Strategic Management: Environmental and Competitive Forces
Strategic Management: External Influences
Strategic management involves analyzing environmental forces, external events, and influences that can affect an organization’s decisions and actions.
General Environment
Factors such as the social and political environment and inflation often indirectly affect all organizations.
Economic System
- Social Market Economy
- Government: Participatory Democracy
Ecosystem
Environmental factors (weak system in Chile).
Demography
- National population: 16 million (concentrated in Santiago)
- Global and Chilean trend: Aging population
Cultural Forces
Culture is defined by shared values and characteristics (language, religion, traditions) that distinguish groups. A common value system includes belief in private enterprise and individual rights.
Technological Forces
Technology encompasses knowledge, tools, techniques, and actions used to transform inputs into goods and services.
Impact of Technology
Technological change eliminates the present and creates the future. Organizations must adapt to new technologies to avoid extinction.
Legal and Political Forces
Companies resolve conflicts through legal and political systems.
- Health Act (FONASA – ISAPRES)
- Forecast (AFP)
- Environment Act
- Insurance Work
- Equality Before the Law for Children
- Unions
Competitive Environment: Five Forces
The competitive environment includes current competitors, new competitors, real substitutes, customers, and suppliers.
Current Competitors
Competitors are a crucial daily force, influencing strategies like price reductions, advertising campaigns, service improvements, and product quality enhancements.
New Entrants
The threat of new competition depends on the ease of market entry. Low entry barriers lead to fierce competition (e.g., photocopying, fast food).
Barrier Scale
- Economies of Scale: Reduced unit costs with increased production volume (e.g., aviation industry).
- Product Differentiation: Unique quality, value, design, or customer service (e.g., frequent flier programs).
- Capital Requirements: Monetary resources needed for equipment, supplies, advertising, and research (e.g., airlines).
- Governmental Regulation: Restrictions hindering new entrants.
Customers
Customers seek lower prices, higher quality, and increased competition among vendors. Their bargaining power is significant when:
- They buy large volumes relative to total sales.
- They represent a significant portion of revenue.
- They threaten backward integration (e.g., McDonald’s producing its own supplies).
- They have alternative options.
Suppliers
Supplier bargaining power allows them to raise prices or reduce quality. Boeing dominates the commercial aircraft market due to its technological leadership, quality, and service.