Transcript The External Environment: Opportunities and Threats Hierarchy of External Influences • Social • Economic • Technical • Global • Political/Legal Firm • • • • • Five Forces Competitor Intelligence Industry Structure Strategic Groups Political/Legal.

The External Environment:
Opportunities and Threats
Hierarchy of External Influences
• Social
• Economic
• Technical
• Global
• Political/Legal
Firm
•
•
•
•
•
Five Forces
Competitor Intelligence
Industry Structure
Strategic Groups
Political/Legal
Stakeholders
• Shareholders
• Government
• Financial Community
• Host Community
• Ecological Environment
• Society in General
Firm
•
•
•
•
•
•
Rivals
Customers
Suppliers
Employees
Managers
Board Members
Industry Vital Statistics
•
•
•
•
How is the industry defined?
Size
Growth
Key Players: Rivals, customers,
suppliers, government agencies
• Structure
• Performance
Growth Rate
Life Cycle Stage
Time
Concentrated Structure
Fragmented Structure
Porter’s Five Forces Model of Competition
Threat of
Threat of
New
New
Entrants
Entrants
Bargaining
Power of
Suppliers
Rivalry Among
Competing Firms
in Industry
Threat of
Substitute
Products
(+) or (-) influence... Prices
Bargaining
Power of
Buyers
Costs
Threat of New Entrants
* Economies of Scale -- Memory
Barriers to
Entry
* Product Differentiation
* Capital Requirements
* Switching Costs -- Frequent flyer
* Access to Distribution Channels
* Cost Disadvantages
Independent of Scale
* Government Policy
* Expected Retaliation
Bargaining Power of Suppliers
Powerful
suppliers can
squeeze industry
profits if firms
are unable to
recover cost
increases
Suppliers are likely to be powerful if:
* Supplier industry is dominated by
a few firms -- Microprocessors
* Suppliers’ products have few
substitutes -- Intel, PowerPC
* Buyer is not an important customer
to supplier
* Suppliers’ product is an important
input to buyers’ product
* Suppliers’ products are differentiated
* Suppliers’ products have high
switching costs
* Supplier poses credible threat of
forward integration -- Nike
Bargaining Power of Buyers
Buyer groups are likely to be powerful if:
* Buyers purchases are large relative to
seller’s sales -- Wal-Mart
* Purchase accounts for a significant
fraction of supplier’s sales
* Products are undifferentiated
* Buyers face few switching costs -Gasoline
*
* Buyer presents a credible threat of
backward integration
* Product unimportant to quality
* Buyer has full information
Buyers compete
with the supplying
industry by:
* Bargaining down prices
* Forcing higher quality
* Playing firms off of
each
other
Threat of Substitute Products
Keys to evaluate substitute products:
Products
with similar
function
limit the
prices firms
can charge
* Products with improving
price/performance tradeoffs
relative to present industry
products
For Example:
• On-line trading in place of
stock brokers
• Plastic vs. glass vs. aluminum
containers for soft drinks
Intensity of Rivalry Among Existing Competitors
Plays out in the following ways:
*
*
*
*
*
Jockeying for strategic position
Using price competition -- AT&T vs. MCI
Staging advertising battles -- Bud vs. Miller
Increasing consumer warranties or service
Making new product introductions
Intensity of Rivalry Among Existing Competitors
Cutthroat competition is more likely to occur when:
*
Numerous or equally balanced competitors
*
Slow growth industry -- Heavy trucks
*
*
High fixed costs
High storage costs
*
Lack of differentiation -- Long distance phone svc.
*
Capacity added in large increments
*
Diverse competitors
*
High strategic stakes
*
High exit barriers
Environmental Scanning Grid
IMPACT
Serious
Threat
General
Economics
Environment Demographics
Political-Legal
Sociocultural
Technological
Global
Competitive Potential Entry
Environment Suppliers
Customers
Substitutes
Rivalry
TOTAL IMPACT
Mild
Threat
Benign
Potential
Oppty.
Strong
Oppty.
Strategic Group Map
Department Stores
High
Quality
Upscale
Wholesale
Clubs
Low
Quality
Branded
Chains
Closeout
Low Price
High Price
Strategic Group Map: Beer
(Pre-light / Pre-microbrew)
Dark/Full
Guinness
Amber
Heineken
Regular
Old Swill
Miller
Bud
Light
Low Price
High Price
Strategic Group Map: Beer
Dark/Full
Killian’s Brown
Lowenbrau Dark
Amber
Killian’s Red Amber Bock
Red Wolf
Lowenbrau
Regular
Old Swill
Light
Milwaukee’s
Best Light
Low Price
Bud
Miller
Miller Lite
Bud Ice
Guinness
Blackened Voodoo
Anchor Porter
Sam Adams
Bass Ale
Pilsner Urquell
Amstel
Cardinal
High Price