2. External and Internal Analyses General Environment GeneralEnvironmentGeneral Environment Sociocultural Global Technological Political/Legal Demographic Economic Industry Environment Competitor Environment By studying the external environment, firms identify what they might choose to do Opportunities and threats

3. External and Internal Analyses

4. General Environment Components

6. The Industry Environment The set of factors that directly influences a firm, it’s competitive actions & competitive responses: 1.The threat of new entrants 2.The power of suppliers 3.The power of buyers 4.The threat of product substitutes 5.The intensity of rivalry among competitors

7. Competitor Analysis Predicting the dynamics of competitor actions, responses and intentions.

8. Macro-environmental Forces

9. The external environmental analysis process should be conducted on a continuous basis. This process includes four activities: Scanning Identifying early signals of environmental changes and trends  Monitoring Detect meaning by ongoing observations of environmental changes and trends  Forecasting Developing projections of anticipated outcomes based on monitored changes and trends  Assessing Determining the timing & importance of environmental changes and trends for firms' strategies & their management  External Environmental Analysis

10. The external environmental analysis process should be conducted on a continuous basis. This process includes four activities:  ScanningIdentifying early signals of environmental changes and trends  MonitoringDetect meaning by ongoing observations of environmental changes and trend  ForecastingDeveloping projections of anticipated outcomes based on monitored changes and trends  AssessingDetermining the timing & importance of environmental changes and trends for firms' strategies & their management

11. Threat of New Entrants Threat of Substitute Products Threat of New Entrants Bargaining Power of Buyers Bargaining Power of Suppliers Porter’s 5 Forces Model of Competition Rivalry Among Competing Firms in Industry

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

13. * Supplier industry is dominated by a few firms. * Buyer is not an important customer to supplier. * Suppliers’ product is an important input to buyers’ product. * Suppliers’ products are differentiated. Suppliers are likely to be powerful if:* Suppliers’ products have high switching costs. * Supplier poses credible threat of forward integration. 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’ products have few substitutes.* Bargaining Power of Suppliers

14. Bargaining Power of Buyers 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 Buyers compete with supplying industry by:  Bargaining down prices  Forcing higher quality  Playing firms off each other

15. Products with similar function limit the prices firms can charge * Products with improving price / performance tradeoffs relative to present industry products Keys to evaluating substitute products: For Example: Electronic security systems in place of security guards Fax machines or e-mailed attachments in place of overnight mail delivery Threat of Substitute Products

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

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

18. Rivalry Among Existing Competitors 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., labour agreements)  Strategic interrelationships  Emotional barriers  Government and social restrictions

19. Competitor Environment Competitor intelligence is the ethical gathering of needed information and data about competitors’ objectives, strategies, assumptions, and capabilities. What drives the competitor as shown by its future objectives, What the competitor is doing and can do as revealed by itsWhat the competitor is doing and can do as revealed by its current strategy, What the competitor believes about itself and the industry, as shown by its assumptions, What the the competitor may be able to do, as shown by itsWhat the the competitor may be able to do, as shown by its capabilities.

20. Competitor Analysis Future Objectives: Future objectives How do our goals compare with our competitors’ goals? Where will the emphasis be placed in the future? What is the attitude toward risk?

21. Competitor Analysis Current strategy Current Strategy: Future objectives How are we currently competing? Does this strategy support changes in the competitive structure?

22. Competitor Analysis Assumptions Current strategy Future objectives Assumptions: 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?

23. Competitor Analysis Capabilities Assumptions Current strategy Future objectives Capabilities: What are our strengths and weaknesses? How do we rate compared to our competitors?

24. Competitor Analysis Capabilities Assumptions Current strategy Future objectives Response Response: What will our competitors do in the future? Where do we hold an advantage over our competitors? How will this change our relationship with our competitors?