Video Transcript: Lecture 3
Hello, hello. Welcome back for Module Three, where we're talking about evaluating the external environment. So as I said at the end of our last lecture, we'll be talking today about the relationship between the organization and its environment. We'll be evaluating the general environment, we will be evaluating the industry, and we will be mapping strategic groups. So with that, let's get into it. So what is the relationship between an organization and an environment. And I think even if you haven't done the reading yet, and this is the first thing that you're looking at, then I think you would admit that it's significant, right? I mean, you can see the external conditions and forces and all those things and what role they play in our environment, not to, not to always use COVID as an example, but certainly, businesses and individuals really, certainly face tremendous challenges and unprecedented challenges As a result of COVID. 19 and political factors, legal factors, certainly social factors, and all these things kind of work together and put tremendous pressure on businesses. And all these external environmental factors made a significant difference. So remember that when we talk about the competitive environment there the book breaks it down into either the general environment, which includes societal trends, technological trends, demographics, economic conditions, obviously political would be part of that as well. And then there's the industry or competitive environment, which is the multiple organizations that compete with each other to provide similar goods and services. So remember, anything that you do if you raise prices, if you do anything, then your competitors will have to respond in kind. That's why you find, when you're in certain areas, you find gas stations generally charge the same amount of money, because if one gas station is going to drop their price, then everybody else, knowing that people want the cheapest gas possible, will have to go and drop their prices as well. So that's one way to think about how this competitive environment impacts something that you probably do quite often, maybe, which is get gas. So let's also think about, think about some of the other things that happen. Certainly, if companies are making certain pushes because of a political or social environment, then that's going to cause others to do it as well. So one that I can think of right now is a lot of companies are leading the charge in sustainable practices, specifically sustainable environmental practice. A lot of tech companies are focusing on being carbon neutral, or starting to become carbon neutral by the year, you know, whatever, 2030 Google, actually, and I will, I think I already have it up, actually, yeah, I do look at that. It's going to be a, it's going to be a good lecture, isn't it? So if you look down here, Google has been carbon neutral since 2007 so, you know, these are certainly things that companies are doing. Apple is a company that is very, very focused on our sustainability efforts, so much so that if you go here to environment, they said by 2030 every product will be neutral. They have a video on it, and they discuss it in great detail. We are not going to go through all that right now, but I would certainly encourage you to do that. So
that's one of the things with competitive environment. If your competitors are doing something, chances are that you need to do them as well. So you know, if you think about it also, you know, certain companies yield more power and influence than other companies as well. Certainly, Google yields, wields wheels, not yields, sorry, wields a lot of power influence. Certainly Apple does as well. So if they make a declaration, we're going to be carbon neutral. We're going to do this. We're going to do that. Then other companies are going to take notice and follow because Apple, Google, those kind of companies, certainly Facebook, certainly Amazon have in the United States, Tata Corporation in India, and certainly Alibaba in China. Each of these companies have incredible influence, and really when they make a decision that's going to send repercussions to other companies in a similar space, remember also that is just not companies that yield that wield that kind of power, certainly government, certainly initiatives do as well. In the United States, there's been a transformation around social justice issues, around diversity, inclusion and equity. Those kind of conversations are happening now that certainly has trickled worldwide and started a worldwide conversation in some of those concepts among certain countries and these kind of issues put and put pressure and have external forces on, on, on companies as well. I mean, even even companies such as smaller companies, small businesses, and I'll give you example. So there is a Twitter feed and Instagram, but Twitter is what I'm looking for called we rate dogs. And I'm going to switch us over to that. And one of the things that you can see is on we rate dogs. They they go through and they just give dogs ratings. Every dog gets a above a 10, because all dogs are good dogs. But you can see Maisie here got one that was a 10. Darwin got a or got a 12. Darwin got a 12. This dog Bailey got a 13. Charlie, Cheyenne Maximus and Dyra, they got a 13 as well. And anyway, you can go through the site. And you could say here, like this, got a 14 he's out of office this week, which I love. But you can see here that this website, all it does is rate dogs, but they have been very, very, very involved in social issues as well. They do a lot of fundraisers. They they do things you can see here. They have a statement, even behind this dog, where they're making a statement. There they So even they have opportunity as just as just a Twitter feed that rates dogs even they have to deal with external and deal with, I mean, they choose to deal with, but they have to be cognizant of external forces, what's going on in the environment, and kind of what the national conversations are and and even this website is involved in that. Now, by the way, if you're ever interested, you should look up. I believe the guy's name is Matt Nelson, and he's the he's, he's, I think he's under the age of 25 but he is the one that formed. We rate dogs, and it's quite an interesting, feel good site. But they even they have to get involved in social issues. So we talked about a little bit. The book talks about why the Environment Matters. You know, certainly environmental concerns and those kind of pressures are important for
companies. One of the things that is important for companies is remember that politically and economically, there's a lot of pressure to focus on greening and green initiatives and those kind of things. So students are so companies have to make a push toward toward sustainability practices, toward better sustainability, toward becoming carbon neutral, those kind of things. That's why you see Apple's real big push for carbon neutrality and all their products, even the ones you own by 2035, so how do you and how do you evaluate. The environment, there is this tool called PESTEL, also known as you've also, maybe have heard it as pest. And what you do is you kind of look at the six segments of the general environment, and we'll go through each one, PESTEL, political, economic, socio cultural, technological, environmental and legal. So let's talk about those one more time. Those would be political, economic, socio cultural, technological, technological, environmental and legal. So you know what you're going to do is you are going to evaluate your environment based on these six factors. I think the book does a good job of breaking it down, where you can see here that political factors are things such as tax policies, obviously, restrictions and tariffs, the stability of the government is even the government what, what they choose to be. So whether they are socialists or whether they're capitalists, whether free market what, every single time I'm telling you every single time, sorry about those pop ups in the corner, but, but whether they choose to be, that is, that is, that is what political is. So that's part of political economic those are things like inflation, interest rates, the GDP, the GNI, unemployment rates, level of disposable income, and then the general growth or decline of the economy. Socio cultural would be your things that have to do with your population, such as age demographics, those kind of things. And then technological is the rate of new product development. Remember, there is a chart that says that technology doubles every couple years and that the technology that you have now will be obsolete very quickly, so certainly that would be part of it as well. Environmental is the ecological factors, you know, global warming, pollution, weather patterns, natural disasters, would all be considered there. And then legal would be all the laws. Remember, if you're an international company, you have an incredible amount of laws that are affecting you. So, you know, the book goes through each of these really, really in great detail, and I think they do a good job, so I'm going to not talk about them specifically, but what I do want to bring up that's outside the book and kind of outside the readings, is just give me one second, please. Is the this image, because it has something on it I want to show you, but it won't. It won't come up like I want it to. There it goes. Okay, so if you look over here, this obviously only has the pest, so it's missing a couple of them, but I like it because it gives you some examples that you wouldn't see other places. So you can see things like tax incentives, and that's something that's political, Brexit. Brexit, with England leaving the European Union, that is obviously a major political thing that that's going to affect the environment of these
companies, social, you know, we talked about mass protests earlier. Forgive me for coughing. I wish this little monitor here had a cough button. Sustainability. We talked about health and wellness, but this talks about supply chain due to COVID 19, which I thought was an interesting point, and then tech like E commerce, and then what's going to happen with the tech giants, Facebook, Google, all those companies, and how they're going to play a role In the E commerce jackpot as well. So I thought it was important to bring up that slide, because I thought you would you it would give you another way to think about some of these things that was not covered completely. So Porter. Michael Porter. He's at Harvard University. He came up with the five forces and the things that you have to think about when it comes to your threats and your industry analysis. So Porter's Five Forces talk about threat to potential entrants, obviously rivalries, bargaining power, threats for substitutes and the power of suppliers. So think about, you know, if you are an exclusive supplier of wire furnaces for Ford, and you're the only one that makes them. Then on the supplier side, you have incredible power. You will see that if there are, if there are issues in your supply chain, then that's going to affect your output. I bring that up because it is whatever month it is, and if you went and tried to buy a new vehicle right now, you would have a lot of trouble if you wanted a truck, and specifically a heavy duty truck, you would have very, very hard time finding a vehicle. In fact, I went to two car dealerships today, and I found one diesel heavy duty truck on the lot, and it's because of supply issues. It's product of demand, because some people have a little bit more disposable income. And it's also a product of supply issues with with certain components, like chips, not being able to be produced. So porters buy forces. Talk about this. And then also, if you think about this in the context of the PESTEL, you can see how all these forces play on companies once let's see. Okay, here it is. Think about rivalry. You know, rivalry is going to exist among competitors and and all these forces are going to work together. I think the book does a really good job of breaking this down with this chart. Remember, you had the bargaining power of supplier suppliers, and then rivalry among existing competitors. So if you're the only person that makes wire harnesses in the old in the whole world, or micro trips that go into computer of cars and all the car manufacturers need it, then you had extremely high bargaining power and and if you could set up an exclusive, exclusive market with a certain car manufacturer, then you have a competitive advantage. There's that word again, you have extreme competitive advantage over your competitors. So think about that. When you think about rivalry, remember that that rivalry among competitors tend to be high, certainly in the space race, space there's three companies that are that have an incredible amount of funding. That would be Virgin Galactic, which is Richard Branson's company, that would be Blue Origin, which is Jeff Bezos company, and then there's Elon Musk company, SpaceX, and those are relatively roughly about the same size,
power, have the same funding, those kind of things. So that seems to enhance the rivalry among those competitors. Plus, in those three companies, case, at least the three billionaires kind of have some ego and have some competition with each other, and certainly use social media to tweak each other. Especially Elon Musk has made several comments that that are very unflattering about Jeff Bezos and his company Blue Origin as they seek to go to space, and also Richard Branson. So just wanted to talk about that. But the other thing I wanted to talk about is remember that there is always, always, always a new competitor that's coming online, that's on the horizon, that's trying to take over your market position. So you don't just have to worry about the competitors you have today, but you have to worry about the competitors that you don't see, that that are coming up, that maybe have a take on a product that you haven't thought of, that maybe have something innovative that they're doing, that are constantly trying to take market share. If you think back to the PESTEL and you think some technological advances, I mean, that certainly adds a level of complexity there. Kodak is no longer business. And as because they, they did not see the technology changes and kind of the way things were going and they didn't take the steps there, and then that allowed other competitors who embrace that technology to enter the market and take them on and eventually overtake them, and they are out of business today. Remember that new entrants have an uphill battle. Certainly you can see this, there are certain industries that it's very hard to break into, very, very hard. Some of those industries that it's hard to break into is the is, anything around energy, you know, there's certainly I, I live in a certain state. We'll take Pennsylvania for an example, Pennsylvania. Pennsylvania, Power and Light. They do the power for them because it's very high entrance for new entries. It's very hard for them to break in, because you need a lot of capital. You need a lot of infrastructure to be in that market. The table, 3.11 in the book. I did it again. Sorry about that. 3.11 in the book. Talked about that in great detail. So as the economies of scale talks about numbers of people, customers in the firm, increase, the cost of serving tends to decrease. So that's an that's a prompt for new entrants, because the cost is going to be very high. And they get more and more and more and more. You get more efficient. You get better at what you're doing. You have you're able to negotiate better prices, things like that. That makes it hard capital requirements. You know, you're not going to enter a business in the power industry generally, because it's very expensive to do so, obviously, access to distribution channels, government policies, switching costs, all those kind of things are are a threat to new entrants. Remember that existing companies do not want new entrants. They want to keep the status quo as much as possible. They want to take all the market share, and they want to keep people from entering the market, and that's okay, because that is their job is to survive, to get that competitive advantage, to keep that competitive advantage, and to prevent others from taking their competitive
advantage. So as we talk about all this, I hope you can see that that strategy is, you know, it's, it's very complex. There's a lot to it, you know, we, we are discussing about all these external forces, and we're only focusing on a few. I mean, there's so many external forces that are affecting these companies, you know, we, we named a few. COVID certainly is, is a more recent example of of a force that has affected us in that and that came across, all of them, legal, political, certainly social, certainly most areas of the PESTEL, technological, as people had to transition to work from home, and we're still dealing with the ramifications of that, as people now do not want to go back to work because they like being at home. They like their freedom, they like their work environment at home and allows them to be more productive. And companies are fighting that, and they're losing employees. One of my places of business has lost many employees because of the work at home policy or lack thereof. Let's see. Obviously, when we're talking about five forces, we need to talk about the power of suppliers, and we also need to talk about the power of buyers. So, you know, purchasing power is a very important thing, and the buyers have some power, and certainly the suppliers have power as well. And these forces work together and put stress on companies aren't external factors that you have to deal with. The last area we're going to talk about is strategic groups. So, you know, it allows companies to follow similar strategies. And the way that works, by the way I figured out how to turn off my email so it won't be popping up in the middle. So sorry about that is, you know this, I think this is a good chart. Put some companies on there, and you can see what their perception is of quality. Ruth Chris is considered very high. And their their menu is in the middle. Popeye is has a very a. Limited menu, but their quality is considered low. Pizza Hut, which actually has transformed quite a bit and has has a lot of a lot more choices. Domino's has more certainly, but Pizza Hut has more choices, has a low menu and also low perceived quality. Anyway, one of the things that the reason I wanted to show this was this chart illustrates well, is, where do you want to position yourself? And as I talked about in lecture, one module one, I talked about Acer computers and how, you know, they have a competitive advantage in their space, but they're trying to be in a certain space. They're not trying to compete with Apple, necessarily, just like PF Chang's, Benihana's And Ruth Chris. Certainly there's limited resources out there for people, but they're not really competing with with Pizza Hut or McDonald's. Certainly PF Chang's isn't. So you know the one of the things to keep in mind is, know who your competition is in your group. So PF Chang's does have to compete with Benihana, I would put risk Chris actually at a higher level, but whatever, we'll leave it on here for this. But PF Changs and Benihana certainly are competing with each other for customers. By the way, Benihana, the founder, son of Benihana, is actually a famous musician, so that I always find that interesting. Whenever I see anything about Benihana, I think about the founder and kind of
his life story and his drive, and then how his son has exhibited that, that same drive in a different avenue. So just, just interesting stuff, one of the things that you're going to have to do to understand competitive factors is to develop that strategic, that map of where you fit in. And that's one of the exercises that you would go to as you as go through, as you consider those external factors and
you form your strategic plan. So that is it for Module Three. Remember, the important things is the PESTEL framework is really big. Obviously, Porter's Five Forces, and then understanding your positioning in the market is critical as well. We will be moving into the internal environment, which makes sense after we talk about the external environment right next. So we will talk about value chains, firms, resources and the resource based view to management. So looking forward to that, and as always, if we could close in prayer, I'd appreciate it so heavenly Father. Thank you so much for the time. Thank you for this group of individuals that are going through the class and learning. Lord, thank You for the mission of Christian leaders and what they stand for and how they're able to provide education and training in a way for students to learn material and to be able to apply it and and be powerful witnesses for Christ within their marketplace. So Lord, I pray you'll bless this class. You'll bless pray. You'll bless each individual, and as we move into lecture four, that you will help us to sit back and consider the first quarter of this class and all we've learned and how we can apply it for you in Jesus' name, we pray amen. Thank you so much, and I will see you in lecture four. Thank you so much.