ch02 hitt lecture
TRANSCRIPT
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PowerPoint slides by:
R. Dennis MiddlemistColorado State University
Copyright 2004 South-Western
All rights reserved.
Chapter 2
The ExternalEnvironment
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Knowledge Objectives
Studying this chapter should provide you with thestrategic management knowledge needed to:
Explain the importance of analyzing and understanding thefirms external environment.
Define and describe the general environment and theindustry environment.
Discuss the four activities of the external environmentalanalysis process.
Name and describe the general environments sixsegments.
Identify the five competitive forces and explain how theydetermine an industrys profit potential.
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Knowledge Objectives (contd)
Studying this chapter should provide you with thestrategic management knowledge needed to:
Define strategic groups and describe their influence on thefirm.
Describe what firms need to know about their competitorsand different methods used to collect intelligence aboutthem.
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Figure 1.1
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The StrategicManagement
Process
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The ExternalEnvironment
Figure 2.1
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General Environment
Dimensions in the broader society thatinfluence and industry and the firms within it
Economic
Sociocultural
Global
Technological
Political/legal
Demographic
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Industry Environment
Set of factors directly influencing a firm andits competitive actions and competitiveresponses
Threat of new entrants
Power of suppliers
Power of buyers
Threat of product
substitutes Intensity of rivalry
among competitors
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Competitor Environment
All of the companies that the firm competesagainst.
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Analysis of the External Environments
General environmentFocused on the future
Industry environment
Focused on factors and conditions influencing afirms profitability within an industry
Competitor environment
Focused on predicting the dynamics of
competitors actions, responses and intentions
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Opportunities and Threats
OpportunityA condition in the general environment that if
exploited, helps a company achieve strategiccompetitiveness
ThreatA condition in the general environment that may
hinder a companys efforts to achieve strategic
competitiveness
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External Environmental Analysis
A continuous process which includes
Scanningfor early signals of potentialchanges and trends in the general environment
Monitoringchanges to see if a trend emergesfrom among those spotted by scanning
Forecastingprojections of outcomes based onmonitored changes and trends
Assessingthe timing and significance ofchanges and trends on the strategicmanagement of the firm
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Components of the External Environmental Analysis
Table 2.2
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General Environment (contd)
The Economic Segment Inflation rates
Interest rates
Trade deficits orsurpluses
Budget deficits orsurpluses
Personal savings rate
Business savings rates
Gross domesticproduct
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General Environment (contd)
The Sociocultural SegmentWomen in the workplace
Workforce diversity
Attitudes about qualityof worklife
Concerns aboutenvironment
Shifts in work andcareer preferences
Shifts in product andservice preferences
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General Environment (contd)
The Global Segment
Product innovations
Applications ofknowledge
Focus of private andgovernment-supportedR&D expenditures
New communicationtechnologies
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General Environment (contd)
The TechnologicalSegment
Product innovations
Applications ofknowledge
Focus of private andgovernment-supportedR&D expenditures
New communicationtechnologies
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General Environment (contd)
The Political/LegalSegment
Antitrust laws
Taxation laws
Deregulationphilosophies
Labor training laws
Educationalphilosophies andpolicies
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General Environment
The DemographicSegment
Population size
Age structure
Geographicdistribution
Ethnic mix
Income distribution
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Industry Environment
Industry DefinedA group of firms producing products that are
close substitutes
Firms that influence one another
Includes a rich mix of competitive strategies that
companies use in pursuing strategic
competitiveness and above-average returns
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The Five Forces ofCompetition Model
Figure 2.2
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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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Barriers to Entry
Economies of ScaleMarginal improvements in efficiency that a firm
experiences as it incrementally increases its size
Advantages and disadvantages of large-scale and small-scale entry
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Barriers to Entry (contd)
Productdifferentiation
Unique products
Customer loyalty
Products atcompetitive prices
CapitalRequirements
Physical facilities
Inventories
Marketing activities
Availability of capital
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Barriers to Entry (contd)
Switching CostsOne-time costs customers incur when they buy
from a different supplier
New equipment
Retraining employees
Psychic costs of ending a relationship
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Barriers to Entry (contd)
Access to Distribution ChannelsStocking or shelf space
Price breaks
Cooperative advertising allowances
Cost Disadvantages Independent of Scale
Proprietary product technology
Favorable access to raw materialsDesirable locations
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Barriers to Entry (contd)
Cost disadvantages independent of scaleProprietary product technology
Favorable access to raw materials
Desirable locations
Government policy
Licensing and permit requirements
Deregulation of industries
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Barriers to Entry (contd)
Expected retaliationResponses by existing competitors may depend
on a firms present stake in the industry
(available business options)
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Bargaining Power of Suppliers
Supplier power increases when:
Suppliers are large and few innumber
Suitable substitute products arenot available
Individual buyers are not largecustomers of suppliers and there are many ofthem
Suppliers goods are critical to buyers
marketplace success
Suppliers products create high switching costs.
Suppliers pose a threat to integrate forward intobuyers industry
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Bargaining Power of Buyers
Buyer power increase when:Buyers are large and few in
number
Buyers purchase a large portion
of an industrys total outputBuyers purchases are a significant
portion of a suppliers annual revenues
Buyers can switch to another product without
incurring high switching costsBuyers pose threat to integrate backward into the
sellers industry
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Threat of Substitute Products
The threat of substitute productsincreases when:
Buyers face few switching costs
The substitute products price is
lower
Substitute products quality and performance are
equal to or greater than the existing product
Differentiated industry products that are valued bycustomers reduce this threat
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Intensity of Rivalry Among Competitors
Industry rivalry increases when:There are numerous or equally
balanced competitors
Industry growth slows or
declinesThere are high fixed costs or high
storage costs
There is a lack of differentiation opportunities or
low switching costsWhen the strategic stakes are high
When high exit barriers prevent competitors fromleaving the industry
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Low entry barriers
Interpreting Industry Analyses
UnattractiveIndustry
Suppliers and buyershave strong positions
Strong threats fromsubstitute products
Intense rivalryamong competitors
Low profit potential
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AttractiveIndustry
High entry barriers
Interpreting Industry Analyses
Suppliers and buyershave weak positions
Few threats fromsubstitute products
Moderate rivalryamong competitors
High profit potential
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Strategic Groups Defined
A set of firms emphasizing similar strategicdimensions and using similar strategies
Internal competition between strategic groupfirms is greater than between firms outside that
strategic groupThere is more heterogeneity in the performance
of firms within strategic groups
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Strategic Groups
Strategic DimensionsExtent of technological leadership
Product quality
Pricing PoliciesDistribution channels
Customer service
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Competitor Analysis
Competitor IntelligenceThe ethical gathering of needed information and
data that provides insight into:
A competitors direction (future objectives)
A competitors capabilities and intentions
(current strategy)
A competitors beliefs about the industry (its
assumptions)A competitors capabilities
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Competitor AnalysisComponents
Figure 2.3