Transcript Chapter 3 - Management

Competing For Advantage
Part II – Strategic Analysis
Chapter 3 – The External Environment:
Opportunities, Threats, Industry Competition,
and Competitor Analysis
The Strategic
Management
Process
External Environments
 Key Terms

General Environment – composed of dimensions
in the broader society that influence an industry
and the firms within it

Industry Environment – set of factors that directly
influence a firm and its competitive actions and
competitive responses

Competitor Environment – details about a firm’s
direct and indirect competitors and the
competitive dynamics expected to impact a firm's
efforts to generate above-average returns
Assessing the General
Environment
Assessing the General
Environment
Assessing the Industry Environment
 Threat of new entrants
 Bargaining power of suppliers
 Bargaining power of buyers
 Threat of substitute products
 Intensity of rivalry among competitors
External Environmental Analysis
 Key Terms
 Opportunity –
condition in the external
environment that, if exploited, helps a
company achieve value creation
 Threat – condition in the general
environment that may hinder a
company's efforts to achieve value
creation
External Environment Analysis
External Environment Analysis
 Key Terms

Scanning – study of all segments in the general
environment

Monitoring – observance of environmental changes to
identify important emerging trends from among those
spotted by scanning

Forecasting – developing feasible projections of
potential events

Assessing – determining the timing and significance of
the effects of environmental changes and trends on the
strategic management of the firm
Segments of the General Environment
The Demographic Segment
 Key Terms
Segment – the section
of the environment concerned with a
population's size, age structure,
geographic distribution, ethnic mix,
and income distribution
 Demographic
The Demographic Segment –
Characteristics
 Population
 Age
size
structure
 Geographic
 Ethnic
distribution
mix
 Income
distribution
The Economic Segment
 Key Terms
Segment – the nature and
direction of the economy in which a
firm competes or may compete
 Economic
The Economic Segment –
Aspects
 Gross
National Product (GNP)
 Interest
rates
 Inflation/Deflation
 Foreign
 Trade
exchange rates
balances
The Political Segment
 Key Terms
Segment – arena in
which organizations and interest
groups compete for attention,
resources, and a voice in order to
oversee the body of laws and
regulations guiding the interactions
among nations
 Political/Legal
The Political Segment –
Affects Competition
 Laws
 Regulations
 Policies
The Sociocultural Segment
 Key Terms
Segment – the part
of the environment concerned
with a society's attitudes and
cultural values
 Sociocultural
The Sociocultural Segment –
Considerations
 Workforce
diversity
 Changing attitudes toward work
 Saving and retirement planning
 Concern for the environment
 Concern for quality of work life
 Residential decisions
 Shifts in product/service preferences
The Technological Segment
 Key Terms
Segment – part of the
environment that includes the
institutions and activities involved with
creating new knowledge and
translating that knowledge into new
outputs, products, processes, and
materials
 Technological
The Technological Segment –
Issues
 Rapid
pace of technological change
 Promise
of greater returns for early
adopters of new technologies
 Impact
of the Internet on business
practices
 Impact
of wireless communications
on business practices
The Global Segment
 Key Terms
Segment – part of the
environment that includes relevant
new global markets, existing markets
that are changing, important
international political events, and
critical cultural and institutional
characteristics of global markets
 Global
The Global Segment –
Interdependence and Opportunities
The flow of goods, services, financial capital,
and knowledge is increasing, and is easier
than at any time in the past
 Economically maturing markets are opening up
 Reaching beyond national borders extends
potential and increases the likelihood of
earning a return on new innovations
 Current demographic changes and trends
need to be understood by businesses

The Global Segment –
Challenges

The low cost of goods developed in
countries with extremely low wage rates
threatens industries in higher wage nations

There are risks associated with investing in
less economically mature markets

Different sociocultural and institutional
attributes need to be recognized when
expanding into global markets
Industry Environment Analysis
 Key Terms
 Industry –
group of firms producing
products that are close substitutes
Five Competitive Forces
Threat of New Entrants
 Factors that affect the likelihood that firms
will enter an industry:

Barriers to entry

Expected retaliation from current
industry participants
Threat of New Entrants
 Barriers to entry are desired by existing
competitors in an industry

Barriers to entry reduce the likelihood
that new competitive firms will enter
their market and threaten their market
share by adding new production
capacity, holding down consumer costs,
lowering revenue, and reducing returns
for competing firms
Market Entry Barriers





Economies of scale yields high volume, low cost
production advantages for existing firms
Mass customization can result in quick
responsiveness to customer demands
Perceived product differentiation can generate a
strong customer following that is difficult to
overcome
Capital requirements can demand substantial
investment resources to compete
Customer switching costs to change products
can make it undesirable for consumers to try
new products
Market Entry Barriers




Access to distribution channels may be restricted
by existing relationships between manufacturers
and their distribution networks
Existing competitors may have a lock on other
(independent of scale) cost advantages that are
difficult for new businesses to replicate
Some government policies control entry into an
industry through licensing, regulation, and other
requirements
An expectation of vigorous competitive response
from existing industry participants can interfere
with decisions to enter a market, with the
exception of underserved market niches or
neglected segments
Bargaining Power of Suppliers
 Supplier concentration
 No substitutes
 Small customers
 Critical product
 High switching cost
 Threat of forward integration
Bargaining Power of Buyers
 Large buyers in industry
 Large buyer to seller
 Low switching costs
 Standardized product
 Threat of backward integration
Threat of Substitute Products
 Few switching costs
 Lower price
 Quality and performance capabilities
meet or exceed product
Intensity of Rivalry
 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
Complementors
 Key Terms
 Complementors –
companies that
sell complementary goods or
services that are compatible with
the focal firm's own product or
services
Interpreting Industry Analysis
The ways in which competitive
analysis provides insight into the
attractiveness of an industry by
determining its potential for aboveaverage returns over the long term
Analysis of Direct Competitors
 Key Terms

Strategic Group – set of firms
emphasizing similar strategic
dimensions to use a similar strategy

Strategic Dimensions – areas that
firms in a strategic group treat
similarly
Implications from Strategic Group
Dynamics
 Intra-strategic group rivalry is more intense
than inter-strategic group rivalry
 Membership in a strategic group partially
defines the essential characteristics of firms'
strategies
 The more similar strategies are seen across
strategic groups, the greater the level of
expected rivalry
 The strengths of industries' five forces differ
across strategic groups
Understanding Competitors and Their
Intentions
 Key Terms

Competitor Intelligence – set of data
and information the firm gathers to
better understand and anticipate
competitors' objectives, strategies,
assumptions, and capabilities
Competitor Analysis Components
Ethical Questions
How can a firm use its “code of ethics” as it
analyzes the external environment?
Ethical Questions
What ethical issues, if any, may be relevant to
a firm’s monitoring of its external environment?
Does use of the Internet to monitor the
environment lead to additional ethical issues?
If so, what are they?
Ethical Questions
What is an ethical issue associated with each
segment of a firm’s general environment?
Are firms across the globe doing enough to
deal with this issue?
Ethical Questions
Why are ethical practices critical in the
relationships between a firm and its
suppliers?
Ethical Questions
In an intense rivalry, especially one that involves
competition in the global marketplace, how can
the firm gather competitor intelligence ethically
while maintaining its competitiveness?
Ethical Questions
What makes an intelligence-gathering practice
ethical or not ethical? Do you see this changing
as the world’s economies become more
interdependent? If so, why? Do you see this
changing because of the Internet? If so, how?