Delfin, Norreen Jenn Y. AC303 Strategic Management BS ACCOUNTANCY Prof. Maridel Casas 1. Why must managers be aware of a firm’s external environment? One of the key roles of management is to keep the enterprise alive and as resilient as possible. In business survival, knowing the external environmental components is important. What if heavy rain is coming down and it cannot be handled by the sewage. It could mean that, due to lack of electricity or other water issues, activities are forced to halt. When management takes these external environmental elements into consideration, the ability to proceed or start up as soon as possible would undoubtedly be enhanced. In this way events will continue and the organization remains focused on its core operations. And if they are still extending this thinking about the well-being of their workers, they are really creating a resilient and productive environment. When management begins to learn about resilience, it can save a lot of money for the enterprise itself and its workers and create a more prosperous ecosystem. In certain cases, customers' trends and desires can be predicted by the external world, and managers must be able to identify market trends and adapt those observations to the business. If customers are becoming dissatisfied with the brand itself, becoming tired of competition (and thereby opening up future purchase power), searching for a different product, or creating new complaints about the reputation of the company, managers should understand the power of the customer to alter the company's economy. A population's sociocultural power will also affect the organization and managers can consider that. Generally, goods are aimed at a very particular sociocultural demographic, and each group's beliefs can evolve with time. Although a certain demographic may initially embrace the company's logo or goods, management should be in tune with the expectations and beliefs of this population to understand where those values may begin to change. 2. What is gathering and analyzing competitive intelligence and why is it important for firms to engage in it? Competitive intelligence, sometimes referred to as corporate intelligence, refers to the ability to gather, analyze, and use information collected on competitors, customers, and other market factors that contribute to a business's competitive advantage. Competitive intelligence (CI) lets firms understand their market and analyze rivals' strengths and disadvantages. By gathering and analyzing data about rivals, CI does this. CI improves the understanding of the external world of an organization, and is also helpful in strategic management choices. It is important to participate in competitive intelligence because it can help anticipate competitor trends, deter surprises, and decrease response time. Competitive knowledge is important because it allows organizations to consider their competitive climate and the challenges and problems it poses. In order to build reliable and productive market processes, companies evaluate data. Competitive intelligence collects actionable knowledge obtained effectively and ethically from numerous public and unpublished sources. Ideally, by cultivating an adequately comprehensive portrait of the marketplace, a company effectively utilizes strategic intelligence so that it can predict and adapt to threats and concerns before they emerge. Competitive intelligence transcends the simplistic "know your enemy" cliché. Instead it is a deep dive exercise, where companies reveal the finer points of the marketing plans of competitors, including the clients they serve and the markets in which they operate. CI frequently analyzes how competing firms are disrupted by a large spectrum of activities. It also shows how marketers and other stakeholders will be influenced, and it telegraphs how any belief can be invalidated easily by emerging technology. Competitive intelligence means different things to multiple entities and divisions within any organization. For example, it may refer to tactical advice on how best to bid for a lucrative contract with a sales representative. To top management, it can involve developing new marketing insights used against a daunting rival to capture market share. 3. Discuss and describe the six elements of the external environment. The 6 elements of the general environment are the demographic segment, the sociocultural segment, the political/legal segment, the technological segment, the economic segment, and the global segment. 1. Demographic segment refers to the statistics of a population, such as age, income characteristics, ethnic groups, and geographic distribution. 2. Sociocultural segment refers to the values, beliefs, and lifestyles of a country. 3. Political/Legal segment refers to the creation and use of power within a country, including the effect of various regulations, including the areas of environmental protection, employment discrimination protection, and taxes. 4. Technological segment refers to new products and services derived from advances in engineering, applied science, and/or pure science. These new products and services can change manufacturing processes, create new industries, and alter the boundaries between industries. 5. Economic segment refers to the level and change in monetary and macroeconomic factors such as unemployment, inflation, interest rates, and economic growth. 6. Global segment refers to effects on a country's business environment from abroad, and include factors such as competition, foreign market opportunities, foreign supply opportunities, legal changes due to international treaties, and regional economic integration. 4. Select one of these elements and describe some changes relating to it in an industry that interests you. Sociocultural segment: FASHION INDUSTRY. Usually, people try to emulate their favorite stars as they see these new models. To do so they are looking for the latest fashions to make themselves look like the people they want to be like: clothes, shoes, jewelry, etc. In this way over time, fashions continually change. The current trends in the fashion industry is the growing importance of Sustainability. Along with digitalization, sustainability is another important factor in the fashion industry. More customers are thinking about the future of the planet and are placing pressure on luxury companies that are not eco-friendly. The fashion apparel industry, especially over the last 20 years, has evolved significantly. In order to maintain a profitable position in the increasingly demanding market, the changing dynamics of the fashion industry have forced retailers to want low cost and flexibility in design, quality and market speed, key strategies. Since then the changing dynamics of the fashion industry, such as the fading of mass production, the increase in the number of fashion seasons, and modified structural features in the supply chain, have forced retailers to want low cost and flexibility in design, quality, delivery and market speed. 5. Describe how the five forces can be used to determine the average expected profitability in an industry. It is important for your business survival to know who your competitor is and how their goods, services and marketing tactics impact you. Porter's Five Powers model is one way to evaluate your market and consider your standing in your business. The five-force model looks at five unique variables that decide whether an organization will be successful in comparison to other firms in the field or not. In combination with a SWOT analysis, using Porter's Five Forces can help you understand where the market or organization fits into the industry landscape. Porter's Five Forces is called a macro method in market analytics, it looks at the economy of the industry as a whole, whereas a microanalytical tool is a SWOT analysis, focused on the data and analysis of a single organization. ‘’ Understanding the competitive forces, and their underlying causes, reveals the roots of an industry's current profitability while providing a framework for anticipating and influencing competition (and profitability) over time’’. A healthy industry structure should be as much a competitive concern to strategists as their company's own position. Each force can be seen as a way in which the business environment limits the ability of a company to earn profits by either raising prices or lowering costs. The threat of new entrants limits the ability of a company to increase prices because a new entrant may then decide to enter the sector and offer a lower price. Buyers' bargaining power directly limits the ability of a firm to raise prices. Suppliers' bargaining power directly limits the ability of a company to lower costs. The threat of substitute products and services limits the ability of a company to increase prices because the substitutes would then be purchased by customers. The level of competition in a market by rivals restricts the ability of a business to increase rates since a rival will then purchase consumers. 6. What are some of the limitations (or caveats) in using five-forces analysis? A widely used framework for analyzing industries is Porter's Five Forces model. It refers to the competitive influences that are likely to be successful in shaping corporate strategies. Over time, the framework has held up well and continues to be a staple of business class coursework. However, there are some blind spots that you should be mindful of. In its composition, the first is. It provides a snapshot of the wider industry at some point in the past, as a static model. This can be useful for informing short-term strategy, but by rapidly changing external factors, the window of applicability for the information coming from Porter's five forces has also been narrowed. These are trends like globalization and rapid technological advances that when Porter devised his framework were not as prominent. The other weakness is that a lot of individuals use the five forces of Porter in ways that were never intended. It is the most common mistake to try to apply Porter's five forces to a particular company rather than an industry as a whole. The five forces of Porter can provide information to illuminate strategic debates, but it is not an analysis tool for individual companies. Another challenge in applying Porter's five forces is to clearly define the sector. Depending on their business lines, firms can straddle multiple industries. They can't group businesses with similar lines of business and call it an industry. Instead, for each business line, Porter's five forces would be executed and then amalgamated. This is one reason why investors tend to frown on a business that is spreading too widely because it is difficult for businesses to succeed in so many different sectors. Lastly, paying equal attention to all five forces is the biggest mistake. There will be one or two forces for most sectors that outweigh all the others. Looking back at some of the industries that saw their Porter's five-force analysis shift drastically, it was stuff like deregulation or the fall of trade barriers that suddenly caused the threat of new entrants to spike. These external variables are not as explicit as they should be in the analysis of Porter's five forces. 7. Explain how the general environment and industry environment are highly related. How can such interrelationships affect the profitability of a firm or industry? The general environment can affect all of the 5 forces in various ways. A growing economy can reduce the intensity of rivalry within the industry because firms will be scrambling to meet growing demand. For any organization, the environment consists of the set of external conditions and forces that have the potential to influence the organization. It is useful to break the concept of the environment down into two components. General environment includes overall trends and events in society such as social trends, technological trends, demographics, and economic conditions while Industry environment consists of multiple organizations that collectively compete with one another by providing similar goods, services, or both. Any action made by a company, such as raising its costs or initiating a new plan, causes a degree of transition in the world around it. The bulk of businesses are limited to influencing their business. A few organizations wield such power and influence that they can shape some elements of the general environment. Overall, the environment has a far greater influence on most organizations than most organizations have on the environment. The major consideration for a business is the environment it surrounds. The environment is the center of services needed by organizations. It creates rewards and risks, and it impacts the different strategic choices that managers need to make. 8. Explain the concept of strategic groups. What are the performance implications? Strategic groups are groups of companies that share common objectives, typically within a market. The success effects are that businesses are willing to group themselves with near rivals. Additionally, it: 1) identify barriers between groups, 2) identify positions within the industry that are marginal or tenuous, and 3) chart directions for future strategic development. Strategic group analysis is a more finegrained way to conduct competitor analysis, as the competitive environment of an industry may differ from the competitive environment of the strategic group. Analyzing competitive groups, it becomes possible for a rival to dig into the past of decision-making. The data will then anticipate what the competition's next moves will be, allowing the company to be strategic in its reaction to such a move. It helps identify who the most direct competitors are and on what basis they compete. Raises the question of how likely or possible it is for another organization to move from one strategic group to another. These competing businesses with common competitive tactics and market shares are part of a strategic group. The identification of strategic categories within a market makes it easier to redefine the industry's competitive landscape and compare the tactics of different rivals for similarities and differences.
