Transcript Strategic Management: Competitiveness and Globalization

Chapter 2
The External Environment: Opportunities,
Threats, and Industry Competition, and
Competitor Analysis
Michael A. Hitt
R. Duane Ireland
Robert E. Hoskisson
©2003 Southwestern Publishing Company
1
Strategic Inputs
The Strategic
Management
Process
Chapter 2
The External
Environment
Strategic Intent
Strategic Mission
Chapter 3
The Internal
Environment
Strategy Implementation
Strategic Outcomes
Strategic Actions
Strategy Formulation
Chapter 5
Chapter 4
Competitive Rivalry
Business-Level
and Competitive
Strategy
Dynamics
Chapter 7
Acquisition and
Restructuring
Strategies
Chapter 8
International
Strategy
Chapter 6
CorporateLevel Strategy
Chapter 10
Corporate
Governance
Chapter 11
Organizational
Structure and
Controls
Chapter 9
Cooperative
Strategy
Chapter 12
Strategic
Leadership
Chapter 13
Strategic
Entrepreneurship
Strategic
Competitiveness
Above-Average
Returns
Feedback
2
The External Environment
Environment
Sociocultural
Industry
Environment
Threat of new entrants
Power of suppliers
Power of buyers
Product substitutes
Intensity of rivalry
Competitor
Environment
Technological
General
3
External Environmental Analysis
A continuous process which includes




Scanning: Identifying early signals of environmental
changes and trends
Monitoring: Detecting meaning through ongoing
observations of environmental changes and trends
Forecasting: Developing projections of anticipated
outcomes based on monitored changes and trends
Assessing: Determining the timing and importance
of environmental changes and trends for firms’
strategies and their management
4
External Environmental Analysis
Analysis of general environment
Analysis of industry environment
Analysis of competitor environment
The External
Environment
Strategic Intent
Strategic Mission
5
General Environment

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
6
General Environment

Economic segment


Inflation rates
Interest rates
 Trade deficits or surpluses
 Budget deficits or surpluses
 Personal savings rate
 Business savings rates
 Gross domestic product
7
General Environment

Political/Legal Segment





Antitrust laws
Taxation laws
Deregulation philosophies
Labor training laws
Educational philosophies and policies
8
General Environment

Technological Segment




Product innovations
Applications of knowledge
Focus of private and government-supported
R&D expenditures
New communication technologies
9
General Environment

Global Segment




Important political events
Critical global markets
Newly industrialize countries
Different cultural and institutional attributes
10
General Environment

Demographic Segment





Population size
Age structure
Geographic
distribution
Ethnic mix
Income distribution
11
Industry Environment
A set of factors that directly influences
a company and its competitive actions
and responses.
 Interaction among these factors
determine an industry’s profit potential.






Threat of new entrants
Power of suppliers
Power of buyers
Product substitutes
Intensity of rivalry
12
Five Forces Model of Competition

Identify current and potential competitors
and determine which firms serve them.
 Conduct competitive analysis.
 Recognize that suppliers and buyers can
become competitors.
 Recognize that producers of potential
substitutes may become competitors.
13
Five Forces Model of Competition
Five Forces of
Competition
Bargaining Power of
Buyers
14
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
15
Bargaining Power of Suppliers

A supplier group is powerful when:

it is dominated by a few large companies
 satisfactory substitute products are not available
to industry firms
 industry firms are not a significant customer for
the supplier group
 suppliers’ goods are critical to buyers’
marketplace success
 effectiveness of suppliers’ products has created
high switching costs
 suppliers are a credible threat to integrate
forward into the buyers’ industry
16
Bargaining Power of Buyers

Buyers (customers) are powerful
when:




they purchase a large portion of an industry’s
total output
the sales of the product being purchased
account for a significant portion of the seller’s
annual revenues
they could easily switch to another product
the industry’s products are undifferentiated or
standardized, and buyers pose a credible threat
if they were to integrate backward into the
seller’s industry
17
Threat of Substitute Products

Product substitutes are strong threat
when:

customers face few switching costs
 substitute product’s price is lower
 substitute product’s quality and performance
capabilities are equal to or greater than those of
the competing product
18
Intensity of Rivalry

Intensity of rivalry is stronger when
competitors:

are numerous or equally balanced
 experience slow industry growth
 have high fixed costs or high storage costs
 lack differentiation or low switching costs
 experience high strategic stakes
 have high exit barriers
19
High Exit Barriers

Common exit barriers include:





specialized assets (assets with values linked to
a particular business or location)
fixed costs of exit such as labor agreements
strategic interrelationships (relationships of
mutual dependence between one business and
other parts of a company’s operation, such as
shared facilities and access to financial markets)
emotional barriers (career concerns, loyalty to
employees, etc.)
government and social restrictions
20
Strategic Groups
Strategic group: a group of firms in an
industry following the same or similar
strategy along the same strategic
dimensions.
The strategy followed by a strategic
group differs from strategies being
implemented by other companies in
the industry.
21
Competitor Environment
Competitor intelligence is the ethical
gathering of needed information and
data about competitors’ objectives,
strategies, assumptions, and capabilities

what drives the competitor as shown by its future
objectives
 what the competitor is doing and can do as
revealed by its current strategy
 What the competitor believes about itself and the
industry, as shown by its assumptions
 What the the competitor may be able to do, as
22
shown by its capabilities
Competitor Analysis
Future objectives
Future Objectives:



How do our goals compare
with our competitors’
goals?
Where will the emphasis
be placed in the future?
What is the attitude toward
risk?
23
Competitor Analysis
Future objectives
Current strategy
Current Strategy:


How are we currently
competing?
Does this strategy support
changes in the competitive
structure?
24
Competitor Analysis
Future objectives
Assumptions:


Current strategy

Assumptions
Do we assume the future
will be volatile?
Are we operating under a
status quo?
What assumptions do our
competitors hold about
the industry and
themselves?
25
Competitor Analysis
Future objectives
Current strategy
Capabilities:


What are our strengths
and weaknesses?
How do we rate compared
to our competitors?
Assumptions
Capabilities
26
Competitor Analysis
Future objectives
Current strategy
Assumptions
Response
Response:



Capabilities
What will our competitors
do in the future?
Where do we hold an
advantage over our
competitors?
How will this change our
relationship with our
competitors?
27