College of Education

School of Continuing and Distance Education 2017/2018 – 2018/2019 ACADEMIC YEAR

The External Environment

LECTURER: (Dr. Obi Berko Damoah) DEPARTMENT: (OHRM, UGBS)

(Contact Information:obodamoah@ug.edu.gh)

Course Information

Provide the following information:

Course Code: UGBS 402

Course Title: Business Policy

Course Credit

3 Credit Hours

Session Number & Session Title:

Session 4 & The External Environement

Semester/Year: Second Semester / 2017/18 Slide 2

Course Information (contd.)

Slide 3

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Lecture Period(s)

3 Hours per week

Prerequisites Insert Course Prerequisites: (if applicable)

Teaching Assistant

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Course Instructor’s Contact

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Course Instructor(s) Name

Dr. Obi Berko Damoah

Office Location GBS13, Graduate Block, 3rd Floor, Main Campus

Office Hours

Wednesdays 12:00pm – 2:00pm

Fridays 12:00pm – 2:00pm

Phone 0303963756

E-mail obodamoah@ug.edu.gh

Slide 4

Introduction/Subject or Session Overview

In line with business policy plan, there is the need for firm to undergo external analysis that is factors beyond the firm’s control. This is to analyze the firm’s external capacity to identify its opportunities and threats and know the degree of competitive advantage as well as the risk the firm is exposed to. The aim of this session is to open the eyes of participants concerning the benefits and factors of an external analysis.

In this session, the three tiers of environmental factors that affect firm performance are considered. Here, participants are taught the five main factors in the remote, industry and operating environment. The ultimate aim is to offer the undergraduate participants, the opportunity to acquire the requisite knowledge, skills and the competence regarding the application of an external analysis for firms.

Slide 5

Session Outline

The key topics to be covered in the session are as follows:

• Tiers of environmental factors that affect firm performance

• The remote environment

• Forces model of industry analysis

• The operating environment

Slide 6

Session Learning Objectives

The aim of this session is to equip students to do the following;

• Describe the three tiers of environmental factors that affect firm performance;

• Be able to list and explain the five factors in the remote environment;

• Through the video, case analysis and the lecture have the capacity to design and execute an external analysis for different industries.

Slide 7

Session Learning Outcomes

Upon completion of this course, the student will have had the demonstrated the ability to:

• Describe the three tiers of environmental factors that affect firm performance;

• Be able to list and explain the five factors in the remote environment;

• Through the video, case analysis and the lecture have the capacity to design and execute an external analysis for different industries.

Slide 8

Session Activities and Assignments

• This week, complete the following tasks: • Log onto the UG Sakai LMS course site: http://sakai.ug.edu.gh; • Watch the Videos for Session 4; • Review Lecture Slides: Session 4; • Read Chapter 4 & 5, Case #24 & 26 of Recommended Text – Pearce,

J. A. and Robinson, R. B. (2014). Strategic management: managing for global and domestic competition; (14th edition), McGraw-Hill/Irwin Inc., New York.;

• Visit the Chat Room and discuss with your group the aspect of the term paper which session 3 sheds light on; monitored by the lecturer

• Complete the Individual self-assignment questions for Session 4.

Slide 9

TIERS OF ENVIRONMENTAL FACTORS THAT AFFECT A FIRMS PERFORMANCE

Topic One

Slide 10

Tiers Of Environmental Factors That Affect Performance

• External Environment

• The factors beyond the control of the firm that influence its choice of direction and action, organizational structure, and internal processes

•

Slide 11

Tiers Of Environmental Factors That Affect Performance Cont.’

• The Firm’s External Environment

Comprised of following Components:

• Remote environment

• Industry environment

• Operating environment

Slide 12

Tiers Of Environmental Factors That Affect Performance Cont.’

• The Firm’s External Environment

Slide 13

THE REMOTE ENVIRONMENT Topic Two

Slide 14

The Remote Environment Of A Firm

Remote Environment

Economic, social, political, technological, and ecological factors that originate beyond, and usually irrespective of, any single firm’s operating situation.

Slide 15

The Remote Environment Of A Firm Cont.

Remote Environment

• Economic Factors

• Social Factors

• Political Factors

• Technological Factors

• Ecological Factors

Slide 16

The Remote Environment Of A Firm Cont.

Economic Factors

1. Prime interest rates

2. Inflation rates

3. Trends in the growth of the gross national product

4. Unemployment rates

5. Globalization of the economy

6. Outsourcing

Slide 17

The Remote Environment Of A Firm Cont.

Social Factors Present in the external environment:

Beliefs & Values Attitudes & Opinions Lifestyles

Developed from: Cultural conditioning Ecological conditioning Demographic makeup Religion Education Ethnic conditioning.

Slide 18

The Remote Environment Of A Firm Cont.

Three Profound Social Changes

• Entry of large numbers of women into the labor market

• Accelerating interest of consumers and employees in quality-of-life issues

• Shift in the age distribution of the population

• Cutting across the above three issues is concern for individual health

Slide 19

The Remote Environment Of A Firm Cont.

Political Factors Political constraints on firms:

• Fair-trade Decisions • Antitrust Laws • Tax Programs • Minimum Wage Legislation • Pollution and Pricing Policies • Administrative jawboning

Slide 20

The Remote Environment Of A Firm Cont.

Impacts Of Political Activity • Political activity has a significant impact on two governmental

functions that influence the remote environment of firms:

– Supplier function

– Customer function

Slide 21

The Remote Environment Of A Firm Cont.

Technological Factors

• Technological forecasting helps protect and improve the profitability of firms in growing industries.

• It alerts policy managers to impending challenges and promising opportunities.

• The key to beneficial forecasting of technological advancement lies in accurately predicting future technological capabilities and their probable impacts.

Slide 22

The Remote Environment Of A Firm Cont.

Technological Forecasting

The quasi-science of anticipating environmental and competitive changes and estimating their importance to an organization’s operations.

Slide 23

The Remote Environment Of A Firm Cont.

Ecological Factors

• Ecology refers to the relationships among human beings and other living things and the air, soil, and water that supports them.

• Threats to our life-supporting ecology caused principally by human activities in an industrial society are commonly referred to as pollution

• Loss of habitat and biodiversity

• Environmental legislation

• Eco-efficiency

Slide 24

The Remote Environment Of A Firm Cont.

Eco-efficiency

Company actions that produce more useful goods and services while continuously reducing resource consumption and pollution.

Slide 25

INDUSTRY ENVIRONMENT Topic Three

Slide 26

The Industry Environment Of A Firm

• Harvard professor Michael E. Porter propelled the concept of industry environment into the foreground of strategic thought and business planning.

• The cornerstone of Porter’s work first appeared in the Harvard Business Review, in which he explains the five forces that shape competition in an industry.

• Porter’s well-defined analytic framework helps policy managers to link remote factors to their effects on a firm’s operating environment.

Slide 27

The Industry Environment Of A Firm Cont.

Industry Environment Defined

The general conditions for competition that influence all businesses that provide similar products and services.

Slide 28

The Industry Environment Of A Firm Cont.

How Competitive Forces Shape Strategy • The essence of policy formulation is coping with

competition. • Intense competition in an industry is neither

coincidence nor bad luck. • Competition in an industry is rooted in its underlying

economics, and competitive forces exist that go well beyond the established combatants in a particular industry.

• The corporate policy analysts’ goal is to find a position in the industry where his or her company can best defend itself against these forces or can influence them in its favor.

Slide 29

The Industry Environment Of A Firm Cont.

Forces Driving Industry Competition

Slide 30

The Industry Environment Of A Firm Cont.

Threat of Entry Common Barriers to Entry

• Economies of Scale

• Product Differentiation

• Capital Requirements

• Cost Disadvantages Independent of Size

• Access to Distribution Channels

• Government Policy

Slide 31

The Industry Environment Of A Firm Cont.

Powerful Suppliers A supplier group is powerful if: • It is dominated by a few companies and is more

concentrated than the industry it sells to • Its product is unique or at least differentiated, or if it

has built-up switching costs • It is not obliged to contend with other products for sale

to the industry • It poses a credible threat of integrating forward into the

industry’s business • The industry is not an important customer of the

supplier group

Slide 32

The Industry Environment Of A Firm Cont.

Powerful Buyers A buyer group is powerful if: • It is concentrated or purchases in large volumes • The products it purchases from the industry are standard • The products it purchases from the industry form a

component of its product and represent a significant fraction of its cost

• It earns low profits • The industry’s product is unimportant to the quality of the

buyers’ products or services • The industry’s product does not save the buyer money • The buyers pose a credible threat of integrating backward

Slide 33

The Industry Environment Of A Firm Cont.

Substitute Products • By placing a ceiling on the prices it can charge, substitute

products or services limit the potential of an industry

• Substitutes not only limit profits in normal times but also reduce the bonanza an industry can reap in boom times

• Substitute products that deserve the most attention strategically are those that are

– subject to trends improving their price-performance trade-off with the industry’s product or

– produced by industries earning high profits

Slide 34

The Industry Environment Of A Firm Cont.

Jockeying For Position

Intense rivalry occurs when:

• Competitors are numerous or are roughly equal

• Industry growth is slow, precipitating fights for market share that involve expansion

• The product or service lacks differentiation or switching costs

• Fixed costs are high or the product is perishable, creating strong temptation to cut prices

• Capacity normally is augmented in large increments

• Exit barriers are high

• Rivals are diverse in policy, origin, and personality

Slide 35

The Industry Environment Of A Firm Cont.

Industry Analysis & Competitive Analysis

Key questions to ask:

1. What are the boundaries of the industry?

2. What is the structure of the industry?

3. Which firms are our competitors?

4. What are the major determinants of competition?

Slide 36

The Industry Environment Of A Firm Cont.

Industry Analysis & Competitive Analysis (contd.)

• An industry is a collection of firms that offer similar products or services.

• Structural attributes are the enduring characteristics that give an industry its distinctive character.

• Concentration refers to the extent to which industry sales are dominated by only a few firms.

• Barriers to entry are the obstacles that a firm must overcome to enter an industry.

Slide 37

The Industry Environment Of A Firm Cont.

Problems in Defining Industry Boundaries

The difficulty in defining industry boundaries stems from three sources:

• The evolution of industries over time creates new opportunities and threats

• Industry evolution creates industries within industries

• Industries are becoming global in scope

Slide 38

The Industry Environment Of A Firm Cont.

Power Curves

• Power curves depict the fundamental structural trends that underlie an industry.

• This is a new tool that helps policy managers assess industry structure – the enduring characteristics that give an industry its distinctive character.

Slide 39

OPERATING ENVIRONMENT Topic Four

Slide 40

The Operating Environment Of A Firm

Operating Environment

Factors in the immediate competitive situation that affect a firm’s success in acquiring needed resources.

Slide 41

The Operating Environment Of A Firm Cont.;

Operating Environment (contd.)

Also called competitive or task environment

• Includes competitor positions and customer profiling based on the following factors:

– Geographic

– Demographic

– Psychographic

– Buyer Behavior

• Also includes suppliers & creditors and HRM

Slide 42

The Operating Environment Of A Firm Cont.;

HR: Nature of the Labor Market

Access to personnel is affected by 4 factors:

• Firm’s reputation as an employer

• Local employment rates

• Availability of people with the needed skills

• Its relationship with labor unions.

Slide 43

References

Recommended reading • Mello, J. A. (2011). Strategic management of human resources.

London: South-western cengage learning. • Belcourt M and McBey K (2000), Strategic Human Resources

Planning, Nelson Publishing, Scarborough, Ontario. Supplementary Reading

• Belcourt et al (1999), Managing Human Resources 2nd edition, ITP International Thomson Publishing, Canada.

• Bratton J and Gold J (2007), Human Resource Management (4 ed), Palgrave Macmillan, UK.

• Cascio, W. (2006) managing Human Resources: Productivity, Quality of work life, Profit (11th edition), McGraw – Hill / Irwin, New York.

Slide 44

References Cont.;

Journals

• Management decision

• Strategic management journal

Youtube

• https://www.youtube.com/watch?v=98Xk5bYOVvc

• https://www.youtube.com/watch?v=H8_W8tAEsfQ

Slide 45