external slides

8/3/2019 External Slides

1/25

CHAPTER 3

EVALUATING A COMPANYS

EXTERNAL ENVIRONMENT

McGraw-Hill/IrwinCopyright 2012 The McGraw-Hill Companies, Inc.


2/25

32

3.1 From Thinking Strategically about the Companys Situationto Choosing a Strategy

Thinkingstrategically

about a firmsexternal

environment

Thinkingstrategically

about a firmsinternal

environment

Forming astrategicvision of

where thefirm needs

to head

Identifyingpromisingstrategicoptions

for the firm

Selecting thebest strategyand business

model forthe firm

Chapter 3

Chapter 4


3/25

33

SWOT Matrix

InternalStrengths

InternalWeaknesses

ExternalOpportunities

ExternalThreats


4/25

34

3.2 The Components of a Companys Macro-Environment


5/25

35

WHAT KINDS OF COMPETITIVE FORCES AREINDUSTRY MEMBERS FACING,AND HOW STRONG ARE THEY?

The Five Competitive Forces:

Competition from rival sellers

Competition from potential new entrants

Competition from substitute productsproducers

Supplier bargaining power

Customer bargaining power


6/25

36

3.3

The Five-Forces Modelof Competition: A Key

Analytical Tool


7/2537

Competitive Pressures That Act to Increase theRivalry among Competing Sellers

Buyer demand is growing slowly or declining.

It is becoming less costly for buyers to switch brands.

Industry products are becoming more alike.

There is unused production capacity, and\or productshave high fixed costs or high storage costs.

The number of competitors is increasing and\or they arebecoming more equal in size and competitive strength.

The diversity of competitors is increasing.

High exit barriers stop firms from exiting the industry.


8/2538

3.4

Factors Affecting theStrength of Rivalry


9/2539

Competitive Pressures Associatedwith the Threat of New Entrants

Entry Threat Considerations:

Strength of barriers to entry

Expected reaction of incumbent firms

Attractiveness of a particular markets growth indemand and profit potential

Capabilities and resources of potential entrants

Entry of existing competitors into market segments

in which they have no current presence


10/25310

Market Entry Barriers Facing New Entrants

Economies of scale in production, distribution,advertising, or other areas of operation

Experience and learning curve effects

Unique cost advantages of industry incumbents Strong brand preferences and customer loyalty

Strong network effects in customer demand

High capital requirements

Building a network of distributors or dealers andsecuring adequate space on retailers shelves

Restrictive government policies


11/25311

3.5

Factors Affectingthe Threat of Entry


12/25312

Competitive Pressures from the Sellersof Substitute Products

Substitute Products Considerations:

Ready availability of substitutes

Pricing, quality, performance, and other relevant

attributes of substitutes Switching costs that buyers incur

Indicators of Substitutes Competitive Strength:

Increasing rate of growth in sales of substitutes

Substitute producers adding output capacity

Increasing profitability of substitute producers


13/25313

3.6

Factors AffectingCompetition fromSubstitute Products


14/25314

Competitive Pressures Stemming fromSupplier Bargaining Power

Supplier Bargaining Power Considerations:

Ready availability of supplier products

Criticality of supplier products as industry inputs

Number of suppliers of standard\commodity items Buyers costs for switching among suppliers

Availability of substitutes for suppliers products

Fraction of supplier sales due to industry demand

Ratio of suppliers relative to industry buyers

Backward integration into suppliers industry


15/25315

3.7

Factors Affectingthe BargainingPower of Suppliers


16/25316

Competitive Pressures Stemming from BuyerBargaining Power and Price Sensitivity

Buyer Bargaining Power Considerations:

Buyer costs for switching to competing sellers

Degree to which industry products are commoditized

Number and size of buyers relative to sellers Strength of buyer demand for sellers products

Buyer knowledge of products, costs and pricing

Backward integration of buyers into sellers industry

Buyer discretion in delaying purchases

Buyer price sensitivity due to low profits, size ofpurchase, and consequences of purchase


17/25

317

3.8

Factors Affectingthe BargainingPower of Buyers


18/25

318

Matching Strategy to Competitive Conditions

1. Pursuing avenues that shield the firm from asmany competitive pressures as possible.

2. Initiating actions calculated to shift competitive

forces in the firms favor by altering underlyingfactors driving the five forces.

3. Spotting attractive arenas for expansion, where

competitive pressures in the industry aresomewhat weaker.


19/25

319

WHAT FACTORS ARE DRIVING INDUSTRYCHANGE, AND WHAT IMPACTS WILL THEYHAVE?

Strategic Analysis of Industry Dynamics:

1. Identifying the drivers of change.

2. Assessing whether the drivers of changeare, individually or collectively, acting tomake the industry more or less attractive.

3. Determining what strategy changes areneeded to prepare for the impacts of theanticipated change.


20/25

320

3.3 The Most Common Drivers of Industry Change

1. Changes in the long-term industry growth rate2. Increasing globalization

3. Changes in who buys the product and how they use it

4. Technological change

5. Emerging new Internet capabilities and applications

6. Product and marketing innovation

7. Entry or exit of major firms

8. Diffusion of technical know-how across companies andcountries

9. Improvements in efficiency in adjacent markets

10. Reductions in uncertainty and business risk

11. Regulatory influences and government policy changes

12. Changing societal concerns, attitudes, and lifestyles


21/25

321

WHAT ARE THE KEY FACTORS FOR FUTURECOMPETITIVE SUCCESS?

Key Success Factors

Are the strategy elements, product and

service attributes, operational approaches,resources, and competitive capabilities thatare necessary for competitive success byany and all firms in an industry.

Vary from industry to industry, and over timewithin the same industry, as drivers ofchange and competitive conditions change.


22/25

322

Identification of Key Success Factors

1. What product attributes and service featuresbuyers strongly affect buyers when choosingbetween the competing brands of sellers?

2. What resources and competitive capabilitiesare required for a firm to execute a successfulstrategy in the marketplace?

3. What shortcomings will put a firm at asignificant competitive disadvantage?


23/25

323

HOW ARE INDUSTRY RIVALSPOSITIONEDWHO IS STRONGLY POSITIONEDAND WHO IS NOT?

A Strategic Group

Is a cluster of industry rivals that have similar

competitive approaches and market positions: Have comparable product-line breadth

Sell in the same price/quality range

Emphasize the same distribution channels

Use the same product attributes to buyers

Depend on identical technological approaches

Offer similar services and technical assistance


24/25

324

Using Strategic Group Maps to Assessthe Market Positions of Key Competitors

Constructing a strategic group map:

Identify the competitive characteristics thatdifferentiate firms in the industry.

Plot the firms on a two-variable map using pairsof differentiating competitive characteristics.

Assign firms occupying about the same maplocation to the same strategic group.

Draw circles around each strategic group, makingthe circles proportional to the size of the groups

share of total industry sales revenues.


25/25

external slides

Documents