PUJA
h6000
cap_2_hitt.pptxPART 1: STRATEGIC MANAGEMENT INPUTS
CHAPTER 2 The External Environment: Opportunities, Threats, Industry Competition, & Competitor Analysis
Authored by:
Marta Szabo White. Ph.D
Georgia State University
THE STRATEGIC MANAGEMENT PROCESS
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KNOWLEDGE OBJECTIVES
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● Explain the importance of analyzing and understanding the firm’s external environment.
● Define and describe the general environment and the industry environment.
● Discuss the four activities of the external environmental analysis process.
● Name and describe the general environment’s seven segments.
KNOWLEDGE OBJECTIVES
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● Identify the five competitive forces and explain how they determine an industry’s profit potential.
● Define strategic groups and describe their influence on the firm.
● Describe what firms need to know about their competitors and different methods (including ethical standards) used to collect intelligence about them.
IMPORTANT DEFINITIONS
A firm’s EXTERNAL ENVIRONMENT is broken down into three parts:
● General
● Industry
● Competitor
A firm’s strategic actions are influenced by the conditions in all three parts.
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IMPORTANT DEFINITIONS
● General Environment
Dimensions in the broader society that influence an industry and the firms within it
● Industry Environment
Set of factors that directly influences a firm and its competitive actions and response
● Competitor Environment
Focuses on each company against which a firm directly competes
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MACRO
MICRO
THE EXTERNAL ENVIRONMENT
FIGURE 2.1 The External Environment
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THE EXTERNAL ENVIRONMENT
MATCHING
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EXTERNAL ENVIRONMENT UNDERSTANDING
INTERNAL ENVIRONMENT KNOWLEDGE
VISION, MISSION, AND STRATEGY
THE DEMOGRAPHIC SEGMENT
Demographic segments are commonly analyzed on a global basis because of their potential effects across countries’ borders and because many firms compete in global markets.
Demographic Segment
Population size
Age structure
Geographic distribution
Ethnic mix
Income distribution
THE EXTERNAL ENVIRONMENT
GENERAL SEGMENTS AND ELEMENTS
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Economic Segment
Inflation rates
Interest rates
Trade deficits or surpluses
Budget deficits or surpluses
Personal savings rate
Business savings rates
Gross domestic product
THE EXTERNAL ENVIRONMENT
GENERAL SEGMENTS AND ELEMENTS
THE ECONOMIC SEGMENT
This segment refers to the nature and direction of the economy in which a firm competes or may compete. Firms generally seek to compete in relatively stable economies with strong growth potential. With globalization and the interconnectedness of nations, firms must scan, monitor, forecast, and assess the health of their host nation and the health of the economies outside their host nation.
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THE POLITICAL/LEGAL SEGMENT
This segment represents how organizations and governments mutually try to influence each other, and how firms try to understand these influences (current and projected) on their strategic actions.
Political/Legal Segment
Antitrust laws
Taxation laws
Deregulation philosophies
Labor training laws
Educational philosophies and policies
THE EXTERNAL ENVIRONMENT
GENERAL SEGMENTS AND ELEMENTS
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THE SOCIOCULTURAL SEGMENT
The sociocultural segment is concerned with a society’s attitudes and cultural values. Because attitudes and values form the cornerstone of a society, they often drive demographic, economic, political/legal, and technological conditions and changes.
Sociocultural Segment
Women in the workforce
Workforce
Diversity attitudes about the quality of work life
Shifts in work and career preferences
Shifts in product and service preference characteristics
THE EXTERNAL ENVIRONMENT
GENERAL SEGMENTS AND ELEMENTS
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Technological Segment
Product innovations
New communication technologies
Applications of knowledge
Focus of private and government-supported R&D expenditures
THE EXTERNAL ENVIRONMENT
GENERAL SEGMENTS AND ELEMENTS
THE TECHNOLOGICAL SEGMENT
Technological changes occur through new products, processes, and materials. The technological segment includes the activities involved in creating new knowledge and translating that knowledge into new outputs, products, processes, and materials. Given the rapid pace of technological change and risk of disruption, it is vital for firms to study this segment.
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THE GLOBAL SEGMENT
Markets and consumers are more global. This segment includes relevant new global markets, existing markets that are changing, important international political events, and critical cultural and institutional characteristics of global markets.
Global Segment
Important political events
Critical global markets
Newly industrialized countries
Different cultural and institutional attributes
THE EXTERNAL ENVIRONMENT
GENERAL SEGMENTS AND ELEMENTS
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THE PHYSICAL ENVIRONMENT SEGMENT
Concerned with trends oriented to sustaining the world’s physical environment, firms recognize that ecological, social, and economic systems interactively influence what happens in this particular segment. This segment refers to potential and actual changes in the physical environment and business practices that are intended to positively respond to and deal with those changes.
Physical Environment Segment
Energy consumption
Practices used to develop energy sources
Renewable energy efforts
Minimizing a firm’s environmental footprint
Availability of water as a resource
Producing environmentally friendly products
Reacting to natural or man-made disasters
THE EXTERNAL ENVIRONMENT
GENERAL SEGMENTS AND ELEMENTS
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EXTERNAL ENVIRONMENTAL ANALYSIS
Analyzing the external environment is a difficult, yet significant, activity.
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SCANNING
Identifying early signals of environmental changes and trends.
Detecting meaning through ongoing observations of environmental changes and trends.
Developing projections of anticipated outcomes based on monitored changes and trends.
MONITORING
FORECASTING
ASSESSING
Determining the timing and importance of environmental changes and trends for firms’ strategies and management.
An INDUSTRY is a group of firms that produce similar products or offer similar services that are close substitutes.
Compared with the general environment, the industry environment has a more direct effect on the firm’s:
■ Strategic competitiveness
■ Ability to earn above-average returns
INDUSTRY ENVIRONMENT ANALYSIS
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An industry’s profit potential is a function of the five forces of competition:
■ The threats posed by new entrants
■ The power of suppliers
■ The power of buyers
■ Product substitutes
■ The intensity of rivalry among competitors
Strategies are chosen, in part, because of the influence of an industry’s characteristics.
INDUSTRY ENVIRONMENT ANALYSIS
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INDUSTRY ENVIRONMENT ANALYSIS
FIGURE 2.2
The Five Forces of Competition Model
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THE FIVE FORCES OF COMPETITION MODEL
INDUSTRY ENVIRONMENT ANALYSIS
INTERPRETING INDUSTRY ANALYSES
Low entry barriers
Unattractive Industry
Suppliers and buyers have strong positions
Strong threats from substitute products
Intense rivalry among competitors
LOW PROFIT POTENTIAL
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THE FIVE FORCES OF COMPETITION MODEL
INDUSTRY ENVIRONMENT ANALYSIS
INTERPRETING INDUSTRY ANALYSES
High entry barriers
Suppliers and buyers have weak positions
Few threats from substitute products
Moderate rivalry among competitors
HIGH PROFIT POTENTIAL
Attractive Industry
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STRATEGIC GROUP DEFINED
● A set of firms emphasizing similar strategic dimensions and using similar strategies
● The competition within a strategic group is greater than the competition between strategic groups
● There is more heterogeneity in the performance of firms within strategic groups
■ Similar market positions
■ Similar products
■ Similar strategic actions
INDUSTRY ENVIRONMENT ANALYSIS: STRATEGIC GROUPS
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INTRASTRATEGIC GROUP COMPETITION
MORE INTENSE THAN
INTERSTRATEGIC GROUP COMPETITION
COMPETITOR INTELLIGENCE
■ Set of data and information the firm gathers to better understand and anticipate competitors' objectives, strategies, assumptions, and capabilities
■ The ethical and legal gathering of needed information and data that provides insight into:
● What drives competitors
■ Shown by organization's future objectives
● What the competitor is doing and can do
■ Revealed in organization's current strategy
● What the competitor believes about the industry
■ Shown in organization's assumptions
● What the competitor’s capabilities are
■ Shown by organization's strengths and weaknesses
COMPETITOR ANALYSIS
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COMPETITOR ANALYSIS COMPONENTS
FIGURE 2.3
Competitor Analysis Components
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COMPETITOR ANALYSIS: ETHICAL CONSIDERATIONS
Unethical tactics can include:
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BLACKMAIL
TRESPASSING
EAVESDROPPING
STEALING DRAWINGS, SAMPLES, OR DOCUMENTS
