BUSINESS MANAGEMENTENVIRONMENTAL MODELS

PESTEL Shows macro-environmental influences

that might affect organization Political: government stability, taxation

policy, foreign trade regulations, social welfare policies

Economic: business cycles, GNP trends, interest rates, money supply, inflation, unemployment, disposable income.

Socio-cultural: population demographics, income distribution, social mobility, lifestyle changes, attitudes to work and leisure, consumerism, levels of education.

PESTEL Technological: govt spending on

research, govt and industry focus on technological effort, new discoveries & developments, speed of technology transfer, rates of obsolescence.

Environmental: EPLs, waste disposal, energy consumption

Legal: competition law, employment law, health and safety, product safety

5 FORCES This framework helps identify the

sources of competition in an industry or sector:

Forces strong – profits are weak Forces weak – profits are strong THREAT OF ENTRY: economies of scale,

capital requirement, access to supply or distribution channels, customer or supplier loyalty, experience, expected retaliation, legislation or government action, differentiation

5 FORCES THREAT OF SUBSTITUTES: e-mail substitutes

postal service, travel substitutes, product substitutes eye glasses, lenses, laser treatment, herbal medicine, medicine free way of life.

POWER OF BUYER OR SUPPLIER: (buyer power) volume purchase, cost of switching, threat of acquiring the supplier (supplier power) few suppliers, switching cost high, competing directly with buyers

RIVALRY: competitors: offer similar products to similar markets, more competition less profit, low growth affects profits, price wars, low differentiation.

PORTER’S DIAMOND Competitive environment will differ

between countries. Some nations are more competitive

than others. The determinants of national

advantage:

Demand Conditions

Firm Strategy, structure,

rivalry

Related & Support

Industries

Factor Conditions

PORTER’S DIAMOND Factor conditions: human resources, physical

resources, knowledge, capital, infrastructure. Home demand conditions: Japanese

customers high expectations of electronic equipment provided impetus for those industries in Japan.

Related and Support Industries: one successful industry may lead to advantage in related and support industry. Italy: leather foot wear, leather machinery, design services. Singapore, port services, ship repair services. Pakistan, textiles, cotton, ginning, weaving.

PORTER’S DIAMOND Firm strategy, industry and rivalry:

bases of advantage. Germany: systematic, hierarchical processes, contributed to reliability and technical excellence in engineering industries. Domestic rivalry: Pharmaceutical industries in Switzerland.

SCENARIO PLANNING Scenarios are detailed and plausible

views of how the business environment of an organization might develop in the future based on groupings of key environmental influences and drivers of change about which there is a high level of uncertainty.

When environment has high level of uncertainty due to complexity or rapid change

SCENARIO PLANNING Approach to understand the future

impact of the environment 10 years, 20 years or even more Predicting plausible futures Improves organizational learning How environment unfolds and influences

strategies

SCENARIO PLANNING Key drivers for change: Market globalization: similar needs, global

customers, transferable marketing Cost globalization: scale economies,

sourcing efficiencies, country specific costs, high product development costs

Globalization of competition: interdependence, competitors global, high exports/imports

Globalization of govt policies: trade policies, technical standards, host government policies

PAST PAPER QUESTIONS ON BUSINESS ENVIRONMENT

WINTER 2012Q. 1. Identify and explain briefly four

factors which HEL should monitor closely to anticipate the emerging business environment in which it operates and its impact in the formulation of its Strategic Plans. (10)

Ans : - Demand for products, technological changes, threat of new entrants, rivalry among competitors, diversification

WINTER 2011Q.5 (a) Explain what is meant by Scenario Planning.

(03 marks)

Scenario Planning is a technique which involves the process of identifying alternative scenarios in the future, and on the basis of different assumptions that the strategists may anticipate in the future, formulate corporate strategy. The process enables the company to realign its corporate strategy quickly in changing business conditions. The purpose is to avoid formulating corporate strategy on the basis on a single future outcome which may not materialize.

SUMMER 2011Q.2 (a) Identify the force of competition which is

relevant in the context of Michael Porter’s FiveForces Model of Competition in each of the

scenarios presented below. Substantiate youranswer by highlighting the salient features of

the Model of Competition selected by you ineach of these scenarios.(i) Four companies of similar size and strength

are engaged in the manufacture of detergent powder for washing clothes. These companies are key market players and jointly share 95% of the aggregate market which is not expected to witness any significant growth in the foreseeable future.

SUMMER 2011(ii) Soundhealth Pharmaceuticals and Goodcare

Pharmaceuticals are manufacturers of two new medicines for treatment of cancer. The medicines have been developed after a long period of research at a very substantial R&D cost and are highly effective. Both the existing manufacturers are earning exceptionally high profits in a market which is expected to witness growth in the future.

(iii) Lucky Coal Mines Limited is the sole supplier of coal to a cement plant located in close proximity to the mines. The cement plant requires substantial quantities of coal for firing of its kilns. Quality of this coal is most suitable for the cement plant and also cost effective due to low transportation costs. Lucky Coal Mines has several buyers who are willing to purchase the coal because of its high calorific value. (09 marks)

WINTER 2010 Q.2 List and explain briefly four factors

which in your opinion create Exit Barriers and prevent existing participants from quitting a loss-incurring industry. (08 marks)

SUMMER 20103(b) According to Michael Porter the

nature of competitiveness in any industry is a composite of Five Forces. The Competitive Analysis model developed by Porter is widely followed for formulating business strategies in many industries. List the five Competitive Forces stated by Michael Porter. (05)