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Technology & Organisational Change
The External Environment
Hanson & Dowling Chapters 2
Technology & Organisational Change
Economic
Technological
Demographic
PoliticalLegal
Global
Socio-Cultural
New Entrants
Suppliers
Customers
Substitutes
Traditional Rivals
GENERALENVIRONMENT
INDUSTRYENVIRONMENT
Technology & Organisational Change
External Environmental Analysis Scanning
Identifying early signals of changes
MonitoringDetecting meaning through ongoing observation of changes
ForecastingDeveloping projections of anticipated outcomes
AssessingDetermining effect of changes upon firm’s strategy
Technology & Organisational Change
Economic Growth Related economies Open trade policies Economic regulation National infrastrucure
Technology & Organisational Change
Economic GrowthEconomic Growth Economic growth affects individual firms, but Economic growth affects individual firms, but
they have no control over itthey have no control over it Economic growth:Economic growth:
USA 4.1% (1995USA 4.1% (1995–9–9)) Australia 3.4% (1989Australia 3.4% (1989–9–9)) UK 1.9% (1989UK 1.9% (1989–9–9)) Germany 0.6% (1989Germany 0.6% (1989–9–9))
Technology & Organisational Change
Australia’s Two Economies In the ‘global’ cities of Sydney and In the ‘global’ cities of Sydney and
Melbourne, unemployment is low and Melbourne, unemployment is low and incomes are risingincomes are rising
In country areas, unemployment is high (over In country areas, unemployment is high (over 10% on average) and property values are 10% on average) and property values are fallingfalling
In 1996, the average nett household wealthIn 1996, the average nett household wealth for the Mersey-Lyell region of Tasmania was for the Mersey-Lyell region of Tasmania was
$87,314 $87,314 in 12 middle-class harbourside Sydney suburbs in 12 middle-class harbourside Sydney suburbs
was $393,381was $393,381
Technology & Organisational Change
Demographics Population Size Age Structure Geographic distribution Ethnic mix Income distribution
Technology & Organisational Change
Australia’s Ageing PopulationAustralia’s Ageing Population In June 1998, 12% (2.3 million) of the Australian In June 1998, 12% (2.3 million) of the Australian
population was aged over 65:population was aged over 65: Only 6% in the labour forceOnly 6% in the labour force Only 58% held superannuationOnly 58% held superannuation
By 2051, 24% of the population will be 65 or By 2051, 24% of the population will be 65 or overover
Challenges:Challenges: Income supportIncome support Health infrastructureHealth infrastructure
Technology & Organisational Change
Declining Birth RateDeclining Birth Rate Replacement rate for a population is 2.1Replacement rate for a population is 2.1 The birth rate in Australia in 1998 was 1.76 The birth rate in Australia in 1998 was 1.76 Declining birth rate in the western world:Declining birth rate in the western world:
US birth rate 2.0US birth rate 2.0 NZ birth rate 2.0NZ birth rate 2.0 British birth rate 1.70British birth rate 1.70 German birth rate 1.5German birth rate 1.5 Italian birth rate 1.2Italian birth rate 1.2
Technology & Organisational Change
Politico-Legal Segment Government regulations Government charges Legal system Rule of Law Government support Commitment to attaining a national competitive
advantage
Technology & Organisational Change
Socio-cultural Segment Work Habits Savings Social Welfare & Health Environmental concerns Religion Educational standards Workforce diversity
Technology & Organisational Change
Gender Wages RatesGender Wages Rates Pay differentials still exist between men and Pay differentials still exist between men and
women all over the worldwomen all over the world Men earn:Men earn:
34% more than women in the UK34% more than women in the UK 17% more in Sweden17% more in Sweden 24% more in Australia24% more in Australia
Technology & Organisational Change
Technology Innovation Telecommunications infrastructure Internet Intellectual property
Technology & Organisational Change
Global Segment New global markets International political events Global market integration International Treaties (e.g. WTO)
Technology & Organisational Change
Traditional Competitors
The firm
New Entrants
Substitute Products
Suppliers Customers
Porter’s 5 forces
Technology & Organisational Change
New Entrants: Barriers to Entry Economies of Scale Product Differentiation Capital Requirements Switching Costs Access to Distribution Channels Cost Disadvantages Independent of Scale Government Policy Expected Retaliation
Technology & Organisational Change
Bargaining Power of Suppliers Suppliers exert power in the industry by
threatening to raise prices or reduce quality Powerful suppliers can squeeze industry
profitability if firms are unable to recover cost increases
Technology & Organisational Change
Bargaining Power of Suppliers (cont.)Bargaining Power of Suppliers (cont.) Suppliers will be powerful if:Suppliers will be powerful if:
Supplier industry is dominated by a few firmsSupplier industry is dominated by a few firms Supplier’s products have few substitutesSupplier’s products have few substitutes Buyer is not an important customer to the Buyer is not an important customer to the
suppliersupplier Supplier’s product is important to the buyer’s Supplier’s product is important to the buyer’s
productproduct Supplier products are differentiatedSupplier products are differentiated Supplier’s products have high switching costsSupplier’s products have high switching costs Supplier poses a credible threat of forward Supplier poses a credible threat of forward
integrationintegration
Technology & Organisational Change
Bargaining Power of Buyers Buyers compete with the supplying industry by:
Bargaining-down prices Forcing higher quality Playing firms off against each other
Technology & Organisational Change
Bargaining Power of Buyers (cont.)Buyer groups are likely to be powerful if:Buyer groups are likely to be powerful if: Buyers are concentrated or purchases are large relative Buyers are concentrated or purchases are large relative
to the seller’s salesto the seller’s sales Purchase accounts for a large part of the supplier’s salesPurchase accounts for a large part of the supplier’s sales Products are undifferentiatedProducts are undifferentiated Buyers face few switching costsBuyers face few switching costs Buyer’s industry earns low profitsBuyer’s industry earns low profits Buyer presents a credible threat of backward integrationBuyer presents a credible threat of backward integration Product is not important to qualityProduct is not important to quality Buyer has full informationBuyer has full information
Technology & Organisational Change
Threat of Substitute Products Products with similar function limit the prices
firms can charge Products with improving price/performance Products with improving price/performance
tradeoffs relative to present industry products egtradeoffs relative to present industry products eg Electronic security systems in place of Electronic security systems in place of
security guardssecurity guards Fax machines in place of overnight mail Fax machines in place of overnight mail
deliverydelivery
Technology & Organisational Change
Rivalry among Existing CompetitorsRivalry among Existing Competitors Jockeying for strategic positionJockeying for strategic position Using price competitionUsing price competition Staging advertising battlesStaging advertising battles Increasing consumer warranties or serviceIncreasing consumer warranties or service Making new product introductionsMaking new product introductions
Technology & Organisational Change
Rivalry among Existing CompetitorsRivalry among Existing Competitors Intense rivalry occurs when a firm is pressured Intense rivalry occurs when a firm is pressured
or sees an opportunityor sees an opportunity Price competition often leaves the entire industry Price competition often leaves the entire industry
worse offworse off Advertising battles may increase total industry Advertising battles may increase total industry
demand, but may be costly to smaller demand, but may be costly to smaller competitorscompetitors
Technology & Organisational Change
Rivalry among Existing CompetitorsRivalry among Existing Competitors Cut-throat competition is more likely to occur Cut-throat competition is more likely to occur
with:with: Numerous or equally balanced competitorsNumerous or equally balanced competitors Slow-growth industrySlow-growth industry High fixed costsHigh fixed costs High storage costsHigh storage costs Lack of differentiation or switching costsLack of differentiation or switching costs Capacity added in large incrementsCapacity added in large increments Diverse competitorsDiverse competitors High strategic stakesHigh strategic stakes High exit barriersHigh exit barriers
Technology & Organisational Change
Rivalry among Existing CompetitorsRivalry among Existing Competitors High exit barriersHigh exit barriers can include:can include:
Specialised assetsSpecialised assets Fixed cost of exit (e.g. labour agreements)Fixed cost of exit (e.g. labour agreements) Strategic interrelationshipsStrategic interrelationships Emotional barriersEmotional barriers Government and social restrictionsGovernment and social restrictions
Technology & Organisational Change
Effects of Entry and Exit Barriers on Industry ProfitsEffects of Entry and Exit Barriers on Industry ProfitsEffects of Entry and Exit Barriers on Industry ProfitsEffects of Entry and Exit Barriers on Industry Profits
High, Risky Returns
High, Risky Returns
Entry Barriers
Exit Barriers
High
Low
HighLow
Low, Stable Returns
Low, Stable Returns
High, Stable Returns
High, Stable Returns
Low, Risky Returns
Low, Risky Returns
Technology & Organisational Change
Competitor Analysis What drives the competitor? What can the competitor do? What does the competitor believe about itself
and the industry? What are the competitors capabilities? What will the competitor do in the future? Where do we have a competitive advantage? How will this change our relationship with our
competition?
Technology & Organisational Change
The Internal Environment
Hanson & Dowling Chapter 3
Technology & Organisational Change
Key Questions in Internal AnalysisKey Questions in Internal Analysis How do we assemble bundles of resources, How do we assemble bundles of resources,
capabilities and core competencies to create capabilities and core competencies to create value for customers?value for customers?
Will environmental changes make our core Will environmental changes make our core competencies obsolete?competencies obsolete?
Are substitutes available for our core Are substitutes available for our core competencies?competencies?
Are our core competencies easily imitated?Are our core competencies easily imitated?
Technology & Organisational Change
Key Questions in Internal AnalysisKey Questions in Internal Analysis Complicated byComplicated by
UncertaintyUncertainty ComplexityComplexity Inter-organisational conflictsInter-organisational conflicts
ResourcesResources
**** TangibleTangibleTangibleTangible**** IntangibleIntangibleIntangibleIntangible
CapabilitiesCapabilities
Teams of Teams of ResourcesResourcesTeams of Teams of ResourcesResources
Sources ofSources ofSources ofSources of
CoreCoreCompetenciesCompetencies
CompetitiveCompetitiveCompetitiveCompetitiveAdvantageAdvantageAdvantageAdvantage
StrategicStrategicCompetitivenessCompetitiveness
Above-AverageAbove-AverageAbove-AverageAbove-AverageReturnsReturnsReturnsReturns
CompetitiveCompetitiveAdvantageAdvantage
Gained throughGained throughGained throughGained throughCore CompetenciesCore CompetenciesCore CompetenciesCore Competencies
Discovering Core CompetenciesDiscovering Core CompetenciesDiscovering Core CompetenciesDiscovering Core Competencies
ValueValueChainChain
AnalysisAnalysis
ValuableValuable
RareRare
Costly to ImitateCostly to ImitateNon-substitutableNon-substitutable
**
**
****
Criteria ofCriteria ofSustainableSustainableAdvantagesAdvantages
Technology & Organisational Change
Resources Tangible
Financial Physical Human Resources Organisational
Intangible Technological Innovation Reputation (Brand power)
Technology & Organisational Change
Brand PowerBrand Power Brands can provide a company with competitive Brands can provide a company with competitive
advantagesadvantages Country Road uses a brand to market a range of Country Road uses a brand to market a range of
crockery, tea towels, napkins and vases as well crockery, tea towels, napkins and vases as well as clothesas clothes
The Harley Davidson name also adorns:The Harley Davidson name also adorns: A limited-edition Barbie DollA limited-edition Barbie Doll A restaurant in New YorkA restaurant in New York A line of L’Oreal cologneA line of L’Oreal cologne
Technology & Organisational Change
Knowledge Management Knowledge is spread widely across all Knowledge is spread widely across all
employees, organisations and industry settingsemployees, organisations and industry settings Many companies are now creating the new Many companies are now creating the new
position of Chief Learning Officer (CLO)position of Chief Learning Officer (CLO) The CLO is responsible for determining how a The CLO is responsible for determining how a
firm should manage knowledge to derive firm should manage knowledge to derive maximum competitive value from itmaximum competitive value from it
In the USA, 78% of companies have indicated In the USA, 78% of companies have indicated they are moving towards becoming knowledge-they are moving towards becoming knowledge-based enterprisesbased enterprises
Technology & Organisational Change
Capabilities The firm’s capacity or ability to integrate
individual firm resources to achieve a desired objective
Develop over time as a result of complex interactions that take advantage of the interrelationships between a firm’s tangible and intangible resources and which are based on the development, transmission and exchange or sharing of information and knowledge as carried out by the firm's employees
Technology & Organisational Change
Capabilities (cont.)• Become important when they are combined in
unique combinations that create core competencies which have strategic value and which can lead to competitive advantage
Technology & Organisational Change
Core Competencies What a firm does that is strategically valuable The essence of what makes an organization The essence of what makes an organization
unique in its ability to provide value to customersunique in its ability to provide value to customers McKinsey & Co. recommend identifying three to McKinsey & Co. recommend identifying three to
four competencies to use in framing strategic four competencies to use in framing strategic actionsactions
Technology & Organisational Change
Core Competencies It must be:It must be:
Valuable Rare Costly to imitate Non-substitutable
Technology & Organisational Change
Valuable RareCostly to Imitate
Non-sub-stitutable
Competitive Consequences
Performance Implications
NONO NONO NONO NONO
YESYES NONO NONO YES/NOYES/NO
YESYES NONO YES/NOYES/NOYESYES
CompetitiveCompetitiveDisadvantageDisadvantage
Below Below AverageAverageReturnsReturns
CompetitiveCompetitiveParityParity
AverageAverageReturnsReturns
TemporaryTemporaryCompetitiveCompetitiveAdvantageAdvantage
Aver./Above Aver./Above AverageAverageReturnsReturns
SustainableSustainableCompetitiveCompetitiveAdvantageAdvantage
SustainableSustainableCompetitiveCompetitiveAdvantageAdvantage
YESYESYESYES YESYES YESYESAbove Above
AverageAverageReturnsReturns
Technology & Organisational Change
Core Competencies Costly to ImitateCore Competencies Costly to Imitate Unique Historical ConditionsUnique Historical Conditions
An unusual evolutionary pattern of growth may An unusual evolutionary pattern of growth may contribute to the development of competencies contribute to the development of competencies in a manner unique to those particular in a manner unique to those particular circumstancescircumstances
Causal AmbiguityCausal AmbiguityCompetitors are unable to detect how a firm Competitors are unable to detect how a firm uses its competencies as a foundation for uses its competencies as a foundation for competitive advantagecompetitive advantage
Technology & Organisational Change
Core Competencies Costly to ImitateCore Competencies Costly to Imitate Social complexitySocial complexity
A firm’s capabilities are the result of complex A firm’s capabilities are the result of complex social phenomena, such as interpersonal social phenomena, such as interpersonal relationships, trust and friendships among relationships, trust and friendships among managers or a firm’s reputation with suppliers managers or a firm’s reputation with suppliers and customersand customers
Technology & Organisational Change
Porter’s Value Chain Model Production consists of a series of activities that
add a margin of value to a firm’s products or services
The added value increases profits, enhances asset value and competitive position
Primary activities Directly related to production and distribution
Support activities Make delivery possible Include organisational structure, HR, technology and
procurement
SupportActivities
Primary Activities
Value Chain AnalysisValue Chain AnalysisValue Chain AnalysisValue Chain Analysis
Technological DevelopmentTechnological Development
Human Resource ManagementHuman Resource Management
Firm InfrastructureFirm Infrastructure
ProcurementProcurement
Inb
ou
nd
In
bo
un
d
Lo
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tics
Lo
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tics
Op
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sO
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Ou
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utb
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Lo
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Mar
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M
arke
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& S
ales
& S
ales
Ser
vice
Ser
vice
identifies which resources and capabilities can add value
MARGIN
MARGIN
MARGIN
MARGIN
Technology & Organisational Change
Porter’s Value Chain Model Increase profits by:
Increasing steps that involve primary activities Reducing steps that involve support activities Converting support activities to primary
activities
Technology & Organisational Change
Total Value SystemTotal Value System
Supplier Value Chain Channel Value Chain Buyer Value Chain
To capitalise on the usefulness of the Value Chain concept it is important to recognise that Value Chains are part of a::
Firm Value Chain
Technology & Organisational Change
Total Value SystemTotal Value System
Supplier Value Chain
Channel Value Chain Buyer Value ChainFirm Value Chain
Upstream ValuePerform valuable activities that complement the firm’s activities
Technology & Organisational Change
Total Value SystemTotal Value System
Supplier Value Chain
Channel Value Chain
Buyer Value ChainFirm Value Chain
Each firm must eventually find a way to become a part of some buyer’s value chain
Technology & Organisational Change
Total Value SystemTotal Value System
Supplier Value Chain Channel Value Chain
Buyer Value Chain
Firm Value Chain
Ultimate basis for differentiation is the ability to play a role in a buyer’s value chain
This creates VALUE!!
Technology & Organisational Change
Outsourcing Firms often purchase a portion portion
of their value-creating activities from specialty external suppliers who can perform these functions more efficiently more efficiently
Technology & Organisational Change
Strategic Rationales for OutsourcingStrategic Rationales for Outsourcing Improve Business FocusImprove Business Focus Provide Access to World-Class CapabilitiesProvide Access to World-Class Capabilities Accelerate Business Re-Engineering BenefitsAccelerate Business Re-Engineering Benefits Share RisksShare Risks Free Resources for Other PurposesFree Resources for Other Purposes
Technology & Organisational Change
Core Competencies: Core Competencies: Cautions and RemindersCautions and Reminders never assume that core competencies will never assume that core competencies will
continue to provide a competitive advantagecontinue to provide a competitive advantage All core competencies have the potential to All core competencies have the potential to
become core rigiditiesbecome core rigidities Core rigidities sow the seeds of organisational inertia Core rigidities sow the seeds of organisational inertia
and prevent the firm from responding appropriately to and prevent the firm from responding appropriately to changes in the external environmentchanges in the external environment
Strategic myopia and inflexibility can strangle the Strategic myopia and inflexibility can strangle the firm’s ability to grow and adapt to environmental firm’s ability to grow and adapt to environmental change or competitive threatschange or competitive threats
Technology & Organisational Change
Strategic Strategic MissionStrategic Strategic Mission
A statement of the firm’s unique purpose and the scope of its operations in product market terms
A statement of the firm’s unique purpose and the scope of its operations in product market terms
Strategic IntentStrategic Intent
Leveraging of a firm’s resources, Leveraging of a firm’s resources, capabilities and core competencies capabilities and core competencies to accomplish what may appear to to accomplish what may appear to be unattainable goals in the be unattainable goals in the competitive environmentcompetitive environment
Leveraging of a firm’s resources, Leveraging of a firm’s resources, capabilities and core competencies capabilities and core competencies to accomplish what may appear to to accomplish what may appear to be unattainable goals in the be unattainable goals in the competitive environmentcompetitive environment
ResourcesResources
**** TangibleTangibleTangibleTangible**** IntangibleIntangibleIntangibleIntangible
CapabilitiesCapabilities
Teams of Teams of ResourcesResourcesTeams of Teams of ResourcesResources
Sources ofSources ofSources ofSources of
CoreCoreCompetenciesCompetencies
CompetitiveCompetitiveCompetitiveCompetitiveAdvantageAdvantageAdvantageAdvantage
StrategicStrategicCompetitivenessCompetitiveness
Above-AverageAbove-AverageAbove-AverageAbove-AverageReturnsReturnsReturnsReturns
CompetitiveCompetitiveAdvantageAdvantage
Gained throughGained throughGained throughGained throughCore CompetenciesCore CompetenciesCore CompetenciesCore Competencies
Discovering Core CompetenciesDiscovering Core CompetenciesDiscovering Core CompetenciesDiscovering Core Competencies
ValueValueChainChain
AnalysisAnalysis
ValuableValuable
RareRare
Costly to ImitateCostly to ImitateNon-substitutableNon-substitutable
**
**
****
Criteria ofCriteria ofSustainableSustainableAdvantagesAdvantages