External analysis: McDonald's
External Analysis
B AD 4013
University of Oklahoma
Dr. Bartkoski
External Analysis
External Environment
Industry
Firm
2
Analyzing the External Environment
Environmental Scanning and Monitoring allow a firm to look to the world outside for potential opportunities and threats.
Forecasting and Assessing take that information and allow a firm to predict future change, timing and significance of those trends.
Political Processes and Legislation.
Employee Regulations
Tax Policies
Trade Restrictions
Tariffs
Consumer Protection Laws
Stability of Governments
Political/Legal Segment
Interest Rates
Inflation Rates
Gross Domestic Product
Unemployment Rates
Levels of Disposable Income
Growth or Decline of the Economy
Economic Segment
Population Size
Age
Ethnic Mix
Geographic Distribution
Income Distribution
Demographic Segment
Attitudes
Cultural Values
Lifestyles
Sociocultural Segment
Product Innovations
Increases in Automation
Applications of Knowledge
Focus of Private and Government supported R&D Expenditures
New Communication Technologies
Technological Segment
Important International Political Events
Increasing Global Trade
Trade Agreements
Global Segment
Natural Disasters
Weather Patterns
Energy Usage
Physical Environment
Porter’s Five Forces
Rivals
Buyers
Suppliers
Substitutes
Entry
External Environment
Industry
Column1 Rivals Entry Substitutes Suppliers Buyers 20 20 20 20 20
Porter’s Five Forces
When all five forces are low, there’s a possibility for above normal returns
Column1
Rivals Entry Substitutes Suppliers Buyers 20 20 20 20 20
Mitigated by Barriers to Entry
Economies of scale.
Product differentiation.
Capital requirements.
Switching costs.
Access to distribution channels.
Cost advantages independent of scale.
Government policy.
Expected retaliation.
Threat of Entry
Industry Conditions Facilitating Rivalry:
Numerous or equally balanced competitors.
Slow industry growth.
High fixed or storage costs.
Lack of differentiation or switching costs.
Capacity added in large increments.
High exit costs.
Product is perishable.
Threat of Rivalry
Goods or services from outside the industry that provide similar or the same functions.
Must understand the NEED being satisfied by the industry’s product.
Strong threat with:
Low switching costs.
Substitute has lower price.
Close substitutes.
Threat of Substitutes
Industry Conditions Facilitating Supplier Power:
Few large suppliers.
Few substitutes.
Industry is not a significant customer of supplier.
Supplier’s goods are important to industry.
High switching costs.
Supplier’s goods are differentiated.
Supplier may integrate forward into focal industry.
Threat of Suppliers
Industry Conditions Facilitating Buyer Power:
Few buyers or large volume purchases.
Buyer industry earns low profits.
Industry’s goods don’t affect quality or price of buyers’ output.
Few switching costs.
Industry’s goods are undifferentiated
Buyer may integrate backward into focal industry.
Threat of Buyers
Products or services that have an impact on the value of the firm’s products or services.
It is possible to be both complimentor and competitor.
Industry Compliments
Five forces analysis only assesses the profitability of an industry. More is needed to understand the competitive structure of the industry.
Strategic Groups looks at a cluster of industry rivals that emphasize similar strategic dimensions and use a similar strategy.
Strategic Groups
Strategic Groups
Perceived Quality
Breadth of Menu
McDonalds
Wendy’s
Jack in the Box
KFC
Pizza Hut
Taco Bell
Cracker Barrel
Denny’s
Jimmy John’s
Subway
Quiznos
Applebee’s
Chili’s
Ruth’s Chris
P.F. Chang’s