Analyzing a Company’s External Environment

1. Chapter 2 Analyzing a Company’s External Environment Screen graphics created by: Jana F. Kuzmicki, PhD Troy University - Florida and Western Region

2. Quotes . . . “Analysis is the critical startingpoint of strategic thinking.” Laszlo Birinyi Kenichi Ohmae “Things are always different--the art is figuring out which differences matter.”

3. Chapter Outline • The Strategically Relevant Components of a Company’sExternal Environment • Thinking Strategically About a Company’s Industry and Competitive Environment • The Industry’s Strategy-Shaping Business and Economic Features • The Kinds of Competitive Forces Industry Members Are Facing • The Forces that Are Driving Industry Change and What Impact Will They Have • The Market Positions Rivals Occupy—Who Is Strongly Positioned and Who Is Not? • The Strategic Moves Rivals Are Likely to Make Next • The Key Factors for Future Competitive Success • Whether the Outlook for the Industry Presents an Attractive Opportunity

4. What Is Situation Analysis? • Two situational considerations • Company’s external ormacro-environment • Industry and competitive conditions • Company’s internal ormicro-environment • Its competencies, capabilities,resource strengths and weaknesses • Its competitiveness vis-à-vis rivals

5. Identifying the Industry’s Strategy-Shaping Business and Economic Features • Market size and growth rate • Buyer needs and requirements • Number of rivals • Scope of competitive rivalry • Degree of product differentiation • Product innovation • Production capacity • Pace of technological change • Vertical integration • Economies of scale • Learning and experience curve effects

6. Fig. 2.3: The Five-Forces Model of Competition

7. Vigorous price competition More or different performance features Better product performance Higher quality Stronger brand image and appeal Wider selection of models and styles Bigger/better dealer network Low interest rate financing Higher levels of advertising Stronger product innovation capabilities Better customer service Stronger capabilities to provide buyers with custom-made products What Are the TypicalWeapons for Competing ?

8. The Factors Driving IndustryChange and Their Anticipated Impact • Industries change because forcesare driving industry participantsto alter their actions • Driving forces are themajor underlying causesof changing industry andcompetitive conditions

9. Diagnosing the Market Positions of Rivals:Who Is Strongly Positioned and Who Is Not? • One technique to revealdifferent competitive positionsof industry rivals isstrategic group mapping • A strategic group is acluster of firms in an industrywith similar competitiveapproaches and market positions

10. Predicting Moves of Rivals: Things to Consider • Which rivals need to increase their unit sales and market share? What strategies are rivals most likely to pursue? • Which rivals have a strong incentive, along with resources, to make major strategic changes? • Which rivals are good candidates to be acquired? Which rivals have the resources to acquire others? • Which rivals are likely to enter new geographic markets? • Which rivals are likely to expand their product offerings and enter new product segments?

11. Pinpointing the Key Factorsfor Future Competitive Success • Key Success Factors (or KSFs) are competitive factors most affecting every industry member’s ability to prosper. They concern • Specific strategy elements • Product attributes • Resources • Competencies • Competitive capabilities that a company needs to have to be competitively successful • KSFs are attributes that spell the difference between • Profit and loss • Competitive success or failure

12. Assessing Industry Attractiveness • The degree to which an industry is attractive or unattractive is often not the same for all industry participants or all potential entrants • The opportunities an industrypresents depend partly on acompany’s ability to capture them • Hence, there are occasions when a firm uniquely well-situated in an otherwise unattractive industry can still earn unusually good profits • Industry attractiveness is thus not absolute, but relative to a company’s position and situation • Conclusions about the attractiveness or unattractiveness of an industry have to be drawn from the perspective of a particular company