1. “Analysis is the critical starting point of strategic thinking.”
EXTERNAL ANALYSIS
(INDUSTRY AND COMPETITION)
Payne
(3)
“Analysis is the critical starting point of strategic thinking.”
Kenichi Ohmae

2. INTERNAL or MICRO-ENVIRONMENT
Environmental Analysis Levels
EXTERNAL or MACRO-ENVIRONMENT
Industry and competitive conditions (opportunities and threats)
INTERNAL or MICRO-ENVIRONMENT
Its competencies, capabilities, resources, and competitiveness (strengths and weaknesses)
Connect
Firm
Industry Level
Macro Level
Competitors
Suppliers
Substitutes
Customers
Demographic
Technological
Political/Legal
Social
Economic
Global

3. Macro Environment (1) Socio-cultural segment Political/Legal Segment
Women in the workplace
Workforce diversity
Attitudes about quality of worklife
Concerns about environment
Shifts in work and career preferences
Shifts in product and service preferences
Political/Legal Segment
Antitrust laws
Taxation laws
Deregulation philosophies
Labor training laws
Educational philosophies and policies

4. Macro Environment (2) Economic segment Technological Segment
Inflation rates
Interest rates
Trade deficits or surpluses
Budget deficits or surpluses
Personal savings rate
Business savings rates
Gross domestic product
Technological Segment
Product innovations
Applications of knowledge
Focus of private and government-supported R&D expenditures
New communication technologies

5. Macro Environment (3) Global Segment Demographic
Important political events
Critical global markets
Newly industrialize countries
Different cultural and institutional attributes
Demographic
Population size
Age structure
Geographic distribution
Ethnic mix
Income distribution

6. Five Forces Model of Competition
Substitute
Products
(of firms in
other industries)
Threat of Substitutes
Rivalry Intensity
Among
Competing
Sellers
Suppliers of
Key Inputs
Buyers
Bargaining Power of Buyers
Bargaining Power of Suppliers
Threat of New Entrants
Potential
New
Entrants

7. Stakeholder Analysis

8. Who are Stakeholders?
Identifying stakeholders is one way of sizing up the internal and external constituents that influence the firm.
Stakeholders are individuals and groups who can affect and are affected by a firm’s strategic outcomes and who have enforceable claims on its performance
Stakeholders include individuals, groups, and other organizations who have an interest in the actions of an organization and who have the ability to influence it
Stakeholders may be categorized as internal, interface and external.

9. Building Stakeholder Relationships
Managing down
Relationships with subordinates
Managing up
Relationships with bosses and corporate staff
Managing out
Relationships with customers and suppliers
Managing across
Relationships with peers

10. Key Success Factors
KSFs or CSFs are competitive elements that most affect every strategic group member’s ability to prosper in the marketplace:
Specific strategy elements
Product attributes
Resources or Competencies
Competitive capabilities
KSFs spell difference between:
Profit and loss
Competitive success or failure
Ask: For our organization to be successful, we MUST be especially good at ___________?

11. Key Success Factors
Optimize Performance
A sound strategy incorporates efforts to be competent on all industry key success factors and to excel on at least one factor!

12. Strategic Group Mapping
One technique for revealing the different competitive positions of industry rivals is strategic group mapping
A strategic group consists of those rivals with similar competitive approaches in an industry

13. Strategic Group Mapping
Firms in same strategic group have two or more competitive characteristics in common . . .
Sell in same price/quality range
Cover same geographic areas
Be vertically integrated to same degree
Have comparable product line breadth
Emphasize same types of distribution channels
Offer buyers similar services
Use identical technological approaches

14. A Framework of Competitor Analysis
High
Market
Commonality II I
III IV
Low
KEY
Low
High
The shaded area represents degree of market commonality between two firms
Resource
Similarity
Resource endowment A
Resource endowment B

15. Market Commonality Market Commonality is concerned with
the number of markets with which a firm and a competitor are jointly involved
the degree of importance of the individual markets to each competitor
Most industries’ markets are somewhat related in terms of
technologies
core competencies
Multi-market competition
Firms competing in several markets

16. Resource Similarity Resource similarity
the extent to which the firm’s tangible and intangible resources are comparable to a competitor’s in terms of both type and amount
Firms with similar types and amounts of resources are likely to
have similar strengths and weaknesses
use similar broad strategies
Assessing resource similarity can be difficult if critical resources are intangible rather than tangible

17. Procedure: Constructing a Strategic Group Map
STEP 1: Identify competitive characteristics that differentiate firms in an industry from one another
STEP 2: Plot firms on a two-variable map using pairs of these differentiating characteristics
STEP 3: Assign firms that fall in about the same strategy space to same strategic group
STEP 4: Draw circles around each group, making circles proportional to size of group’s respective share of total industry sales

18. Interpreting Strategic Group Maps (i. e
Interpreting Strategic Group Maps (i.e., Implications of the Strategic Groups Concept)
Driving forces and competitive pressures often favor some strategic groups and hurt others – such recognition may be the key to developing a competitive advantage.
Profit potential of different strategic groups varies due to strengths and weaknesses in each group’s market position. Important niches may be identified that are not currently being filled by competitors.
The closer strategic groups are on map, the stronger the competitive rivalry among member firms tends to be (“Organizations most like yours are the most dangerous.”)

19. Within or Between Strategic Groups
High
Price / Quality / Image
Medium
Low
Specialty
Full-line Providers
Limited-category Retailers
Broad-category Retailers
Product Line / Merchandise Mix

20. Categorizing the Objectives and Strategies of Competitors
Competitive Scope
Strategic Intent
Market Share Objective
Competitive Position
Strategic Posture
Competitive Strategy
Local
Be dominant leader
Aggressive expansion via acquisition & internal growth
Getting stronger; on the move
Mostly offensive
Striving for low-cost leadership
Regional
Overtake industry leader
Well-entrenched
Mostly defensive
Mostly focusing on a market niche
National
Be among industry leaders
Expansion via internal growth
Stuck in the middle of the pack
Combination of offensive & defensive
Pursuing differentiation based on
Quality
Service
Technology superiority
Breadth of product line
Image & reputation
More value for the money
Other attributes
Multi-country
Move to top 10
Expansion via acquisition
Going after a different position
Aggressive risk-taker
Global
Move up a notch in rankings
Hold on to present share
Struggling; losing ground
Conservative follower
Maintain current position
Give up present share to achieve short-term profits
Retrenching to a position that can be defended
Just survive

21. Unweighted Competitive Strength Assessment
KSF/Strength Measure
ABC Co.
Rival 1
Rival 2
Rival 3
Rival 4
Quality/product performance 8 5 10 1 6
Reputation/image 8 7 10 1 6
Manufacturing capability 2 10 4 5 1
Technological skills 10 1 7 3 8
Dealer network/distribution 9 4 10 5 1
New product innovation 9 4 10 5 1
Financial resources 5 10 7 3 1
Relative cost position 5 10 3 1 4
Customer service capability 5 7 10 1 4
Overall strength rating 61 58 71 25 32
Rating Scale: 1 = Very weak; 10 = Very strong

22. A Weighted Competitive Strength Assessment
KSF/Strength Measure
Weight
ABC Co.
Rival 1
Rival 2
Rival 3
Rival 4
Quality/product performance
0.10
8/0.80
5/0.50
10/1.00
1/0.10
6/0.60
Reputation/image
0.10
8/0.80
7/0.70
10/1.00
1/0.10
6/0.60
Manufacturing capability
0.10
2/0.20
10/1.00
4/0.40
5/0.50
1/0.10
Technological skills
0.05
10/0.50
1/0.05
7/0.35
3/0.15
8/0.40
Dealer network/distribution
0.05
9/0.45
4/0.20
10/0.50
5/0.25
1/0.05
New product innovation
0.05
9/0.45
4/0.20
10/0.50
5/0.25
1/0.05
Financial resources
0.10
5/0.50
10/1.00
7/0.70
3/0.30
1/0.10
Relative cost position
0.35
5/1.75
10/3.50
3/1.05
1/0.35
4/1.40
Customer service capability
0.15
5/0.75
7/1.05
10/1.50
1/0.15
4/1.60
Sum of weights
1.00
Overall strength rating
6.20
8.20
7.00
2.10
2.90
Rating Scale: 1 = Very weak; 10 = Very strong