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Analyzing a CompanysExternal Environment

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What Is Situation Analysis?

Two considerations

Companys external ormacro-environment

Industry and competitive conditions

Companys internal ormicro-environment

Competencies, capabilities,resource strengths and weaknesses,and competitiveness

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The Components of a Companys Macro-Environment

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Key Questions Regarding External Analysis

What are the Industrys dominant economic traits/features

What are the Competitive forces/pressures and

strength of each force What the Drivers of change in the industry

What are the relative position of the competitors(Competitor analysis)

What are the Key Success Factors (KSF) of theindustry

Conclusions: Is the Industry is attractive to remainor invest more?

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Q #1: What are the Industrys 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

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Q #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 Model

of Competition

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Five Forces

Model of Competition

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Strategic Implications of the

Five Competitive Forces

Competitive environmentisunattractive from

the standpoint of earning good

profits when

Rivalry is vigorous

Entry barriers are low

and entry is likely

Competition from

substitutes is strong

Suppliers and customers have

considerable bargaining power

Competitive environmentisidealfrom

a profit-making standpoint when

Rivalry is moderate

Entry barriers are highand no firm is likely to enter

Good substitutes

do not exist

Suppliers and customers are

in a weak bargaining position

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Q #3: What Factors Are Driving Industry Change and

What Impacts Will They Have?

Driving forces are the major underlying causes

of changing industry and competitive conditions

Industries change becauseforces are driving

industryparticipants to change their actions

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Question 4: What Market Positions Do

Rivals Occupy?

One technique to reveal different competitive

positions

of industry rivals is strategic group mapping

A strategic group is a cluster of firms in an industry

with similar competitive approaches and marketpositions

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common characteristics of Strategic

Group

Firms in same strategic group have two or morecompetitive characteristics in common

Have comparable product line breadth

Sell in same price/quality range

Emphasize same distribution channels

Use same product attributes to appealto similar types of buyers

Use identical technological approaches

Offer buyers similar services

Cover same geographic areas

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Q #5: What Strategic Moves

Are Rivals Likely to Make?

A firms 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

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Q #6: What Are the Key Factors for

Competitive Success?

KSFs are those competitive factors most affecting everyindustry members ability to prosper. They concern

Specific strategy elements

Product attributes

Resources Competencies

Competitive capabilities

that a company needs to have to be competitively successful

KSFs are attributes that spell the difference between Profit and loss

Competitive success or failure

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Q #7: Does the Outlook for the Industry

Present an Attractive Opportunity?

Attractiveness is relative, not absolute

Under certain circumstances, afirm uniquely

well-situatedin an otherwise unattractive

industry

can still earn unusually goodprofits

Invest, Remain, or Divest