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Chapter 3: Analyzing a Companys

External Environment

Team 1: Godfrey Fenyi, Emmanuel Shirima and Matt Poole

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Two considerations

Companys external ormacro-environment

Industry and competitive conditions

Companys internal ormicro-environment

Competencies, capabilities,resource strengths and weaknesses,and competitiveness

What Is Situation Analysis?

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Key Questions Regarding theIndustry and Competitive Environment

Industrys

dominanteconomictraits

Competitive

forces andstrength ofeach force

Drivers ofchange in theindustry

Competitoranalysis

Key successfactors

Conclusions:Industryattractiveness

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Question #1: What are the Industrys

Dominant Economic Traits?

Market size and growth rate

Scope of competitive rivalry

Number of rivals

Buyer needs and requirements

Production capacity

Pace of technological change

Vertical integration

Product innovation

Degree of product differentiation

Economies of scale

Learning and experience curve effects

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Objectives are to identify

Main sourcesof competitive forces

Strengthof these forces

Key analytical tool

Five Forces Modelof Competition

Question #2: What Kinds of CompetitiveForces Are Industry Members Facing?

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The Five Forces Model of Competition

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What Are the TypicalWeapons for Competing?

Vigorous price competition

More or different

performance features Better product performance

Higher quality

Stronger brand image and

appeal

Wider selection of modelsand styles

Bigger/better dealer network

Low interest rate financing

Higher levels of advertising

Stronger product innovationcapabilities

Better customer service

Stronger capabilities toprovide buyers with custom-made products

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Strategic Implications of theFive Competitive Forces

Competitive environmentis unattractivefromthe standpoint of earning good profits when

Rivalry is vigorous

Entry barriers are lowand entry is likely

Competition fromsubstitutes is strong

Suppliers and customers haveconsiderable bargaining power

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Competitive environmentis idealfroma profit-making standpoint when

Rivalry is moderate

Entry barriers are highand no firm is likely to enter

Good substitutesdo not exist

Suppliers and customers are

in a weak bargaining position

Strategic Implications of theFive Competitive Forces

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Question #3: What Factors Are Driving

Industry Change?

Industries change because forcesare drivingindustry participantsto alter their actions

Driving forcesare themajor underlying causesof changing industry andcompetitive conditions

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Question #4: What Market Positions DoRivals Occupy?

One technique to revealdifferent competitive positions

of industry rivals isstrategic group mapping

A strategic groupis acluster of firms in an industrywith similar competitiveapproaches and market positions

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Question #5: What Strategic MovesAre Rivals Likely to Make?

A firms best strategic movesare affected by

Current strategies of competitors

Future actions of competitors Profiling key rivals involves gathering

competitive intelligenceabout

Current strategies

Most recent actions and public announcements

Resource strengths and weaknesses

Efforts being made to improve their situation

Thinking and leadership styles of top executives

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Question #6: What Are the Key Factorsfor Competitive Success?

KSFs are those competitive factorsmost affecting every industrymembers ability to prosper. They

concern

Specific strategy elements

Product attributes

Resources Competencies

Competitive capabilities

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Question #7: Does the Outlook for theIndustry Present an Attractive Opportunity?

Involves assessing whether the industryand competitive environment is attractiveor unattractivefor earning good profits

Under certain circumstances, a firm uniquelywell-situatedin an otherwise unattractiveindustry canstill earnunusually good profits

Attractiveness is relative, not absolute

Conclusions have to be drawn from theperspective of a particular company

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NEWSFLASH! Upcoming FCC

Wireless Bandwidth Auction

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Summary

Key Questions Regarding theIndustry and Competitive Environment Question #1: What are the Industrys Dominant

Economic Traits? Question #2: What Kinds of Competitive Forces Are

Industry Members Facing?

The Five Forces Model of Competition Question #3: What Factors Are Driving Industry

Change and What Impacts Will They Have? Question #4: What Market Positions Do Rivals

Occupy?

Question #5: What Strategic MovesAre Rivals Likely to Make? Question #6: What Are the Key Factors for

Competitive Success? Question #7: Does the Outlook for the Industry

Present an Attractive Opportunity?

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Sources

Thompson, A, Strickland III, A.,Gamble, J. (2008). Crafting andExecuting Strategy: The Quest forCompetitive Advantage: Concepts

and Cases, 14/e McGraw Hill. McGraw-Hill Online Learning

Center. Www.mhhe.com/thompson

Www.utube.com

http://www.mhhe.com/thompsonhttp://www.mhhe.com/thompson

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Source Critique

Team Analysis

Questions?