Strategic Issue and External Analysis

8/8/2019 Strategic Issue and External Analysis

http://slidepdf.com/reader/full/strategic-issue-and-external-analysis 1/31

Strategic Issue Assignment



Managers

Mental Models

Beliefs and

Understandings

about:

Macro Env.

Industry Env.

Appropriate Size

and Diversity

How to Organize

Decisions about

Business Definition

Mission and

Objectives

Decisions about

Corporate Strategy

and Diversification

Decisions about

Business Strategy

Decisions about

Organizational

Structure and

Implementation

Activities,

Resources

andCapabilities

Market

Position

Performance

andCompetitive

Advantage

Feedback (Reinforces or suggests changes in managers mental models)



Decisions about Where and How to Compete

Corporate Level Strategy (Defines Scope: What industries should the firm compete in?)

Business Level Strategy (Defines Positioning: How will the firm compete?)

Functional Level Strategy (Maximizes resource productivity)



Decisions about Where and How to Compete

Corporate Level Strategy (Defines Scope: What industries should the firm compete in?)

(None)

Business Level Strategy (Defines Positioning: How will the firm compete?)

Best Cost (Value for Low Price)

What are some of the key differentiators?

Functional Level Strategy (Maximizes resource productivity)How do they do this?



Define the Issue

Background and Boundaries of the Issue

How is this issue related to your firms value proposition?What do customers want?

What do you offer relative to what they want?

EvidenceWhat are the relevant external facts?

(Consumers, Customers, Competitors, and the External Environment)

What do you already know?

What do you need to know?

Alternatives and Implications

Potential Impact (Strategic and Financial)



Rivalry Among Firms

Competitor Analysis

Managing Task Env.

Relationships

Demographic

Economic

Sociocultural

TechnologicalPolitical/Legal

Supplies

SubstituteProducts

Buyers

Potential

Entrants

Other

Stakeholders

Macro Environment Industry

Environment

Task

Environment




(External Analysis)

Macro Environment Factors

Economic

Technological

Political/Legal

Social/Cultural



Economic Factors

The state of the macroeconomic environment determines the general

health and well-being of the economy. This in turn affects a

companys ability to earn an adequate rate of return.

Examples: GDP trends, interest rates, money supply, inflation,

unemployment levels, wage/price controls, energy availability,

and costs, disposable and discretionary income.

Globally: Monetary and Fiscal policies, currency convertibility,

exchange rates, economic development, political economy



Social/Cultural Factors

This category of factors describe the beliefs, values, attitudes,

opinions, and lifestyles of persons in the firms external

environment as developed from cultural, demographic, religious,

educational and ethnic conditioning.

Examples: Lifestyle changes, career expectations, age distribution,

regional shifts in population, birth rates, life expectancies,

growth rate in population, consumer activism, rate of family

formation.

Global: Human rights, literacy levels, language, social institutions,

skill level of the workforce



Political/Legal Factors

These factors define the legal and regulatory parameters within

which a firm must operate.

Examples: Antitrust regulations, environmental protection, tax laws,

employment laws, stability of government, foreign trade protection

Global: Form of government, political ideology, protectionistsentiment, terrorist activity, legal system, governments attitude

toward foreign firms.



Technological Factors

This factor deals with the general technological infrastructure, therate of change in technology, and those things impacting the

development and introduction of new technologies.

Examples: Total government spending for R&D, Total industryspending for R&D, focus of technological efforts, patent protection,

new developments in technology transfer, productivity

improvements through automation.

Global: Regulations on technology transfer, information flowinfrastructure, patent and trademark protection.



Industry Analysis




Industry Boundaries and Substitutability

1. Helps firms to determine the relative attractiveness of different segments.

2. Helps firms to appropriately classify competitors into groups and determine

direct and indirect competitors.

3. Helps firms to predict behavior of individual firms in light of ability to deliver value.

Invisible

Competitors

Large Players

from another industry

moving secretly into

the market

Impending

Competitors

Small/Med players in

growth mode

Large players in related

markets

Immediate Competitors

Large Players, well established



Industry Analysis


The Value of the Product/Service to Customers

The Bargaining Power of Firms Relative

to their Suppliers and Buyers

The Intensity of Competition

Whats driving change in the industry?(e.g., Shifts in competition, macro factors, entry/exit of major

players)



Porters Five Forces Model

Threat of New Entrants

Threat of Substitutes

Bargaining Power of the

SuppliersBargaining Power of the

Buyers

Inter-Firm

Rivalry



Porters Five Forces Model (Competitive Forces)


Buyers

Who are the Buyers?

Factors impacting the bargaining power of the buyers:

Standardized industry product

Purchases are made in large volume

Number of buyers is small

Significant threat of backward integration

Switching costs are low

Buyers are well-informed about the sellers costs





Suppliers

Factors impacting the bargaining power of the suppliers:

Product represents a significant % of purchasers finalproduct

Few suppliers

Unique product or input

Significant threat of forward integration

Supplied product is less expensive for the

purchaser to buy than make

Strong? Medium? Weak?





Why are New Entrants a threat?

Factors impacting the threat of New Entrants:

Economies of scale

CapitalRequirements

Access to Distribution Channels

Other entry barriers (regulation)

Competitive retaliation

High industry profitability and growth






What is a substitute? Why are substitute products a threat?

Factors impacting the threat of substitute products:

Price of available substitutes

Switching costs

Industry growth and demand

Comparability of substitute in terms of quality, performance,

other features





Inter-Firm

Rivalry

Factors impacting Inter-Firm Rivalry:

Concentration

Product Differentiation

Excess Capacity

Exit Barriers

Cost Conditions

Industry Life Cycle

# of equally balanced competitors







Bargaining Power

of the

Suppliers


Buyers

Inter-Firm

Rivalry

Relative Power of

other Stakeholders



Relative Power of

Other Stakeholders

Governments (particularly overseas)

Special Interest Groups/Lobbyists

Local Communities

International Stakeholders (e.g., WTO, IMF, EU)

Trade Associations

Unions




Key Success Factors

How does the firm

survive competition?

What drives competition?

What are the main

dimensions of competition?How intense is competition?

How can the firm obtain

superior performance?

What do

customers

want?

Analysis of Demand

Who are thecustomers?

What do they want?

Prerequisites for Success

KEY SUCCESS FACTOR

S



Aerospace and Defense

Industry Example



Key Segments

Aerospace and Defense Industry: Broadly Defined

Commercial

Aircraft

Military

Weapons

Space

(Rockets and

Satellites)



Maintenance

Repair

and Overhaul

($36.4 Billion)

Large

Commercial

Jets

($49 Billion)

Aerospace Industry Commercial Aircraft Further Segmentation

Business and

Regional Aircraft

($21.1 Billion)Jet Engines

($33.1 Billion) Civil Avionics

($11.2 Billion)

(Source: Standard and Poors

Nov. 2006)



Economic Traits (2006)

Commercial Aircraft

Market Size (Defense and Aerospace): $468 billion

Market Size (Commercial aircraft): $151 billion (slow growth)

Types of Distribution Channels: Few (mostly direct)

Economies of Scale: Present

Capital Requirements: Extremely High

Product Differentiation: High (needs explanation)

Presence of Vertical Integration: Yes (Boeing and Airbus also

produce jet engines)



Industry Structural Characteristics

(Commercial Aircraft)

Oligopoly Competition (Boeing/45% and Airbus/55%)

Concentration (Yes)

Economies of Scale (Present)

Product Differentiation* (High)

Barriers to Entry/Exit (Extremely High)



Driving Forces: Commercial Aircraft

Driving Forces

Long-Term Airline Industry Profitability

Capacity Issues in Airline IndustryFuel Prices

Air Traffic Forecasts

Price Pressure from Customers (Delta, Northwest, etc)

GlobalizationPresence of Low Cost Air Carriers





Strategic Issue and External Analysis

Documents