Are these Issues…. Local/global certain/uncertain simple/complex ? Who do they affect…. Suppliers Competitors ? Do these issues represent opportunities or threats or both? The automobile industry Social (count. ) – The ethical consumer – Aging population Environmental – Increased awareness of environmental issues concerning waste and carbon footprint Technological – Demand for alternative fuels – Advances in manufacturing – The drivers car Legal Don’t memories this. Its Just for illustration – Employment law – Environmental regulations PESTLE – it that simple?
How do you Judge certainty? How do I know Vive thought of everything? What is most/least important? Does the organization have the power to control any of the PESTLE issues? ; The issues aren’t separate – they are interconnected, but how? Current/future trends that look like opportunities threats 2 What does a pestle tell me? Opportunities Threats Increasing markets Declining markets New ways of improving efficiency Increasing costs Obsolesces caused by new technology Remember.. You decide. PESTLE issues affect all organizations within a particular industry or sector, but….
Who is best equipped to deal with the environment?? Industry analysis “The intensity of competition in an industry is neither a matter of coincidence nor bad luck. Rather, competition in an industry is rooted in its underlying economic structure and goes well beyond the behavior of current competitors. ” (Porter, 1980:3) 3 Porter’s Five-Forces model To help understand the attractiveness of an industry Bargaining power Will it be easy to make a profit? Potential Entrants xix Barriers to entry Competitive Rivalry Buyers Substitutes porter (1980) From the horse’s mouth…
The five competitive forces that shape strategy Porter’s Five Forces: Threat of entry / Barriers to entry Capital requirement / start-up costs Economies of scale Experience curve Access to distribution channels Government barriers Likelihood of retaliation allows prices to go higher 4 Bargaining Power of buyers/suppliers ; Relative concentration ; Relative importance of product ; Credible threat of vertical integration (backwards or forwards) ; Control of information ; Switching costs High supplier power puts upwards pressure on costs High buyer power puts downwards pressure on prices
Porter’s Five Forces: Threat of substitutes – Product for product substitution Existence of substitutes puts downwards – Substitution of need Does not include direct competitors – Generic substitution Competitive Rivalry Will be high if…. Several equally strong players Mature market High fixed costs High competitive Rivalry reduces Little differentiation profit High exit barriers 5 Porter’s Five Forces: general points ; Use at business level – NOT corporate level.
You need a separate analysis for each industry. ; What is the industry? This is a particularly tricky issue. Where are the boundaries? Can be used by firms already in the industry or by firms deciding whether to enter ; Assumes that the structure of an industry determines conduct , which determines performance (SSP). This view has been challenged by the ‘resource based view of the firm.
Criticisms of Porter’s Five Forces ; It assumes that structure determines conduct which determines performance ; This is assuming that positioning ‘correctly within an industry is the key to success ; However, these ‘positions’ are generic and therefore obvious to competitors ; It ignores the issue of complements (the sixth force) There are many exceptions to the rule that industry matters more than resources Widely debated – can you find more Criticisms?
PESTLE – practical tips Some issues fit into more than one category Think about the potential impact Only include ‘realistic’ issues On the other hand – weak signals Be careful about technological issues 6 Five Forces – practical tips ; It is difficult to get ‘insider’ information such as suppliers so you need to make inferences ; You need to look for clues to high competitive rivalry such as price wars, takeovers, falling sales, overcapacity…. (supermarkets? ; Are firms actually competing? – sometimes they avoid each other on purpose.
