23367256 the external environment opportunities threats and industry competition and competitor

8/4/2019 23367256 the External Environment Opportunities Threats and Industry Competition and Competitor

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2003 Southwestern Publishing Company 1

The External Environment: Opportunities,

Threats, and Industry Competition, and

Competitor Analysis

Michael A. Hitt

R. Duane Ireland

Robert E. Hoskisson

Chapter 2


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2

Strategy Implementation

Chapter 13

Strategic

Entrepreneurship

Chapter 11

Organizational

Structure and

Controls

Chapter 10

Corporate

Governance

Chapter 12

Strategic

Leadership

Strategy Formulation

Chapter 6

Corporate-

Level Strategy

Chapter 9

Cooperative

Strategy

Chapter 5

Competitive Rivalry

and Competitive

Dynamics

Chapter 8

International

Strategy

Chapter 4

Business-Level

Strategy

Chapter 7

Acquisition and

RestructuringStrategies

Strategic

Competitiveness

Above-Average

Returns

Strategic Intent

Strategic Mission

Chapter 2

The External

Environment

Chapter 3

The Internal

Environment

The Strategic

Management

Process

Feedback

StrategicInputs

StrategicActions

Str

ategicOutcomes


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3General

Environment

Sociocultural

Technological

The External Environment

Industry

Environment

Threat of new entrants

Power of suppliers

Power of buyers

Product substitutes

Intensity of rivalry

CompetitorEnvironment


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4

External Environmental Analysis

A continuous process which includes Scanning: Identifying early signals of environmental

changes and trends

Monitoring: Detecting meaning through ongoingobservations of environmental changes and trends

Forecasting: Developing projections of anticipated

outcomes based on monitored changes and trends

Assessing: Determining the timing and importanceof environmental changes and trends for firmsstrategies and their management


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5

External Environmental Analysis

Strategic Intent

Strategic Mission

The External

Environment

Analysis of general environment

Analysis of industry environment

Analysis of competitor environment

The External

Environment


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6

General Environment

Sociocultural segment

Women in the workplace

Workforce diversity Attitudes about quality of worklife Concerns about environment Shifts in work and career preferences Shifts in product and service preferences


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7

Economic segment

General Environment

Inflation rates

Interest rates Trade deficits or surpluses Budget deficits or surpluses Personal savings rate Business savings rates Gross domestic product


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8

General Environment

Political/Legal Segment Antitrust laws Taxation laws Deregulation philosophies Labor training laws Educational philosophies and policies


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9

General Environment

Technological Segment Product innovations Applications of knowledge Focus of private and government-supported

R&D expenditures New communication technologies


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10

General Environment

Global Segment Important political events Critical global markets Newly industrialize countries

Different cultural and institutional attributes


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11

General Environment

Demographic Segment Population size Age structure Geographic

distribution Ethnic mix Income distribution


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12

Industry Environment

A set of factors that directly influencesa company and its competitive actionsand responses.

Interaction among these factorsdetermine an industrys profit potential. Threat of new entrants

Power of suppliers Power of buyers Product substitutes Intensity of rivalry


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13

Five Forces Model of Competition

Identify current and potential competitorsand determine which firms serve them.

Conduct competitive analysis.

Recognize that suppliers and buyers canbecome competitors.

Recognize that producers of potentialsubstitutes may become competitors.


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14

Bargaining Power of

Buyers

Five Forces Model of Competition

Five Forces of

Competition


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15

Threat of New Entrants

Barriers 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 Suppliers

A supplier group is powerful when: it is dominated by a few large companies

satisfactory substitute products are not availableto industry firms

industry firms are not a significant customer forthe 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 integrateforward into the buyers industry


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Bargaining Power of Buyers

Buyers (customers) are powerfulwhen: they purchase a large portion of an industrys

total output the sales of the product being purchased

account for a significant portion of the sellers

annual revenues

they could easily switch to another product the industrys products are undifferentiated or

standardized, and buyers pose a credible threatif they were to integrate backward into thesellers industry


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Threat of Substitute Products

Product substitutes are strong threatwhen: customers face few switching costs

substitute products price is lower substitute products quality and performance

capabilities are equal to or greater than those ofthe competing product


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Intensity of Rivalry

Intensity of rivalry is stronger whencompetitors: 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 Barriers

Common 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 ofmutual dependence between one business andother parts of a companys operation, such as

shared facilities and access to financial markets)

emotional barriers (career concerns, loyalty toemployees, etc.)

government and social restrictions


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Strategic Groups

Strategic group: a group of firms in anindustry following the same or similarstrategy along the same strategic

dimensions.The strategy followed by a strategicgroup differs from strategies being

implemented by other companies inthe industry.


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Competitor Environment

Competitor intelligenceis the ethicalgathering of needed information anddata about competitors objectives,

strategies, assumptions, and capabilities

what drives the competitor as shown by its futureobjectives

what the competitor is doing and can do as

revealed by its current strategy What the competitor believes about itself and the

industry, as shown by its assumptions

What the the competitor may be able to do, as

shown by its capabilities


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Competitor Analysis

Future Objectives:Future objectives

How do our goals comparewith our competitors

goals?

Where will the emphasisbe placed in the future?

What is the attitude towardrisk?


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Competitor Analysis

Current strategy

Current Strategy:Future objectives

How are we currentlycompeting?

Does this strategy supportchanges in the competitivestructure?


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Competitor Analysis

Assumptions

Current strategy

Future objectivesAssumptions: Do we assume the future

will be volatile?

Are we operating under astatus quo?

What assumptions do our

competitors hold aboutthe industry and

themselves?


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Competitor Analysis

Capabilities

Assumptions

Current strategy

Future objectivesCapabilities: What are our strengths

and weaknesses?

How do we rate comparedto our competitors?


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Competitor Analysis

Capabilities

Assumptions

Current strategy

Future objectives Response

Response: What will our competitors

do in the future?

Where do we hold an

advantage over ourcompetitors?

How will this change ourrelationship with ourcompetitors?

23367256 the external environment opportunities threats and industry competition and competitor

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