Competing for ADVANTAGE 1 Chapter 3 The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis PART II STRATEGIC ANALYSIS
Dec 22, 2015
Competing for ADVANTAGE
1
Chapter 3 The External Environment:Opportunities, Threats, Industry Competition, and Competitor Analysis
PART IISTRATEGIC ANALYSIS
The Strategic Management Process
External Environments
Key Terms
General environment
Composed of dimensions in the broader society that influence an industry and the firms within it
Industry environment
Set of factors that directly influence a firm and its competitive actions and competitive responses
Competitor environment
Details about direct and indirect competitors and the competitive dynamics expected impact a firm's efforts to generate above-average returns
The External Environment
External Environmental Analysis
Key Terms
Opportunity
Condition in the external environment that, if exploited, helps a company achieve value creation
Threat
Condition in the general environment that may hinder a company's efforts to achieve value creation
External Environment Analysis Key Terms
Scanning
Studying all segments in the general environment
Monitoring Observing scanned environmental changes to identify important emerging trends
Forecasting Developing feasible projections of potential events
AssessingDetermining the timing and significance of the effects of environmental changes and trends on the strategic management of the firm
Components of External Environmental Analysis
The General Environment
The Demographic Segment
Key Terms
Demographic segment
Segment of the environment concerned with a population's size, age structure, geographic distribution, ethnic mix, and income distribution
Demographic Characteristics
Population size
Age structure
Geographic distribution
Ethnic mix
Income distribution
The Economic Segment
Key Terms
Economic segment
Nature and direction of the economy in which a firm competes or may compete
Economic Factors
Gross National Product (GNP)
Interest rates
Inflation/Deflation
Foreign exchange rates
Trade balances
The Political Segment
Key Terms
Political/legal segment
Arena in which organizations and interest groups compete for attention, resources, and a voice in overseeing the body of laws and regulations guiding the interactions among nations
The Sociocultural Segment
Key Terms
Sociocultural segment
Segment of the environment concerned with a society's attitudes and cultural values
Sociocultural Considerations
HealthcareWorkforce diversityChanging attitudes toward workSaving and retirement planningConcern for the environmentConcern for quality of work lifeResidential decisions Shifts in product/service
preferences
The Technological Segment
Key Terms
Technological segment
Segment of the environment that includes the institutions and activities involved with creating new knowledge and translating that knowledge into new outputs, products, processes, and materials
Technological Issues
Rapid pace of technological change
Impact of the Internet on business practices
Impact of wireless communications on business practices.
Internal development versus external sources of new technology
The Global Segment
Key Terms
Global segment
Segment of the environment that includes relevant new global markets, existing markets that are changing, important international political events, and critical cultural and institutional characteristics of global markets
Global Interdependence
Increase and ease in the flow of goods, services, financial capital, and knowledge across borders
Opening of economically maturing markets
Extended reach and potential for firms
Global Challenges
The low cost of goods developed in countries with extremely low wage rates threatens industries in higher wage nations.
There are risks are associated with investing in less economically mature markets.
Different sociocultural and institutional attributes need to be recognized when expanding into global markets.
The Physical Environment Segment
Key Terms
Physical environment segment
Segment of the environment that involves changes to the physical environment and business practices to respond to or prevent those changes
Industry Environment Analysis
Key Terms
Industry
Group of firms producing products that are close substitutes
Market microstructure
Term referring to competition for the a group of customers who value location and firm capabilities when making buying decisions
Five Forces Model of Competition
Five Competitive Forces
Threat of new entrants Bargaining power of
suppliers Bargaining power of buyers Threat of substitute
products Intensity of rivalry among
competitors
New Entrants
Threat to current competitors Market share Production capacity Earnings
Likelihood of entry Barriers Expected retaliation
Market Entry Barriers
Economies of scale Product differentiation Capital requirements Switching costs Access to distribution channels Cost advantages independent
of scale Government policy Expected retaliation
Bargaining Power of Suppliers
Supplier concentration
No substitutes
Small customers
Critical product
High switching cost
Threat of forward integration
Bargaining Power of Buyers
Large buyers in industry
Large portion of firm’s sales
Low switching costs
Standardized product
Threat of backward integration
Threat of Substitute Products
Few switching costs
Lower price
Equal or higher quality and performance capabilities
Competitive Rivalry
Intensifies when a firm is challenged or recognizes an opportunity to
improve its market position
Visible dimensions:- Price- Quality- Innovation
Intensity of Rivalry
Numerous or equally-balanced competitors
Slow industry growth High fixed costs or high storage
costs Lack of differentiation or low
switching costs High strategic stakes High exit barriers
Complementors
Key Terms
Complementors
Companies that sell complementary goods or services that are compatible with the focal firm's own product or services
Interpreting Industry Analysis
Unattractive Industry
Attractive Industry
Low entry barriers High entry barriers
Powerful buyers Limited buyer power
Powerful suppliers Limited supplier power
Good product substitutes Poor product substitutes
Intense rivalry Moderate rivalry
Interpreting Industry Analysis
The five forces competitive analysis suggests the attractiveness of an industry and determines the potential for above-average returns over the long-term based on the level of competition observed.
Analysis of Direct Competitors
Key Terms
Strategic group
Set of firms emphasizing similar strategic dimensions which result in the use of similar strategies
Strategic dimensions
Areas that firms in a strategic group treat similarly
Strategic Groups
The strengths of the five industry forces differ across strategic groups.
Strategic groups differ in performance.
Strategic group membership remains relatively stable over time, enhancing analysis.
Patterns of competition are evident within strategic groups.
Strategic Group Dynamics
Intra-strategic group rivalry is more intense than inter-strategic group rivalry.
Organizations in a strategic group: Occupy similar positions in the market Offer similar goods to a similar set of
customers Often use similar production technology and
organizational processes The more similar strategies are across
strategic groups, the greater the level of expected rivalry.
Understanding Competitors and Their Intentions
Key Terms
Competitor intelligence
Set of data and information the firm gathers to better understand and better anticipate competitors' objectives, strategies, assumptions, and capabilities
Components ofCompetitor Analysis
ETHICAL QUESTION
How can a firm use its “code of ethics” as it analyzes the external
environment?
ETHICAL QUESTION
What ethical issues, if any, may be relevant to a firm’s monitoring of its external environment? Does use of
the Internet to monitor the environment lead to additional ethical
issues? If so, what are they?
ETHICAL QUESTION
What is an ethical issue associated with each segment of a firm’s
general environment? Are firms across the globe doing enough to
deal with this issue?
ETHICAL QUESTION
Why are ethical practices critical in the relationships between a firm
and its suppliers?
ETHICAL QUESTION
In an intense rivalry, especially one that involves competition in the global
marketplace, how can the firm gather competitor intelligence ethically while
maintaining its competitiveness?
ETHICAL QUESTION
What do you believe determines whether an intelligence-gathering
practice is or is not ethical? Do you see this changing as the world’s economies
become more interdependent? If so, why? Do you see this changing
because of the Internet? If so, how?