1. 10.1 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Understanding Organisational Context 2e Slides by Claire Capon Chapter 10 The competitive environment Environmental linkages Assessing the nature of competition Competitive strategies

2. 10.2 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Environmental linkages Within-to-within linkages Outside-in and inside-out linkages Outside linkages

3. 10.3 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Figure 10.2 Environmental linkages Source: Based on Emery, F E and Trist, E L (1965) ‘The causal texture of organisational environments’ in Human Relations 18: 21–32.

4. 10.4 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Within-to-within linkages Within-to-within linkages are internal dependencies Internal dependencies can be co-operative or confrontational in nature

5. 10.5 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Outside-in and inside-out linkages Outside-in and inside-out linkages are called transactional dependencies

6. 10.6 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Outside-in and inside-out linkages Transactional dependencies are: - links in and out of the organisation - the dependencies between the organisation and its external environment

7. 10.7 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Outside linkages Outside linkages are called causal textures and are linkages or dependencies which are external to the organisation

8. 10.8 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Outside linkages Causal textures are concerned with the cause and effect relationships between elements or bodies in an organisation’s external environment

9. 10.9 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Assessing the nature of competition The five forces of competition

10. 10.10 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Figure 10.3 The five forces that determine industry profitability Source: Reprinted with the permission of The Free Press, a division of Simon & Schuster, from Competitive Advantage: Creating and Sustaining Superior Performance by Michael E Porter. Copyright © 1985 by Michael E Porter.

11. 10.11 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Questions - threat of new entrants Which companies are potential entrants to the industry? Which industries are potential new entrants currently operating in?

12. 10.12 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Answers - threat of new entrants The threat of new entrants will be greatest if the industry is attractive

13. 10.13 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Answers - threat of new entrants An attractive industry has: -no high capital set-up costs - market growth - a sufficient customer base to support new entrants - good profit opportunities

14. 10.14 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Questions - threat of substitute products Which industry provides present and potential substitutes? What is the impact of substitutes on the company and the industry?

15. 10.15 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Answers - threat of substitute products Substitute products and services will be a threat if: - customers perceive them to perform the same function - they offer better value for money

16. 10.16 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Questions - buyers and buyer power Who buys the company’s products and services? How powerful are the buyers with regard to the company?

17. 10.17 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Answers - buyers and buyer power Buyers are powerful if: - alternative sources of supply exist - they exercise their power and shop around

18. 10.18 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Questions - suppliers and supplier power Who supplies the company’s inputs? How powerful are the suppliers with regard to the company?

19. 10.19 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Answers - suppliers and supplier power Suppliers are powerful if: - there are few suppliers - the cost of switching from onesupplier to another is high

20. 10.20 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Competitive strategies Decision 1: - is competition to be based on cost/price or added value? Decision 2: - is a broad or narrow target market to be served?

21. 10.21 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Competitive strategies The competitive strategies which arise from decisions 1 and 2 are: - cost leadership - differentiation - cost focus - differentiation focus

22. 10.22 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Figure 10.4 Generic strategies Source: Porter, Michael E (1965) Competitive Advantage, Free Press.

23. 10.23 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Cost leadership Selling a standard product to a mass market A number of suppliers will - supply a similar product - charge similar prices

24. 10.24 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Cost leadership (cont) MOST competitors attempting to follow a cost leadership strategy will: - have average costs - make an average profit

25. 10.25 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Cost leadership (cont) However, the SUCCESSFUL cost leader will have: - below-average costs - better than average profits

26. 10.26 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Figure 10.6 Cost, profit and price relationships for cost-based competitive strategies

27. 10.27 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Differentiation Selling an added value product to a mass market Added value can be in any aspect of the product which customers will pay for

28. 10.28 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Differentiation (cont) Added value could be in: - quality of inputs - packaging and labelling - image - promotion

29. 10.29 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Differentiation (cont) Costs are: - average in areas which do not add value - extra for added value - higher overall

30. 10.30 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Differentiation (cont) A differentiation strategy allows: - a higher price to be charged - a higher profit margin

31. 10.31 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Cost focus Selling a low-cost product to a niche market Customers are very price sensitive

32. 10.32 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Cost focus (cont) Cut costs where possible: - inputs - processing - packaging - delivery - promotion

33. 10.33 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Figure 10.7 Cost, profit and price relationships for differentiation-based competitive strategies

34. 10.34 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Cost focus (cont) Overall lower costs Charge an overall lower price Small profit Average profit still possible

35. 10.35 Capon: Understanding Organisational Context 2nd edition © Pearson Education 2004 Differentiation focus Selling a product with lots of added value to a niche market Factors relating to added value are similar to those for differentiation