Evaluating a Firm’s External Environment 2-1 Copyright © 2008 Pearson Prentice Hall. All rights reserved Chapter 2.

Slides:



Advertisements
Similar presentations
Copyright © 2001 Houghton Mifflin Company. All rights reserved. Chapter 7 Competitive Strategy and the Industry Environment Strategic Charles W. L. Hill.
Advertisements

2 External Analysis: The Identification of Industry Opportunities and Threats.
Industry and Competitive Analysis
Industry Analysis - Porter's Five Forces
External Analysis: The Identification of Industry Opportunities and Threats Porter, Five Forces and Industry Cycles.
Preview: Environmental Analysis 4 PEST Analysis 4 Industry & Market 4 Porter’s Five Forces Model 4 Generic Strategies 4 Environmental Analysis Overview.
A Framework for Industry Analysis
The External Environment
Chapter 2.
Presented By:- Dharm Jeeta Singh
Lecture 02: Strategic Analysis I: The External Context Niels-Erik Wergin Strategic Management.
Evaluating a Firm’s External Environment 2-1 Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall. Chapter 2.
Lecture 2 External Environment Analysis & Globalisation.
Tutorial 5 Five forces and PEST analysis
Strategic Management Evaluating a Firm’s External Environment
Industry and Competitive Analysis
MGNT428 – Business Policy & Strategy Dr. Tom Lachowicz, Instructor
Robert E. Hoskisson Michael A. Hitt R. Duane Ireland
External Analysis BUSI 7130/7136 Dr. Shook. What’s an Environment? What’s an Environment? Analyzing the Industry Analyzing the Industry v Five Forces.
Chapter 2.
2 External Analysis: The Identification of Industry Opportunities and Threats.
Conducting an Industry Analysis. Seven Questions for Industry Analysis 1. What are the industry dominant economic traits? 2. What competitive forces are.
2-1 Evaluating a Firm’s External Environment. 2-2 Why External Analysis? External analysis allows firms to: discover threats and opportunities see if.
Chapter 5 Industry, Market & Competitive Feasibility Analysis: Evaluating Industry Attractiveness via Porter’s Five Forces Model Diane M. Sullivan, Ph.D.,
Competing for Advantage
Chapter 2: The External Environment: Opportunities, Threats, Industry Competition and Competitor Analysis Overview: The firm’s external environment.
© 2004 Mark H. Hansen External Factors in Marketing.
MJF7 Strategy concepts overview 1. Basic concepts of strategy and SWOT analysis (Jan 17) 2. Resource based view of the firm (Jan 19) 3. Competitive, cooperative,
Evaluating a Firm’s External Environment 2-1 Copyright © 2012 Pearson Education, Inc. publishing as Prentice Hall. Chapter 2.
External and Internal Analyses General Environment GeneralEnvironmentGeneral Environment Sociocultural Global Technological Political/Legal Demographic.
Copyright © 2001 Houghton Mifflin Company. All rights reserved. Chapter 3 External Analysis: The Identification of Industry Opportunities and Threats Strategic.
Chapter 2 --Market Imperfections and Value: Strategy Matters u Wealth creation is impossible in a perfect market u Porter’s five forces can be used to.
Agenda Review Michael Porter’s 5 forces model –Rivalry –Non-price competition –Firm size / market share –Interdependence Bargaining power Sustainability.
Evaluating a Firm’s External Environment
Competing For Advantage Part II – Strategic Analysis Chapter 3 – The External Environment: Opportunities, Threats, Industry Competition, and Competitor.
Chapter 2 --Market Imperfections and Value: Strategy Matters u Conditions necessary for a perfectly competitive product market and resource market: u No.
Industry Analysis Porter’s 5 Forces Model
Copyright © 2009 South-Western, a part of Cengage Learning All rights reserved. Power Point Presentation by Dr. Leslie A. Korb Georgian Court University.
Chapter 2, Part II The External Environment: Opportunities, Threats, Industry Competition and Competitor Analysis Diane M. Sullivan, Ph.D., 2014 Sections.
©2004 by South-Western/Thomson Learning 1 The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis Robert E. Hoskisson.
Copyright © 2005 Pearson Education Canada Inc. Concepts in ﴀ Strategic Management, Canadian Edition Wheelen, Hunger, Wicks 3-1 Chapter 3 Environmental.
McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved. Evaluating a Company’s External Environment.
Chapter 8 STRATEGIC MANAGEMENT © Prentice Hall,
Forces Driving Industry Competition. Structural Determinants of the Intensity of Competition Competition in an industry continually works to drive down.
Ch2-1 Chapter 2 The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis The External Environment: Opportunities,
A Summary of Porter’s Main Points in His Article Created by Samantha Wong, Northeastern University 2009.
1 Industry Analysis  Basic econ conditions determine industry structure SCP model of firm performance Industry structure => firm conduct => Firm performance.
The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis 1.
Chapter 2.
Chapter 8 STRATEGIC MANAGEMENT © Prentice Hall,
The External Environment
The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis 1.
External Analysis: The Identification of Industry Opportunities and Threats Industry structure and Globalisation.
The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis 1.
Strategic Charles W. L. Hill Management Gareth R. Jones
Student Version Chapter 2
Chapter 2.
CHAPTER 2 The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis © 2007 Thomson/South-Western. All rights reserved.
The External Environment
Chapter 2 The External Environment:
Chapter 2, Part II The External Environment:
External Environmental Analysis
The external environment
The External Environment
Chapter 2, Part II The External Environment:
Chapter 2.
STRATEGIC ANALYIS OF BUSINESS
Chapter 2, Part II The External Environment:
Chapter 8 STRATEGIC MANAGEMENT © Prentice Hall,
What affects our business from the outside?
Presentation transcript:

Evaluating a Firm’s External Environment 2-1 Copyright © 2008 Pearson Prentice Hall. All rights reserved Chapter 2

Evaluating a Firm’s External Environment 2-2 Copyright © 2008 Pearson Prentice Hall. All rights reserved. Why External Analysis? External analysis allows firms to: discover threats and opportunities see if above normal profits are likely in an industry better understand the nature of competition in an industry make more informed strategic choices

Evaluating a Firm’s External Environment 2-3 Copyright © 2008 Pearson Prentice Hall. All rights reserved. Focal Firm Buyers Suppliers Entry Rivalry Substitutes Complementors Demographic Trends Technological Change Cultural Trends Economic Climate Legal/Political Conditions Specific International Events Industry General External Environment

Evaluating a Firm’s External Environment 2-4 Copyright © 2008 Pearson Prentice Hall. All rights reserved. Focal Firm Demographic Trends Technological Change Cultural Trends Economic Climate Legal/Political Conditions Specific International Events General External Environment PDA’s & Cell Phones Hispanic Population Growth Changing Image of SUV’s Rising Interest Rates Changing Policy toward Oil Exploration on Public Lands European Union Ban on Hormone-Treated U.S. Beef

Evaluating a Firm’s External Environment 2-5 Copyright © 2008 Pearson Prentice Hall. All rights reserved. Industry Analysis The Structure – Conduct – Performance Model originally developed to spot anti-competitive conditions for anti-trust purposes came to be used to assess the possibilities for above normal profits for firms within an industry Porter’s Five Forces Model was developed from this economic tradition

Evaluating a Firm’s External Environment 2-6 Copyright © 2008 Pearson Prentice Hall. All rights reserved. Industry Analysis Porter’s Five Forces Model Focal Firm Buyers Suppliers Entry Rivalry Substitutes Industry Threat Higher Threat Lower Average Profits

Evaluating a Firm’s External Environment 2-7 Copyright © 2008 Pearson Prentice Hall. All rights reserved. Porter’s Five Forces Model Threat of Entry if firms can easily enter the industry, any above normal profits will be bid away quickly barriers to entry lower the threat of entry barriers to entry make an industry more attractive this is true whether the focal firm is already in the industry or thinking about entering

Evaluating a Firm’s External Environment 2-8 Copyright © 2008 Pearson Prentice Hall. All rights reserved. Porter’s Five Forces Model Threat of Entry Barriers to Entry: economies of scale—firm that can’t produce the minimum efficient scale will be at a disadvantage product differentiation—entrants are forced to overcome customer loyalties to existing products cost advantages independent of scale—incumbents may have learning advantages, etc. government policies—governments may impose trade restrictions and/or grant monopolies

Evaluating a Firm’s External Environment 2-9 Copyright © 2008 Pearson Prentice Hall. All rights reserved. Porter’s Five Forces Model Threat of Rivalry high rivalry means firms compete vigorously—and compete away above average profits Industry conditions that facilitate rivalry: large numbers of competitors slow or declining growth high fixed costs and/or high storage costs low product differentiation industry capacity added in large increments

Evaluating a Firm’s External Environment 2-10 Copyright © 2008 Pearson Prentice Hall. All rights reserved. Porter’s Five Forces Model Threat of Substitutes substitutes fill the same need but in a different way -Coke and Pepsi are rivals, milk is a substitute for both substitutes create a price ceiling because consumers switch to the substitute if prices rise substitutes will likely come from outside the industry—be sure to look

Evaluating a Firm’s External Environment 2-11 Copyright © 2008 Pearson Prentice Hall. All rights reserved. Porter’s Five Forces Model Threat of Suppliers powerful suppliers can ‘squeeze’ (lower profits) the focal firm Industry conditions that facilitate supplier power: small number of firms in supplier’s industry highly differentiated product lack of close substitutes for suppliers’ products supplier could integrate forward focal firm is an insignificant customer of supplier

Evaluating a Firm’s External Environment 2-12 Copyright © 2008 Pearson Prentice Hall. All rights reserved. Porter’s Five Forces Model Threat of Buyers powerful buyers can ‘squeeze’ (lower profits) the focal firm by demanding lower prices and/or higher levels of quality and service Industry conditions that facilitate buyer power: small number of buyers for focal firm’s output lack of a differentiated product the product is significant to the buyer

Evaluating a Firm’s External Environment 2-13 Copyright © 2008 Pearson Prentice Hall. All rights reserved. Porter’s Five Forces Model Threat of Buyers Industry conditions that facilitate buyer power: buyers operate in a competitive market—they are not earning above normal profits buyers can vertically integrate backwards many small buyers can be united around an issue to act as a block Example: Monsanto’s Life Sciences Strategy

Evaluating a Firm’s External Environment 2-14 Copyright © 2008 Pearson Prentice Hall. All rights reserved. Porter’s Five Forces Model Focal Firm Buyers Suppliers Entry Rivalry Substitutes Industry Threat If all threats are high expect normal profits If all threats are low expect above normal profits Most industries are somewhere between the extremes

Evaluating a Firm’s External Environment 2-15 Copyright © 2008 Pearson Prentice Hall. All rights reserved. Complementors As Another Force Complementors Increase the Value of the Focal Firms Product customers perceive more value in the focal firm’s product when it is combined with the complementor’s product complementors may be found outside the focal firm’s industry Example: Goodyear Tires on Corvette

Evaluating a Firm’s External Environment 2-16 Copyright © 2008 Pearson Prentice Hall. All rights reserved. Responding to Environmental Threats Neutralizing Threats most firms cannot unilaterally change the threats in an industry by altering relationships in an industry, firms may reduce threats and/or create opportunities, thereby increasing profits Examples: Regional Healthcare System, Building Contractor, and the Bakery

Evaluating a Firm’s External Environment 2-17 Copyright © 2008 Pearson Prentice Hall. All rights reserved. Exploiting Industry Structure Opportunities Generic Industry Structures at any point in time, the structure of most industries fits into one of four generic categories each industry structure presents opportunities that may be exploited firms can choose to exploit an industry structure, continue business as usual, or exit the industry

Evaluating a Firm’s External Environment 2-18 Copyright © 2008 Pearson Prentice Hall. All rights reserved. Exploiting Industry Structure Opportunities Fragmented Industry Structure Industry Characteristics Opportunity large number of small firms no dominant firms no dominant technology commodity type products low barriers to entry few, if any, economies of scale Consolidation buy competitors build market power exploit economies of scale

Evaluating a Firm’s External Environment 2-19 Copyright © 2008 Pearson Prentice Hall. All rights reserved. Exploiting Industry Structure Opportunities Emerging Industry Structure Industry Characteristics Opportunity new industry based on break through technology or product no product standard has been reached no dominant firm has emerged new customers come from non- consumption not from competitors first mover advantages technology locking-up assets creating switching costs

Evaluating a Firm’s External Environment 2-20 Copyright © 2008 Pearson Prentice Hall. All rights reserved. Exploiting Industry Structure Opportunities Mature Industry Structure Industry Characteristics Opportunities slowing growth in demand technology standard exists increasing international competition industry-wide profits declining industry exit is beginning refine current products improve service process innovation

Evaluating a Firm’s External Environment 2-21 Copyright © 2008 Pearson Prentice Hall. All rights reserved. Exploiting Industry Structure Opportunities Declining Industry Structure Industry Characteristics Opportunities industry sales have sustained pattern of decline some well-established firms have exited firms have stopped investing in maintenance market leadership niche harvest divest

Evaluating a Firm’s External Environment 2-22 Copyright © 2008 Pearson Prentice Hall. All rights reserved. International Opportunities Approaches to International Markets international markets present opportunities that vary depending on market characteristics firms can improve the probability of above normal profits by exploiting the opportunities presented by international market characteristics external analysis should include an assessment of international market characteristics

Evaluating a Firm’s External Environment 2-23 Copyright © 2008 Pearson Prentice Hall. All rights reserved. International Opportunities Multinational Opportunity Market Characteristics Structural Response no global product standard tastes and preferences vary transportation of finished product is cost prohibitive governments impose local content rules replicate headquarters functions in multiple markets give local managers autonomy to respond modify product to local tastes & preferences

Evaluating a Firm’s External Environment 2-24 Copyright © 2008 Pearson Prentice Hall. All rights reserved. International Opportunities Global Opportunity Market Characteristics Structural Response global product standard governments allow importation significant economies of scale exist product development costs are significant minimal replication of headquarters functions centralized decision making at headquarters centralized manufacturing little responsiveness to local tastes & preferences

Evaluating a Firm’s External Environment 2-25 Copyright © 2008 Pearson Prentice Hall. All rights reserved. International Opportunities Transnational Opportunity Market Characteristics Structural Response product standardization differs from region to region government policy varies from region to region local tastes and preferences vary from region to region headquarters functions are replicated in some but not all regions high degree of coordi- nation between regions and headquarters this is a combination of a multinational and global approach

Evaluating a Firm’s External Environment 2-26 Copyright © 2008 Pearson Prentice Hall. All rights reserved. Focal Firm Buyers Suppliers Entry Rivalry Substitutes Complementors Demographic Trends Technological Change Cultural Trends Economic Climate Legal/Political Conditions Specific International Events Industry General External Environment

Evaluating a Firm’s External Environment 2-27 Copyright © 2008 Pearson Prentice Hall. All rights reserved. Summary External Analysis: takes time and effort should include consideration of international markets helps firms recognize threats and opportunities provides assessment of likely levels of industry profitability (normal, above, below) can be applied at the individual level to professional and personal environments