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    Chapter2 Chapter2 Presentation Transcript

    • PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie CookThe University of West AlabamaThe University of West AlabamaStrategic ManagementStrategic ManagementCompetitiveness and Globalization:Competitiveness and Globalization:Concepts and CasesConcepts and CasesMichael A. Hitt • R. Duane Ireland • Robert E. HoskissonSeventh editionSTRATEGICMANAGEMENTINPUTS© 2007 Thomson/South-Western.© 2007 Thomson/South-Western.All rights reserved.All rights reserved.CHAPTER 2CHAPTER 2The External Environment:The External Environment:Opportunities, Threats,Opportunities, Threats,Industry Competition,Industry Competition,and Competitor Analysisand Competitor Analysis
    • © 2007 Thomson/South-Western. All rights reserved. 2–2KKNOWLEDGENOWLEDGE OOBJECTIVESBJECTIVES1.1. Explain the importance of analyzing and understandingExplain the importance of analyzing and understandingthe 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 theindustry environment.industry environment.3.3. Discuss the four activities of the external environmentalDiscuss the four activities of the external environmentalanalysis process.analysis process.4.4. Name and describe the general environment’s sixName and describe the general environment’s sixsegments.segments.5.5. Identify the five competitive forces and explain how theyIdentify the five competitive forces and explain how theydetermine an industry’s profit potential.determine an industry’s profit potential.Studying this chapter should provide you with the strategicmanagement knowledge needed to:
    • © 2007 Thomson/South-Western. All rights reserved. 2–3KKNOWLEDGENOWLEDGE OOBJECTIVESBJECTIVES (cont’d)(cont’d)6.6. Define strategic groups and describe their influence onDefine strategic groups and describe their influence onthe firm.the firm.7.7. Describe what firms need to know about theirDescribe what firms need to know about theircompetitors and different methods (including ethicalcompetitors and different methods (including ethicalstandards) used to collect intelligence about them.standards) used to collect intelligence about them.Studying this chapter should provide you with the strategicmanagement knowledge needed to:
    • © 2007 Thomson/South-Western. All rights reserved. 2–4FIGUREFIGURE 2.12.1 The External EnvironmentThe External Environment
    • © 2007 Thomson/South-Western. All rights reserved. 2–5General EnvironmentGeneral Environment• Dimensions in the broader society that influenceDimensions in the broader society that influencean industry and the firms within it:an industry and the firms within it: DemographicDemographic EconomicEconomic Political/legalPolitical/legal SocioculturalSociocultural TechnologicalTechnological GlobalGlobal
    • © 2007 Thomson/South-Western. All rights reserved. 2–6TABLETABLE 2.12.1 The General Environment: Segments and ElementsThe General Environment: Segments and Elements
    • © 2007 Thomson/South-Western. All rights reserved. 2–7Industry EnvironmentIndustry Environment• The set of factors directly influencing a firm andThe set of factors directly influencing a firm andits competitive actions and competitiveits competitive actions and competitiveresponsesresponses 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
    • © 2007 Thomson/South-Western. All rights reserved. 2–8Competitor AnalysisCompetitor Analysis• Gathering and interpretingGathering and interpretinginformation about all of theinformation about all of thecompanies that the firmcompanies that the firmcompetes against.competes against.• Understanding the firm’sUnderstanding the firm’scompetitor environmentcompetitor environmentcomplements the insightscomplements the insightsprovided by studying theprovided by studying thegeneral and industrygeneral and industryenvironments.environments.
    • © 2007 Thomson/South-Western. All rights reserved. 2–9Analysis 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’sprofitability 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
    • © 2007 Thomson/South-Western. All rights reserved. 2–10TABLETABLE 2.22.2 Components of the External Environmental AnalysisComponents of the External Environmental AnalysisScanning • Identifying early signals of environmentalchanges and trendsMonitoring • Detecting meaning through ongoingobservations of environmental changesand trendsForecasting • Developing projections of anticipatedoutcomes based on monitored changesand trendsAssessing • Determining the timing and importanceof environmental changes and trends forfirms’ strategies and their management
    • © 2007 Thomson/South-Western. All rights reserved. 2–11Opportunities and ThreatsOpportunities and Threats• OpportunityOpportunity A condition in the generalA condition in the generalenvironment that, if exploited,environment that, if exploited,helps a company achievehelps a company achievestrategic competitiveness.strategic competitiveness.• ThreatThreat A condition in the generalA condition in the generalenvironment that may hinder aenvironment that may hinder acompany’s efforts to achievecompany’s efforts to achievestrategic competitiveness.strategic competitiveness.
    • © 2007 Thomson/South-Western. All rights reserved. 2–12Segments 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
    • © 2007 Thomson/South-Western. All rights reserved. 2–13Segments 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
    • © 2007 Thomson/South-Western. All rights reserved. 2–14Segments 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 andpoliciespolicies
    • © 2007 Thomson/South-Western. All rights reserved. 2–15Segments 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
    • © 2007 Thomson/South-Western. All rights reserved. 2–16Segments 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&Dexpendituresexpenditures New communication technologiesNew communication technologies
    • © 2007 Thomson/South-Western. All rights reserved. 2–17Segments 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 institutionalattributesattributes
    • © 2007 Thomson/South-Western. All rights reserved. 2–18Industry Environment AnalysisIndustry Environment Analysis• Industry DefinedIndustry Defined A group of firms producing products that are closeA group of firms producing products that are closesubstitutessubstitutes• Firms that influence one anotherFirms that influence one another• Includes a rich mix of competitive strategies thatIncludes a rich mix of competitive strategies thatcompanies use in pursuing strategiccompanies use in pursuing strategiccompetitiveness and above-average returnscompetitiveness and above-average returns
    • © 2007 Thomson/South-Western. All rights reserved. 2–19FIGUREFIGURE 2.22.2 The Five Forces of Competition ModelThe Five Forces of Competition Model
    • © 2007 Thomson/South-Western. All rights reserved. 2–20Threat 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
    • © 2007 Thomson/South-Western. All rights reserved. 2–21Barriers to EntryBarriers to Entry• Economies of ScaleEconomies of Scale Marginal improvements in efficiency that a firmMarginal improvements in efficiency that a firmexperiences as it incrementally increases its sizeexperiences as it incrementally increases its size• Factors (advantages and disadvantages) relatedFactors (advantages and disadvantages) relatedto 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
    • © 2007 Thomson/South-Western. All rights reserved. 2–22Barriers to Entry (cont’d)Barriers to Entry (cont’d)• Product differentiationProduct differentiation Unique productsUnique products Customer loyaltyCustomer loyalty Products at competitiveProducts at competitivepricesprices• Capital RequirementsCapital Requirements Physical facilitiesPhysical facilities InventoriesInventories Marketing activitiesMarketing activities Availability of capitalAvailability of capital• Switching CostsSwitching Costs One-time costs customersOne-time costs customersincur when they buy from aincur when they buy from adifferent supplierdifferent supplier• New equipmentNew equipment• Retraining employeesRetraining employees• Psychic costs of ending aPsychic costs of ending arelationshiprelationship• Access to DistributionAccess to DistributionChannelsChannels Stocking or shelf spaceStocking or shelf space Price breaksPrice breaks Cooperative advertisingCooperative advertisingallowancesallowances
    • © 2007 Thomson/South-Western. All rights reserved. 2–23Barriers to Entry (cont’d)Barriers to Entry (cont’d)• Cost DisadvantagesCost DisadvantagesIndependent of ScaleIndependent of Scale Proprietary productProprietary producttechnologytechnology Favorable access to rawFavorable access to rawmaterialsmaterials Desirable locationsDesirable locations• Government policyGovernment policy Licensing and permitLicensing and permitrequirementsrequirements Deregulation of industriesDeregulation of industries• Expected retaliationExpected retaliation Responses by existingResponses by existingcompetitors may dependcompetitors may dependon a firm’s present stake inon a firm’s present stake inthe industry (availablethe industry (availablebusiness options)business options)
    • © 2007 Thomson/South-Western. All rights reserved. 2–24Bargaining 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 suppliersand 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 intobuyers’ industry.buyers’ industry.
    • © 2007 Thomson/South-Western. All rights reserved. 2–25Bargaining 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 totaloutput.output. Buyers’ purchases are a significant portion of aBuyers’ purchases are a significant portion of asupplier’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 thesellers’ industry.sellers’ industry.
    • © 2007 Thomson/South-Western. All rights reserved. 2–26Threat of Substitute ProductsThreat of Substitute Products• The threat of substitute products increasesThe threat of substitute products increaseswhen: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 areequal 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 valuedby customers reduce this threat.by customers reduce this threat.
    • © 2007 Thomson/South-Western. All rights reserved. 2–27Intensity 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 lowswitching 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 fromleaving the industry.leaving the industry.
    • © 2007 Thomson/South-Western. All rights reserved. 2–28Low entry barriersInterpreting Industry AnalysesInterpreting Industry AnalysesUnattractiveUnattractiveIndustryIndustrySuppliers and buyershave strong positionsStrong threats fromsubstitute productsIntense rivalryamong competitorsLow profit potential
    • © 2007 Thomson/South-Western. All rights reserved. 2–29Interpreting Industry Analyses (cont’d)Interpreting Industry Analyses (cont’d)AttractiveAttractiveIndustryIndustryHigh entry barriersSuppliers and buyershave weak positionsFew threats fromsubstitute productsModerate rivalryamong competitors High profit potential
    • © 2007 Thomson/South-Western. All rights reserved. 2–30Strategic GroupsStrategic Groups• Strategic Group DefinedStrategic Group Defined A set of firms emphasizing similar strategicA set of firms emphasizing similar strategicdimensions and using similar strategiesdimensions and using similar strategies• Internal competition between strategic group firmsInternal competition between strategic group firmsis greater than between firms outside that strategicis greater than between firms outside that strategicgroup.group.• There is more heterogeneity in the performance ofThere is more heterogeneity in the performance offirms within strategic groups.firms within strategic groups.– Similar market positionsSimilar market positions– Similar productsSimilar products– Similar strategic actionsSimilar strategic actions
    • © 2007 Thomson/South-Western. All rights reserved. 2–31Strategic GroupsStrategic Groups• Strategic DimensionsStrategic Dimensions Extent of technological leadershipExtent of technological leadership Product qualityProduct quality Pricing PoliciesPricing Policies Distribution channelsDistribution channels Customer serviceCustomer service
    • © 2007 Thomson/South-Western. All rights reserved. 2–32Competitor AnalysisCompetitor Analysis• Competitor IntelligenceCompetitor Intelligence The ethical gathering of needed information and dataThe ethical gathering of needed information and datathat 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 (currentcurrentstrategystrategy))• A competitor’s beliefs about the industry (A competitor’s beliefs about the industry (itsitsassumptionsassumptions))• A competitor’sA competitor’s capabilitiescapabilities
    • © 2007 Thomson/South-Western. All rights reserved. 2–33FIGUREFIGURE 2.22.2CompetitorCompetitorAnalysisAnalysisComponentsComponents
    • © 2007 Thomson/South-Western. All rights reserved. 2–34Competitor Analysis (cont’d)Competitor Analysis (cont’d)• How do our goalsHow do our goalscompare with ourcompare with ourcompetitors’ goals?competitors’ goals?• Where will the emphasisWhere will the emphasisbe placed in the future?be placed in the future?• What is the attitudeWhat is the attitudetoward risk?toward risk?Future ObjectivesFuture Objectives
    • © 2007 Thomson/South-Western. All rights reserved. 2–35Competitor Analysis (cont’d)Competitor Analysis (cont’d)• How are we currentlyHow are we currentlycompeting?competing?• Does this strategyDoes this strategysupport changes in thesupport changes in thecompetitive structure?competitive structure?Future ObjectivesFuture ObjectivesCurrent StrategyCurrent Strategy
    • © 2007 Thomson/South-Western. All rights reserved. 2–36Competitor Analysis (cont’d)Competitor Analysis (cont’d)• Do we assume theDo we assume thefuture will be volatile?future will be volatile?• Are we operating underAre we operating undera status quo?a status quo?• What assumptions doWhat assumptions doour competitors holdour competitors holdabout the industry andabout the industry andthemselves?themselves?Future ObjectivesFuture ObjectivesCurrent StrategyCurrent StrategyAssumptionsAssumptions
    • © 2007 Thomson/South-Western. All rights reserved. 2–37Competitor Analysis (cont’d)Competitor Analysis (cont’d)• What are our strengthsWhat are our strengthsand weaknesses?and weaknesses?• How do we rateHow do we ratecompared to ourcompared to ourcompetitors?competitors?Future ObjectivesFuture ObjectivesCurrent StrategyCurrent StrategyAssumptionsAssumptionsCapabilitiesCapabilities
    • © 2007 Thomson/South-Western. All rights reserved. 2–38Competitor Analysis (cont’d)Competitor Analysis (cont’d)• What will ourWhat will ourcompetitors do in thecompetitors do in thefuture?future?• Where do we hold anWhere do we hold anadvantage over ouradvantage over ourcompetitors?competitors?• How will this changeHow will this changeour relationship withour relationship withour competitors?our competitors?ResponseResponseFuture ObjectivesFuture ObjectivesCurrent StrategyCurrent StrategyAssumptionsAssumptionsCapabilitiesCapabilities
    • © 2007 Thomson/South-Western. All rights reserved. 2–39ComplementorsComplementors• ComplementorsComplementors The network of companies that sell complementaryThe network of companies that sell complementaryproducts or services or are compatible with the focalproducts or services or are compatible with the focalfirm’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 valueto the sale of the focal firm’s product or service, itto the sale of the focal firm’s product or service, itis 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 isin a market into which the focal firm intends toin a market into which the focal firm intends toexpand, the complementor can represent aexpand, the complementor can represent aformidable competitor.formidable competitor.
    • © 2007 Thomson/South-Western. All rights reserved. 2–40Ethical 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 todiscussions 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