Ch2-1 Chapter 2 The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis Dr. Mubarak Ali

Ch2-2 The Strategic ManagementProcess ManagementProcess Chapter 3 Internal Environment Chapter 2 External Environment Strategic Intent Strategic Mission Strategy Formulation Strategy Implementation Chapter 4 Business-Level Strategy Chapter 5 Competitive Dynamics Chapter 6 Corporate-Level Strategy Chapter 8 International Strategy Chapter 9 Cooperative Strategies Chapter 7 Acquisitions & Restructuring Chapter 10 Corporate Governance Chapter 11 Structure & Control Chapter 12 Strategic Leadership Chapter 13 Entrepreneurship & Innovation Entrepreneurship & Innovation Strategic Inputs Feedback Strategic Outcomes StrategicActions Strategic Competitiveness Above Average Returns

Ch2-3 Political/ Legal Economic Technological Global Demographic Sociocultural CompetitiveEnvironment Industry Environment Components of the General Environment

Ch2-4 Components of the General Environment

Ch2-5 External Environmental Analysis The external environmental analysis process should be conducted on a continuous basis. This process includes four activities: ScanningMonitoring Forecasting Assessing Identifying early signals of environmental changes and trends Detecting meaning through ongoing observations of environmental changes and trends Developing projections of anticipated outcomes based on monitored changes and trends Determining the timing and importance of environmental changes and trends for firms' strategies and their management

Ch2-6 Top 10 U.S. States Moving Toward Digital Economy States in the top 10 of those that are trying to transform themselves to the realities and needs of a digital economy may experience an influx of high-tech companies and skilled workers as well as increases in tax revenues External Environmental Analysis

Ch2-7 Threat of New Entrants Porter’s Five Forces Model of Competition Porter’s Five Forces Model of Competition

Ch2-8 Threat of New Entrants Barriers to Entry Expected Retaliation Government Policy Economies of Scale Product Differentiation Capital Requirements Switching Costs Access to Distribution Channels Cost Disadvantages Independent of Scale

Ch2-9 Bargaining Power of Suppliers Threat of New Entrants Porter’s Five Forces Model of Competition Porter’s Five Forces Model of Competition

Ch2-10 Bargaining Power of Suppliers Suppliers exert power in the industry by: * Threatening to raise prices or to reduce quality Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases Suppliers are likely to be powerful if: Supplier industry is dominated by a few firms Suppliers’ products have few substitutes Buyer is not an important customer to supplier Suppliers’ product is an important input to buyers’ product Suppliers’ products are differentiated Suppliers’ products have high switching costs Supplier poses credible threat of forward integration

Ch2-11 Bargaining Power of Buyers Threat of New Entrants Bargaining Power of Suppliers Porter’s Five Forces Model of Competition Porter’s Five Forces Model of Competition

Ch2-12 Bargaining Power of Buyers Buyers compete with the supplying industry by: * Bargaining down prices * Forcing higher quality * Playing firms off of each other Buyer groups are likely to be powerful if: Buyers are concentrated or purchases are large relative to seller’s sales Purchase accounts for a significant fraction of supplier’s sales Products are undifferentiated Buyers face few switching costs Buyers’ industry earns low profits Buyer presents a credible threat of backward integration Product unimportant to quality Buyer has full information

Ch2-13 Threat of Substitute Products Threat of New Entrants Bargaining Power of Buyers Bargaining Power of Suppliers Porter’s Five Forces Model of Competition Porter’s Five Forces Model of Competition

Ch2-14 Threat of Substitute Products Products with similar function limit the prices firms can charge Keys to evaluate substitute products: Products with improving price/performance tradeoffs relative to present industry products Example: Electronic security systems in place of security guards Fax machines in place of overnight mail delivery

Ch2-15 Threat of Substitute Products Threat of New Entrants Rivalry Among Competing Firms in Industry Bargaining Power of Buyers Bargaining Power of Suppliers Porter’s Five Forces Model of Competition Porter’s Five Forces Model of Competition

Ch2-16 Rivalry Among Existing Competitors Intense rivalry often plays out in the following ways: Jockeying for strategic position Using price competition Staging advertising battles Making new product introductions Increasing consumer warranties or service Occurs when a firm is pressured or sees an opportunity Price competition often leaves the entire industry worse off Advertising battles may increase total industry demand, but may be costly to smaller competitors

Ch2-17 Cutthroat competition is more likely to occur when: Rivalry Among Existing Competitors Numerous or equally balanced competitors Slow growth industry High fixed costs Lack of differentiation or switching costs High storage costs Capacity added in large increments High strategic stakes High exit barriers Diverse competitors

Ch2-18 High exit barriers are economic, strategic and emotional factors which cause companies to remain in an industry even when future profitability is questionable. Specialized assets Fixed cost of exit (e.g., labor agreements) Emotional barriers Government and social restrictions Strategic interrelationships Rivalry Among Existing Competitors

Ch2-19 Effects of Entry Barriers and Exit Barriers on Industry Profits Entry Barriers Exit Barriers High Low HighLow

Ch2-20 Low, Stable Returns Entry Barriers Exit Barriers High Low HighLow Effects of Entry Barriers and Exit Barriers on Industry Profits

Ch2-21 High, Stable Returns Entry Barriers Exit Barriers High Low HighLow Low, Stable Returns Effects of Entry Barriers and Exit Barriers on Industry Profits

Ch2-22 Low, Risky Returns Entry Barriers Exit Barriers High Low HighLow Low, Stable Returns High, Stable Returns Effects of Entry Barriers and Exit Barriers on Industry Profits

Ch2-23 High, Risky Returns Entry Barriers Exit Barriers High Low HighLow Low, Stable Returns High, Stable Returns Low, Risky Returns Effects of Entry Barriers and Exit Barriers on Industry Profits

Ch2-24 Competitor Analysis The follow-up to Industry Analysis is effective analysis of a firm’s Competitors CompetitiveEnvironment Industry Environment

Ch2-25 Competitor Analysis Assumptions What assumptions do our competitors hold about the future of industry and themselves? Current Strategy Does our current strategy support changes in the competitive environment? Future Objectives How do our goals compare to our competitors’ goals? Capabilities How do our capabilities compare to our competitors? Response What will our competitors do in the future? Where do we have a competitive advantage? How will this change our relationship with our competition?

Ch2-26 Future Objectives How do our goals compare to our competitors’ goals? Where will emphasis be placed in the future? What is the attitude toward risk? What Drives the competitor? Competitor Analysis

Ch2-27 What is the competitor doing? What can the competitor do? Future Objectives How do our goals compare to our competitors’ goals? Where will emphasis be placed in the future? What is the attitude toward risk? Current Strategy How are we currently competing? Does this strategy support changes in the competitive structure? Competitor Analysis

Ch2-28 What does the competitor believe about itself and the industry? Future Objectives How do our goals compare to our competitors’ goals? Where will emphasis be placed in the future? What is the attitude toward risk? Current Strategy How are we currently competing? Does this strategy support changes in the competition structure? Do we assume the future will be volatile? Are we assuming stable competitive conditions? What assumptions do our competitors hold about the industry and themselves? Assumptions Competitor Analysis

Ch2-29 What are the competitor’s capabilities? Future Objectives How do our goals compare to our competitors’ goals? Where will emphasis be placed in the future? What is the attitude toward risk? Current Strategy How are we currently competing? Does this strategy support changes in the competition structure? 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? Assumptions What are my competitors’ strengths and weaknesses? How do our capabilities compare to our competitors? Capabilities Competitor Analysis

Ch2-30 Future Objectives How do our goals compare to our competitors’ goals? Where will emphasis be placed in the future? What is the attitude toward risk? Current Strategy How are we currently competing? Does this strategy support changes in the competition structure? 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? Assumptions Response What will our competitors do in the future? Where do we have a competitive advantage? How will this change our relationship with our competition? Capabilities What are my competitors’ strengths and weaknesses? How do our capabilities compare to our competitors? Competitor Analysis