This shows the external industrial analysis in strategic management

1. Makerere University
Business School
Strategic Management Course
ENVIROMENTAL ANALYSIS - COMPLETION

2. INDUSTRY ANALYSIS
 A firm operates in an industry
 Need to compare a company’s operations with
others
 Especially “the best-in-class” rivals
 Current level of competition
 Technologies
 Competitors’ Key Success Factors, among other key
issues.

3.  Customers
 Suppliers
 Competitors
 Industrial trends
 In line with your industry’s life cycle
 In line your goals and objectives, your strategy
Industry components

4. Customers:
 Who are they in terms of characteristics
and behaviours?
 How manageable are their needs, wants,
expectations, tastes and preferences?
 Why do they buy/what they value most?
 When/how do they buy?
 Where do they buy?, etc
 Do all these trends/factors/developments
favor/benefit us (opportunities) or really
scare/are against us (threats)?

5. Suppliers;
 Do we have alternative sources of
suppliers?
 Can we rely on these suppliers to
provide our needed inputs in the
right quantities ,quality, at the right
time and place?
 If the answer is yes , those are
opportunities. While no shows a
threat (s)

6.  What are their costs?
 What are their terms of delivery and/or
payment?
 How powerful are they?
 What is their rate of entry and exit?
 Which supplier is the best?
 Which supplier (s) will give us competitive
advantages (opportunities) or not/scare us(
threat)?

7. Competitors;
 How many competitors of our size
and competence are we facing? Few-
opportunity, many-threat
 What market share do they
hold/how strong are they?
Smaller/weaker-opportunity,
Big/strong- threat
 Cost of the available substitutes?
Find out

8.  What are their competitive behavior?
Friendly/cooperative- Opportunity, Un
friendly-Threat
 What are the entry and exit barriers for
these competitors? Easy for new rivals to
join but difficult for the current ones to
leave the industry-threat, Difficult to enter
but easy to exit-favorable/opportunity

9.  Before joining an industry, a firm
should consider;
Industry size, structure,
profitability, long term
attractiveness, life cycle
Competitive situation analysis

10. Level of technology in the
industry
Competitive position of the
firm
Ease of entry in the industry

11.  Michael E. Porter of the Harvard
Business School
 Suggested five competitive forces
model;
 Rivalry within the industry
 Threat of new entrants
 Threat of substitute products
 Power of buyers
 Power of suppliers
Michael Porter’s model

13. Rivalry determinants
 Mutual dependence
 Concentration of competitors
 Number of competitors
 Industry growth rate
 Cost structure
 Diversification by competitors
 Differentiation and switching costs
 Exit barriers
 Capacity utilisation

14. Entry barriers
 Economies of scale
 Product differentiation
 Capital requirements
 Switching costs
 Distribution channels access
 Government policies
 Expected retaliation

15. Substitution determinants
 Price relativity
 Switching costs
 Buyer propensity to substitute

16. Customer power determinants
 Intrinsic strength
 Buyer volume
 Switching costs
 Buyer information
 Backward integration ability
 Substitute products
 Price sensitivity
 Impact on quality
 Brand identity

17. Supplier power
 Importance to supplier
 Knowledge of product value to buyer
 Brand
 Quality
 Standardisation and differentiation
 Switching costs
 Threat of forward integration

18. Model Basics
 Helps managers to identify the
opportunities and threats
confronting their company (ies).
 The stronger the 5 competitive
forces, the more serious the threat
and vise versa.
 Through strategic change you can
alter the strengths of such forces

19. Porter’s Model – Cont.
 Need to understand the forces in the
industry, their impact/seriousness, how
and when they benefit or be against
you, and their sources.
 Confirm which forces favour your
business success (opportunities) or
scare your business success (threats)

20. Limitations
 Limited availability of the required
information i.e high level of secrecy in
government bodies and some business
associations
 The available information may not be
up-to-date, or be irrelevant or even
inaccurate
 The model ignores other trends like
changes in demand, technology used in
production, and the market
growth/attractiveness