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strategic management 1


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strategic management 1

  1. 1. 1 Chapter 2: The External Environment: Opportunities, Threats, Industry Competition and Competitor Analysis  Overview:  The firm’s external environment  External environmental analysis  General environmental segments  Industry environment (and analysis)  Porter’s 5 Competitive Forces  Strategic groups: Definition and influence  Competitors and competitive intelligence
  2. 2. 2 External Environment Analysis  4 components  Scanning – the study of all segments in the general environment  Monitoring – observing environmental changes to see if an important trend is emerging  Forecasting – the development of feasible projections of what might happen and how quickly as a result of the changes and trends detected  Assessing – determining the timing and significance of the effects of environmental changes and trends on the firm
  3. 3. 3 External Environment Analysis  Major part of external analysis is the identification of opportunities and threats  Opportunity  Environment condition that, if exploited effectively, helps a company achieve strategic competitiveness  Threat  Environment condition that may hinder a company's efforts to achieve strategic competitiveness
  4. 4. 4 The External Environment: General, Industry, and Competitor
  5. 5. 5 The General Environment  The General Environment  The broader society dimensions that influence an industry and the firms within it  Grouped into 7 dimensions OR ‘environmental segments’  Demographic – population’s size, age structure, geographic distribution, ethnic mix, and income distribution  Economic – nature and direction of economy  Political/Legal – laws and regulations  Sociocultural – society’s attitudes and cultural values  Technological – new technologies and firms that create them  Global – new global markets, existing markets that are changing, and their characteristics  Physical – potential and actual changes in physical environment and business practices
  6. 6. 6 The Industry Environment  Industry Environment  Set of factors directly influencing a firm’s competitive actions/responses  Industry (Product Market)  Definition: Group of firms producing products that are close substitutes  Industry environment, in comparison to the general environment, has more direct effect on firm’s  Strategic competitiveness and  Above-average returns  Intensity of industry competition and industry’s profit potential are a function of 5 forces
  7. 7. 7 The Five Forces of Competition Model
  8. 8. 8 Industry Environment Analysis  Threat of New Entrants  Deals with the likelihood that new firms will enter an industry or that an existing member of an industry will enter an additional segment within the larger industry  Can threaten the market share of existing competitors and may bring additional production capacity  New entry is often via an acquisition  A stronger force when…  Barriers to entry are weak or nonexistent  The expected retaliation by current industry participants is low
  9. 9. 9 Industry Environment Analysis  Bargaining power of suppliers  Usually other business organizations that provide the industry with products and services  A supplier group is powerful when …  It is dominated by a few large companies and is more concentrated than the industry to which they sell  No satisfactory substitutes exist  Industry firms not significant customer to supplier group  Supplier’s goods are critical to buyer’s success  High switching costs due to effectiveness of supplier’s products  Poses credible threat of forward integration
  10. 10. 10 Industry Environment Analysis  Bargaining power of buyers  Usually other business organizations that purchase the outputs of an industry  Buyer groups are powerful when …  They purchase a large portion of industry’s total output  Product sales accounts for a significant portion of seller’s annual revenue  Low switching costs (to other industry product)  Industry products are undifferentiated or standardized and buyers pose a credible threat of backward integration
  11. 11. 11 Industry Environment Analysis  Threat of substitute products  Goods or services from outside a given industry that perform similar or the same functions as the product the industry produces  Examples  Sugar vs. sugar substitutes  Aspirin vs. Ibuprofen  Aluminum cans vs. plastic bottles  A strong force when…  Low switching costs  The substitute product’s price is lower or its quality and performance capabilities are equal to or greater than those of the competing product
  12. 12. 12 Industry Environment Analysis  Intensity of Rivalry Among Competitors  Firms operating in the same market, offering similar products, and targeting similar customers  A stronger force when…  Numerous or equally balanced competitors  Slow industry growth  High fixed costs or high storage costs  Lack of differentiation or low switching costs  High strategic stakes  High exit barriers
  13. 13. 13 Industry Environment Analysis  Interpreting Industry Analyses  Five force analysis helps determine an industry’s attractiveness for above average returns  Stronger forces = Lower profit potential  Weaker forces = Higher profit potential  Attractive industry characterized by  Low threat of new entry  Suppliers and buyers with weak bargaining positions  Low threat from substitute products  Less intense rivalry among competitors
  14. 14. 14 Industry Analysis: Strategic Groups  Strategic Group Mapping  Strategic Group – a set of firms emphasizing similar strategic dimensions and using a similar strategy  Can be useful for analyzing an industry and an industry’s competitive structure  Can also be helpful in diagnosing competition, positioning, and the profitability of firm’s within an industry
  15. 15. 15 Strategic Group Map of Selected Automobile Manufacturers
  16. 16. Strategic Group Map of Selected Retail Chains
  17. 17. 17 Industry Analysis: Strategic Groups  Implications  Because firms within a group compete (offer similar products) rivalry can be intense – the greater the rivalry the greater the threat to each firm’s profitability  Strengths of the 5 forces can differ across strategic groups  The closer the strategic groups, in terms of strategy, the greater the likelihood of rivalry  Helps with positioning and in the identification of direct and indirect competitors
  18. 18. 18 The Competitor Environment and Competitor Analysis  Competitor Environment  Gives details about  A firm’s direct and indirect competitors  The competitive dynamics (Ch. 5) expected to impact a firm's efforts to generate above-average returns  Competitor analysis  Focused on predicting the dynamics of competitor's actions, responses, and intentions  Focuses on a firms direct comptitors  Seeks to understand each competitors future objectives, current strategy, assumptions, and capabilities
  19. 19. 19 Competitor Analysis Components
  20. 20. 20 Competitor Intelligence  Competitor intelligence  Set of data and information the firm gathers to better understand and anticipate competitors' objectives, strategies, assumptions, and capabilities  Scanning, monitoring, forecasting, and assessing  Follow ethical practices when gathering competitor intelligence  Obtain public information  Attend trade fairs and shows and collect brochures, view exhibits, listen to their discussions  Some practices may be legal, but unethical  Unethical tactics can include  Blackmail, Trespassing, Eavesdropping, Stealing