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The External Environment: Opportunities, The External Environment: Opportunities, Threats, Industry Competition, and Threats, Industry Competition, and
Competitor AnalysisCompetitor Analysis
Date Session TimeDate Session Time02.02.2009. 8 & 9 1115 -150002.02.2009. 8 & 9 1115 -1500
Analyzing Strategic Issues Analyzing Strategic Issues
EnvironmentsEnvironments
External
Internal
External EnvironmentExternal Environment
•Proximate
•Distant
ProximateProximate
Suppliers and Vendors Some control Manageable Could be industry specific
DistantDistantRegulationsLawsGlobal treatiesOrganizations have no controlLess manageableAre similar to all industry firms
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General
Env
iron
men
t
General
Environment
Gen
eral
Environm
ent
EconomicEconomic
Political/Legal
Political/Legal
TechnologicalTechnologicalG
loba
lG
loba
l
Dem
ogra
phic
Dem
ogra
phic Sociocultural
Sociocultural
The External EnvironmentThe External Environment
IndustryIndustryEnvironmentEnvironment
Threat of new entrantsThreat of new entrantsPower of suppliersPower of suppliersPower of buyersPower of buyers
Product substitutesProduct substitutesIntensity of rivalryIntensity of rivalry
CompetitorCompetitorEnvironmentEnvironment
External EnvironmentExternal Environment
General EnvironmentIndustry EnvironmentCompetitive Environment
External EnvironmentExternal Environment
General Environment– Influences the industry and firms inside the industry– Firms can not directly control these but collect
information and formulate strategies– Six Segments
• Demographic
• Economic
• Political/legal
• Socio- cultural
• Technological
• Global
Demographic ElementsDemographic Elements
Population sizeAge StructureGeographic distribution
Environmental ChangesEnvironmental Changes
•Social Changes •Double income, consumerism, superior- higher education for kids, working women, less time for household work, health consciousness, healthy food, vacations.
•Subway, Pizza Hut, Fortune hotels, Apollo Executive Health Check, Crèche
•Demographical Changes•People live longer - Old age requirements, homes, security, superior health services, self reliant, gadgets, entertainment to keep busy meaningfully, to learn new hobbies without physical demands, will remain active and healthy- find a product or service, psychological demand - sense of belongingness- counseling, spending of time
•Medical insurance
Economic ElementsEconomic Elements
Inflation rateInterest ratesTrade deficit or surplusPersonal savings ratePersonal savings rateBusiness savings ratesBusiness savings ratesGross domestic productGross domestic productBudget deficit or surplus
Political/Legal ElementsPolitical/Legal Elements
LawsTaxationMonopoliesPolitical pluralismPolitical philosophyJudicial System
•Legal Changes•Governmental regulations
•Helmets, fire extinguishers in vehicles, pollution control devices and checking centers, window screens, seat belts, waste water management in house, alternative sources of energy
•Market Changes•Demand Changes,
•Economic growth, leading to increase in variety and demand
•New product and services, retailing•Bharti-Wal-Mart, Reliance Fresh, Subhiksha, Biyanis
•Services-BPO, KPO
•Power windows, AB, ALS
•Low cost carriers > Go Air, Jet Lite
•Outsourcing-Medical Transcription
•SEZs
•Land Banking
•Technological Changes•New product leading to ancillary, supporting and enriching products and services
•Mobile phone•Camera, Hands free, FM, Video, Mobile car charger, e-mail, internet browsing
•Internet•Medical transcription, on line teaching, e-bay, on line sales, virtual showrooms, video conferencing
•Ecological Changes•Tsunami, Earthquake, Floods
•Low cost pre – fab housing
•Warning Systems
•Rapid Evacuation
•Ozone Layer depletion•Controlling of Chlorofluorocarbons release
•Industry > air-conditioning, refrigeration, aviation
Socio - Cultural ElementsSocio - Cultural Elements
Women in Work Work force diversity Cultural values Attitude towards life and quality of life and
products Education Materialist aspects
Technological ElementsTechnological Elements
Product Innovation R & D spending Quick diffusion of technology Applications of knowledgeApplications of knowledge Focus of private and government-supported R&D Focus of private and government-supported R&D
expendituresexpenditures New communication technologiesNew communication technologies Product Obsolescence
Global ElementsGlobal Elements Forex Treaties WTO UN Trade Barriers
Industry EnvironmentIndustry Environment Influence the firm directly and Its competitive action:
– Threat of new entrants
– Bargaining power of suppliers
– Bargaining power of buyers
– The threat of product substitute
– Intensity of rivalry
These 5 forces determine industry profit potential Position your firm to influence these and defend your
firm from influence of these
Competitive EnvironmentCompetitive Environment
Competitive analysis – in similar industries– Jet and King Fisher
What drives the competitor– As shown by its future objectives
What competitor is doing and can do– As revealed by its current strategies
What competitor believes about the industry– As shown by its assumptions
What the competitors capabilities are– As shown by its strengths and weaknesses
External EnvironmentsExternal Environments
Features as of now– Turbulent– Complex– Demanding– Unknown trajectory and velocity
Handling Mode or Coping ModeHandling Mode or Coping Mode
Scanning– Identify early signals of environmental changes and trends
Monitoring– Detecting meaning through ongoing observations of
environmental changes and trends
Forecasting– Developing projections of anticipated outcomes based on
monitored changes and trends
Assessing– Determining timing and importance of environmental changes
and trends for firms’ strategies and their management
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External Environmental AnalysisExternal Environmental AnalysisA continuous process which includesA continuous process which includes
•Scanning: Identifying early signals of environmental changes and trends
•Monitoring: Detecting meaning through ongoing observations of environmental changes and trends
•Forecasting: Developing projections of anticipated outcomes based on monitored changes and trends
•Assessing: Determining the timing and importance of environmental changes and trends for firms’ strategies and their management
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External Environmental AnalysisExternal Environmental Analysis
Strategic IntentStrategic IntentStrategic MissionStrategic Mission
The ExternalThe ExternalEnvironmentEnvironment
Analysis of general environmentAnalysis of general environment
Analysis of industry environmentAnalysis of industry environment
Analysis of competitor environmentAnalysis of competitor environment
The ExternalThe ExternalEnvironmentEnvironment
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Industry EnvironmentIndustry EnvironmentA set of factors that directly influences a
company and its competitive actions and responses
Interaction among these factors determine an industry’s profit potential Threat of new entrants Power of suppliers Power of buyers Product substitutes Intensity of rivalry
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Porter’s Five Forces ModelPorter’s Five Forces Model
Identify current and potential consumers and determine which firms serve them
Conduct competitive analysis Recognize that suppliers and buyers can become
competitors Recognize that producers of potential substitutes
may become competitors
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Threat of New Entrants
Threat of New Entrants
Bar
gain
ing
Pow
er o
f
Bar
gain
ing
Pow
er o
f Su
pplie
rsSu
pplie
rs
Bargaining Power of Bargaining Power of BuyersBuyers
Threat of Substitute
Threat of Substitute
Products
Products
Rivalry A
mong
Rivalry A
mong
Competing Firm
s
Competing Firm
s
Five Forces Model of CompetitionFive Forces Model of Competition
Five Forces ofFive Forces ofCompetitionCompetition
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Threat of New EntrantsThreat of New EntrantsBarriers to entry
Economies of scale Product differentiation Capital requirements Switching costs Access to distribution channels Cost disadvantages independent of scale Government policy Expected retaliation
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Bargaining Power of SuppliersBargaining Power of SuppliersA supplier group is powerful when:
it is dominated by a few large companies satisfactory substitute products are not available to
industry firms industry firms are not a significant customer for the
supplier group suppliers’ goods are critical to buyers’ marketplace
success effectiveness of suppliers’ products has created high
switching costs suppliers are a credible threat to integrate forward into the
buyers’ industry
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Bargaining Power of BuyersBargaining Power of Buyers Buyers (customers) are powerful when::
they purchase a large portion of an industry’s total output
the sales of the product being purchased account for a significant portion of the seller’s annual revenues
they could easily switch to another product the industry’s products are undifferentiated or
standardized, and buyers pose a credible threat if they were to integrate backward into the seller’s industry
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Threat of Substitute ProductsThreat of Substitute Products Product substitutes are strong threat when:
customers face few switching costs substitute product’s price is lower substitute product’s quality and performance capabilities
are equal to or greater than those of the competing product
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Intensity of RivalryIntensity of Rivalry Intensity of rivalry is stronger when competitors:
are numerous or equally balanced experience slow industry growth have high fixed costs or high storage costs lack differentiation or low switching costs experience high strategic stakes have high exit barriers
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High Exit BarriersHigh Exit BarriersCommon exit barriers include:
specialized assets (assets with values linked to a particular business or location)
fixed costs of exit such as labor agreements strategic interrelationships (relationships of mutual
dependence between one business and other parts of a company’s operation, such as shared facilities and access to financial markets)
emotional barriers (career concerns, loyalty to employees, etc.)
government and social restrictions
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Strategic GroupsStrategic Groups
Strategic group: a group of firms in an industry following the same or similar strategy along the same strategic dimensions
The strategy followed by a strategic group differs from strategies being implemented by other companies in the industry
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Competitor AnalysisCompetitor Analysis
Future Objectives:Future objectivesFuture objectives How do our goals compare
with our competitors’ goals? Where will the emphasis be
placed in the future? What is the attitude toward
risk?
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Competitor AnalysisCompetitor Analysis
Current strategyCurrent strategy
Current Strategy: How are we currently
competing? Does this strategy support
changes in the competitive structure?
Future objectivesFuture objectives
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Competitor AnalysisCompetitor Analysis
AssumptionsAssumptions
Assumptions: Do we assume the future will
be volatile? Are we operating under a status
quo? What assumptions do our
competitors hold about the industry and themselves?
Current strategyCurrent strategy
Future objectivesFuture objectives
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Competitor AnalysisCompetitor Analysis
CapabilitiesCapabilities
Capabilities: What are our strengths and
weaknesses? How do we rate compared to
our competitors?
AssumptionsAssumptions
Current strategyCurrent strategy
Future objectivesFuture objectives
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Competitor AnalysisCompetitor Analysis
ResponseResponse
Response: What will our competitors do
in the future? Where do we hold an
advantage over our competitors?
How will this change our relationship with our competitors?
CapabilitiesCapabilities
AssumptionsAssumptions
Current strategyCurrent strategy
Future objectivesFuture objectives
Competitive Profile Matrix (CPM)
Identifies firm’s major competitors and their strengths and weaknesses in relation to a specific firm’s strategic positions
Value Assignment for CPM
Major Strength 4
Minor Strength 3
Minor Weakness 2
Major Weakness 1
Absolutely Arbitrary
Lenovo Apple Dell
CSF’s Weight Rating Weighted Score
Rating Weighted Score
Rating Weighted Score
Market Share 0.15 3 0.45 2 0.30 4 0.60
Inventory System 0.08 2 0.16 2 0.16 4 0.32
Financial Position 0.10 2 0.20 3 0.30 3 0.30
Product Quality 0.08 3 0.24 4 0.32 3 0.24
Consumer Loyalty 0.02 3 0.06 3 0.06 4 0.08
Sales Distribution 0.10 3 0.30 2 0.20 3 0.30
Global Experience 0.15 3 0.45 2 0.30 4 0.60
Org. Structure 0.05 3 0.15 3 0.15 3 0.15
Production Capacity 0.04 3 0.12 3 0.12 3 0.12
E-commerce 0.10 3 0.30 3 0.30 3 0.30
Customer Service 0.10 3 0.30 2 0.20 4 0.40
Price Competitiveness 0.02 4 0.08 1 0.02 3 0.06
Managerial Experience 0.01 2 0.02 4 0.04 2 0.02
Total 1.00 2.83 2.47 3.49
Industry Analysis CPMJust because one firm receives a 3.49 rating and another
receives a 2.47 rating, it does not follow that the first firm
is 41% better than the second.
Numbers reveal the relative strengths of firms but implied
precision is an illusion.
Numbers are not magic.
The aim is to assimilate and evaluate information in a
meaningful manner so that correct decision -making may
take place.