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Chapter 3: Analyzing a Company’s External Environment. Team 1: Godfrey Fenyi, Emmanuel Shirima and Matt Poole. What Is Situation Analysis?. Two considerations Company’s external or macro-environment Industry and competitive conditions Company’s internal or micro-environment
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Chapter 3: Analyzing a Company’s External Environment Team 1: Godfrey Fenyi, Emmanuel Shirima and Matt Poole
What Is Situation Analysis? • Two considerations • Company’s external ormacro-environment • Industry and competitive conditions • Company’s internal ormicro-environment • Competencies, capabilities,resource strengths and weaknesses,and competitiveness
Industry’s dominant economic traits Competitive forces and strength of each force Drivers of change in the industry Conclusions: Industry attractiveness Key success factors Competitor analysis Key Questions Regarding theIndustry and Competitive Environment
Question #1: What are the Industry’s Dominant Economic Traits? • Market size and growth rate • Scope of competitive rivalry • Number of rivals • Buyer needs and requirements • Production capacity • Pace of technological change • Vertical integration • Product innovation • Degree of product differentiation • Economies of scale • Learning and experience curve effects
Question #2: What Kinds of Competitive Forces Are Industry Members Facing? • Objectives are to identify • Main sources of competitive forces • Strength of these forces • Key analytical tool • Five Forces Modelof Competition
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?
Strategic Implications of theFive Competitive Forces • Competitive environment is unattractive fromthe standpoint of earning good profits when • Rivalry is vigorous • Entry barriers are lowand entry is likely • Competition from substitutes is strong • Suppliers and customers haveconsiderable bargaining power
Strategic Implications of theFive Competitive Forces • Competitive environment is ideal froma profit-making standpoint when • Rivalry is moderate • Entry barriers are highand no firm is likely to enter • Good substitutesdo not exist • Suppliers and customers arein a weak bargaining position
Question #3: What Factors Are Driving Industry Change? • Industries change because forcesare driving industry participantsto alter their actions • Driving forces are themajor underlying causesof changing industry andcompetitive conditions
Question #4: What Market Positions Do Rivals Occupy? • 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
Question #5: What Strategic Moves Are Rivals Likely to Make? • A firm’s best strategic moves are affected by • Current strategies of competitors • Future actions of competitors • Profiling key rivals involves gatheringcompetitive intelligence about • Current strategies • Most recent actions and public announcements • Resource strengths and weaknesses • Efforts being made to improve their situation • Thinking and leadership styles of top executives
Question #6: What Are the Key Factors for Competitive Success? • KSFs are those competitive factors most affecting every industry member’s ability to prosper. They concern • Specific strategy elements • Product attributes • Resources • Competencies • Competitive capabilities
Question #7: Does the Outlook for the Industry Present an Attractive Opportunity? • Involves assessing whether the industryand competitive environment is attractiveor unattractive for earning good profits • Under certain circumstances, a firm uniquelywell-situated in an otherwise unattractive industry can still earn unusually good profits • Attractiveness is relative, not absolute • Conclusions have to be drawn from theperspective of a particular company
Summary • Key Questions Regarding theIndustry and Competitive Environment • Question #1: What are the Industry’s Dominant Economic Traits? • Question #2: What Kinds of Competitive Forces Are Industry Members Facing? • The Five Forces Model of Competition • Question #3: What Factors Are Driving Industry Change and What Impacts Will They Have? • Question #4: What Market Positions Do Rivals Occupy? • Question #5: What Strategic MovesAre Rivals Likely to Make? • Question #6: What Are the Key Factors for Competitive Success? • Question #7: Does the Outlook for the Industry Present an Attractive Opportunity?
Sources • Thompson, A, Strickland III, A., Gamble, J. (2008). Crafting and Executing Strategy: The Quest for Competitive Advantage: Concepts and Cases, 14/e McGraw Hill. • McGraw-Hill Online Learning Center. Www.mhhe.com/thompson • Www.utube.com
Source Critique… Team Analysis… Questions?