need report based on chapter two only
Suresh-
CHAPTER2SM.pptxANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM: CREATING COMPETITIVE ADVANTAGES
CHAPTER 2
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FLOW OF PRESENTATION
I) ENHANCING AWARENESS OF THE EXTERNAL ENVIRONMENT
The Role of Scanning, Monitoring, Competitive Intelligence, and Forecasting
SWOT Analysis
II) THE GENERAL ENVIRONMENT
The Demographic Segment
The Sociocultural Segment
The Political/Legal Segment
The Technological Segment
The Economic Segment
The Global Segment
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FLOW OF PRESENTATION
III) PORTER’S FIVE FORCES MODEL OF INDUSTRY COMPETITION
The Threat of New Entrants
The Bargaining Power of Buyers
The Bargaining Power of Suppliers
The Threat of Substitute Products & Services
The Intensity of Rivalry among Competitors in an Industry
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LEARNING OBJECTIVES
After reading this chapter, you should have a good understanding of:
The importance of developing forecasts of the business environment.
Why environmental scanning, environmental monitoring, and collecting competitive intelligence are critical inputs to forecasting.
The impact of the general environment on a firm’s strategies and performance.
How forces in the competitive environment can affect profitability, and how a firm can improve its competitive position by increasing its power vis-à-vis these forces.
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LEARNING OBJECTIVES
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Managers use scanning, monitoring, and competitive intelligence to develop forecasts
The influence of the six broad segments (demographic, sociocultural, political/legal, technological, economic, global) of the general environment of the firm.
The role of the competitive (also called the task or industry) environment and its analysis through the application of Porter’s five-forces model.
THE IMPORTANCE OF EXTERNAL ENVIRONMENT
The best CEOs are always aware of what’s going on outside their company. Detecting early warning signals, keeping pace with changes in the external environment can sustain a competitive advantage.
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ENHANCING AWARENESS OF THE EXTERNAL ENVIRONMENT
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ENVIRONMENTAL SCANNING
Environmental scanning involves surveillance of the firm’s external environment to predict environmental changes to come and detect changes that are already underway
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ENVIRONMENTAL SCANNING (PERCEPTUAL ACUITY)
Ram Charan’s concept of “perceptual acuity”—the ability to sense what is coming before the fog clears.
QUESTION: What CEOs have done to improve their perceptual acuity?
Meet with key managers periodically to discuss what is going on
Meet with the CEOs of other organizations four times a year
Ask outsiders to critique their firm’s strategy.
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EXAMPLE: ASK YOUR CUSTOMERS FOR IDEAS
Coastal Contacts, one of the largest online contact-lens retailers in North America, came out of its two-day planning session with few ideas about how to spur growth.
CEO Roger Hardy and his senior team called customers each week to see whether they had any ideas.
To the company’s surprise, one recurring theme emerged—customers wanted to get their lenses the next day.
Sales in the U.S., where he recently made the change, were up 41 percent for the year, bringing company sales to $155 million [1]
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ENVIRONMENTAL MONITORING
Environmental monitoring tracks the evolution of trends, events, or streams of activities in the external environment.
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EXAMPLE: HOW CISCO LEARNED FROM ITS MISTAKES
In April 2001, Cisco made one of the more painful confessions of the Internet bust: It had so much networking gear piled up that it had to take a $2.5 billion write-off for equipment that it figured nobody would ever buy. Supply chain chief Angel Mendez is grilled at monthly reviews by CEO John Chambers and other top executives. Says Mendez: “It didn’t take John eight years to start asking questions (about inventory levels). He asks about every eight minutes.”[2].
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COMPETITIVE INTELLIGENCE (CI)
Competitive intelligence helps firms define and understand their industry and identify rivals’ strengths and weaknesses.
Done properly, competitive intelligence helps a company to avoid surprises by effectively anticipating and responding to competitors’ moves.
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COMPETITIVE INTELLIGENCE (CI)
Product – what are people selling?
Price – what price are they charging?
Promotion – what activities are they conducting for promoting this product?
Place – where are they selling this product?
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DISCUSSION QUESTION? (CI)
What are other industries where competitive intelligence is extremely important? How might such information be collected?
Wal-Mart stores’ use of competitor intelligence led it to construct state-of-the-art distribution centers to keep its customers from being frustrated about back-ordered merchandise, which Sears’ customers experienced. As of January 31, 2019, Walmart has 11,361 stores in 27 countries, operating under 55 different names, more than 1.2 million customers each day.
Walmart Canada to invest more than $175 million to build new sustainable, state-of-the-art fulfillment Centre in Surrey, British Columbia
https://www.youtube.com/watch?v=1V_3l1SdHpo
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ILLEGAL AND UNETHICAL BEHAVIOR
For example, a firm advertises a position in order to get a chance to interview employees of a rival company with no intention to hire them. While this may not be illegal, clearly it is difficult to justify morally
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ENVIRONMENTAL FORECASTING
Environmental scanning, monitoring, and competitive intelligence are important inputs for analyzing the external environment.
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SWOT ANALYSIS
SWOT analysis is a basic technique for analyzing firm and industry conditions.
Firm or internal conditions = Strengths & Weaknesses
Where the firm excels or where it may be lacking
Environmental or external conditions = Opportunities & Threats
Activities among firms competing for the same customers
Must consider both internal & external factors simultaneously
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SWOT ANALYSIS
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SWOT ANALYSIS
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SWOT ANALYSIS
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THE GENERAL ENVIRONMENT
The general environment is composed of factors that are both hard to predict and difficult to control. Typically, a firm has little ability to predict trends and events in the general environment, and even less ability to control them.
Demographic
Sociocultural
Political/Legal
Technological
Economic
Global
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Demographics are easily understandable & quantifiable
Aging population
Rising affluence
Changes in ethnic composition
Geographic distribution of population
Greater disparities in income levels
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USA AND CANADA (AGING POPULATION)
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THE SOCIOCULTURAL SEGMENT
Sociocultural forces influence the values, beliefs, and lifestyles of a society. Examples include:
a higher percentage of women in the workforce,
dual-income families,
increases in the number of temporary workers,
greater concern for healthy diets and physical fitness,
greater interest in the environment, and
families postponing having children.
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EXTRA EXAMPLE: A FAVORABLE JOB MARKET FOR WOMEN FOR YEARS TO COME!
Globally, women are more than two-thirds of the graduates in health care and education programs.
By 2020 employment in health care is projected to grow 29 percent and personal care and services by 27 percent.
In the U.S. women now hold 51.6 percent of all managerial and professional jobs [4].
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THE SOCIOCULTURAL SEGMENT
Political processes and legislation influence the regulations with which industries must comply.
We close this section with a brief discussion of how legislation in the U.S. has restricted the number of H-1B visas for highly skilled professionals.
The proactive step Microsoft has taken (e.g. setting up a research facility in Vancouver, Canada) to address this issue.
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THE TECHNOLOGICAL SEGMENT
Technological developments lead to new products & services. They can create new industries & alter existing ones.
Genetic engineering (Onions that do not make you cry)
Three-dimensional (3D) printing
Computer-aided design/computer-aided manufacturing systems (CAD/CAM)
Pollution/global warming
Wireless communications
Nanotechnology
Big data/data analysis
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THE ECONOMIC SEGMENT
The economy has an impact on all industries, from suppliers of raw materials to manufacturers of finished goods and services, as well as all organizations in the service, wholesale, retail, government, and nonprofit sectors of economies.
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THE GLOBAL SEGMENT
Global forces offer both opportunities & risks:
Increasing global trade
Currency exchange rates
Emergence of the Indian & Chinese economies
Creation of the WTO (leading to decreasing tariffs/free trade in services)
Increased risks associated with terrorism
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Porter’s Five-Forces Model of Industry Competition FIVE FORCES THAT TELLS THE COMPETETIVE POSITION OF THE COMPANY
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INDUSTRY PROFIT VARIES
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THREAT OF NEW ENTRANTS
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WHY PROFITS ARE SO HIGH IN SOFT DRINK INDUSTRIES
The current formula of Coca-Cola remains a trade secret
High barrier to entry
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THREATS OF NEW ENTRANTS
DISCUSSION QUESTION: If you are considering opening a new pizza restaurant in your community, what would be the threat of new entrants? How would you evaluate Porter’s other forces for this industry? Explain.
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BARGAINING POWER OF SUPPLIERS
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BARGAINING POWER OF SUPPLIERS
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THE BARGAINING POWER OF SUPPLIERS
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Suppliers can exert bargaining power by threatening to raise prices or reduce the quality of purchased goods and services.
Supplier groups are powerful.
Only a few firms dominate the industry.
There is no competition from substitute products.
Suppliers sell to several industries.
Buyer quality is affected by industry product.
Products are differentiated & have switching costs.
Forward integration is possible.
BARGAINING POWER OF SUPPLIERS
How Apple uses its buyer power to negotiate very low rental rates—compared to other stores
Apple pays 2 percent of sales—compared to other tenants who may pay as much as 15 percent of sales. It might be very interesting to point out the “fun fact” that Apple stores draw more visitors than Disney does in all of its theme parks throughout the world combined.
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BARGAINING POWER OF BUYERS
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THE THREAT OF SUBSTITUTE PRODUCTS & SERVICES (LESS SUBSTITUTES ARE REQUIRED FOR PROFITABILITY)
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Substitute products & services limit the potential returns of an industry.
Substitutes can perform the same function as the industry’s offerings.
Substitutes place a ceiling on prices that firms in an industry can profitably charge.
THREAT OF SUBSTITUTE
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TECHNOLOGICAL CHANGE SUBSTITUTION FOR TRADITION PRODUCTS
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THE INTENSITY OF RIVALRY AMONG COMPETITORS IN AN INDUSTRY
Rivalry tactics include price competition, advertising battles, new product introductions, increased customer service or warranties.
Interacting factors lead to intense rivalry.
Numerous or equally balanced competitors
Slow industry growth
High fixed or shortage costs
Lack of differentiation or switching costs
Capacity augmented in large increments
High exit barriers
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THE INTENSITY OF RIVALRY AMONG COMPETITORS IN AN INDUSTRY
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EXTRA EXAMPLE: FIRMS CAN BENEFIT FROM A RIVAL’S NEW PRODUCT
My research shows that if McDonald’s price the menu items in all their locations higher than before.
This allows competing Burger Kings to raise their prices as well.
Source: Thomadsen, R. 2013. You can benefit from a rival’s new product. Harvard Business Review. 91(4): 24.
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Extra Example: The Two Key Strategic Groups in the Motorcycle Industry
In most industries, firms cluster around a relatively small number of strategic positions and within each cluster hold similar ideas about how to compete. In the motorcycle industry, there are two major clusters of firms.
The Japanese producers—Honda, Yamaha, Suzuki, and Kawasaki—compete on technical innovation and lower costs.
The Harley-Davidsons and Ducatis, in contrast, view their business through a very different lens—as entertainment
Source: Gavetti, G. 2011. The new psychology of strategic leadership. Harvard Business Review. 89 (7/8): 118-125.
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REFERENCES
Harnish, V. 2011. Five ways to get your strategy right. Fortune.
Burrows, P. 2009. Tech: Lean and Ready to Spring. BusinessWeek.
Dunn, M. 2016. 20 tech predictions that failed. www.news.com.au. : np
Goudreau, J. 2012. A golden age for working women. Forbes
"Competitive Intelligence Definition | Small Business Encyclopedia". Entrepreneur.com. 2014-06-09. Retrieved 2014-06-24.
"SCIP Code of Ethics for CI Professionals". Strategic and Competitive Intelligence Professionals. Retrieved July 1, 2019.
Haag, Stephen. Management Information Systems for the Information Age. Third Edition. McGraw-Hill Ryerson, 2006.
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REFERENCES
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9) Jones, B. (1990). Neighborhood Planning: A Guide for Citizens and Planners. Chicago and Washington, DC: Planners Press, American Planning Association.
10) Bosworth, B., & Colluns, S. (2007). Accounting for growth: Comparing China and India. National Bureau of Economic Growth (Working Paper Number 12943). Cambridge: National Bureau of Economic Growth.
11) Huang, Y., & Khanna, T. (2003). Can India overtake China? Foreign Policy, 137, 74–81. Madhan, M., Chandrasekar, G., & Arunachalam, S. (2010). Highly cited papers from India and China. Current Science, 99, 1–12.
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REFERENCES
12) McGonagle, John J. and Carolyn M. Vella (2003). The Manager's Guide to Competitive Intelligence. Westport CT: Greenwood Publishing Group. p. 184. ISBN 978-1567205718.
13) Gilad, Ben. "The Future of Competitive Intelligence: Contest for the Profession's Soul", Competitive Intelligence Magazine, 2008, 11(5), 22
14) Dishman, P., Fleisher, C. S., and V. Knip. "Chronological and Categorized Bibliography of Key Competitive Intelligence Scholarship: Part 1 (1997-2003), Journal of Competitive Intelligence and Management, 1(1), 16–78.
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THANK YOU
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