BUSS1000 Lecture Notes - Lecture 3: Coopetition, Hubris, Electronic Waste
28 May 2018
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WEEK 3: THE EXTERNAL ENVIRONMENT
LAYERS OF THE BUSINESS ENVIRONMENT:
• Macro Environment: highest layer, factors impact all orgs to some degree
o PESTLE: long term focus
§ Allows for EXTERNAL shocks that may occur regularly
§ To identify “key drivers of change”
§ Elements:
• Political: stability, rent-seeking, activism
• Economic: IR, inflation, cost of key inputs,
disposable Y, UE
• Social: consumer preferences, cultural shifts, demographic structure
• Tech: communication, info, physical, transport infrastructure
• Legal: consumer laws, competition laws
• Environmental: resources, weather, seasonality
§ Limitations:
• Not industry, sector or segment analysis = very broad view
• Not internal analysis
• Broad = lots to cover à no specific relevance to the company/industry
• Some shocks are hard to anticipate
o Case Study: Nintendo (USA)
§ P: Trump (satisfaction, policies e.g. internal production), isolationism (national sentiment), Trans-Pacific Partnership (TPP)
§ E: disposable income has been stable in US, TPP
§ S: Americans working more hours = travel time (reduce leisure time)
§ T: Moore’s Law (power of tech), 73% US citizens online every day = increased use
§ L: potentially loosening regulations around e-waste, rules shifting (ways people are employed – overtime, sick leave etc.)
§ E: climate change, e-waste increasing
• Industry/Sector: all orgs that produce the same G+S
o Define industry boundaries by identifying relevant market, ability to substitute G+S, geo. boundaries
o Porter’s 5 Forces: a way of assessing the attractiveness (profit potential) of different industries
§ Competitive Rivalry:
• No. competitors
• Quality differences
• Switching costs
• Customer loyalty
§ Threat of New Entry:
• Time + cost of entry
• Specialist knowledge
• Economies of scale
• Tech protection
• Barriers to entry
§ Buyer Power:
• No. customers
• Size of each order
• Differences b/w
competitors
• Price sensibility
• Ability to substitute
• Cost of changing
§ Supplier Power:
• No. suppliers
• Size of suppliers
• Uniqueness of service
• Ability to substitute
• Cost of changing
§ Threat of Substitution:
• Substitute performance
• Cost of change
§ E.g. Nintendo (USA)
• Threat of new entry (Microsoft, Sony etc.) à medium to lower power
o Market is difficult to enter (saturated, strong competitors (oligopoly))
• Suppliers: existing agreements w/ orgs à medium to low power
• Buyers: switching costs, loyal followers, cost of game + console à high power
• Substitution: external firms etc. à medium to high power
§ Criticisms:
• Defining the right industry
• Converging industries
• Complementary products
• Assumptions may not always hold
• Sometimes blind to dynamics of markets
• Power and threats not so useful for entrepreneurial firms
• Competitors: layer closest to organisation, within an industry/sector
