1. FACTORS THAT SHAPE A
COMPANY’S STATEGY
Analysis Of The Macro environment
Analysis Of The Industry
A Framework For Competitor
Analysis
Structural Analysis Within Industries
Internal Organizational Analysis
Environmental Scanning
Forecasting The Environment

2. Analysis Of The
Macroenvironment
–Political And Regulatory Forces
Economic Forces
–Technological Forces
–Social Forces

3. Analysis Of The Industry
The Elements Of Industries Structure
– Threat Of New Entrants
– Threat Of Substitutes
– Bargaining Power Of Buyers
– Bargaining Power Of Suppliers
– Rivalry Among Existing Firms

4. A Framework For Competitor Analysis
– Future Goals
– Assumptions
– Current Strategy
– Capabilities
– Putting The Four Components Together

5. Structural Analysis Within Industries
– Firm's Profitability
– Industries Change
Internal Organizational Analysis
– The Areas That Most Businesses Should
Analyze
Environmental Scanning
– Forecasting The Environment

6. Analysis Of The Macro environment
All organizations are affected by four
macro environmental forces:
political-legal,
economic,
technological, and
social.

7. Political And Regulatory Forces
Political-legal forces include the
outcomes of elections, legislation,
and court judgments, as well as the
decisions rendered by various
commissions and agencies.
The political sector of the
environment presents actual and
potential restriction on the way an
organization operates.

8. Among the most important
government actions are:
Regulation, taxation, expenditure,
takeover.
The differences among local,
national, and international sub
sectors of the political environment
are often quite dramatic.

9. Technological Forces
Technological forces influence
organizations in several ways.
A technological innovation can have a
sudden and dramatic effect on the
environment of a firm.
First, technological developments can
significantly alter the demand for an
organization's or industry's products or
services.

10. Technological change can destroy
existing businesses and even entire
industries, since its shifts demand
from one product to another.
Moreover, changes in technology can
affect a firm's operations as well as
its products and services.

11. These changes might affect processing
methods, raw materials, and service
delivery.
In international business, one country's
use of new technological developments
can make another country's products
overpriced and noncompetitive.

12. The rate of technological change
varies considerably from one
industry to another.
In electronics, for example change is
rapid and constant, but in furniture
manufacturing, change is slower and
more gradual.

13. Technological strategy deals with
"choices in technology, product
design and development, sources
of technology and R&D
management and funding"

14. The effect that changing technology
can have upon the competition in an
industry .
Technological forecasting can help
protect and improve the profitability of
firms in growing industries.

15. Technological forecasting can help
protect and improve the profitability
of firms in grow in Social forces
include traditions, values, societal
trends, consumer psychology, and a
society's expectations of business.

16. The following are some of the key
concerns in the social environment:
ecology (e.g., global warming,
pollution);
demographics (e.g., population
growth rates, aging work force in
industrialized countries, high
educational requirements);
quality of life (e.g., education,
safety, health care, standard of
living);

17. The word industry is used to refer to a
group of firms whose products are
sufficiently close substitutes for each
other that the member firms are drawn
into competitive rivalry to serve the
same needs of some or all the same
types of buyers.
In analyzing an industry, it is also useful
to determine if the industry is a global
industry, that is, an industry that
requires global operations to compete
effectively

18. The elements of the industry
structure :
The stage in the life cycle of products
in the industry.
The direction the industry is headed
(for example, overcapacity, requiring
rationalization).

19. The forces (for example, political,
social, economic, technological)
driving the industry in a particular
direction.
The underlying economics and
performance of the business (for
example, cost structures, profit
levels).
The key success factors (for example,
cost, delivery).
Demand segments and strategic
groups

20. Porter identifies five basic competitive
forces, which determine the state of
competition an its underlying economic
structure:

21. The intensity of rivalry among existing
competitors
The threat of substitute products or services
The bargaining power of buyers
The bargaining power of suppliers
These five forces of competition determine
the rate of return on invested capital (ROI)
in industry, relative to the industry's cost of
capital.

22. Threat Of New Entrants
A major force shaping competition
within an industry is the threat of
new entrants.
The threat of new entrants is a
function of both barriers to entry and
the reaction from existing
competitors.
There are several types of entry
barriers:

23. Economies of scale.
Product differentiation
Capital requirements
Cost advantages independent of
scale.
Switching costs
Access to distribution channels.
Governmental and legal barriers.

24. All firms in and industry compete
with other industries offering
substitute products or services.
Steel producers are in competition
with aluminum producers.
Sugar producers are in competition
with the firms which are introducing
sugar-free products.
The competitive force of closely-
related substitute products impact
sellers in several ways.

25. Bargaining Power Of Buyers
Buyer power refers to the ability of
customers of the industry to influence
the price and terms of purchase.
The buyers are powerful when:
They are concentrated and buy in
large volume.
The buyer's purchases are a sizable
percentage of the selling industry's
total sales.

26. Bargaining Power Of Suppliers
Supplier power refers to the ability of
providers of inputs to determine the
price and terms of supply.
Suppliers can exert power over firms
an industry by raising prices or
reducing the quality of purchased
goods and services, so reducing
profitability.

27. Rivalry refers to the degree to which
firms respond to competitive moves
of the other firms in the industry.
Rivalry among existing firms may
manifest itself in a number of ways-
price competition, new products,
increased levels of customer service,
warranties and guarantees,
advertising, better networks of
wholesale distributors, and so on.

28. A central aspect of strategy
formulation is perceptive competitor
analysis.
There are four diagnostic
components to a competitor
analysis: future goals, current
strategy, assumptions, and
capabilities.
A basic framework for performing
individual competitive analysis has
been postulated by Michael Porter.

29. Future Goals
As can be seen, two factors must be
analyzed to determine what drivers
the competitor.
First, its future goals must be
identified.
A knowledge of goals will allow
predictions about whether or not
each competitor is satisfied with its
position and financial results, and
how likely that competitor is to
change strategy.

30. Assumptions
The second crucial component in
competitors analysis is identifying each
competitor's assumptions.
These fall into two major categories:
The competitor's assumptions about itself
The competitor's assumptions about the
industry and the other companies in it.

31. Capabilities
A realistic appraisal of each competitor's
capabilities - its strengths and
weaknesses- is the final diagnostic step in
competitor analysis. Its strengths and
weaknesses will determine its ability to
initiate or react to strategic moves and to
deals with environmental or industry
events that occur.

32. Putting The Four Components
Together
After the competitor's future goals,
assumptions, current strategies, and
capabilities are analyzed, a competitor
response profile is developed.
This profile, designed to indicate how a
competitor is likely to respond in its
competitive environment.

33. Definition of an industry is not the
same as definition of where the firm
wants to compete. In many
industries, there are firms that have
adopted very different competitive
strategy and have achieved differing
levels of market share.

34. The following strategic dimensions usually
capture the possible differences among a
firm's strategic options in a given industry:
specialization, brand identification, push
versus pull, channel selection,product
quality, technological leadership, vertical
integration, cost position, service, price
policy, leverage, relationship with parent
company, and relationship to home and
host government.

35. The task of analyzing a company's
external situation is not a mechanical
exercise in which analysts plug in
data and definitive conclusions come
out.
There can be several appealing
scenarios about how an industry will
evolve and what future competitive
conditions will be like.

36. There are numerous types of driving
forces which can exist to produce
evolutionary change in an industry:
Changes in the long-term industry growth
rate
Changes in buyer composition
Product innovation
Technological change
Marketing innovation
Entry or exit of major firms
Diffusion or technical know-how

37. Increasing globalization of the industry
Changes in cost and efficiency
Emerging buyer preference for a
differentiated instead of commodity
product (or for a more standardized
product instead of strongly differentiated
products)
Regulatory influences and government
policy changes
Changing societal concerns, attitudes, and
lifestyles
Reduction in uncertainty and business risk

38. The Areas That Most Businesses
Should Analyze
An internal organizational analysis
evaluates all relevant factors in an
organization in order to determine its
strengths and weaknesses. Some of
the areas that most businesses
should analyze include the following:
Financial position. The financial
position of a business plays a crucial
role in determining what it can or
cannot do in the future.

39. Product position. For a business to be
successful, it must be acutely aware of its
product position in the marketplace.
Marketing capability. Closely allied with an
organization's product position is its marketing
capabilities (i.e., its ability to deliver the right
product at the right time at the right price).
Research and development capability.
Every organization must be concerned about its
ability to develop new products.
Organizational structure. Organizational
structure can either help or hinder an
organization in achieving its objectives.

40. Human resources. All the activities of
an organization are significantly
influenced by the quality and quantity of
its human resources.
Condition of facilities and
equipment. The condition of an
organization's facilities and equipment
can either enhance or hinder its
competitiveness.
Past objectives and strategies. In
assessing its internal environment, every
business should attempt to explicitly
describe its past objectives and
strategies.

41. Internal analysis is difficult and
challenging. The checklists provided above
can be helpful in determining specific
strengths and weaknesses in the
functional areas of business.
The second component of environmental
analysis is to develop information about
the environment. Information has two
primary strategic role - in objective
setting and in strategy formulation. As
managers scan the environment, they
interpret environmental influence in the
light of their own perceptions,
expectations, and values.

42. Environmental scanning is the process of
gathering information about events and
their relationships within an organization's
internal and external environments.
The basic purpose of environmental
scanning is to help management
determine the future direction of the
organization.
The most widely accepted method for
categorizing different forms of scanning
divides into the following three types:

43. Irregular scanning systems: These consist
largely of ad hoc environmental studies.
Regular Scanning systems: These systems
revolve around a regular review of the
environment or significant environmental
components. This review is often made
annually.
Continuous scanning systems: These
systems constantly monitor components
of the organizational environment.
Forecasting

44. Forecasting The Environment
Macroenvironmental and industry scanning
are only marginally useful if all they do is
reveal current conditions. To be truly
meaningful, such analyses must forecast
future trends and changes.
Environmental forecasting is a technique
whereby managers attempt to predict the
future characteristics of the organizational
environment and hence make decisions
today that will help the firm deal with the
environment of tomorrow.

45. Forecasting involves the use of statistical
and nonstatistical, or qualitative,
techniques. Four techniques can be
particularly helpful: time series analysis,
judgmental forecasting, multiple
scenarios, and the Delphi technique.
Macroenvironmental and industry scanning
are only marginally useful if all they do is
reveal current conditions. To be truly
meaningful, such analyses must forecast
future trends and changes.