WEEK 2 &4

A Overarching Framework
Macro Environment PESTEL analysis

Industry Environment
Porter’s Five Forces

Internal
Environment Resource-based
view/VRIO
INTERNAL ENVIRONMENT
• SWOT/TOWS

• VALUE CHAIN

• RBV (last week)

SWOT
What is the SWOT framework?
SWOT provides an expedient, simple format for structuring evidence drawn
from various types of business analysis.

• Strengths: characteristics of the business or project that give it an

advantage over others.
• Weakness: characteristics of the business that place the business or
project at a disadvantage relative to others.
• Opportunities: elements in the environment that the business or project
could exploit to its advantage.
• Threats: elements in the environment that could cause trouble for the
business or project.
Video: Prof Marc Jones
• https://youtu.be/jm8Rxi-I8c8
 SWOT – Questions to ask
Favourable
Internal - What do we perceive as our strengths?
- What do we do better than others?
- What unique capabilities and resources
do we have?
- What do others perceive as our
strengths?
External - What trends or conditions may
positively impact us?
- What opportunities are available to
us?
Unfavourable
- What do we perceive as our weaknesses?
- What do our competitors do better than us?
- What can we improve given the current
situation?
- What do others perceive as our weaknesses?
- What trends or conditions may negatively
impact us?
- What are our competitors doing that may
impact us?
- What impact do our weaknesses have on
threats to us?
 SWOT for McDonald’s – an example
- Brand image / publicity– criticised for offering unhealthy food to
- Largest fast food market share with 36,000 outlets in 119 countries customers.
- Makes over $27 billion revenue a year (more than Burger King and - Unhealthy menus.
Wendy’s combined) - Most low-level McDonald’s employees are underpaid and seen as
- Locally adapted menus to match diverse cultures unskilled workers.

- Partnership with leading brands: Coca-Cola, Heinz ketchup and others.

SWOT

- Introduce healthier food choices to supply the increasing demand of

healthy foods. - Saturated fast food markets in developed economies
- Change customer habits and find new customer groups. - Increasing societal rejection towards fast food
- Use mobile technology to provide enhanced and more convenient - Emergence of local fast food chains to represent local tastes
experience for customers - Frequent and expensive lawsuits against McDonald’s
QUESTIONS TO BE ASKED? (TOWS analysis)
 Inputs and outputs / supply and demand

Supply of these
Demand for these
‘factors of Business process outputs influences
production’ (depends on
Labour technology)
revenue (on
influences costs
which, more later)
Inside the ‘black box’: Porter’s Value Chain
Infrastructure

HRM

Technology

Margin
Procurement

Inbound Outbound Marketing &

Operations Service
logistics logistics Sales
Example: Video & Value Chain of an airline
https://youtu.be/_-4vA5sjvko
 The Resource-Based View
The theory that some firms are able to use their bundle of resources
and capabilities better that other firms for competitive advantage
(Barney, 1991)

i.e. those that use their resources & capabilities best often win!
 VRIO
Valuable:
• They enable an organisation to enhance its efficiency or effectiveness, or facilitate
the development and implementation of key aspects of the strategy

Rare
• They are unique to the organisation or controlled by few in the industry

Inimitable
• Not easy or too costly for competitors to copy or acquire

Organised
• Organised in such a way that they are able to exploit the potential of their
resources and capabilities
 The Macro Environment
PESTLE
QUESTION TO ASK

What are the key drivers

of change?
PESTLE - Political

Political issues may include:

• Government stability and likely changes

• Bureaucracy
• Corruption level
• Tax policy (rates and incentives)
• Government involvement in trade unions and agreements
• Consumer protection and e-commerce
• Regulation/de-regulation
• Free Trade Agreements
• Import restrictions (quality and quantity)
• Tariffs
• Competition regulation
PESTLE - Economic

Economic issues may include:

• Growth rates (eg. Gross Domestic Product)

• Inflation rate (Consumer Price Index)
• Interest rates (official rate set by the Reserve Bank of Australia)
• Foreign exchange rates
• Unemployment trends
• Labour costs
• Credit availability
• Trade flows and patterns
• Level of consumers’ disposable income
• Stock market trends
PESTLE - Social

Social issues may include:

• Education level
• Attitudes toward imported goods and services
• Attitudes toward work, leisure, career and retirement
• Attitudes toward product quality and customer service
• Attitudes toward saving and investing
• Buying habits
• Religion and beliefs
• Attitudes toward “green” or ecological products
• Attitudes toward and support for renewable energy
• Population growth rate
• Immigration and emigration rates
• Age distribution and life expectancy rates
• Average disposable income level
• Family size and structure
• Minorities
PESTLE - Technological

Technological issues may include:

• Rate of technological change

• Spending on research & development
• Technology incentives
• Legislation regarding technology
• Technology level in your industry
• Communication infrastructure
• Access to newest technology
• Internet infrastructure and penetration
PESTLE - Legal

Legal issues may include:

• Anti-trust laws
• Discrimination laws
• Copyright, patents / Intellectual property laws
• Consumer protection and e-commerce
• Employment laws
• Health and safety laws
• Environmental Laws
• Data protection laws
• Laws regulating environment pollution
PESTLE – Environmental

Environmental issues may include:

• Weather
• Climate change
• Laws regulating environment pollution
• Air and water pollution
• Attitudes toward “green” or ecological products
• Endangered species
• Attitudes toward and support for renewable energy
Class Activity
• Form a group 3-4
• Based on your knowledge and research on ‘Supermarkets and
Grocery Stores in Australia’
• Critically apply concepts from political, demographic, cultural
(social) AND environmental environment to evaluate the
opportunities and threats for the Giant (a Malaysian hypermarket)’s
plan to enter Australia

• Share your findings with class

 The Industry Environment
Porter’s Five Forces
QUESTIONS TO BE ASKED/ ANSWERED
• Where does the power lie? (Who has the power?)

• Is this industry (still) attractive?

• How should we compete? (other theories to come)

• What products to develop?

• What market to focus on?
Porter’s Five Forces
The threat of new entrants. How likely is it that new competitors
will come into the industry? Factors such as economies of scale,
brand loyalty and capital requirements determine how easy or
hard it is for new competitors to enter an industry.

The threat of substitutes. How likely is it that other industries'

products can be substituted for our industry's products? Factors
such as switching costs and buyer loyalty determine the degree
to which customers are likely to buy a substitute product.
Porter’s Five Forces
The Bargaining power of buyers. How much bargaining power
do buyers (customers) have? Factors such as number of
customers in the market, customer information and the
availability of substitutes determine the amount of influence that
buyers have in an industry.

The Bargaining power of suppliers. How much bargaining power

do suppliers have? Factors such as the degree of supplier
concentration and availability of substitute inputs determine the
amount of power that suppliers have over firms in the industry.
 Porter’s Five Forces
Existing rivalry. How intense is the rivalry among current industry
competitors? Factors such as industry growth rate, increasing or
falling demand, and product differences determine how intense
the competitive rivalry will be between existing firms in the
industry.
 Porter’s Five
Existing rivalry
Forces
Competitive rivalry is increased when there is/are:
1. Competitor balance (competitors roughly the same size)
2. Low industry growth rate (associated with price wars & low profits)
3. High fixed costs (companies seek to reduce unit costs by increasing
volumes & cutting prices)
4. High exit barriers (can lead to excess capacity and incumbents fight
for market share)
5. Low differentiation of products/services (little to stop customers
switching)
Prof Marc Jones Video
• https://youtu.be/z1s8RyNKDF8
 The Industry Environment
5 Forces
Porter’s Five Forces for Airline Industry – an
example Bargaining power of buyers - HIGH
Question Yes No Cannot
(Low) (High) assess
Are there a large number of buyers
relative to the number of firms in this
business?
Does the customer face any significant
costs in switching suppliers?
Is there anything that prevents the
customers from manufacturing the
produce/service in-house?
Are customers less price sensitive and
uneducated about the product?
Are products unique to some degree?

Are there no substitute products?

Porter’s Five Forces for Airline Industry – an
example Bargaining power of suppliers - HIGH
Question Yes No Cannot
(Low) (High) assess
There are many current and potential
suppliers in this industry.
Inputs (material, labor, services) in this
industry are standard rather than
differentiated.
Firms can switch between suppliers
quickly and easily.
Firms are price sensitive and well-
educated about the product.
There are existing substitutes.

Firm’s purchases comprise large portion

of supplier sales.
Porter’s Five Forces for Airline Industry – an
example Threat of new entrants – LOW to MEDIUM
Question Yes No Cannot
(Low) (High) assess
Profitability requires economies of scale.

Initial capital investment is high.

Does a new comer to the industry face difficulty in

assessing distribution channels?
Are there proprietary products/services on offer in
this industry?
Proprietary technology is an issue

Government policy is an issue (Are there any

licenses, insurance and other qualifications required
in this industry that are difficult to obtain?)
Do customers incur significant costs in switching
suppliers?
Can a new comer entering this industry expect
strong retaliation from the existing players?
Porter’s Five Forces for Airline Industry – an
example
Threat of substitutes - MEDIUM
Question Yes No Cannot
(Low) (High) assess
Customers will incur costs in switching to
substitutes.
Substitute product performance is inferior to
industry product performance
Substitute product is more expensive than
industry product
Substitute product quality is inferior to industry
product quality
There truly are no real substitutes for the
products available in this industry.
Porter’s Five Forces for Airline Industry – an
example Rivalry among existing competitors - HIGH
Question Yes No Cannot
(Low) (High) assess
The industry is growing rapidly.

The fixed costs of the business are a relatively

low proportion of the total costs.
There are significant product differences and
brand identities among the competitors.
It would not be hard to get out of this business
because there are no long-term commitments
that bind players to the industry.
No excess production capacity

Customers would incur high costs if the switched

from one player to another.
Porter’s Five Forces for Airline Industry – an
example
Industry Attractiveness

A Porter’s Five Forces analysis

Rivalry among
existing competitors needs:
5
4 • Reasoned, evidence based
3
Threat of new 2 Bargaining power of
arguments behind each
entrants 1 suppliers
judgement on each force; and
0
• An synthesis of the assessments
for each force into a coherent
Bargaining power of
buyers
Threat of substitute argument about the overall
attractiveness of the industry.
Industry…
Class Activity
• Form a group
• Based on your knowledge and research on ‘Supermarkets and
Grocery Stores in Australia’
• Assess the attractiveness of this industry.
• Share your findings with class