1 Bruce Bowhill University of Portsmouth ISBN: © 2008 John Wiley & Sons Ltd.

Chapter 14 Strategic Analysis – the External Environment © 2008 John Wiley & Sons Ltd.

3 Appraisal of the general or macro- environment – PESTEL analysis Competitor analysis – Porter’s five forces model Market analysis The above analysis can lead to the identification of key external threats and opportunities facing the organisation © 2008 John Wiley & Sons Ltd.

4 Appraisal of the general or macro- environment – PESTEL analysis –Political –Economic –Social –Technological –Ecological –Legal © 2008 John Wiley & Sons Ltd.

5 Competitor analysis – five forces model –The intensity of the rivalry or existing competitors –The threat of potential entrants to the market –The bargaining power of suppliers of raw material to the organisation –The bargaining power of buyers of the organisation’s products and services –The threat of substitute products being developed and introduced to the market © 2008 John Wiley & Sons Ltd.

6 The five forces analysis will help an organisation decide whether it wishes to enter, expand or leave a particular market segment due to the pressures from other organisations and people – suppliers, buyers, existing and potential competitors (with existing or possible substitute products and services). Weak competitive forces will indicate that an organisation may be able to exploit a market opportunity. Strong competitive forces and a market segment will be less attractive. © 2008 John Wiley & Sons Ltd.

7 An organisation would like to operate in an environment where there are weak competitive forces : - Little existing competitive rivalry. -There are high barriers to entry and few potential entrants to the market segment. - Suppliers of raw materials have weak bargaining power. -Buyers of the products or services of the organisation have weak bargaining power. -There is a low threat of substitute products being used © 2008 John Wiley & Sons Ltd.

8 Market analysis This analyses consumers into market segments and then tries to understand the needs of each market segment. This can help in deciding on the product attributes that should be promoted Characteristics of people Purchase /use situation User needs and preferences for product characteristics © 2008 John Wiley & Sons Ltd.

9 Airline industry for the business market segment Characteristics - business travellers are predominantly wealthy, male and middle-aged. Use situation – business trips can be short-haul e.g. day trips or long-haul User needs – for short haul a key attribute is reliability. For long-haul also require a high class cabin service; separate lounges at airports etc © 2008 John Wiley & Sons Ltd.

10 Airline industry for the leisure market segment Characteristics – Different at different ages, life cycle stage, family size Use situation – Increasing demand for holidays on both short-haul and long-haul User needs – for short haul a key attribute is price. For long-haul price is important though some evidence of a demand for premium economy © 2008 John Wiley & Sons Ltd.

11 Identifying threats and opportunities Analyse the environment – i) general environment, ii) competitors, iii) market segments in order to identify: –Opportunities in the environment – changes in the external environment that might help to advance the organisation –Threats in the environment – changes that may destabilize the organisation © 2008 John Wiley & Sons Ltd.