Strategic Managementch03 100317215504 Phpapp02

The External Environment: Opportunities, Threats, Industry Competition & Competitor Analysis
Chapter Three
2006 2006 by by Nelson, Nelson, aa division division of Thomson ThomsonCanada Canada Limited. Limited.
3-1
The Strategic Management Process
Strategic Objectives & Inputs

Chapter 1: Chapter 3: Strategic The External Management Environment
Ch. 2: Strat. Mgmt . & Performance Chapter 4: The Internal Environment Strategic Mission & Strategic Intent
Strategic Competitiveness
Strategy Implementation
Chapter 13: Strategic Leadership Chapter 14: Org. Renewal & Innovation Strategic Actions
Strategy Formulation
Chapter 5: Bus.-Level Strategy Chapter 6: Competitive Dynamics
Ch. 12: Org. Structure & Controls

Chapter 11: Corporate Governance
Chapter 7: Corp.-Level Strategy Chapter 9: International Strategy
Chapter 8: Acquisition & Restructuring
Chapter 10: Cooperative Strategy
2006 by Nelson, a division of Thomson Canada Limited.
3-2
The External Environment: Opportunities, Threats, Ind. Competition & Competitor Analysis
Knowledge Objectives 1. 2. 3. 4. 5. Explain the importance of analyzing and understanding the firms external environment Describe the general environment & industry environment Discuss the 4 activities of the external environmental analysis process Name & describe the general environments 6 segments Identifying five competitive forces and how they determine an industrys profit potential Define strategic groups and their influence on the firm Describe what firms need to know about competitors & different methods used to collect intelligence about them
2006 by Nelson, a division of Thomson Canada Limited. 3-3
6. 7.
The External Environment

Environment
Economic
Industry Environment
Threat of new entrants Power of suppliers Power of buyers Product substitutes Intensity of rivalry
Competitor Environment
Technological
General
Elements of the General Environment

Environment Demographic Population size Age structure Ethnic Mix Geographic Distribution Income Distribution Immigration
General

Environment
Economic
Economic Savings rates Inflation/interest rate Gross domestic prod. Trade deficits or surpluses Budget deficits or surpluses
General

Environment
Sociocultural Enviro. Concerns Workforce diversity Work life quality views Shifts in product / service preferences Shifts in 2 career preferences
General

Environment
Global Big political events Different cultural & institutional attributes Critical global markets Newly industrialized countries
General

Environment
Technological Focus of R&D expenditures Product innovations Knowledge Resources Process Innovations New communication technologies
Technological
General

Environment
Political / Legal Labour Laws Government econ. involvement views De-/ Regulation views Competition Laws Education policy Taxation laws
General
The Industry Environment

The set of factors that directly influences a firm, its competitive actions & competitive responses:
Industry Environment
Threat of new entrants Power of suppliers Power of buyers Product substitutes Intensity of rivalry
3-11
Competitor Analysis
Predicting the dynamics of competitor actions, responses and intentions.
3-12
The I/O Model of Superior Returns

The Industrial Organization Model suggests that above-average returns for any firm are largely determined by characteristics outside the firm. The I/O model largely focuses on industry attractiveness or structure of the external environment rather than internal characteristics of the firm.
O I
3-13

Action required: External Environment
General Environment Industry Environment Competitive Environment
Study the external environment, especially the industry environment.
3-14 *
an

External An Attractive Environment Industry Action required: Locate an industry with high potential for above-average returns.
General Environment Industry Environment An industry whose structural characteristics Competitive suggest above-average Environment returns are possible
3-15 *
an

External Environment An Attractive
Action required: I.d. strategy called for by the industry to earn above-average returns.
Industry General Environment Strategy

Industry Environment Formulation An industry whose Competitive structural characteristics Selection of a strategy Environment suggest above-average linked with abovereturns are possible average returns in a particular industry
3-16 *
an

Action required: Develop / acquire assets and skills needed to implement the strategy.

Industry Environment Formulation An industry whose Assets and Skills Competitive structural characteristics Selection of a strategy Environment suggest above-average linked with Assets aboveand skills returns areaverage possible returns required into a particular implement industry a chosen strategy
3-17 *
an

Action required: Use the firms strengths (its assets or skills) to implement the strategy.

Industry Formulation An Environment industry whose Assets and Skills Competitive structural characteristics Selection of a strategy Strategy Environment suggest above-average linked with Assets aboveand skills Implementation returns areaverage possible returns required into a particular implement industry a chosen Selecting strategic actions strategylinked with effective implementation of the chosen strategy
3-18 *
an

Action required: Maintain selected strategy in order to outperform industry rivals.

Industry Environment Formulation An industry whose Assets and Skills Competitive structural characteristics Selection of a strategy Strategy Environment suggest above-average linked with Assets aboveand skills Implementation returns areaverage possible Superior returns required into a Returns particular implement industry a chosen Selecting strategic actions strategylinked withEarning effective of aboveimplementation of the average returns chosen strategy
3-19 *
an
External Environmental Analysis

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 Detect meaning by ongoing observations of environmental changes and trends Developing projections of anticipated outcomes based on monitored changes and trends Determining the timing & importance of environmental changes and trends for firms' strategies & their management
3-20
Monitoring Forecasting
Assessing
Porters 5 Forces Model of Competition

Threat of New Entrants
Five Forces of Competition
Threat of Substitute Products
The threat of new entrants depends on barriers to entry

The above image Copyright 2001 Corel & Jerry Sheppard All rights reserved.
3-21
*
Barriers to Entry
Economies of Scale
* Product Differentiation * Capital Requirements * Switching Costs *

*
Access to Distribution Channels
Cost Disadvantages Independent of Scale
* *
Government Policy
Expected Retaliation
3-22 *

Bargaining Power of Suppliers

Bargaining Power of suppliers depends on a number of factors

3-23 *

Suppliers are likely to be powerful if:
Supplier industry is dominated by a few firms. * Suppliers products have few substitutes. * Threatening to raise prices or to reduce * Buyer is not an important customer to quality supplier. Powerful suppliers * Suppliers product is an important can squeeze industry input to buyers product. profitability if firms * Suppliers products are differentiated.
Suppliers exert power in the industry by:
are unable to recover cost increases
* *
Suppliers products have high switching costs. Supplier poses credible threat of forward integration.
3-24 *

Bargaining Power of Buyers
Bargaining Power of buyers depends on a number of factors

3-25 *

Buyer groups are likely to be powerful if:
*
* * * *
Buyers are concentrated or purchases are large relative to sellers sales Purchase accounts for a significant Buyers compete fraction of suppliers sales with supplying Products are undifferentiated industry by: Buyers face few switching costs Buyers industry earns low profits
Buyer presents a credible threat of backward integration

Product unimportant to quality
* Bargaining down prices * Forcing higher quality * Playing firms off of

each other
* *
Buyer has full information



Substitutes are not direct competitors
3-27 *

Keys to evaluating substitute products:
*
Products with similar function limit the prices firms can charge
Products with improving price / performance tradeoffs relative to present industry products For Example: Electronic security systems in place of security guards Fax machines or e-mailed attachments in place of overnight mail delivery
3-28

Rivalry Among Competing Firms
Reduced rivalry means greater profitability

3-29 *
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

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
3-31

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

Strategic Groups
A set of firms emphasizing similar strategic dimensions to use a similar strategy
1. The more intense the rivalry of competitors within a group the greater the threat to each firms profitability. 2. The strengths of the 5 competitive forces differ across strategic groups. Thus firms within various strategic groups have different pricing policies. 3. The closer groups are in terms of their strategies & dimensions emphasized, the greater the chance competitive rivalry between groups.
Competitor intelligence is the ethical gathering of needed information and data about competitors objectives, strategies, assumptions, & capabilities.
What drives the competitor as shown by its future objectives, What 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 its capabilities.
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?
3-35
Competitor Analysis
Future objectives
Current Strategy:
Current strategy
How are we currently competing?

Does this strategy support changes in the competitive structure?
3-36
Competitor Analysis
Future objectives
Assumptions:
Current strategy 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?
Assumptions
Competitor Analysis
Future objectives
Current strategy
Capabilities:
What are our strengths and weaknesses? How do we rate compared to our competitors?
Assumptions
Capabilities
Competitor Analysis
Future objectives
Response
Current strategy
Response:
What will our competitors do in the future? Where do we hold an advantage over our competitors?
Assumptions
Capabilities
How will this change our relationship with our competitors?

3-39
The Strategic Management Process
Strategic Objectives & Inputs

Chapter 1: Chapter 3: Strategic The External Management Environment
Ch. 2: Strat. Mgmt . & Performance Chapter 4: The Internal Environment Strategic Mission & Strategic Intent
Strategic Competitiveness
Strategy Implementation
Chapter 13: Strategic Leadership Chapter 14: Org. Renewal & Innovation Strategic Actions
Strategy Formulation
Chapter 5: Bus.-Level Strategy Chapter 6: Competitive Dynamics
Ch. 12: Org. Structure & Controls

Chapter 11: Corporate Governance
Chapter 7: Corp.-Level Strategy Chapter 9: International Strategy
Chapter 8: Acquisition & Restructuring
Chapter 10: Cooperative Strategy
3-40

Strategic Managementch03 100317215504 Phpapp02

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Strategic Managementch03 100317215504 Phpapp02

Uploaded by

Copyright:

Available Formats

The External Environment: Opportunities, Threats, Industry Competition & Competitor Analysis

The Strategic Management Process

Strategic Objectives & Inputs

Ch. 12: Org. Structure & Controls

Chapter 7: Corp.-Level Strategy Chapter 9: International Strategy

Chapter 8: Acquisition & Restructuring

Chapter 10: Cooperative Strategy

2006 by Nelson, a division of Thomson Canada Limited.

The External Environment

Elements of the General Environment

Elements of the General Environment

Elements of the General Environment

Elements of the General Environment

Elements of the General Environment

Elements of the General Environment

The Industry Environment

2006 by Nelson, a division of Thomson Canada Limited.

Predicting the dynamics of competitor actions, responses and intentions.

2006 by Nelson, a division of Thomson Canada Limited.

The I/O Model of Superior Returns

2006 by Nelson, a division of Thomson Canada Limited.

The I/O Model of Superior Returns

Study the external environment, especially the industry environment.

2006 by Nelson, a division of Thomson Canada Limited.

The I/O Model of Superior Returns

2006 by Nelson, a division of Thomson Canada Limited.

The I/O Model of Superior Returns

Industry General Environment Strategy

2006 by Nelson, a division of Thomson Canada Limited.

The I/O Model of Superior Returns

Industry General Environment Strategy

2006 by Nelson, a division of Thomson Canada Limited.

The I/O Model of Superior Returns

Industry General Environment Strategy

2006 by Nelson, a division of Thomson Canada Limited.

The I/O Model of Superior Returns

Action required: Maintain selected strategy in order to outperform industry rivals.

Industry General Environment Strategy

2006 by Nelson, a division of Thomson Canada Limited.

External Environmental Analysis

2006 by Nelson, a division of Thomson Canada Limited.

Porters 5 Forces Model of Competition

Five Forces of Competition

Threat of Substitute Products

The threat of new entrants depends on barriers to entry

2006 by Nelson, a division of Thomson Canada Limited.

Threat of New Entrants

* Product Differentiation * Capital Requirements * Switching Costs *

2006 by Nelson, a division of Thomson Canada Limited.

Porters 5 Forces Model of Competition

Bargaining Power of Suppliers

Threat of Substitute Products

Bargaining Power of suppliers depends on a number of factors

2006 by Nelson, a division of Thomson Canada Limited.

Bargaining Power of Suppliers

are unable to recover cost increases

2006 by Nelson, a division of Thomson Canada Limited.

Porters 5 Forces Model of Competition

Bargaining Power of Suppliers

Bargaining Power of Buyers

Five Forces of Competition

Threat of Substitute Products

Bargaining Power of buyers depends on a number of factors

2006 by Nelson, a division of Thomson Canada Limited.