*The External Environment: Opportunities, Threats, Industry Competition, Competitive Dynamics and Competitor Analysis

External Audit*To assure victory, always carefully survey the field before battle. Sun Tzu

*GeneralEnvironmentGeneralEnvironmentGeneralEnvironmentThe External EnvironmentIndustryEnvironmentCompetitorEnvironment

*External Environmental AnalysisStrategic Vision and Mission The ExternalEnvironmentAnalysis of general environmentAnalysis of industry environmentAnalysis of competitor environment

*PESTPESTELSTEEPA

*General EnvironmentDemographic Environmental AnalysisPopulation changesAge Geographic distributionIncome

*General EnvironmentSocial Environmental AnalysisGender emancipationWorkforce changesAttitudes about quality of work lifeEcology

*Economic Environmental AnalysisGeneral EnvironmentGDPInflationInterestTrade deficits and surplusesBOPPersonal savings rateFinancial environmentEconomic infrastructure

*General EnvironmentPolitical and Legal Environmental AnalysisLegal SystemsMonopoliesTaxesCompetitionPersonnel and Labour Welfare and DevelopmentLegal platforms and structure developments thereof

*General EnvironmentTechnological Environmental AnalysisR&D - expenditure, infrastructure and availabilityInnovations Attitude and its impactApplications of knowledgeFocus of private and government-supported R&D expendituresNew communication technologies

*General EnvironmentGlobal Environmental AnalysisPolitical eventsGlobal marketsNICBEMsTrade Barriers and international institutions

*Industry EnvironmentA set of factors that directly influences a company and its competitive actions and responsesInteraction among these factors determine an industrys profit potentialThreat of new entrantsPower of suppliersPower of buyersProduct substitutesIntensity of rivalry

*Threat of New EntrantsBargaining Power of SuppliersBargaining Power of BuyersThreat of Substitute ProductsRivalry Among Competing FirmsFive Forces ModelFive Forces

*Threat of New EntrantsBarriers to entryBring additional capacityIncrease process efficiencyInternet marketing Firm entry is function of two factorsBarriers to entryRetaliationHigh barrier increase return of existing playersExceptionsRyan AirMade Aer Lingus bankrupt

*Economies of scale Outcome of incremental efficiencyAirtel mobile telephone/landline/Internet/Dish TVNew entrants dilemmaSmall scale entry puts them at a cost disadvantage- they can not derive economies of scaleIf they make a large entry invite retaliation by being large and visible

*Product differentiationL'Oral, Revlon, Estee Lauder, Levi jeansCustomer loyaltyCapital requirementsBoeing or Airbus, oil refinerySwitching costsIf high, no entry Operating systems/softwares on Windows/MacIf low, easier entry Bisleri/Acquafina, Sugar FreeAccess to distribution channels Coke/ULGovernment policy- New banks, new private universitiesExpected retaliationHonda entry to US with small model to avoid Harley Davidson retaliation

*Bargaining Power of SuppliersA supplier group is powerful whenIt is dominated by a few large companiesSatisfactory substitute products are not available to industry firmsIndustry firms are not a significant customer for the supplier groupSuppliers goods are critical to buyers marketplace successEffectiveness of suppliers products has created high switching costsSuppliers are a credible threat to integrate forward into the buyers industry

*Bargaining Power of BuyersBuyers (customers) are powerful whenThey purchase a large portion of an industrys total outputThe sales of the product being purchased account for a significant portion of the sellers annual revenuesThey could easily switch to another productThe industrys products are undifferentiated or standardized, and buyers pose a credible threat if they were to integrate backward into the sellers industry

*Threat of Substitute ProductsProduct substitutes are strong threat whenCustomers face few switching costsSubstitute products price is lowerSubstitute products quality and performance capabilities are equal to or greater than those of the competing product

*Intensity of RivalryIntensity of rivalry is stronger when competitorsAre numerous and/or equally balancedDesktop at homeExperience slow industry growthHave high fixed costs and/or high storage costLack differentiation or low switching costsCommodities PetrolCementHave high exit barriersAirline industry/ Steel industrySpicejetHigh strategic stakesJapanese automobiles in US as it is the largest market

*High Exit BarriersCommon exit barriers includeSpecialized assets (assets with values linked to a particular business or location)Heart Lung Machine, MRIFixed costs of exit such as labor agreementsStrategic interrelationships (relationships of mutual dependence between one business and other parts of a companys operation, such as shared facilities and access to financial markets)Emotional barriers (career concerns, loyalty to employees, etc.)Government and social restrictions

*ComplementorsGood roads for high speed cars Availability of inexpensive fuel for SUV/bigger vehiclesContinues electricity for deep freezer complementing purchase of milk weekly

*Strategic GroupsStrategic group: a group of firms in an industry following the same or similar strategy along the same strategic dimensionsStrategic dimensions in luxury hotel areSwimming pool, atleast two restaurants, Gym, Room service, High prices, High level of comfort, WifiTaj, Marriott, ITC, Sheraton, IntercontinentalCompetition within strategic groups will be intense than between groups or a firm outside that strategic groupSheraton competing with FortuneGinger competing with Intercontinental/Ibis competing with MarriotThe strategy followed by a strategic group differs from strategies being implemented by other companies in the industry

*Competitor EnvironmentCompetitor intelligence is collection of needed information and data about competitors objectives, strategies, assumptions, and capabilitiesAirbus and BoeingEmbraer, Cessna and Lear JetCollection of information along four dimensions helps firms prepare anticipated response profile

*What drives the competitor as shown by its future objectivesWhat the competitor is doing and can do as revealed by its current strategyWhat the competitor believes about itself and the industry, as shown by its assumptionsWhat the competitor may be able to do as shown by its capabilities

*Competitor AnalysisFuture Objectives:How do our goals compare with our competitors goals?Gulf Stream/Embraer for personal jets/Boeing and Air bus for mass transportationWhere will the emphasis be placed in the future?Cargo or HumanWhat is the attitude toward risk?Risk averse or risk taker

*Competitor AnalysisCurrent Strategy:How are we currently competing?Between Airbus and Boeing- on fuel consumption or speed N2.ppt AS2.ppt or capacity or priceDoes this strategy support changes in the competitive structure?

*Competitor AnalysisAssumptions:Do we assume the future will be volatile?Are we operating under a status quo?What assumptions do our competitors hold about the industry and themselves?Maglev Train Japan 600 km/hr.

*Competitor AnalysisCapabilities:What are our strengths and weaknesses?How do we rate compared to our competitors?

*Competitor AnalysisResponse:What will our competitors do in the future?Where do we hold an advantage over our competitors?How will this change our relationship with our competitors?

Creating EFE Matrix Allows strategists to summarize and evaluate STEEPA information. Can be developed in 5 stepsInclude total of 10-20 factors, both from opportunities & threatsAssign each factor a weight from 0 (absolutely unimportant) to 1 (very important). Sum should be 1 Assign a rating from 1 to 4 to each factor to indicate how effectively firms current strategies respond to the factor where,4=response is superior, 3=response is above average, 2=response is average, 1=response is poorWeights in #2 are industry based, ratings at #3 are company basedMultiply each factors weight by its rating to determine weighted scoreSum the weighted score for each variable

EFE Matrix Mobile Phone-Samsung Key External FactorsWeight Rating Weighted Score OPPORTUNITIES Global mobile phone market to grow 20% in 2015, compared to 12% in 20140.1030.3Cost of Mobile phone components to decrease by 10% in 20150.0530.15Growth in young population in BRIC 0.1020.2China opened its market 0.1030.3Average incomes rising in India-DINKs0.1030.3THREATSIntense rivalry in industry 0.1020.2Financial Melt Down in General especially in Greece & Ireland0.2040.8Birth rate declining in Europe 0.0510.05Medical advice against mobile phone use 0.0510.05Disruptive Technologies (Higher R&D Expenses)0.0520.1China and India started selling cheaper models 0.1020.2TOTAL12.65

IFE Sony TV (2015)Key Internal FactorsWeightRatingWtd ScoreSTRENGTHSSeveral executive with world-class skills and leadership experience0.0540.2Continuous decline in operating costs and cost of goods sold0.0530.15Well-known brand name0.0530.15Consumer Reports (Dec.13) recommended SONY as #10.140.4As a direct seller, Sony holds high brand recognition0.0530.15Sony diversifying into TV products Set Top box/Serials/Movies0.130.3Good relationship with its suppliers 0.0540.2Economies of scale, the 3rd largest TV maker in the world0.0540.2Sony World retails stores excellent0.0530.15WEAKNESSESHigh operating expense (22% of revenue vs 10% for LG)0.0530.1512% budget for R&D vs LGs 18% of revenue0.110.1Low return on assets ratio0.0510.05No niche market0.0520.1Shortage of cash due to expansion0.120.2Limited number of stores0.0520.1Weak performance in Asian market0.0520.1TOTAL1.002.70

Competitive Profile Matrix (CPM)Identifies firms major competitors and their strengths and weaknesses in relation to a specific firms strategic position

Value Assignment for CPMAbsolutely Arbitrary

Major Strength4Minor Strength3Minor Weakness2Major Weakness1

LenovoAppleDellCSFsWtRatingWtd ScoreRatingWtd ScoreRatingWtd ScoreProduct Quality0.1520.3040.6030.45Inventory System0.1020.2030.3040.40Financial Position0.1020.2030.3020.20Consumer Loyalty0.1510.1540.6020.30Sales Distribution0.1030.3030.3040.40E-commerce0.0520.1020.1040.20Customer Service0.1010.1030.3020.20Prices 0.1540.6020.3020.30Product Look0.0530.1530.1530.15Org. Structure0.0520.1030.1520.10Total1.002.203.102.70

Industry Analysis CPM Just because one firm receives 3.10 and other 2.20 it does not follow that the first firm is 41% better than the second Numbers reveal relative strengths of firms but implied precision is an illusion Numbers are not magic The aim is to assimilate and evaluate information in meaningful manner so that correct decision-making may take place

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