Ch 02 Ppt Slides

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Copyright © 2008 The McGraw-Hill Companies, Inc. All rights resere!.McGraw-Hill/IrwinStrategic Management: Text and Cases, 4e

2

Analyzing the External

Environment of the Firm


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Learning Objectives

After reading this chapter, you should have a goodunderstanding of:

- The importance of developing forecasts of the business

environment.- Why environmental scanning, environmental monitoring,

and collecting competitive intelligence are critical inputsto forecasting.

- Why scenario planning is a useful technique for firmscompeting in industries characterized by unpredictabilityand change.

- The impact of the general environment on a firm’sstrategies and performance.


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Learning Objectives

After reading this chapter, you should have a goodunderstanding of:

- o! forces in the competitive environment can affect

profitability and ho! a firm can improve its competitive position by increasing its po!er vis-"-vis these forces.

- o! trends and events in the general environment andforces in the competitive environment are interrelated andaffect performance.

- o! the internet and digitally based compatibilities areaffecting the five competitive forces and industry profitability.

- The concept of strategic groups and their strategy and

performance implications.


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reating the Environmentally

A!are Organization

#$nsert %&hibit '.(

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Environmental #canning $ %onitoring

# %&ternal )canning

- )urveillance of a firm’s e&ternal environment:

# *redict environmental changes to come

# +etect changes already under !ay

# *roactive mode

# %&ternal onitoring

- Trac evolution of:

# %nvironmental trends

# )equence of events

# )treams of activities

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om'etitive (ntelligence

# +efine and understand a firm’s industry

# $dentify rivals’ strengths and !eanesses

-$ntelligence gathering data/- $nterpretation of intelligence data

# elps a firm avoid surprises

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*hat om'etitive (ntelligence

(s an+ (s ,ot

Competitive Intelligence

Is …. (nformation that has been

analyzed to the point !hereyou can mae a decision.

2. A tool to alert management

to early recognition of both

threats and opportunities.

3. A means to +eliverreasonable assessments.

4. A !ay of life/ a 'rocess.

Competitive Intelligence Is

Not …. #'ying. )pying implies illegal

or unethical activities. $t is arare activity.

2. A crystal ball. 0ompetitive

$ntelligence is good

appro&imation of reality1 it does

not predict the future.

3. 0atabase search. +ata by itself

is not good intelligence.

4. A job for one smart 'erson.

Adapted from %&hibit '.' What 0ompetitive $ntelligence $s and $s 2ot3

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Environmental Forecasting

# *lausible pro4ections about

- +irection of environmental change

- )cope of environmental change

- )peed of environmental change

- $ntensity of environmental change

# )cenario analysis

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estion

Which of the follo!ing is a danger of forecasting5

a/ anagers assume that the !orld is not open to precise

predictions.

b/ anagers may vie! uncertainty as blac and !hite and

ignore grey areas.

c/ anagers assume that the !orld is uncertain.

d/ anagers vie! the !orld as completely unpredictable.

2


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#*O Analysis

# anagers need to analyze

- The general environment

- The firm’s industry and competitive advantage

# )W6T analysis

- )trengths

- Weanesses

- 6pportunities- Threats

- 7asic technique for analyzing firm and industry condition

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Exam'le

# arley +avidson )W6T

- )trengths

# )trong 8 adaptable brand image

- Weanesses

# 9imited ability to develop ne! non-traditional products

- 6pportunities

# ro!ing leisure interest in motorcycles !orld!ide

- Threats# +iffering foreign policies governing motorcycles

)ource: +eveloped from !!!.harley-davidson.com

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he 6eneral Environment

# )egments of the general environment

include:

- +emographic

- )ociocultural- 9egal;*olitical

- Technological

- %conomic

- lobal# eneral environmental trends and events:

- 9ittle ability to predict them

- %ven less ability to control them

- 0an vary across industries

General

Environment

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0emogra'hic #egment

# Aging population

#


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#ociocltral #egment

# ore !omen in the !orforce

# $ncrease in temporary !orers

# reater concern for fitness# reater concern for environment

# *ostponement of family formation

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7olitical8Legal #egment

# Tort reform

# Americans !ith +isabilities Act A+A/

#


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echnological #egment

# enetic engineering

# %mergence of $nternet technology

# 0omputer-aided design;computer-aided manufacturingsystems 0A+;0A/

#


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Economic #egment

# $nterest rates

# >nemployment

# 0onsumer *rice inde&# Trends in +*

# 0hanges in stoc maret valuations

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6lobal #egment

# $ncreasing global trade

# 0urrency e&change rates

# %mergence of the $ndian and 0hinese economies# Trade agreements among regional blocs 2A?TA, %>,

A)%A2/

# 0reation of WT6 decreasing tariffs;free trade in

services/

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he om'etitive Environment

# )egments of the competitive

environment include:

- 0ompetitors

- 0ustomers

- )uppliers

# )ometimes called the tas or

industry environment# *orter’s five forces model

CompetitiveEnvironment

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7orter9s Five Forces %o+el

of (n+stry om'etition

#$nsert %&hibit '.@

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Exam'le

# *orter’s ?ive ?orces odel: 7W

- Threat of ne! entrants

# ery lo!

- Threat of substitutes

# edium

- *o!er of suppliers

# edium

- *o!er of buyers

# edium

-


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he hreat of ,e! Entrants

# *rofits of established firms in the industry may be eroded by

ne! competitors

# igh entry barriers lead to lo! threat of ne! entries

- %conomies of scale- *roduct differentiation

- 0apital requirements

- )!itching costs

- Access to distribution channels

- 0ost disadvantages independent of scale

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estion

$f you are considering opening a ne! pizza restaurant

in your community, !hat !ould be the threat of ne!

entrants5 o! !ould you evaluate *orter’s other

forces for this industry5 %&plain.

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he :argaining 7o!er of :yers

7uyers threaten an industry

- ?orce do!n prices

- 7argain for higher quality or more services

- *lay competitors against each other

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he :argaining 7o!er of :yers

# A buyer group is po!erful !hen

- $t is concentrated or purchases large volumes relative to

seller sales

- The products it purchases from the industry are standard or

undifferentiated

- The buyer faces fe! s!itching costs

- $t earns lo! profits

- The buyers pose a credible threat of bac!ard integration

- The industry’s product is unimportant to the quality of the

buyer’s products or services

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he :argaining 7o!er of #''liers

# )uppliers can e&ert po!er by threatening to raise

prices or reduce the quality of purchased goods and

services

# A supplier group !ill be po!erful !hen

- The supplier group is dominated by a fe! companies and is

more concentrated than the industry it sells to

- The supplier group is not obliged to contend !ith substitute

products for sale to the industry

- The industry is not an important customer of the supplier

group

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# A supplier group !ill be po!erful !hen cont./

- The supplier’s product is an important input to the buyer’s

business

- The supplier group’s products are differentiated or it has

built up s!itching costs for the buyer

- The supplier group poses a credible threat of for!ard

integration

he :argaining 7o!er of #''liers

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he hreat of #bstitte

7ro+cts an+ #ervices

# )ubstitutes limit the potential returns of an industry

- 0eiling on the prices that firms in that industry can

profitably charge

- *rice;performance ratio

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he (ntensity of ;ivalry among

om'etitors in an (n+stry

# Boceying for position

# *rice competition

# Advertising battles

# *roduct introductions# $ncreased customer service or !arranties

# $nteracting factors lead to intense rivalry- 2umerous or equally balanced competitors

- )lo! industry gro!th- igh fi&ed or shortage costs

- 9ac of differentiation or s!itching costs

- 0apacity augmented in large increments

- igh e&it barriers

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=sing (n+stry Analyses> A Fe! aveats

# ?ive ?orces analysis implicitly assumes a zero-sum

game

# ?ive ?orces analysis is essentially a static analysis

- alue net

# )uppliers and customers the vertical net/

# )ubstitutes and complements the horizontal net/

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he ?ale ,et

#$nsert %&hibit '.(C

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#trategic 6ro's !ithin (n+stries

# T!o unassailable assumptions in industry analysis

- 2o t!o firms are totally different

- 2o t!o firms are e&actly the same

# )trategic groups

# 0luster of firms that share similar strategies

- 7readth of product and geographic scope

- *rice;quality- +egree of vertical integration

- Type of distribution system

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#trategic 6ro's !ithin (n+stries

# alue of strategic groups as an analytical tool

- $dentify barriers to mobility that protect a group from

attacs by other groups

- $dentify groups !hose competitive position may bemarginal or tenuous

- 0hart the future direction of firms’ strategies

- Thining through the implications of each industry trend for

the strategic group as a !hole

Documents

Ch 02 Ppt Slides