1. The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis1

2. The Strategic Management Process Strategy Formulation
External
Environment
The Strategic
Management
Process
Strategic
Outcomes
Actions
Strategic
Inputs
Strategic Intent
Strategic Mission
Internal Environment
Strategy Formulation
Strategy Implementation
Business-level Strategy
Competitive Dynamics
Corporate-Level Strategy
International Strategy
Corporate Governance
Structure & Control
Strategic
Competitiveness
Above Average
Returns
Feedback 10

3. Components of the General Environment
Economic
Demographic
Sociocultural
Competitive
Environment
Industry Environment
Political/Legal
Global
Technological 10

4. Components of the General Environment10

5. External Environmental Analysis
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

6. Bargaining Power of Suppliers
Porter’s Five Forces
Model of Competition
Threat of New Entrants
Bargaining Power of Suppliers
Rivalry Among Competing Firms in Industry
Bargaining Power of Buyers
Threat of Substitute Products 23

7. Porter’s Five Forces Model of Competition
Threat of New Entrants 11

8. Threat of New Entrants Economies of Scale Product Differentiation
Government Policy
Economies of Scale
Product Differentiation
Capital Requirements
Switching Costs
Access to Distribution Channels
Cost Disadvantages Independent of Scale
Barriers to Entry
Expected Retaliation 12

9. Caveat to Entry Barriers
There may be High exit barriers which take the form of economic, strategic or 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 27

10. Effects of Entry Barriers and Exit Barriers on Industry Profits
Low
High
Low
Entry Barriers
High 28

11. Effects of Entry Barriers and Exit Barriers on Industry Profits
Low
High
Low, Stable Returns
Low
Entry Barriers
High 29

12. Effects of Entry Barriers and Exit Barriers on Industry Profits
Low
High
Low, Stable Returns
Low
Entry Barriers
High, Stable Returns
High 30

13. Effects of Entry Barriers and Exit Barriers on Industry Profits
Low
High
Low, Stable Returns
Low, Risky Returns
Low
Entry Barriers
High, Stable Returns
High 31

14. Effects of Entry Barriers and Exit Barriers on Industry Profits
Low
High
Low, Stable Returns
Low, Risky Returns
Low
Entry Barriers
High, Stable Returns
High, Risky Returns
High 32

15. Bargaining Power of Suppliers
Porter’s Five Forces
Model of Competition
Threat of New Entrants
Bargaining Power of Suppliers 14

16. Bargaining Power of Suppliers
Suppliers are likely to be powerful if:
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
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 15

17. Bargaining Power of Buyers
Porter’s Five Forces
Model of Competition
Threat of New Entrants
Bargaining Power of Buyers
Bargaining Power of Suppliers 17

18. Bargaining Power of Buyers
Buyer groups are likely to be powerful if:
Buyers are concentrated
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
Buyers compete with the supplying industry by:
* Bargaining down prices
* Forcing higher quality
* Playing firms off of
each other 18

19. Bargaining Power of Suppliers Bargaining Power of Buyers
Porter’s Five Forces
Model of Competition
Threat of New Entrants
Bargaining Power of Suppliers
Bargaining Power of Buyers
Threat of Substitute Products 20

20. Threat of Substitute Products
Keys to evaluate substitute products:
Products with similar function limit the prices firms can charge
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 21

21. Bargaining Power of Suppliers
Porter’s Five Forces
Model of Competition
Threat of New Entrants
Bargaining Power of Suppliers
Rivalry Among Competing Firms in Industry
Bargaining Power of Buyers
Threat of Substitute Products 23

22. 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 25

23. Rivalry Among Existing Competitors
Cutthroat competition is more likely to occur when:
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 26

24. Competitor Analysis
The follow-up to Industry Analysis is effective analysis of a firm’s Competitors
Competitive
Environment
Industry Environment 33