Transcript
33
Chapter TitleChapter Title
16/e PPT16/e PPT
Evaluating a Company’s
External Environment
Screen graphics created by:Jana F. Kuzmicki, Ph.D.
Troy University-Florida Region
McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
3-2
“Analysis is the critical
starting point of
strategic thinking.”
Kenichi Ohmae
3-3
“Things are always
different--the art is
figuring out which
differences matter.” Laszlo Birinyi
3-4
Chapter Roadmap
The Strategically Relevant Components of a Company’s External Environment
Thinking Strategically About a Company’s Industry and Competitive Environment Question 1: What Are the Industry’s Dominant Economic Features? Question 2: What Kinds of Competitive Forces Are Industry
Members Facing, and How Strong Is Each Force? Question 3: What Factors Are Driving Industry Change and What
Impacts Will They Have? Question 4: What Market Positions Do Rivals Occupy—Who Is
Strongly Positioned and Who Is Not? Question 5: What Strategic Moves Are Rivals Likely to Make Next? Question 6: What Are the Key Factors for Future Competitive
Success? Question 7: Does the Outlook for the Industry Present an Attractive
Opportunity?
3-5
Diagnosing a company’s situation has two facets
Assessing the company’s external ormacro-environment
Industry and competitive conditions
Forces acting to reshape this environment
Assessing the company’s internal ormicro-environment
Market position and competitiveness
Competencies, capabilities, resource strengthsand weaknesses, and competitiveness
Understanding the Factors that Determine a Company’s Situation
3-6
Fig. 3.1: From Thinking Strategically about theCompany’s Situation to Choosing a Strategy
3-7
Fig. 3.2: The Components of a Company’s Macro-environment
3-8
Thinking Strategically about aCompany’s Macro-environment
A company’s macro-environment includes all relevant factors and influences outside its boundaries
Diagnosing a company’s external situation involves assessing strategically important factors that have a bearing on the decisions a company’s makes about its Direction Objectives Strategy Business model
Requires that company managers scanthe external environment to Identify potentially important external developments Assess their impact and influence Adapt a company’s direction and strategy as needed
3-9
Key Questions Regarding theIndustry and Competitive Environment
What are the industry’s dominant economic traits?
How strong are competitive forces?
What forces are driving change in the industry?
What market positions do rivals occupy? What moves will they make next?
What are the key factors for competitive success?
How attractive is the industry from a profit perspective?
3-10
Market size and growth rate Number of rivals Scope of competitive rivalry Buyer needs and requirements Degree of product differentiation Product innovation Supply/demand conditions Pace of technological change Vertical integration Economies of scale Learning and experience curve effects
Question 1: What are the Industry’sDominant Economic Traits?
3-11
3-12
Learning/Experience Effects
Learning/experience effects exist when a company’s unit costs decline as its cumulative production volume increases because of
Accumulating production know-how
Growing mastery of the technology
The bigger the learning or experience curve effect, the bigger the cost advantage of the firm with the largest cumulative production volume
3-13
Question 2: What Kinds of CompetitiveForces Are Industry Members Facing?
Objectives are to identify
Main sources of competitive forces
Strength of these forces
Key analytical tool
Five Forces Modelof Competition
3-14
Fig. 3.3: The Five Forces Model of Competition
3-15
Analyzing the Five Competitive Forces: How to Do It
Step 1: Identify the specific competitivepressures associated with each ofthe five forces
Step 2: Evaluate the strength of eachcompetitive force -- fierce, strong,moderate to normal, or weak?
Step 3: Determine whether the collectivestrength of the five competitive forcesis conducive to earning attractive profits
3-16
Usually the strongest of the five forces
Key factor in determining strength of rivalry
How aggressively are rivals using various weapons of competition to improve their market positions and performance?
Competitive rivalry is a combativecontest involving
Offensive actions
Defensive countermoves
Competitive Pressures Among Rival Sellers
3-17
Fig. 3.4: Weapons for Competing and Factors Affecting Strength of Rivalry
Fig. 3.4: Weapons for Competing and Factors Affecting Strength of Rivalry
3-18
Lower prices
More or different performance features
Better product performance
Higher quality
Stronger brand image and appeal
Wider selection of models and styles
Bigger/better dealer network
Low interest rate financing
Higher levels of advertising
Stronger product innovation capabilities
Better customer service
Stronger capabilities to provide buyers with custom-made products
What Are the TypicalWeapons for Competing?
3-19
Test Your Knowledge
The rivalry among competing sellers in an industry intensifies
A. when buyer demand for the product is growing rapidly.
B. when customers are brand loyal and their costs to switch to competing brands or substitute products are relatively high.
C. when buyer demand is strong and sellers have little or no excess capacity and only minimal inventories.
D. as the number of rivals increases and as they become more equal in size and competitive capability.
E. when the products of rival sellers are highly differentiated products and the industry consists of so many rivals that any one company’s actions have little direct impact on rivals’ business.
3-20
Competitors are active in making fresh moves to improve market standing and business performance
Slow market growth Number of rivals increases and rivals are of
equal size and competitive capability Buyer costs to switch brands are low Industry conditions tempt rivals to use price cuts or other
competitive weapons to boost volume A successful strategic move carries a big payoff Diversity of rivals increases in terms of visions, objectives,
strategies, resources, and countries of origin Outsiders acquire weak firms in the industry and use their
resources to transform new firms into major market contenders
What Causes Rivalry to be Stronger?
3-21
Industry rivals move only infrequently or in a non-aggressive manner to draw sales from rivals
Rapid market growth
Products of rivals are stronglydifferentiated and customer loyalty is high
Buyer costs to switch brands are high
There are fewer than 5 rivals or there are numerous rivals so any one firm’s actions has minimal impact on rivals’ business
What Causes Rivalry to be Weaker?
3-22
Seriousness of threat depends on
Size of pool of entry candidatesand available resources
Barriers to entry
Reaction of existing firms
Evaluating threat of entry involves assessing
How formidable entry barriers are for each type of potential entrant and
Attractiveness of growth and profit prospects
Competitive PressuresAssociated With Potential Entry
3-23
Fig. 3.5: Factors Affecting Threat of Entry
3-24
Sizable economies of scale
Cost and resource disadvantages independent of size
Brand preferences and customer loyalty
Capital requirements and/or otherspecialized resource requirements
Access to distribution channels
Regulatory policies
Tariffs and international trade restrictions
Ability of industry incumbents to launch vigorous initiatives to block a newcomer’s entry
Common Barriers to Entry
3-25
There’s a sizable pool of entry candidates
Entry barriers are low
Industry growth is rapid and profit potential is high
Incumbents are unwilling or unable to contest a newcomer’s entry efforts
When existing industry members have a strong incentive to expand into new geographic areas or new product segments where they currently do not have a market presence
When Is the Threat of Entry Stronger?
3-26
There’s only a small pool of entry candidates
Entry barriers are high
Existing competitors are struggling to earn good profits
Industry’s outlook is risky
Industry growth is slow or stagnant
Industry members will strongly contestefforts of new entrants to gain a market foothold
When Is the Threat of Entry Weaker?
3-27
Competitive Pressures from Substitute Products
Substitutes matter when customers are attracted to the products of firms in other industries
Concept
Sugar vs. artificial sweeteners Eyeglasses and contact lens
vs. laser surgery Newspapers vs. TV vs. Internet
Examples
3-28
How to Tell Whether SubstituteProducts Are a Strong Force
Whether substitutes are readilyavailable and attractively priced
Whether buyers view substitutesas being comparable or better
How much it costs end usersto switch to substitutes
3-29
Fig. 3.6: Factors Affecting Competition From Substitute Products
3-30
There are many good substitutes readily available
Substitutes are attractively priced
The higher the quality and performance of substitutes
The lower the end user’s switching costs
End users grow more comfortable with using substitutes
When Is the CompetitionFrom Substitutes Stronger?
3-31
Whether supplier-seller relationships represent aweak or strong competitive force depends on
Whether suppliers can exercisesufficient bargaining leverage toinfluence terms of supply in their favor
Nature and extent of supplier-sellercollaboration in the industry
Competitive Pressures From Suppliersand Supplier-Seller Collaboration
3-32
Fig. 3.7: Factors Affecting Bargaining Power of Suppliers
3-33
Industry members incur high costs in switching their purchases to alternative suppliers
Needed inputs are in short supply
Supplier provides a differentiated inputthat enhances the quality of performanceof sellers’ products or is a valuable partof sellers’ production process
There are only a few suppliers of a specific input
Some suppliers threaten to integrate forward
When Is the BargainingPower of Suppliers Stronger?
3-34
Item being supplied is a commodity
Seller switching costs to alternative suppliers are low
Good substitutes exist or new ones emerge
Surge in availability of supplies occurs
Industry members account for a bigfraction of suppliers’ total sales
Industry members threaten to integrate backward
Seller collaboration with selected suppliers provides attractive win-win opportunities
When Is the Bargaining Power of Suppliers Weaker?
3-35
Sellers are forging strategic partnershipswith select suppliers to
Reduce inventory and logistics costs
Speed availability of next-generationcomponents
Enhance quality of parts being supplied
Squeeze out cost savings for both parties
Competitive advantage potential may accrue to sellers doing the best job of managing supply-chain relationships
Competitive Pressures: Collaboration Between Sellers and Suppliers
3-36
Whether seller-buyer relationships represent aweak or strong competitive force depends on
Whether buyers have sufficient bargainingleverage to influence terms of sale in their favor
Extent and competitive importance ofseller-buyer strategic partnershipsin the industry
Competitive Pressures From Buyersand Seller-Buyer Collaboration
3-37
Fig. 3.8: Factors Affecting Bargaining Power of Buyers
3-38
Buyer switching costs to competing brands or substitutes are low
Buyers are large and can demand concessions Large-volume purchases by buyers are important to sellers Buyer demand is weak or declining Only a few buyers exists Identity of buyer adds prestige
to seller’s list of customers Quantity and quality of information
available to buyers improves Buyers have ability to postpone purchases until later Buyers threaten to integrate backward
When Is the BargainingPower of Buyers Stronger?
3-39
Buyers purchase item infrequently or in small quantities
Buyer switching costs to competing brands are high
Surge in buyer demand creates a “sellers’ market”
Seller’s brand reputation is important to buyer
A specific seller’s product delivers qualityor performance that is very important to buyer
Buyer collaboration with selected sellers provides attractive win-win opportunities
When Is the BargainingPower of Buyers Weaker?
3-40
Partnerships are an increasingly important competitive element in business-to-business relationships
Collaboration may result inmutual benefits regarding Just-in-time deliveries Order processing Electronic invoice payments Data sharing
Competitive advantage potential may accrue to sellers doing the best job of managing seller-buyer partnerships
Competitive Pressures: CollaborationBetween Sellers and Buyers
3-41
For Discussion: Your Opinion
Explain why low switching costs and weakly
differentiated products tend to give buyers a high
degree of bargaining power.
3-42
Competitive environment is unattractive fromthe standpoint of earning good profits when
Rivalry is vigorous
Entry barriers are lowand entry is likely
Competition from substitutes is strong
Suppliers and customers haveconsiderable bargaining power
Strategic Implications ofthe Five Competitive Forces
3-43
Competitive environment is ideal froma profit-making standpoint when
Rivalry is moderate
Entry barriers are highand no firm is likely to enter
Good substitutesdo not exist
Suppliers and customers arein a weak bargaining position
Strategic Implications ofthe Five Competitive Forces
3-44
Objective is to craft a strategy to
Insulate firm fromcompetitive pressures
Initiate actions to producesustainable competitive advantage
Allow firm to be the industry’s “mover and shaker” with the “most powerful” strategy that defines thebusiness model for the industry
Coping With theFive Competitive Forces
3-45
Question 3: What Factors Are Driving Industry Change and What Impacts Will They Have?
Industries change because forcesare driving industry participantsto alter their actions
Driving forces are themajor underlying causesof changing industry andcompetitive conditions
Where do driving forces originate? Outer ring of macroenvironment Inner ring of macroenvironment
3-46
STEP 1: Identify forces likely to exert greatest influence over next 1 - 3 years
Usually no more than 3 - 4 factorsqualify as real drivers of change
STEP 2: Assess impact Are the driving forces acting to cause market
demand for product to increase or decrease? Are the driving forces acting to make competition
more or less intense? Will the driving forces lead to higher or lower industry
profitability?
STEP 3: Determine what strategy changes are needed to prepare for impacts of driving forces
Analyzing Driving Forces: Three Key Steps
3-47
Emerging new Internet capabilities and applications
Increasing globalization of industry
Changes in long-term industry growth rate
Changes in who buys the product and how they use it
Product innovation
Technological change/process innovation
Marketing innovation
Common Types of Driving Forces
3-48
Entry or exit of major firms
Diffusion of technical knowledge
Changes in cost and efficiency
Consumer preferences shift from standardized to differentiated products (or vice versa)
Changes in degree of uncertainty and risk
Regulatory policies / government legislation
Changing societal concerns, attitudes, and lifestyles
Common Types of Driving Forces (con’t)
3-49
3-50
Question 4: What Market PositionsDo Rivals Occupy?
One technique to revealdifferent competitive positionsof industry rivals isstrategic group mapping
A strategic group is acluster of firms in an industrywith similar competitiveapproaches and market positions
3-51
Firms in same strategic group have two or more competitive characteristics in common Have comparable product line breadth
Sell in same price/quality range
Emphasize same distribution channels
Use same product attributes to appealto similar types of buyers
Use identical technological approaches
Offer buyers similar services
Cover same geographic areas
Strategic Group Mapping
3-52
STEP 1: Identify competitive characteristics that differentiate firms in an industry from one another
STEP 2: Plot firms on a two-variable map using pairs of these differentiating characteristics
STEP 3: Assign firms that fall in about the same strategy space to same strategic group
STEP 4: Draw circles around each group, making circles proportional to size of group’s respective share of total industry sales
Procedure for Constructing a Strategic Group Map
3-53
Example: Strategic Group Map of Selected Retail Chains
3-54
Variables selected as axes should not be highly correlated
Variables chosen as axes should expose big differences in how rivals compete
Variables do not have to be either quantitative or continuous
Drawing sizes of circles proportional to combined sales of firms in each strategic group allows map to reflect relative sizes of each strategic group
If more than two good competitive variables can be used, several maps can be drawn
Guidelines: Strategic Group Maps
3-55
Interpreting Strategic Group Maps
The closer strategic groups are on the map, the stronger the cross-group competitive rivalry tends to be
Not all positions on the map are equally attractive
Driving forces and competitive pressures oftenfavor some strategic groups and hurt others
Profit potential of different strategicgroups varies due to strengths andweaknesses in each group’s market position
3-56
Test Your Knowledge
A strategic group map is a helpful analytical tool for
A. assessing why competitive pressures and driving forces usually impact the biggest strategic groups more so than the smaller groups.
B. determining which companies have how big a competitive advantage and how good their prospects are for increasing their market shares.
C. determining which company is the most profitable in the industry and why it is doing so well.
D. determining who competes most closely with whom; evaluating whether industry driving forces and competitive pressures favor some strategic groups and hurt others; and ascertaining whether the profit potential of different strategic groups varies due to the strengths and weaknesses in each group’s respective market positions.
E. pinpointing which of the five competitive forces is the strongest and which is the weakest.
3-57
A firm’s best strategic moves are affected by Current strategies of competitors
Future actions of competitors
Profiling key rivals involves gatheringcompetitive intelligence about 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
Question 5: What Strategic Moves AreRivals Likely to Make Next?
3-58
Sizing up strategies and competitive strengths and weaknesses of rivals involves assessing
Which rival has the best strategy? Whichrivals appear to have weak strategies?
Which firms are poised to gainmarket share, and which onesseen destined to lose ground?
Which rivals are likely to rank among the industry leaders five years from now? Do any up-and-coming rivals have strategies and the resources to overtake the current industry leader?
Competitor Analysis
3-59
Which rivals need to increase their unit sales and market share? What strategies are rivals most likely to pursue?
Which rivals have a strong incentive, along with resources, to make major strategic changes?
Which rivals are good candidates to be acquired? Which rivals have the resources to acquire others?
Which rivals are likely to enter new geographic markets?
Which rivals are likely to expand their product offerings and enter new product segments?
Things to Consider inPredicting Moves of Rivals
3-60
For Discussion: Your Opinion
Why does a company need to bother with studying
competitors and trying to predict what moves rivals
will make next? Why can’t it just choose whatever
strategy it wants or make whatever moves in the
marketplace it wishes without first worrying about
what rivals are going to do?
3-61
KSFs are those competitive factors most affecting every industry member’s ability to prosper
KSFs concern Specific strategy elements Product attributes Resources Competencies Competitive capabilities
that a company needs to be competitively successful KSFs are attributes that spell the difference between
Profit and loss Competitive success or failure
Question 6: What Are the KeyFactors for Competitive Success?
3-62
Pinpointing KSFs involves determining On what basis do customers choose
between competing brands of sellers?
What resources and competitive capabilities does a seller need to have to be competitively successful?
What does it take for sellers to achieve a sustainable competitive advantage?
KSFs consist of the major determinants for success Rarely are there more than 5 - 6 factors that are truly
key to the future financial and competitive success of industry members
Identifying Industry Key Success Factors
3-63
3-64
Full utilization of brewing capacity –to keep manufacturing costs low
Strong network of wholesale distributors –to gain access to retail outlets
Clever advertising –to induce beer drinkers tobuy a particular brand
Example: KSFs for Beer Industry
3-65
Example: KSFs for Apparel Manufacturing Industry
Appealing designs andcolor combinations –to create buyer appeal
Low-cost manufacturingefficiency – to keep selling
prices competitive
3-66
Example: KSFs for Tin andAluminum Can Industry
Locating plants close to end-use customers –to keep costs of shipping empty cans low
Ability to market plant output withineconomical shipping distances
3-67
Involves assessing whether the industryand competitive environment is attractiveor unattractive for earning good profits
Under certain circumstances, a firm uniquelywell-situated in an otherwise unattractive industry can still earn unusually good profits
Attractiveness is relative, not absolute
Conclusions about attractiveness have to be drawn from the perspective of a particular company
Question 7: Does the Outlook for the Industry Present an Attractive Opportunity?
3-68
Industry’s market size and growth potential Whether competitive forces are conducive to
rising/falling industry profitability Whether industry profitability will be favorably or
unfavorably impacted by driving forces Degree of risk and uncertainty in industry’s future Severity of problems facing industry Firm’s competitive position in industry vis-à-vis rivals Firm’s potential to capitalize on
vulnerabilities of weaker rivals Whether firm has sufficient resources to
defend against unattractive industry factors
Factors to Consider inAssessing Industry Attractiveness
3-69
Core Concept: AssessingIndustry Attractiveness
The degree to which an industry is
attractive or unattractive is not the
same for all industry participants
or potential entrants.
The opportunities an industry
presents depend partly on a
company’s ability to capture them.
3-70
Test Your Knowledge
Which of the following is not an important factor for company managers to consider in drawing conclusions about whether the industry presents an attractive opportunity?
A. Whether powerful competitive forces are squeezing industry profitability to subpar levels and whether competition appears destined to grow stronger or weaker
B. The industry’s growth potential and the degree of uncertainty and risk in the industry’s future
C. Whether industry profitability will be affected favorably or unfavorably by the prevailing driving forces
D. How many of the industry’s key success factors do companies in the industry typically incorporate into their strategies
E. The company’s ability to capitalize on the vulnerabilities of weakly positioned rivals and whether the company has sufficient competitive strength to defend against or counteract the factors that make the industry unattractive
top related