SOM497 – Business Policy & Strategy CHAPTER 4 CHAPTER 4: Environmental Scanning & Industry Analysis STRATEGIC MANAGEMENT & BUSINESS POLICY 10TH EDITION THOMAS L. WHEELEN & J. DAVID HUNGER

External Environment: Societal Environment Political/Legal Societal Values and Lifestyles Demographics Technological Economic F I R M SuppliersSubstitutes Buyer s New Entrants Rival Firms Ecological

Environmental Analysis: Why need it? Organizations “do not exist in a vacuum.” (Rosen, 1995) Allows managers to make better decisions by: Drawbacks

External Environment: Issues Priority Matrix PROBABILITY OF OCCURRANCE. IMPACT ON FIRM High Medium Low MediumHigh Inact.. Proact. Interact. React High Priority Med Priority Low Priority

Industry Analysis: Porter’s 5-Forces Model Power of Buyers Threat of Substitutes Threat of New Entrants Power of Suppliers Other Stake- holders Intensity of Rivalry

A competitive move by one firm can have an effect (e.g. prices, profit) on the others Intense rivalry related to: Numerous or equally balanced competitors Slow industry growth High fixed costs Low differentiation Low switching costs High strategic stakes High exit barriers

Threat of New Entrants Economies of scale Product differentiation Capital requirements Switching costs

Threat of New Entrants (con’t) Access to distribution channels Cost disadvantages Government policy

Strategic Groups Groups of firms that “pursue similar strategies with similar resources” Why determine strategic groups? How to plot a strategic group map?

Strategic Groups - Example High Low Price Product-Line Breadth Limited MenuFull Menu Red Lobster Olive Garden ChiChi Shoney’s Denny’s Country Kitchen Ponderosa Bonanza Arby’sWendy’s Domino’sDairy Queen Hardees’Taco Bell Burger King McDonald’s KFC Pizza Hut Long John Silver’s Perkins International House of Pancakes

Strategic Types Categories of firms with unique strategic orientation Four Strategic Types: DEFENDERS PROSPECTORS ANALYZERS REACTORS

Is the Brewer of Budweiser Beer a Defender, Prospector, or Analyzer? Anheuser-Busch …, accelerating its back to beer strategy, said it will sell its unprofitable Eagle Snacks Business and the St. Louis Cardinals major league baseball team, along with the club’s Busch Stadium home. Source: Richard Gibson, “Anheuser-Busch Will Sell Snacks Unit, Cardinals and the Club’s Home Stadium,” The Wall Street Journal (October 26, 1995): A3. Question: By selling its nonbeer-related businesses, is Anheuser-Busch exhibiting a defender, prospector, or analyzer response to uncertainty? How can you tell?

Hyper-competition Environmental turbulence via higher levels of Market stability affected by What are some Industries?

Next Class Read & prepare to discuss Textbook Case 18 – Wal-Mart, Inc.: On Becoming the World’s Largest Company