1. External Environmental Analysis
Macro-environment, Industry, and Competitive Analysis

2. Macro-environmental Forces

3. General Environment
Dimensions in the broader society that influence and industry and the firms within it
Economic
Sociocultural
Global
Technological
Political/legal
Demographic

4. Industry Environment
Set of factors directly influencing a firm and its competitive actions and competitive responses

5. Competitor Environment
All of the companies that the firm competes against.

6. Analysis of the External Environments
General environment
Focused on the future
Industry environment
Focused on factors and conditions influencing a firm’s profitability within an industry
Competitor environment
Focused on predicting the dynamics of competitors’ actions, responses and intentions

7. Opportunities and Threats
Opportunity
A condition in the general environment that if exploited, helps a company achieve strategic competitiveness
Threat
A condition in the general environment that may hinder a company’s efforts to achieve strategic competitiveness

8. External Environmental Analysis
A continuous process which includes
Scanning for early signals of potential changes and trends in the general environment
Monitoring changes to see if a trend emerges from among those spotted by scanning
Forecasting projections of outcomes based on monitored changes and trends
Assessing the timing and significance of changes and trends on the strategic management of the firm

9. General Environment The Economic Segment Inflation rates
Interest rates
Trade deficits or surpluses
Budget deficits or surpluses
Personal savings rate
Business savings rates
Gross domestic product
The Socio-cultural Segment
Women in the workplace
Workforce diversity
Attitudes about quality of work-life
Concerns about environment
Shifts in work and career preferences
Shifts in product and service preferences

10. General Environment The Global Segment Important political events
Critical global markets
Newly industrialized countries and emerging markets
Different cultural and institutional attributes
The Technological Segment
Product innovations
Applications of knowledge
Focus of private and government-supported R&D expenditures
New communication technologies

11. General Environment The Political/Legal Segment Antitrust laws
Taxation laws
Deregulation philosophies
Labor training laws
Educational philosophies and policies
The Demographic Segment
Population size
Age structure
Geographic distribution
Ethnic mix
Income distribution

12. Industry Environment Industry Defined
A group of firms producing products that are close substitutes
Firms that influence one another
Includes a rich mix of competitive strategies that companies use in pursuing strategic competitiveness and above-average returns

13. The Five Forces of Competition Model

14. Barriers to entry A barrier to entry is any factor that
Increases the costs born by potential entrants (relative to incumbents), after they enter the market
Decreases the market share potential entrants might receive upon entering the industry
Other factors
Trade restrictions (tariffs, quotas, voluntary export restraints, infant industry protection, embargoes)
Government regulation of industries
Industry certification boards (CPAs, Actuaries)

15. Barriers that Increase Cost
Capital markets (requires inefficient capital markets)
Proprietary technology (patents, copyrights, trade secrets)
Know-how (knowledge, routines, capabilities)
Access to raw materials (unanticipated value)
Geographic locations
Economies of scale
Learning by doing

16. Barriers Limiting Market Share
Product differentiation
Advertising/Brand image
Access to distribution
Customer switching costs
Expected retaliation

17. Barriers to Entry Economies of Scale
Marginal improvements in efficiency that a firm experiences as it incrementally increases its size
Capital Requirements
Physical facilities
Inventories
Marketing activities
Availability of capital
Access to Distribution Channels
Stocking or shelf space
Price breaks
Cooperative advertising allowances
Product differentiation
Unique products
Customer loyalty
Products at competitive prices
Switching Costs
One-time costs customers incur when they buy from a different supplier
New equipment
Retraining employees
Psychic costs of ending a relationship

18. Barriers to Entry (cont’d)
Cost Disadvantages Independent of Scale
Proprietary product technology
Favorable access to raw materials
Desirable locations
Government policy
Licensing and permit requirements
Deregulation of industries
Expected retaliation
Responses by existing competitors may depend on a firm’s present stake in the industry (available business options)

19. Power of Suppliers Suppliers deliver inputs such as
Labor
Management
Technology
Materials
Suppliers influence our costs through the strength of their bargaining power

20. Bargaining Power of Suppliers
Supplier power increases when:
Suppliers are large and few in number
Suitable substitute products are not available
Individual buyers are not large customers of suppliers and there are many of them
Suppliers’ goods are critical to buyers’ marketplace success
Suppliers’ products create high switching costs.
Suppliers pose a threat to integrate forward into buyers’ industry

21. Buyer/Customer Power & Preferences
Buyers/Customers influence our prices through:
Their ability to exercise bargaining power over us – industrial markets with few buyers
The strength of their preferences – consumer sovereignty and elasticity of demand

22. Bargaining Power of Buyers/Customers
Buyer power increase when:
Buyers are large and few in number
Buyers purchase a large portion of an industry’s total output
Buyers’ purchases are a significant portion of a supplier’s annual revenues
Buyers can switch to another product without incurring high switching costs
Buyers pose threat to integrate backward into the sellers’ industry

23. Threat of Substitute Products
Substitutes are defined by product function, not by product form
The threat of substitute products increases when:
Buyers face few switching costs
The substitute product’s price is lower
Substitute product’s quality and performance are equal to or greater than the existing product
Consumer tastes and preferences
Differentiated industry products that are valued by customers reduce this threat

24. Intensity of Rivalry/Threat of Rivalry
Rivalry is the threat of established firms competing away their economic profits
Price competition
Frequent introduction of new products
Intense advertising campaigns
Rapid competitive response

25. Intensity of Rivalry Among Competitors
Industry rivalry increases when:
There are numerous or equally balanced competitors
Industry growth slows or declines
There are high fixed costs or high storage costs
There is a lack of differentiation opportunities or low switching costs
When the strategic stakes are high
When high exit barriers prevent competitors from leaving the industry

26. Interpreting Industry Analyses
Suppliers and buyers have strong positions
Low entry barriers
Strong threats from substitute products
Intense rivalry among competitors
Low profit potential
Unattractive Industry

27. Interpreting Industry Analyses
High entry barriers
Suppliers and buyers have weak positions
Few threats from substitute products
Moderate rivalry among competitors
High profit potential
Attractive Industry

28. Competitor Analysis Competitor Intelligence
The ethical gathering of needed information and data that provides insight into:
A competitor’s direction (future objectives)
A competitor’s capabilities and intentions (current strategy)
A competitor’s beliefs about the industry (its assumptions)
A competitor’s capabilities

29. Competitor Analysis Components