Strategic Management 6e. - Hitt, Hoskisson, and Ireland
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Transcript Strategic Management 6e. - Hitt, Hoskisson, and Ireland
Chapter 2
The External
Environment
PowerPoint slides by:
R. Dennis Middlemist
Colorado State University
Copyright © 2004 South-Western
All rights reserved.
Knowledge Objectives
• Studying this chapter should provide you with the
strategic management knowledge needed to:
Explain the importance of analyzing and understanding the
firm’s external environment.
Define and describe the general environment and the
industry environment.
Discuss the four activities of the external environmental
analysis process.
Name and describe the general environment’s six
segments.
Identify the five competitive forces and explain how they
determine an industry’s profit potential.
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2–2
Knowledge Objectives (cont’d)
• Studying this chapter should provide you with the
strategic management knowledge needed to:
Define strategic groups and describe their influence on the
firm.
Describe what firms need to know about their competitors
and different methods used to collect intelligence about
them.
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2–3
The Strategic
Management
Process
Figure 1.1
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2–4
The External
Environment
Figure 2.1
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2–5
General Environment
• Dimensions in the broader society that
influence and industry and the firms within it
Economic
Sociocultural
Global
Technological
Political/legal
Demographic
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2–6
Industry Environment
• Set of factors directly influencing a firm and
its competitive actions and competitive
responses
Threat of new entrants
Power of suppliers
Power of buyers
Threat of product
substitutes
Intensity of rivalry
among competitors
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2–7
Competitor Environment
• All of the companies that the firm competes
against.
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2–8
Analysis of the External Environments
• General environment
Focused on the future
• Industry environment
Focused on factors and conditions influencing a
firm’s profitability within an industry
• Competitor environment
Focused on predicting the dynamics of
competitors’ actions, responses and intentions
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2–9
Opportunities and Threats
• Opportunity
A condition in the general environment that if
exploited, helps a company achieve strategic
competitiveness
• Threat
A condition in the general environment that may
hinder a company’s efforts to achieve strategic
competitiveness
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2–10
External Environmental Analysis
• A continuous process which includes
Scanning for early signals of potential
changes and trends in the general environment
Monitoring changes to see if a trend emerges
from among those spotted by scanning
Forecasting projections of outcomes based on
monitored changes and trends
Assessing the timing and significance of
changes and trends on the strategic
management of the firm
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2–11
Components of the External Environmental Analysis
Table 2.2
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2–12
General Environment (cont’d)
• The Economic Segment
Inflation rates
Interest rates
Trade deficits or
surpluses
Budget deficits or
surpluses
Personal savings rate
Business savings rates
Gross domestic
product
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2–13
General Environment (cont’d)
• The Sociocultural Segment
Women in the workplace
Workforce diversity
Attitudes about quality
of worklife
Concerns about
environment
Shifts in work and
career preferences
Shifts in product and
service preferences
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2–14
General Environment (cont’d)
• The Global Segment
Product innovations
Applications of
knowledge
Focus of private and
government-supported
R&D expenditures
New communication
technologies
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2–15
General Environment (cont’d)
• The Technological
Segment
Product innovations
Applications of
knowledge
Focus of private and
government-supported
R&D expenditures
New communication
technologies
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2–16
General Environment (cont’d)
• The Political/Legal
Segment
Antitrust laws
Taxation laws
Deregulation
philosophies
Labor training laws
Educational
philosophies and
policies
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2–17
General Environment
• The Demographic
Segment
Population size
Age structure
Geographic
distribution
Ethnic mix
Income distribution
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2–18
Industry Environment
• Industry Defined
A group of firms producing products that are
close substitutes
Firms
that influence one another
Includes
a rich mix of competitive strategies that
companies use in pursuing strategic
competitiveness and above-average returns
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2–19
The Five Forces of
Competition Model
Figure 2.2
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2–20
Threat of New Entrants: Barriers to Entry
• Economies of scale
• Product differentiation
• Capital requirements
• Switching costs
• Access to distribution channels
• Cost disadvantages independent of scale
• Government policy
• Expected retaliation
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2–21
Barriers to Entry
• Economies of Scale
Marginal improvements in efficiency that a firm
experiences as it incrementally increases its size
• Advantages and disadvantages of largescale and small-scale entry
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2–22
Barriers to Entry (cont’d)
• Product
differentiation
• Capital
Requirements
Unique products
Physical facilities
Customer loyalty
Inventories
Products at
competitive prices
Marketing activities
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Availability of capital
2–23
Barriers to Entry (cont’d)
• Switching Costs
One-time costs customers incur when they buy
from a different supplier
New equipment
Retraining employees
Psychic costs of ending a relationship
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2–24
Barriers to Entry (cont’d)
• Access to Distribution Channels
Stocking or shelf space
Price breaks
Cooperative advertising allowances
• Cost Disadvantages Independent of Scale
Proprietary product technology
Favorable access to raw materials
Desirable locations
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2–25
Barriers to Entry (cont’d)
• Cost disadvantages independent of scale
Proprietary product technology
Favorable access to raw materials
Desirable locations
• Government policy
Licensing and permit requirements
Deregulation of industries
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2–26
Barriers to Entry (cont’d)
• Expected retaliation
Responses by existing competitors may depend
on a firm’s present stake in the industry
(available business options)
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2–27
Bargaining Power of Suppliers
• Supplier power increases when:
Suppliers are large and few in
number
Suitable substitute products are
not available
Individual buyers are not large
customers of suppliers and there are many of
them
Suppliers’ goods are critical to buyers’
marketplace success
Suppliers’ products create high switching costs.
Suppliers pose a threat to integrate forward into
buyers’ industry
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2–28
Bargaining Power of Buyers
• Buyer power increase when:
Buyers are large and few in
number
Buyers purchase a large portion
of an industry’s total output
Buyers’ purchases are a significant
portion of a supplier’s annual revenues
Buyers can switch to another product without
incurring high switching costs
Buyers pose threat to integrate backward into the
sellers’ industry
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2–29
Threat of Substitute Products
• The threat of substitute products
increases when:
Buyers face few switching costs
The substitute product’s price is
lower
Substitute product’s quality and performance are
equal to or greater than the existing product
• Differentiated industry products that are valued by
customers reduce this threat
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2–30
Intensity of Rivalry Among Competitors
• Industry rivalry increases when:
There are numerous or equally
balanced competitors
Industry growth slows or
declines
There are high fixed costs or high
storage costs
There is a lack of differentiation opportunities or
low switching costs
When the strategic stakes are high
When high exit barriers prevent competitors from
leaving the industry
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2–31
Interpreting Industry Analyses
Low entry barriers
Suppliers and buyers
have strong positions
Strong threats from
substitute products
Intense rivalry
among competitors
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Unattractive
Industry
Low profit potential
2–32
Interpreting Industry Analyses
High entry barriers
Suppliers and buyers
have weak positions
Few threats from
substitute products
Moderate rivalry
among competitors
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Attractive
Industry
High profit potential
2–33
Strategic Groups Defined
• A set of firms emphasizing similar strategic
dimensions and using similar strategies
Internal competition between strategic group
firms is greater than between firms outside that
strategic group
There is more heterogeneity in the performance
of firms within strategic groups
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2–34
Strategic Groups
• Strategic Dimensions
Extent of technological leadership
Product quality
Pricing Policies
Distribution channels
Customer service
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2–35
Competitor Analysis
• Competitor Intelligence
The ethical gathering of needed information and
data that provides insight into:
A
competitor’s direction (future objectives)
A
competitor’s capabilities and intentions
(current strategy)
A
competitor’s beliefs about the industry (its
assumptions)
A
competitor’s capabilities
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2–36
Competitor Analysis
Components
Figure 2.3
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2–37