“Our greatest weakness lies in giving up. The most certain way to succeed is always to try just one more time”
Today, I would like to continue another posting relate with Strategic management and Operation subject. For the past few weeks, we are learning about Strategic Planning Process: The External Environmental Analysis. An external environment factor is referring to the factors that are beyond the control of an organization. Which means, these factors are influenced the organizations in decision making process. In external environment factors, it is divided into two categories which are general environment and industry environment.
PESTEL is simple acronyms that are included in General environment factor.
P : Political factors
Employment laws and Consumer protection laws
E : Economic factors
Unemployment rates and Inflation rates
S : Socio-cultural factors
T : Technological factors
Rate of technology transfer and Energy use and cost
E : Ecological factors
Global Warming and sustainable Economic Growth
L : Legal factors
Minimum wages and price control act
So, these 6 factors are taking into consideration when a company making a decision. While, the industry environment refers to the factors that directly affect the firm and its competitive responses. These factors have the ability to affect the firm’s probability. Michael Porte’s 5 Forces Model is one of best known conceptual framework to assess the industry environment. These are the elements in Porter’s 5 Forces Model:
Bargaining power of Buyers
Buyer groups have the power because they are the main industry’s output. We have large buyers and they could switch to another product in anytime because they did not involve in any significant switching cost.
Bargaining power of Suppliers
A group of supplier also has their power. The suppliers’ goods are critical to the buyers’ marketplace success.
Threat of new Entrants
For your information, new entrants to an industry could raise the level of competition between the organizations.
Substitute product can be a threat when the buyers group are price sensitive and customer do have a little brand loyalty. It also happens when the product itself is undifferentiated and customer can easily switch away from one supplier to another supplier.
Rival among Competitors
The competitions between companies cannot be avoided in the industry. If rivalry among the competitors is intense, companies may earn less profit. Intense situation may happen if the products offered by companies are undifferentiated and are viewed by customers as commodities.
It is not an easy task in building a successful company. We have to take many things into consideration. Obstacles are those frightful things you see when you take your eyes off your goals. The successful leader must plan his work and work his plan.
This is what I have learned in Strategic management and operations subject for week 3.
Thank you for reading and till then, wassalam.