global
economic factors.
The external environment
 Political – how changes in government policy
might affect the business e.g. a decision to
subsidise building new houses for the poor in
several areas could be good for construction
industry.
 Technological – how the rapid pace of change
in production processes and product innovation
affect a business.
 Ethical – what is regarded as morally right or
wrong for a business to do. For instance should
it trade with countries which have a poor record
on human rights.
The competitive environment
 In his book Competitive Strategy (1980),
Porter proposes the following model (‘the
five forces’) for investigating the
competitive environment:
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1 the threat of entrants
2 the power of suppliers
3 the power of consumers
4 the threat of substitutes
5 competitive rivalry
Forces Driving Industry Competition
New
Entrants
Threat of new entrants
Bargaining power
of suppliers
Industry Competitors
Bargaining power
of buyers
Buyers
Suppliers
Rivalry Among
Existing Firms
Threat of substitute
products or services
Substitutes
Issues in Defining an Industry
 What part of the industry corresponds to our firm’s
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goals?
What are the key ingredients of success in that part of
the industry?
Does our firm have the skills needed to compete in that
part of the industry?
Will the skills enable us to seize emerging opportunities
and deal with future threats?
Is our definition of the industry flexible enough to allow
necessary adjustments to our business concept as the
industry grows?
Variables in Identifying Competitors
 How do other firms define the scope of their
market?
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The more similar the definitions of firms, the more likely the
firms will view each other as competitors
 How similar are the benefits the customers derive
from the products and services other firms offer?
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The more similar the benefits, the higher the level of
substitutability between them
 How committed are other firms to the industry?
• To size up commitment of potential competitors to industry,
reliable intelligence data are needed concerning potential
resource commitments
Common Mistakes in Identifying
Competitors
 Overemphasizing current and known
competitors while ignoring potential entrants
 Overemphasizing large competitors while
ignoring small ones
 Overlooking potential international competitors
 Assuming competitors will continue to behave
in same way
Common Mistakes in Identifying
Competitors (contd.)
 Overemphasizing competitors’ financial resources,
market position, and strategies while ignoring their
intangible assets
 Assuming all firms in industry are subject to same
constraints or are open to same opportunities
 Believing purpose of strategy is to outsmart
competition, rather than satisfy customer needs
The technological environment
 Technological change offers two key
opportunities for leisure and tourism
organizations.
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First it can lead to cost reductions Second,
technology can provide new products and
markets
 However, technological change also
poses threats where existing products
become obsolete in the face of new
developments.
Effect of technology on LRAC
The technological environment
 What are the
opportunities and threats
in the technological
environment for airlines?
The political environment
The political environment includes all laws,
government agencies, and lobbying groups
that influence or restrict individuals or
organizations in the society.
The sociocultural environment
 Sociocultural factors include the make-up of society, for
example in terms of its
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population structure
levels of education
social class
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In societies where classes exist, one's class is determined
largely by:
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* personal or household per capita income or wealth / net
worth, including the ownership of land, property, means of
production, etc.
* occupation
* family background
Attitudes of customers towards products and services
The End