Strategy Ppt External Env[1].C2.Hitt,Ireland&Hokkison

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Strategic management external unpredictable environment.

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  • Strategy Ppt External Env[1].C2.Hitt,Ireland&Hokkison

    1. 1. © 2007 Thomson/South-Western.© 2007 Thomson/South-Western. All rights reserved.All rights reserved. PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie Cook The University of West AlabamaThe University of West Alabama Strategic ManagementStrategic Management Competitiveness and Globalization:Competitiveness and Globalization: Concepts and CasesConcepts and Cases Michael A. Hitt • R. Duane Ireland • Robert E. Hoskisson Seventh edition STRATEGIC MANAGEMENT INPUTS Chapter 2Chapter 2 Analysis of the ExternalAnalysis of the External EnvironmentEnvironment Management of StrategyManagement of Strategy Concepts and CasesConcepts and Cases
    2. 2. © 2007 Thomson/South-Western. All rights reserved. 2–2 KKNOWLEDGENOWLEDGE OOBJECTIVESBJECTIVES 1.1. Explain the importance of analyzing and understandingExplain the importance of analyzing and understanding the firm’s external environment.the firm’s external environment. 2.2. Define and describe the general environment and theDefine and describe the general environment and the industry environment.industry environment. 3.3. Discuss the four activities of the external environmentalDiscuss the four activities of the external environmental analysis process.analysis process. 4.4. Name and describe the general environment’s sixName and describe the general environment’s six segments.segments. 5.5. Identify the five competitive forces and explain how theyIdentify the five competitive forces and explain how they determine an industry’s profit potential.determine an industry’s profit potential. Studying this chapter should provide you with the strategic management knowledge needed to:
    3. 3. © 2007 Thomson/South-Western. All rights reserved. 2–3 KKNOWLEDGENOWLEDGE OOBJECTIVESBJECTIVES (cont’d)(cont’d) 6.6. Define strategic groups and describe their influence onDefine strategic groups and describe their influence on the firm.the firm. 7.7. Describe what firms need to know about theirDescribe what firms need to know about their competitors and different methods (including ethicalcompetitors and different methods (including ethical standards) used to collect intelligence about them.standards) used to collect intelligence about them. Studying this chapter should provide you with the strategic management knowledge needed to:
    4. 4. © 2007 Thomson/South-Western. All rights reserved. 2–4 FIGUREFIGURE 2.12.1 The External EnvironmentThe External Environment
    5. 5. © 2007 Thomson/South-Western. All rights reserved. 2–5
    6. 6. © 2007 Thomson/South-Western. All rights reserved. 2–6 TABLETABLE 2.12.1 The General Environment: Segments and ElementsThe General Environment: Segments and Elements
    7. 7. © 2007 Thomson/South-Western. All rights reserved. 2–7 Industry EnvironmentIndustry Environment • The set of factors directly influencing a firm andThe set of factors directly influencing a firm and its competitive actions and competitiveits competitive actions and competitive responsesresponses  Threat of new entrantsThreat of new entrants  Power of suppliersPower of suppliers  Power of buyersPower of buyers  Threat of product substitutesThreat of product substitutes  Intensity of rivalry among competitorsIntensity of rivalry among competitors
    8. 8. © 2007 Thomson/South-Western. All rights reserved. 2–8 Competitor AnalysisCompetitor Analysis • Gathering and interpretingGathering and interpreting information about all of theinformation about all of the companies that the firmcompanies that the firm competes against.competes against. • Understanding the firm’sUnderstanding the firm’s competitor environmentcompetitor environment complements the insightscomplements the insights provided by studying theprovided by studying the general and industrygeneral and industry environments.environments.
    9. 9. © 2007 Thomson/South-Western. All rights reserved. 2–9 Analysis of the External EnvironmentsAnalysis of the External Environments • General environmentGeneral environment  Focused on the futureFocused on the future • Industry environmentIndustry environment  Focused on factors and conditions influencing a firm’sFocused on factors and conditions influencing a firm’s profitability within an industryprofitability within an industry • Competitor environmentCompetitor environment  Focused on predicting the dynamics of competitors’Focused on predicting the dynamics of competitors’ actions, responses and intentionsactions, responses and intentions
    10. 10. © 2007 Thomson/South-Western. All rights reserved. 2–10 TABLETABLE 2.22.2 Components of the External Environmental AnalysisComponents of the External Environmental Analysis Scanning • Identifying early signals of environmental changes and trends Monitoring • Detecting meaning through ongoing observations of environmental changes and trends Forecasting • Developing projections of anticipated outcomes based on monitored changes and trends Assessing • Determining the timing and importance of environmental changes and trends for firms’ strategies and their management
    11. 11. © 2007 Thomson/South-Western. All rights reserved. 2–11 Opportunities and ThreatsOpportunities and Threats • OpportunityOpportunity  A condition in the generalA condition in the general environment that, if exploited,environment that, if exploited, helps a company achievehelps a company achieve strategic competitiveness.strategic competitiveness. • ThreatThreat  A condition in the generalA condition in the general environment that may hinder aenvironment that may hinder a company’s efforts to achievecompany’s efforts to achieve strategic competitiveness.strategic competitiveness.
    12. 12. © 2007 Thomson/South-Western. All rights reserved. 2–12 Segments of the General EnvironmentSegments of the General Environment • The Demographic SegmentThe Demographic Segment  Population sizePopulation size  Age structureAge structure  Geographic distributionGeographic distribution  Ethnic mixEthnic mix  Income distributionIncome distribution
    13. 13. © 2007 Thomson/South-Western. All rights reserved. 2–13 Segments of the General EnvironmentSegments of the General Environment (cont’d)(cont’d) • The Economic SegmentThe Economic Segment  Inflation ratesInflation rates  Interest ratesInterest rates  Trade deficits or surplusesTrade deficits or surpluses  Budget deficits or surplusesBudget deficits or surpluses  Personal savings ratePersonal savings rate  Business savings ratesBusiness savings rates  Gross domestic productGross domestic product
    14. 14. © 2007 Thomson/South-Western. All rights reserved. 2–14 Segments of the General EnvironmentSegments of the General Environment (cont’d)(cont’d) • The Political/Legal SegmentThe Political/Legal Segment  Antitrust lawsAntitrust laws  Taxation lawsTaxation laws  Deregulation philosophiesDeregulation philosophies  Labor training lawsLabor training laws  Educational philosophies andEducational philosophies and policiespolicies
    15. 15. © 2007 Thomson/South-Western. All rights reserved. 2–15 Segments of the General EnvironmentSegments of the General Environment (cont’d)(cont’d) • The Sociocultural SegmentThe Sociocultural Segment  Women in the workplaceWomen in the workplace  Workforce diversityWorkforce diversity  Attitudes about quality of worklifeAttitudes about quality of worklife  Concerns about environmentConcerns about environment  Shifts in work and career preferencesShifts in work and career preferences  Shifts in product and service preferencesShifts in product and service preferences
    16. 16. © 2007 Thomson/South-Western. All rights reserved. 2–16 Segments of the General EnvironmentSegments of the General Environment (cont’d)(cont’d) • The Technological SegmentThe Technological Segment  Product innovationsProduct innovations  Applications of knowledgeApplications of knowledge  Focus of private and government-supported R&DFocus of private and government-supported R&D expendituresexpenditures  New communication technologiesNew communication technologies
    17. 17. © 2007 Thomson/South-Western. All rights reserved. 2–17 Segments of the General EnvironmentSegments of the General Environment (cont’d)(cont’d) • The Global SegmentThe Global Segment  Important political eventsImportant political events  Critical global marketsCritical global markets  Newly industrialized countriesNewly industrialized countries  Different cultural and institutionalDifferent cultural and institutional attributesattributes
    18. 18. © 2007 Thomson/South-Western. All rights reserved. 2–18 Industry Environment AnalysisIndustry Environment Analysis • Industry DefinedIndustry Defined  A group of firms producing products that are closeA group of firms producing products that are close substitutessubstitutes • Firms that influence one anotherFirms that influence one another • Includes a rich mix of competitive strategies thatIncludes a rich mix of competitive strategies that companies use in pursuing strategiccompanies use in pursuing strategic competitiveness and above-average returnscompetitiveness and above-average returns
    19. 19. © 2007 Thomson/South-Western. All rights reserved. 2–19 FIGUREFIGURE 2.22.2 The Five Forces of Competition ModelThe Five Forces of Competition Model
    20. 20. © 2007 Thomson/South-Western. All rights reserved. 2–20 Threat of New Entrants: Barriers to EntryThreat of New Entrants: Barriers to Entry • Economies of scaleEconomies of scale • Product differentiationProduct differentiation • Capital requirementsCapital requirements • Switching costsSwitching costs • Access to distribution channelsAccess to distribution channels • Cost disadvantages independent of scaleCost disadvantages independent of scale • Government policyGovernment policy • Expected retaliationExpected retaliation
    21. 21. © 2007 Thomson/South-Western. All rights reserved. 2–21 Barriers to EntryBarriers to Entry • Economies of ScaleEconomies of Scale  Marginal improvements in efficiency that a firmMarginal improvements in efficiency that a firm experiences as it incrementally increases its sizeexperiences as it incrementally increases its size • Factors (advantages and disadvantages) relatedFactors (advantages and disadvantages) related to large- and small-scale entryto large- and small-scale entry  Flexibility in pricing and market shareFlexibility in pricing and market share  Costs related to scale economiesCosts related to scale economies  Competitor retaliationCompetitor retaliation
    22. 22. © 2007 Thomson/South-Western. All rights reserved. 2–22 Barriers to Entry (cont’d)Barriers to Entry (cont’d) • Product differentiationProduct differentiation  Unique productsUnique products  Customer loyaltyCustomer loyalty  Products at competitiveProducts at competitive pricesprices • Capital RequirementsCapital Requirements  Physical facilitiesPhysical facilities  InventoriesInventories  Marketing activitiesMarketing activities  Availability of capitalAvailability of capital • Switching CostsSwitching Costs  One-time costs customersOne-time costs customers incur when they buy from aincur when they buy from a different supplierdifferent supplier • New equipmentNew equipment • Retraining employeesRetraining employees • Psychic costs of ending aPsychic costs of ending a relationshiprelationship • Access to DistributionAccess to Distribution ChannelsChannels  Stocking or shelf spaceStocking or shelf space  Price breaksPrice breaks  Cooperative advertisingCooperative advertising allowancesallowances
    23. 23. © 2007 Thomson/South-Western. All rights reserved. 2–23 Barriers to Entry (cont’d)Barriers to Entry (cont’d) • Cost DisadvantagesCost Disadvantages Independent of ScaleIndependent of Scale  Proprietary productProprietary product technologytechnology  Favorable access to rawFavorable access to raw materialsmaterials  Desirable locationsDesirable locations • Government policyGovernment policy  Licensing and permitLicensing and permit requirementsrequirements  Deregulation of industriesDeregulation of industries • Expected retaliationExpected retaliation  Responses by existingResponses by existing competitors may dependcompetitors may depend on a firm’s present stake inon a firm’s present stake in the industry (availablethe industry (available business options)business options)
    24. 24. © 2007 Thomson/South-Western. All rights reserved. 2–24 Bargaining Power of SuppliersBargaining Power of Suppliers • Supplier power increases when:Supplier power increases when:  Suppliers are large and few in number.Suppliers are large and few in number.  Suitable substitute products are not available.Suitable substitute products are not available.  Individual buyers are not large customers of suppliersIndividual buyers are not large customers of suppliers and there are many of them.and there are many of them.  Suppliers’ goods are critical to the buyers’Suppliers’ goods are critical to the buyers’ marketplace success.marketplace success.  Suppliers’ products create high switching costs.Suppliers’ products create high switching costs.  Suppliers pose a threat to integrate forward intoSuppliers pose a threat to integrate forward into buyers’ industry.buyers’ industry.
    25. 25. © 2007 Thomson/South-Western. All rights reserved. 2–25 Bargaining Power of BuyersBargaining Power of Buyers • Buyer power increases when:Buyer power increases when:  Buyers are large and few in number.Buyers are large and few in number.  Buyers purchase a large portion of an industry’s totalBuyers purchase a large portion of an industry’s total output.output.  Buyers’ purchases are a significant portion of aBuyers’ purchases are a significant portion of a supplier’s annual revenues.supplier’s annual revenues.  Buyers’ switching costs are low.Buyers’ switching costs are low.  Buyers can pose threat to integrate backward into theBuyers can pose threat to integrate backward into the sellers’ industry.sellers’ industry.
    26. 26. © 2007 Thomson/South-Western. All rights reserved. 2–26 Threat of Substitute ProductsThreat of Substitute Products • The threat of substitute products increasesThe threat of substitute products increases when:when:  Buyers face few switching costs.Buyers face few switching costs.  The substitute product’s price is lower.The substitute product’s price is lower.  Substitute product’s quality and performance areSubstitute product’s quality and performance are equal to or greater than the existing product.equal to or greater than the existing product. • Differentiated industry products that are valuedDifferentiated industry products that are valued by customers reduce this threat.by customers reduce this threat.
    27. 27. © 2007 Thomson/South-Western. All rights reserved. 2–27 Intensity of Rivalry Among CompetitorsIntensity of Rivalry Among Competitors • Industry rivalry increases when:Industry rivalry increases when:  There are numerous or equally balanced competitors.There are numerous or equally balanced competitors.  Industry growth slows or declines.Industry growth slows or declines.  There are high fixed costs or high storage costs.There are high fixed costs or high storage costs.  There is a lack of differentiation opportunities or lowThere is a lack of differentiation opportunities or low switching costs.switching costs.  When the strategic stakes are high.When the strategic stakes are high.  When high exit barriers prevent competitors fromWhen high exit barriers prevent competitors from leaving the industry.leaving the industry.
    28. 28. © 2007 Thomson/South-Western. All rights reserved. 2–28 Low entry barriers Interpreting Industry AnalysesInterpreting Industry Analyses UnattractiveUnattractive IndustryIndustry Suppliers and buyers have strong positions Strong threats from substitute products Intense rivalry among competitors Low profit potential
    29. 29. © 2007 Thomson/South-Western. All rights reserved. 2–29 Interpreting Industry Analyses (cont’d)Interpreting Industry Analyses (cont’d) AttractiveAttractive IndustryIndustry High entry barriers Suppliers and buyers have weak positions Few threats from substitute products Moderate rivalry among competitors High profit potential
    30. 30. © 2007 Thomson/South-Western. All rights reserved. 2–30 Strategic GroupsStrategic Groups • Strategic Group DefinedStrategic Group Defined  A set of firms emphasizing similar strategicA set of firms emphasizing similar strategic dimensions and using similar strategiesdimensions and using similar strategies • Internal competition between strategic group firmsInternal competition between strategic group firms is greater than between firms outside that strategicis greater than between firms outside that strategic group.group. • There is more heterogeneity in the performance ofThere is more heterogeneity in the performance of firms within strategic groups.firms within strategic groups. – Similar market positionsSimilar market positions – Similar productsSimilar products – Similar strategic actionsSimilar strategic actions
    31. 31. © 2007 Thomson/South-Western. All rights reserved. 2–31 Strategic GroupsStrategic Groups • Strategic DimensionsStrategic Dimensions  Extent of technological leadershipExtent of technological leadership  Product qualityProduct quality  Pricing PoliciesPricing Policies  Distribution channelsDistribution channels  Customer serviceCustomer service
    32. 32. © 2007 Thomson/South-Western. All rights reserved. 2–32 Competitor AnalysisCompetitor Analysis • Competitor IntelligenceCompetitor Intelligence  The ethical gathering of needed information and dataThe ethical gathering of needed information and data that provides insight into:that provides insight into: • A competitor’s direction (A competitor’s direction (future objectivesfuture objectives)) • A competitor’s capabilities and intentions (A competitor’s capabilities and intentions (currentcurrent strategystrategy)) • A competitor’s beliefs about the industry (A competitor’s beliefs about the industry (itsits assumptionsassumptions)) • A competitor’sA competitor’s capabilitiescapabilities
    33. 33. © 2007 Thomson/South-Western. All rights reserved. 2–33 FIGUREFIGURE 2.22.2 CompetitorCompetitor AnalysisAnalysis ComponentsComponents
    34. 34. © 2007 Thomson/South-Western. All rights reserved. 2–34 Competitor Analysis (cont’d)Competitor Analysis (cont’d) • How do our goalsHow do our goals compare with ourcompare with our competitors’ goals?competitors’ goals? • Where will the emphasisWhere will the emphasis be placed in the future?be placed in the future? • What is the attitudeWhat is the attitude toward risk?toward risk? Future ObjectivesFuture Objectives
    35. 35. © 2007 Thomson/South-Western. All rights reserved. 2–35 Competitor Analysis (cont’d)Competitor Analysis (cont’d) • How are we currentlyHow are we currently competing?competing? • Does this strategyDoes this strategy support changes in thesupport changes in the competitive structure?competitive structure? Future ObjectivesFuture Objectives Current StrategyCurrent Strategy
    36. 36. © 2007 Thomson/South-Western. All rights reserved. 2–36 Competitor Analysis (cont’d)Competitor Analysis (cont’d) • Do we assume theDo we assume the future will be volatile?future will be volatile? • Are we operating underAre we operating under a status quo?a status quo? • What assumptions doWhat assumptions do our competitors holdour competitors hold about the industry andabout the industry and themselves?themselves? Future ObjectivesFuture Objectives Current StrategyCurrent Strategy AssumptionsAssumptions
    37. 37. © 2007 Thomson/South-Western. All rights reserved. 2–37 Competitor Analysis (cont’d)Competitor Analysis (cont’d) • What are our strengthsWhat are our strengths and weaknesses?and weaknesses? • How do we rateHow do we rate compared to ourcompared to our competitors?competitors? Future ObjectivesFuture Objectives Current StrategyCurrent Strategy AssumptionsAssumptions CapabilitiesCapabilities
    38. 38. © 2007 Thomson/South-Western. All rights reserved. 2–38 Competitor Analysis (cont’d)Competitor Analysis (cont’d) • What will ourWhat will our competitors do in thecompetitors do in the future?future? • Where do we hold anWhere do we hold an advantage over ouradvantage over our competitors?competitors? • How will this changeHow will this change our relationship withour relationship with our competitors?our competitors? ResponseResponseFuture ObjectivesFuture Objectives Current StrategyCurrent Strategy AssumptionsAssumptions CapabilitiesCapabilities
    39. 39. © 2007 Thomson/South-Western. All rights reserved. 2–39 ComplementorsComplementors • ComplementorsComplementors  The network of companies that sell complementaryThe network of companies that sell complementary products or services or are compatible with the focalproducts or services or are compatible with the focal firm’s own product or service.firm’s own product or service. • If a complementor’s product or service adds valueIf a complementor’s product or service adds value to the sale of the focal firm’s product or service, itto the sale of the focal firm’s product or service, it is likely to create value for the focal firm.is likely to create value for the focal firm. • However, if a complementor’s product or service isHowever, if a complementor’s product or service is in a market into which the focal firm intends toin a market into which the focal firm intends to expand, the complementor can represent aexpand, the complementor can represent a formidable competitor.formidable competitor.
    40. 40. © 2007 Thomson/South-Western. All rights reserved. 2–40 Ethical ConsiderationsEthical Considerations • Practices considered both legal and ethical:Practices considered both legal and ethical:  Obtaining publicly available informationObtaining publicly available information  Attending trade fairs and shows to obtain competitors’Attending trade fairs and shows to obtain competitors’ brochures, view their exhibits, and listen tobrochures, view their exhibits, and listen to discussions about their productsdiscussions about their products • Practices considered both unethical and illegal:Practices considered both unethical and illegal:  BlackmailBlackmail  TrespassingTrespassing  EavesdroppingEavesdropping  Stealing drawings, samples, or documentsStealing drawings, samples, or documents

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