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The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis Date  Session  Time 02.02....
Environments <ul><li>External </li></ul><ul><li>Internal </li></ul>
External Environment <ul><li>Proximate  </li></ul><ul><li>Distant </li></ul>
Proximate <ul><li>Suppliers and Vendors </li></ul><ul><li>Some control </li></ul><ul><li>Manageable </li></ul><ul><li>Coul...
Distant <ul><li>Regulations </li></ul><ul><li>Laws </li></ul><ul><li>Global treaties </li></ul><ul><li>Organizations have ...
The External Environment General Environment General Environment General Environment Industry Environment Threat of new en...
External Environment <ul><li>General Environment </li></ul><ul><li>Industry Environment </li></ul><ul><li>Competitive Envi...
External Environment <ul><li>General Environment </li></ul><ul><ul><li>Influences the industry and firms inside the indust...
Demographic Elements <ul><li>Population size </li></ul><ul><li>Age Structure </li></ul><ul><li>Geographic distribution </l...
Environmental Changes <ul><li>Social Changes  </li></ul><ul><ul><li>Double income, consumerism, superior- higher education...
Economic Elements <ul><li>Inflation rate </li></ul><ul><li>Interest rates </li></ul><ul><li>Trade deficit or surplus </li>...
Political/Legal Elements <ul><li>Laws </li></ul><ul><li>Taxation </li></ul><ul><li>Monopolies </li></ul><ul><li>Political ...
<ul><li>Legal Changes </li></ul><ul><ul><li>Governmental regulations </li></ul></ul><ul><ul><ul><li>Helmets, fire extingui...
<ul><li>Technological Changes </li></ul><ul><ul><li>New product leading to ancillary, supporting and enriching products an...
Socio - Cultural Elements <ul><li>Women in Work </li></ul><ul><li>Work force diversity </li></ul><ul><li>Cultural values <...
Technological Elements <ul><li>Product Innovation </li></ul><ul><li>R & D spending </li></ul><ul><li>Quick diffusion of te...
Global Elements <ul><li>Forex </li></ul><ul><li>Treaties </li></ul><ul><li>WTO </li></ul><ul><li>UN </li></ul><ul><li>Trad...
Industry Environment <ul><li>Influence the firm directly and Its competitive action: </li></ul><ul><ul><li>Threat of new e...
Competitive Environment <ul><li>Competitive analysis – in similar industries </li></ul><ul><ul><li>Jet and King Fisher </l...
External Environments <ul><li>Features as of now </li></ul><ul><ul><li>Turbulent </li></ul></ul><ul><ul><li>Complex </li><...
Handling Mode or Coping Mode <ul><li>Scanning </li></ul><ul><ul><li>Identify early signals of environmental changes and tr...
External Environmental Analysis <ul><li>A continuous process which includes </li></ul><ul><ul><li>Scanning:  Identifying e...
External Environmental Analysis Strategic Intent Strategic Mission The External Environment Analysis of general environmen...
Industry Environment <ul><li>A set of factors that directly influences a company and its competitive actions and responses...
Porter’s Five Forces Model <ul><li>Identify current and potential consumers and determine which firms serve them </li></ul...
Five Forces Model of Competition Threat of New Entrants Bargaining Power of Suppliers Bargaining Power of Buyers Threat of...
Threat of New Entrants <ul><li>Barriers to entry </li></ul><ul><li>Economies of scale </li></ul><ul><li>Product differenti...
Bargaining Power of Suppliers <ul><li>A supplier group is powerful when: </li></ul><ul><li>it is dominated by a few large ...
Bargaining Power of Buyers <ul><li>Buyers (customers) are powerful when : </li></ul><ul><li>they purchase a large portion ...
Threat of Substitute Products <ul><li>Product substitutes are strong threat when: </li></ul><ul><li>customers face few swi...
Intensity of Rivalry <ul><li>Intensity of rivalry is stronger when competitors: </li></ul><ul><li>are numerous or equally ...
High Exit Barriers <ul><li>Common exit barriers include: </li></ul><ul><li>specialized assets (assets with values linked t...
Strategic Groups <ul><li>Strategic group: a group of firms in an industry following the same or similar strategy along the...
Competitor Analysis <ul><li>Future Objectives: </li></ul><ul><li>How do our goals compare with our competitors’ goals? </l...
Competitor Analysis <ul><li>Current Strategy: </li></ul><ul><li>How are we currently competing? </li></ul><ul><li>Does thi...
Competitor Analysis <ul><li>Assumptions: </li></ul><ul><li>Do we assume the future will be volatile? </li></ul><ul><li>Are...
Competitor Analysis <ul><li>Capabilities: </li></ul><ul><li>What are our strengths and weaknesses? </li></ul><ul><li>How d...
Competitor Analysis Response: <ul><li>What will our competitors do in the future? </li></ul><ul><li>Where do we hold an ad...
Competitive Profile Matrix (CPM) Identifies firm’s major competitors and their strengths and weaknesses in relation to a s...
Value Assignment for CPM Absolutely Arbitrary Major Strength 4 Minor Strength 3 Minor Weakness 2 Major Weakness 1
Lenovo Apple Dell CSF’s Weight Rating Weighted Score Rating Weighted Score Rating Weighted Score Market Share 0.15 3 0.45 ...
Industry Analysis CPM Just because one firm receives a  3.49  rating and another receives a  2.47  rating, it does not fol...
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External Environmental Analysis - Strategic Decision Making

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External Environmental Analysis - Strategic Decision Making

  1. 1. The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis Date Session Time 02.02.2009. 8 & 9 1115 -1500 Analyzing Strategic Issues
  2. 2. Environments <ul><li>External </li></ul><ul><li>Internal </li></ul>
  3. 3. External Environment <ul><li>Proximate </li></ul><ul><li>Distant </li></ul>
  4. 4. Proximate <ul><li>Suppliers and Vendors </li></ul><ul><li>Some control </li></ul><ul><li>Manageable </li></ul><ul><li>Could be industry specific </li></ul>
  5. 5. Distant <ul><li>Regulations </li></ul><ul><li>Laws </li></ul><ul><li>Global treaties </li></ul><ul><li>Organizations have no control </li></ul><ul><li>Less manageable </li></ul><ul><li>Are similar to all industry firms </li></ul>
  6. 6. The External Environment General Environment General Environment General Environment Industry Environment Threat of new entrants Power of suppliers Power of buyers Product substitutes Intensity of rivalry Competitor Environment Economic Political/Legal Technological Global Demographic Sociocultural
  7. 7. External Environment <ul><li>General Environment </li></ul><ul><li>Industry Environment </li></ul><ul><li>Competitive Environment </li></ul>
  8. 8. External Environment <ul><li>General Environment </li></ul><ul><ul><li>Influences the industry and firms inside the industry </li></ul></ul><ul><ul><li>Firms can not directly control these but collect information and formulate strategies </li></ul></ul><ul><ul><li>Six Segments </li></ul></ul><ul><ul><ul><li>Demographic </li></ul></ul></ul><ul><ul><ul><li>Economic </li></ul></ul></ul><ul><ul><ul><li>Political/legal </li></ul></ul></ul><ul><ul><ul><li>Socio- cultural </li></ul></ul></ul><ul><ul><ul><li>Technological </li></ul></ul></ul><ul><ul><ul><li>Global </li></ul></ul></ul>
  9. 9. Demographic Elements <ul><li>Population size </li></ul><ul><li>Age Structure </li></ul><ul><li>Geographic distribution </li></ul>
  10. 10. Environmental Changes <ul><li>Social Changes </li></ul><ul><ul><li>Double income, consumerism, superior- higher education for kids, working women, less time for household work, health consciousness, healthy food, vacations. </li></ul></ul><ul><ul><ul><li>Subway, Pizza Hut, Fortune hotels, Apollo Executive Health Check, Crèche </li></ul></ul></ul><ul><li>Demographical Changes </li></ul><ul><ul><li>People live longer - Old age requirements, homes, security, superior health services, self reliant, gadgets, entertainment to keep busy meaningfully, to learn new hobbies without physical demands, will remain active and healthy- find a product or service, psychological demand - sense of belongingness- counseling, spending of time </li></ul></ul><ul><ul><ul><li>Medical insurance </li></ul></ul></ul>
  11. 11. Economic Elements <ul><li>Inflation rate </li></ul><ul><li>Interest rates </li></ul><ul><li>Trade deficit or surplus </li></ul><ul><li>Personal savings rate </li></ul><ul><li>Business savings rates </li></ul><ul><li>Gross domestic product </li></ul><ul><li>Budget deficit or surplus </li></ul>
  12. 12. Political/Legal Elements <ul><li>Laws </li></ul><ul><li>Taxation </li></ul><ul><li>Monopolies </li></ul><ul><li>Political pluralism </li></ul><ul><li>Political philosophy </li></ul><ul><li>Judicial System </li></ul>
  13. 13. <ul><li>Legal Changes </li></ul><ul><ul><li>Governmental regulations </li></ul></ul><ul><ul><ul><li>Helmets, fire extinguishers in vehicles, pollution control devices and checking centers, window screens, seat belts, waste water management in house, alternative sources of energy </li></ul></ul></ul><ul><li>Market Changes </li></ul><ul><ul><li>Demand Changes, </li></ul></ul><ul><ul><li>Economic growth, leading to increase in variety and demand </li></ul></ul><ul><ul><ul><li>New product and services, retailing </li></ul></ul></ul><ul><ul><ul><ul><li>Bharti-Wal-Mart, Reliance Fresh, Subhiksha, Biyanis </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Services-BPO, KPO </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Power windows, AB, ALS </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Low cost carriers > Go Air, Jet Lite </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Outsourcing-Medical Transcription </li></ul></ul></ul></ul><ul><ul><ul><ul><li>SEZs </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Land Banking </li></ul></ul></ul></ul></ul>
  14. 14. <ul><li>Technological Changes </li></ul><ul><ul><li>New product leading to ancillary, supporting and enriching products and services </li></ul></ul><ul><ul><ul><li>Mobile phone </li></ul></ul></ul><ul><ul><ul><ul><li>Camera, Hands free, FM, Video, Mobile car charger, e-mail, internet browsing </li></ul></ul></ul></ul><ul><ul><ul><li>Internet </li></ul></ul></ul><ul><ul><ul><ul><li>Medical transcription, on line teaching, e-bay, on line sales, virtual showrooms, video conferencing </li></ul></ul></ul></ul><ul><ul><ul><li>Ecological Changes </li></ul></ul></ul><ul><ul><ul><ul><li>Tsunami, Earthquake, Floods </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Low cost pre – fab housing </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Warning Systems </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Rapid Evacuation </li></ul></ul></ul></ul></ul><ul><ul><ul><li>Ozone Layer depletion </li></ul></ul></ul><ul><ul><ul><ul><li>Controlling of Chlorofluorocarbons release </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Industry > air-conditioning, refrigeration, aviation </li></ul></ul></ul></ul></ul>
  15. 15. Socio - Cultural Elements <ul><li>Women in Work </li></ul><ul><li>Work force diversity </li></ul><ul><li>Cultural values </li></ul><ul><li>Attitude towards life and quality of life and products </li></ul><ul><li>Education </li></ul><ul><li>Materialist aspects </li></ul>
  16. 16. Technological Elements <ul><li>Product Innovation </li></ul><ul><li>R & D spending </li></ul><ul><li>Quick diffusion of technology </li></ul><ul><li>Applications of knowledge </li></ul><ul><li>Focus of private and government-supported R&D expenditures </li></ul><ul><li>New communication technologies </li></ul><ul><li>Product Obsolescence </li></ul>
  17. 17. Global Elements <ul><li>Forex </li></ul><ul><li>Treaties </li></ul><ul><li>WTO </li></ul><ul><li>UN </li></ul><ul><li>Trade Barriers </li></ul>
  18. 18. Industry Environment <ul><li>Influence the firm directly and Its competitive action: </li></ul><ul><ul><li>Threat of new entrants </li></ul></ul><ul><ul><li>Bargaining power of suppliers </li></ul></ul><ul><ul><li>Bargaining power of buyers </li></ul></ul><ul><ul><li>The threat of product substitute </li></ul></ul><ul><ul><li>Intensity of rivalry </li></ul></ul><ul><li>These 5 forces determine industry profit potential </li></ul><ul><li>Position your firm to influence these and defend your firm from influence of these </li></ul>
  19. 19. Competitive Environment <ul><li>Competitive analysis – in similar industries </li></ul><ul><ul><li>Jet and King Fisher </li></ul></ul><ul><li>What drives the competitor </li></ul><ul><ul><li>As shown by its future objectives </li></ul></ul><ul><li>What competitor is doing and can do </li></ul><ul><ul><li>As revealed by its current strategies </li></ul></ul><ul><li>What competitor believes about the industry </li></ul><ul><ul><li>As shown by its assumptions </li></ul></ul><ul><li>What the competitors capabilities are </li></ul><ul><ul><li>As shown by its strengths and weaknesses </li></ul></ul>
  20. 20. External Environments <ul><li>Features as of now </li></ul><ul><ul><li>Turbulent </li></ul></ul><ul><ul><li>Complex </li></ul></ul><ul><ul><li>Demanding </li></ul></ul><ul><ul><li>Unknown trajectory and velocity </li></ul></ul>
  21. 21. Handling Mode or Coping Mode <ul><li>Scanning </li></ul><ul><ul><li>Identify early signals of environmental changes and trends </li></ul></ul><ul><li>Monitoring </li></ul><ul><ul><li>Detecting meaning through ongoing observations of environmental changes and trends </li></ul></ul><ul><li>Forecasting </li></ul><ul><ul><li>Developing projections of anticipated outcomes based on monitored changes and trends </li></ul></ul><ul><li>Assessing </li></ul><ul><ul><li>Determining timing and importance of environmental changes and trends for firms’ strategies and their management </li></ul></ul>
  22. 22. External Environmental Analysis <ul><li>A continuous process which includes </li></ul><ul><ul><li>Scanning: Identifying early signals of environmental changes and trends </li></ul></ul><ul><ul><li>Monitoring: Detecting meaning through ongoing observations of environmental changes and trends </li></ul></ul><ul><ul><li>Forecasting: Developing projections of anticipated outcomes based on monitored changes and trends </li></ul></ul><ul><ul><li>Assessing: Determining the timing and importance of environmental changes and trends for firms’ strategies and their management </li></ul></ul>
  23. 23.
  24. 24. External Environmental Analysis Strategic Intent Strategic Mission The External Environment Analysis of general environment Analysis of industry environment Analysis of competitor environment The External Environment
  25. 25. Industry Environment <ul><li>A set of factors that directly influences a company and its competitive actions and responses </li></ul><ul><li>Interaction among these factors determine an industry’s profit potential </li></ul><ul><li>Threat of new entrants </li></ul><ul><li>Power of suppliers </li></ul><ul><li>Power of buyers </li></ul><ul><li>Product substitutes </li></ul><ul><li>Intensity of rivalry </li></ul>
  26. 26. Porter’s Five Forces Model <ul><li>Identify current and potential consumers and determine which firms serve them </li></ul><ul><li>Conduct competitive analysis </li></ul><ul><li>Recognize that suppliers and buyers can become competitors </li></ul><ul><li>Recognize that producers of potential substitutes may become competitors </li></ul>
  27. 27. Five Forces Model of Competition Threat of New Entrants Bargaining Power of Suppliers Bargaining Power of Buyers Threat of Substitute Products Rivalry Among Competing Firms Five Forces of Competition
  28. 28. Threat of New Entrants <ul><li>Barriers to entry </li></ul><ul><li>Economies of scale </li></ul><ul><li>Product differentiation </li></ul><ul><li>Capital requirements </li></ul><ul><li>Switching costs </li></ul><ul><li>Access to distribution channels </li></ul><ul><li>Cost disadvantages independent of scale </li></ul><ul><li>Government policy </li></ul><ul><li>Expected retaliation </li></ul>
  29. 29. Bargaining Power of Suppliers <ul><li>A supplier group is powerful when: </li></ul><ul><li>it is dominated by a few large companies </li></ul><ul><li>satisfactory substitute products are not available to industry firms </li></ul><ul><li>industry firms are not a significant customer for the supplier group </li></ul><ul><li>suppliers’ goods are critical to buyers’ marketplace success </li></ul><ul><li>effectiveness of suppliers’ products has created high switching costs </li></ul><ul><li>suppliers are a credible threat to integrate forward into the buyers’ industry </li></ul>
  30. 30. Bargaining Power of Buyers <ul><li>Buyers (customers) are powerful when : </li></ul><ul><li>they purchase a large portion of an industry’s total output </li></ul><ul><li>the sales of the product being purchased account for a significant portion of the seller’s annual revenues </li></ul><ul><li>they could easily switch to another product </li></ul><ul><li>the industry’s products are undifferentiated or standardized, and buyers pose a credible threat if they were to integrate backward into the seller’s industry </li></ul>
  31. 31. Threat of Substitute Products <ul><li>Product substitutes are strong threat when: </li></ul><ul><li>customers face few switching costs </li></ul><ul><li>substitute product’s price is lower </li></ul><ul><li>substitute product’s quality and performance capabilities are equal to or greater than those of the competing product </li></ul>
  32. 32. Intensity of Rivalry <ul><li>Intensity of rivalry is stronger when competitors: </li></ul><ul><li>are numerous or equally balanced </li></ul><ul><li>experience slow industry growth </li></ul><ul><li>have high fixed costs or high storage costs </li></ul><ul><li>lack differentiation or low switching costs </li></ul><ul><li>experience high strategic stakes </li></ul><ul><li>have high exit barriers </li></ul>
  33. 33. High Exit Barriers <ul><li>Common exit barriers include: </li></ul><ul><li>specialized assets (assets with values linked to a particular business or location) </li></ul><ul><li>fixed costs of exit such as labor agreements </li></ul><ul><li>strategic interrelationships (relationships of mutual dependence between one business and other parts of a company’s operation, such as shared facilities and access to financial markets) </li></ul><ul><li>emotional barriers (career concerns, loyalty to employees, etc.) </li></ul><ul><li>government and social restrictions </li></ul>
  34. 34. Strategic Groups <ul><li>Strategic group: a group of firms in an industry following the same or similar strategy along the same strategic dimensions </li></ul><ul><li>The strategy followed by a strategic group differs from strategies being implemented by other companies in the industry </li></ul>
  35. 35. Competitor Analysis <ul><li>Future Objectives: </li></ul><ul><li>How do our goals compare with our competitors’ goals? </li></ul><ul><li>Where will the emphasis be placed in the future? </li></ul><ul><li>What is the attitude toward risk? </li></ul>Future objectives
  36. 36. Competitor Analysis <ul><li>Current Strategy: </li></ul><ul><li>How are we currently competing? </li></ul><ul><li>Does this strategy support changes in the competitive structure? </li></ul>Current strategy Future objectives
  37. 37. Competitor Analysis <ul><li>Assumptions: </li></ul><ul><li>Do we assume the future will be volatile? </li></ul><ul><li>Are we operating under a status quo? </li></ul><ul><li>What assumptions do our competitors hold about the industry and themselves? </li></ul>Assumptions Current strategy Future objectives
  38. 38. Competitor Analysis <ul><li>Capabilities: </li></ul><ul><li>What are our strengths and weaknesses? </li></ul><ul><li>How do we rate compared to our competitors? </li></ul>Capabilities Assumptions Current strategy Future objectives
  39. 39. Competitor Analysis Response: <ul><li>What will our competitors do in the future? </li></ul><ul><li>Where do we hold an advantage over our competitors? </li></ul><ul><li>How will this change our relationship with our competitors? </li></ul>Response Capabilities Assumptions Current strategy Future objectives
  40. 40. Competitive Profile Matrix (CPM) Identifies firm’s major competitors and their strengths and weaknesses in relation to a specific firm’s strategic positions
  41. 41. Value Assignment for CPM Absolutely Arbitrary Major Strength 4 Minor Strength 3 Minor Weakness 2 Major Weakness 1
  42. 42. Lenovo Apple Dell CSF’s Weight Rating Weighted Score Rating Weighted Score Rating Weighted Score Market Share 0.15 3 0.45 2 0.30 4 0.60 Inventory System 0.08 2 0.16 2 0.16 4 0.32 Financial Position 0.10 2 0.20 3 0.30 3 0.30 Product Quality 0.08 3 0.24 4 0.32 3 0.24 Consumer Loyalty 0.02 3 0.06 3 0.06 4 0.08 Sales Distribution 0.10 3 0.30 2 0.20 3 0.30 Global Experience 0.15 3 0.45 2 0.30 4 0.60 Org. Structure 0.05 3 0.15 3 0.15 3 0.15 Production Capacity 0.04 3 0.12 3 0.12 3 0.12 E-commerce 0.10 3 0.30 3 0.30 3 0.30 Customer Service 0.10 3 0.30 2 0.20 4 0.40 Price Competitiveness 0.02 4 0.08 1 0.02 3 0.06 Managerial Experience 0.01 2 0.02 4 0.04 2 0.02 Total 1.00 2.83 2.47 3.49
  43. 43. Industry Analysis CPM Just because one firm receives a 3.49 rating and another receives a 2.47 rating, it does not follow that the first firm is 41% better than the second. Numbers reveal the relative strengths of firms but implied precision is an illusion. Numbers are not magic. The aim is to assimilate and evaluate information in a meaningful manner so that correct decision -making may take place.

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