1. Evaluating a Company’s External Environment
All companies operate in a macro environment shaped by political, economic, legal, global, industry and competitive forces.
Thus a company’s macro environment includes all relevant factors and influences outside the boundaries of a company.
Companies in all industries have to craft strategies that are responsive to macro environmental factors relevant to them.

2. The Role of External Analysis in Strategic Planning
Scanning
Monitoring
Intelligence
Forecasting
Strategic Direction
Strategic Plans
Internal Analysis
Vision
Mission
Strengths
Weaknesses

3. External Analysis Ctd
External analysis is the broader activity of understanding changing external environment that may impact the organisation.
Merged with the internal analysis of the organisation’s vision, mission, strengths and weaknesses, external analysis assists decision makers in formulating strategic directions and strategic plans.

4. Environmental Scanning
It can be defined as the study (or surveillance) and interpretation of the political, economic, social, technological and global events and trends which influence a business, an industry or even a total market.
It thus involves the surveillance of a firm’s external environment to predict changes to come and detect changes already underway.

5. Environmental Monitoring
It tracks the evolution of environmental trends, sequences of events or streams of activities.
These are often uncovered during the environmental scanning process.
While environmental scanning makes firms aware of the trends in the environment, these trends require monitoring.
E.g a firm should monitor how fast its competitors bring new products to the market than itself.
Monitoring enables firms to evaluate how dramatically environmental trends are changing the competitive landscape.

6. Competitive Intelligence
It helps firms to define and understand their industry and identify rivals strengths and weaknesses.
It includes the collection of data on competitors and interpretation of such data for managerial decision making.
Done properly, competitive intelligence helps a company avoid surprises by anticipating competitors moves and decreasing response times

7. Environmental forecasting
It involves the development of plausible projections about the direction, scope, speed and intensity of environmental change.
Its purpose is to predict change.
It asks: How long will it take a new technology to reach the marketplace? or Are current lifestyle trends likely to continue?.

8. The Components of a Company’s Macroenvironment
New Entrants
Buyers
Substitute Products
Rival Firms
Suppliers
Economic Forces
Political Forces
Socio-cultural forces
Global Forces
Technological Forces
Legal Forces

9. Thinking strategically about a Company’s Industry and Competitive Environment
This entails a company’s efforts to answer the following questions:
1. What are the industry’s dominant economic features.
2. What kinds of competitive forces are industry members facing and how strong is each force?
3. What forces are driving industry change and what impact will these changes have on competitive intensity and industry profitability?

10. Thinking strategically ctd
4. What market positions do industry rivals occupy- who is/or not strongly positioned?
5. What strategic moves are rivals likely to make next?
6. What are the key factors for future competitive success?
7. Does the outlook for the industry offer the company a good opportunity to earn attractive profits?

11. What are the industry’s dominant economic features?
Economic features to consider are:
1. Market size and growth rate
2. Number of rivals
3. Scope of competitive rivalry
4. Number of buyers
5. Degree of product differentiation
6. Product innovation
7. Demand supply conditions
8. Pace of technological changes
9. Vertical intergration
10. Economies of scale
11. Existence of learning/experience curve effects

12. How strong are Competitive forces
This can be analysed using Michael Porter’s five forces model.
The model postulates that the state of competition in an industry is a product of competitive pressures operating in five areas of the overall market namely:
1. Rivalry among existing competitors
2. Threat of new entrants
3. Threat of substitutes
4. Bargaining power of suppliers
5. Bargaining power of buyers

13. Michael Porter’s Five Forces Model
Threat of
Entry
Rivalry Among Existing
Firms
Bargaining Power of Suppliers
Bargaining Power of Buyers
Threat
of Substitutes

14. Steps to be followed in using the model
One should
1. Identify the specific competitive pressures associated with each of the five forces.
2. Evaluate the strength of the pressures comprising each of the five forces (eg fierce, strong, moderate to normal, or weak)
3. Determine whether the collective strength of the five competitive forces is conducive to earning attractive profits

15. Competitive Forces
The analysis of the collective strength of the five -competitive forces determine whether the industry is conducive for good profitability.
Generally the stronger the collective impact of the competitive forces, the harder it becomes for industry members to earn attractive profits.
Furthermore, a company’s strategy is increasingly effective the more it provides some insulation from competitive pressures and shifts the competitive battle in the company’s favor.

16. Rivalry Among Existing Rivalries
A market is regarded as a competitive battlefield where rivalry competitors employ whatever weapons to strengthen their market positions, attract and retain buyers and earn good profits.
When one firm makes a strategic move that produces good results, its rivals usually respond with offensive or defensive countermoves.

17. Typical Weapons for Battling Rivals and Attracting Buyers
Lower prices
More or different features
Better product performance
Higher quality
Stronger brand image
Higher levels of advertising
Better customer service capability
Stronger capabilities to provide buyers with custom made products

18. Rivalry Against Existing Competitors
Rivalry is generally stronger when:
Buyer demand is growing slowly
Buyer costs to switch brands are low
The number of rivals increases and rivals are of roughly equal size and competitive capability
Competing sellers are active in making fresh moves to improve their market standing and business performance
The products of rival sellers are commodities or else weakly differentiated.

19. Threat of New Entrants
This refers to the competitive pressures coming from new firms that want to enter the industry.
The entry of new firms in an industry is determined by the existence of entry barriers .
High barriers reduce the competitive threat of potential entry, while low barriers make entry more likely.

20. Threat of new entrants ctd
The most widely encountered barriers that entry candidates face include:
1. The presence of economies of scale in production or other areas of operation.
2. Cost and resource disadvantages eg learning curve effects
3. Strong brand preferences and high degrees of customer loyalty.
4. High capital requirements
5. Poor distributor/retailer network
6. Restrictive regulatory policies
7. Tariffs and international trade restrictions
8. The retaliating activities of incumbent firms

21. Threat of New Entrants Entry threats are stronger when:
1. Entry barriers are low
2. There is a sizeable pool of entry candidates
3. Buyer demand is growing rapidly
4. Profit potentials are high
5. Incumbent firms are unable or unwilling to vigorously contest a newcomer’s entry.
The opposite of the above result in weaker entry theats.

22. Threat of Substitutes
Substitutes are products or services that offer a similar benefit to an industry’s products or services, but by a different process.
Substitutes can reduce the demand for a particular product as customers switch to the alternatives.
They also limit the potential returns of the industry by placing a ceiling on the prices that can be effectively be charged.

23. Threat of Substitutes
Competitive pressures from the sellers of substitute products are stronger when:
1. When good substitutes are readily available
2. Substitutes are attractively priced
3. When substitutes have comparable or better performance features.
4. End users have low costs in switching to substitutes
5. End users grow more comfortable with using substitutes. (The opposite is true for the contrary)

24. Threat of Substitutes
Below are some of the signs that competition from substitutes is strong:
1. Sales of substitutes are growing faster than sales of the industries being analysed
2. Producers of substitutes are moving to add new capacity.
3. Profits of the producers of substitutes are on the rise.

25. Bargaining Power of Suppliers
Suppliers refer to those who supply the organization with what it needs to produce the product or service.
Competitive pressure from suppliers depend on 1. Whether the major suppliers can exercise sufficient bargaining power to influence the terms and conditions of supply in their favor
2.how closely one or more industry members collaborate with their suppliers to achieve supply chain efficiencies.

26. Bargaining Power of Suppliers
Factors that determine the ability of suppliers to exert substantial bargaining power are;
1. The nature and availability of the product supplied
2. Whether a few large suppliers are the primary sources of a particular item
3. The availability of switching costs to buyers
4. Whether the certain inputs needed are in short supply.
5Whether certain suppliers provide a differentiated input that enhances the performance or quality of the industry’s product.
6. Whether it makes good economic sense for industry members to integrate backwards and self manufacture the items they have been buying from the suppliers.

27. Bargaining Power of Suppliers
All in all supplier bargaining power is higher when:
1. Industry members incur high costs in switching their purchases to alternative suppliers
2. Needed inputs are in short supply (which gives suppliers more leverage in setting prices)
3. A supplier has a differentiated input that enhances the quality or performance of sellers’ products or is a valuable or critical part of seller’s production process.
4. There are only a few suppliers of a particular input.
5. Some suppliers threaten to integrate forward into the business of industry members and perhaps become a powerful rival(The opposite is true)

28. Bargaining Power of Buyers
Buyers refer to the organization's immediate customers, not necessarily the ultimate consumers.
Sometimes buyers have such high bargaining power that industry members are hard pressed to make profits at all.

29. Bargaining Power of Buyer
Buyer bargaining power is stronger when:
1. Buyer switching costs to competing brands or substitutes are low.
2. Buyers are large and can demand concessions when purchasing large quantities.
3. Large volume purchases by buyers are important to sellers.
4. Buyer demand is weak or declining
5. There are only a few buyers

30. Bargaining Power of Buyers
6. Identity of buyer adds prestige to the seller’s list of customers.
7. Quantity and quality of information available to buyers improves.
8. Buyers have the ability to postpone purchases until later if they do not like the present deals being offered by sellers.
9. Some buyers are a threat to integrate backward into the business of sellers and become important competitors(The opposite is true)