23367256 the external environment opportunities threats and industry competition and competitor
TRANSCRIPT
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2003 Southwestern Publishing Company 1
The External Environment: Opportunities,
Threats, and Industry Competition, and
Competitor Analysis
Michael A. Hitt
R. Duane Ireland
Robert E. Hoskisson
Chapter 2
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2
Strategy Implementation
Chapter 13
Strategic
Entrepreneurship
Chapter 11
Organizational
Structure and
Controls
Chapter 10
Corporate
Governance
Chapter 12
Strategic
Leadership
Strategy Formulation
Chapter 6
Corporate-
Level Strategy
Chapter 9
Cooperative
Strategy
Chapter 5
Competitive Rivalry
and Competitive
Dynamics
Chapter 8
International
Strategy
Chapter 4
Business-Level
Strategy
Chapter 7
Acquisition and
RestructuringStrategies
Strategic
Competitiveness
Above-Average
Returns
Strategic Intent
Strategic Mission
Chapter 2
The External
Environment
Chapter 3
The Internal
Environment
The Strategic
Management
Process
Feedback
StrategicInputs
StrategicActions
Str
ategicOutcomes
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3General
Environment
Sociocultural
Technological
The External Environment
Industry
Environment
Threat of new entrants
Power of suppliers
Power of buyers
Product substitutes
Intensity of rivalry
CompetitorEnvironment
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External Environmental Analysis
A continuous process which includes Scanning: Identifying early signals of environmental
changes and trends
Monitoring: Detecting meaning through ongoingobservations of environmental changes and trends
Forecasting: Developing projections of anticipated
outcomes based on monitored changes and trends
Assessing: Determining the timing and importanceof environmental changes and trends for firmsstrategies and their management
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External Environmental Analysis
Strategic Intent
Strategic Mission
The External
Environment
Analysis of general environment
Analysis of industry environment
Analysis of competitor environment
The External
Environment
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General Environment
Sociocultural segment
Women in the workplace
Workforce diversity Attitudes about quality of worklife Concerns about environment Shifts in work and career preferences Shifts in product and service preferences
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Economic segment
General Environment
Inflation rates
Interest rates Trade deficits or surpluses Budget deficits or surpluses Personal savings rate Business savings rates Gross domestic product
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General Environment
Political/Legal Segment Antitrust laws Taxation laws Deregulation philosophies Labor training laws Educational philosophies and policies
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General Environment
Technological Segment Product innovations Applications of knowledge Focus of private and government-supported
R&D expenditures New communication technologies
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General Environment
Global Segment Important political events Critical global markets Newly industrialize countries
Different cultural and institutional attributes
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General Environment
Demographic Segment Population size Age structure Geographic
distribution Ethnic mix Income distribution
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Industry Environment
A set of factors that directly influencesa company and its competitive actionsand responses.
Interaction among these factorsdetermine an industrys profit potential. Threat of new entrants
Power of suppliers Power of buyers Product substitutes Intensity of rivalry
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Five Forces Model of Competition
Identify current and potential competitorsand determine which firms serve them.
Conduct competitive analysis.
Recognize that suppliers and buyers canbecome competitors.
Recognize that producers of potentialsubstitutes may become competitors.
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Bargaining Power of
Buyers
Five Forces Model of Competition
Five Forces of
Competition
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Threat of New Entrants
Barriers to entry Economies of scale
Product differentiation
Capital requirements Switching costs
Access to distribution channels
Cost disadvantages independent of scale
Government policy Expected retaliation
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Bargaining Power of Suppliers
A supplier group is powerful when: it is dominated by a few large companies
satisfactory substitute products are not availableto industry firms
industry firms are not a significant customer forthe supplier group
suppliers goods are critical to buyers
marketplace success
effectiveness of suppliers products has created
high switching costs
suppliers are a credible threat to integrateforward into the buyers industry
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Bargaining Power of Buyers
Buyers (customers) are powerfulwhen: they purchase a large portion of an industrys
total output the sales of the product being purchased
account for a significant portion of the sellers
annual revenues
they could easily switch to another product the industrys products are undifferentiated or
standardized, and buyers pose a credible threatif they were to integrate backward into thesellers industry
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Threat of Substitute Products
Product substitutes are strong threatwhen: customers face few switching costs
substitute products price is lower substitute products quality and performance
capabilities are equal to or greater than those ofthe competing product
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Intensity of Rivalry
Intensity of rivalry is stronger whencompetitors: are numerous or equally balanced
experience slow industry growth have high fixed costs or high storage costs
lack differentiation or low switching costs
experience high strategic stakes
have high exit barriers
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High Exit Barriers
Common exit barriers include: specialized assets (assets with values linked to
a particular business or location)
fixed costs of exit such as labor agreements
strategic interrelationships (relationships ofmutual dependence between one business andother parts of a companys operation, such as
shared facilities and access to financial markets)
emotional barriers (career concerns, loyalty toemployees, etc.)
government and social restrictions
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Strategic Groups
Strategic group: a group of firms in anindustry following the same or similarstrategy along the same strategic
dimensions.The strategy followed by a strategicgroup differs from strategies being
implemented by other companies inthe industry.
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Competitor Environment
Competitor intelligenceis the ethicalgathering of needed information anddata about competitors objectives,
strategies, assumptions, and capabilities
what drives the competitor as shown by its futureobjectives
what the competitor is doing and can do as
revealed by its current strategy What the competitor believes about itself and the
industry, as shown by its assumptions
What the the competitor may be able to do, as
shown by its capabilities
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Competitor Analysis
Future Objectives:Future objectives
How do our goals comparewith our competitors
goals?
Where will the emphasisbe placed in the future?
What is the attitude towardrisk?
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Competitor Analysis
Current strategy
Current Strategy:Future objectives
How are we currentlycompeting?
Does this strategy supportchanges in the competitivestructure?
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Competitor Analysis
Assumptions
Current strategy
Future objectivesAssumptions: Do we assume the future
will be volatile?
Are we operating under astatus quo?
What assumptions do our
competitors hold aboutthe industry and
themselves?
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Competitor Analysis
Capabilities
Assumptions
Current strategy
Future objectivesCapabilities: What are our strengths
and weaknesses?
How do we rate comparedto our competitors?
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Competitor Analysis
Capabilities
Assumptions
Current strategy
Future objectives Response
Response: What will our competitors
do in the future?
Where do we hold an
advantage over ourcompetitors?
How will this change ourrelationship with ourcompetitors?