ch 02 ppt slides
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Copyright © 2008 The McGraw-Hill Companies, Inc. All rights resere!.McGraw-Hill/IrwinStrategic Management: Text and Cases, 4e
2
Analyzing the External
Environment of the Firm
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Learning Objectives
After reading this chapter, you should have a goodunderstanding of:
- The importance of developing forecasts of the business
environment.- Why environmental scanning, environmental monitoring,
and collecting competitive intelligence are critical inputsto forecasting.
- Why scenario planning is a useful technique for firmscompeting in industries characterized by unpredictabilityand change.
- The impact of the general environment on a firm’sstrategies and performance.
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Learning Objectives
After reading this chapter, you should have a goodunderstanding of:
- o! forces in the competitive environment can affect
profitability and ho! a firm can improve its competitive position by increasing its po!er vis-"-vis these forces.
- o! trends and events in the general environment andforces in the competitive environment are interrelated andaffect performance.
- o! the internet and digitally based compatibilities areaffecting the five competitive forces and industry profitability.
- The concept of strategic groups and their strategy and
performance implications.
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reating the Environmentally
A!are Organization
#$nsert %&hibit '.(
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Environmental #canning $ %onitoring
# %&ternal )canning
- )urveillance of a firm’s e&ternal environment:
# *redict environmental changes to come
# +etect changes already under !ay
# *roactive mode
# %&ternal onitoring
- Trac evolution of:
# %nvironmental trends
# )equence of events
# )treams of activities
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om'etitive (ntelligence
# +efine and understand a firm’s industry
# $dentify rivals’ strengths and !eanesses
-$ntelligence gathering data/- $nterpretation of intelligence data
# elps a firm avoid surprises
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*hat om'etitive (ntelligence
(s an+ (s ,ot
Competitive Intelligence
Is …. (nformation that has been
analyzed to the point !hereyou can mae a decision.
2. A tool to alert management
to early recognition of both
threats and opportunities.
3. A means to +eliverreasonable assessments.
4. A !ay of life/ a 'rocess.
Competitive Intelligence Is
Not …. #'ying. )pying implies illegal
or unethical activities. $t is arare activity.
2. A crystal ball. 0ompetitive
$ntelligence is good
appro&imation of reality1 it does
not predict the future.
3. 0atabase search. +ata by itself
is not good intelligence.
4. A job for one smart 'erson.
Adapted from %&hibit '.' What 0ompetitive $ntelligence $s and $s 2ot3
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Environmental Forecasting
# *lausible pro4ections about
- +irection of environmental change
- )cope of environmental change
- )peed of environmental change
- $ntensity of environmental change
# )cenario analysis
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estion
Which of the follo!ing is a danger of forecasting5
a/ anagers assume that the !orld is not open to precise
predictions.
b/ anagers may vie! uncertainty as blac and !hite and
ignore grey areas.
c/ anagers assume that the !orld is uncertain.
d/ anagers vie! the !orld as completely unpredictable.
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#*O Analysis
# anagers need to analyze
- The general environment
- The firm’s industry and competitive advantage
# )W6T analysis
- )trengths
- Weanesses
- 6pportunities- Threats
- 7asic technique for analyzing firm and industry condition
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Exam'le
# arley +avidson )W6T
- )trengths
# )trong 8 adaptable brand image
- Weanesses
# 9imited ability to develop ne! non-traditional products
- 6pportunities
# ro!ing leisure interest in motorcycles !orld!ide
- Threats# +iffering foreign policies governing motorcycles
)ource: +eveloped from !!!.harley-davidson.com
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he 6eneral Environment
# )egments of the general environment
include:
- +emographic
- )ociocultural- 9egal;*olitical
- Technological
- %conomic
- lobal# eneral environmental trends and events:
- 9ittle ability to predict them
- %ven less ability to control them
- 0an vary across industries
General
Environment
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0emogra'hic #egment
# Aging population
#
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#ociocltral #egment
# ore !omen in the !orforce
# $ncrease in temporary !orers
# reater concern for fitness# reater concern for environment
# *ostponement of family formation
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7olitical8Legal #egment
# Tort reform
# Americans !ith +isabilities Act A+A/
#
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echnological #egment
# enetic engineering
# %mergence of $nternet technology
# 0omputer-aided design;computer-aided manufacturingsystems 0A+;0A/
#
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Economic #egment
# $nterest rates
# >nemployment
# 0onsumer *rice inde&# Trends in +*
# 0hanges in stoc maret valuations
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6lobal #egment
# $ncreasing global trade
# 0urrency e&change rates
# %mergence of the $ndian and 0hinese economies# Trade agreements among regional blocs 2A?TA, %>,
A)%A2/
# 0reation of WT6 decreasing tariffs;free trade in
services/
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he om'etitive Environment
# )egments of the competitive
environment include:
- 0ompetitors
- 0ustomers
- )uppliers
# )ometimes called the tas or
industry environment# *orter’s five forces model
CompetitiveEnvironment
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7orter9s Five Forces %o+el
of (n+stry om'etition
#$nsert %&hibit '.@
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Exam'le
# *orter’s ?ive ?orces odel: 7W
- Threat of ne! entrants
# ery lo!
- Threat of substitutes
# edium
- *o!er of suppliers
# edium
- *o!er of buyers
# edium
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he hreat of ,e! Entrants
# *rofits of established firms in the industry may be eroded by
ne! competitors
# igh entry barriers lead to lo! threat of ne! entries
- %conomies of scale- *roduct differentiation
- 0apital requirements
- )!itching costs
- Access to distribution channels
- 0ost disadvantages independent of scale
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estion
$f you are considering opening a ne! pizza restaurant
in your community, !hat !ould be the threat of ne!
entrants5 o! !ould you evaluate *orter’s other
forces for this industry5 %&plain.
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he :argaining 7o!er of :yers
7uyers threaten an industry
- ?orce do!n prices
- 7argain for higher quality or more services
- *lay competitors against each other
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he :argaining 7o!er of :yers
# A buyer group is po!erful !hen
- $t is concentrated or purchases large volumes relative to
seller sales
- The products it purchases from the industry are standard or
undifferentiated
- The buyer faces fe! s!itching costs
- $t earns lo! profits
- The buyers pose a credible threat of bac!ard integration
- The industry’s product is unimportant to the quality of the
buyer’s products or services
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he :argaining 7o!er of #''liers
# )uppliers can e&ert po!er by threatening to raise
prices or reduce the quality of purchased goods and
services
# A supplier group !ill be po!erful !hen
- The supplier group is dominated by a fe! companies and is
more concentrated than the industry it sells to
- The supplier group is not obliged to contend !ith substitute
products for sale to the industry
- The industry is not an important customer of the supplier
group
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# A supplier group !ill be po!erful !hen cont./
- The supplier’s product is an important input to the buyer’s
business
- The supplier group’s products are differentiated or it has
built up s!itching costs for the buyer
- The supplier group poses a credible threat of for!ard
integration
he :argaining 7o!er of #''liers
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he hreat of #bstitte
7ro+cts an+ #ervices
# )ubstitutes limit the potential returns of an industry
- 0eiling on the prices that firms in that industry can
profitably charge
- *rice;performance ratio
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he (ntensity of ;ivalry among
om'etitors in an (n+stry
# Boceying for position
# *rice competition
# Advertising battles
# *roduct introductions# $ncreased customer service or !arranties
# $nteracting factors lead to intense rivalry- 2umerous or equally balanced competitors
- )lo! industry gro!th- igh fi&ed or shortage costs
- 9ac of differentiation or s!itching costs
- 0apacity augmented in large increments
- igh e&it barriers
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=sing (n+stry Analyses> A Fe! aveats
# ?ive ?orces analysis implicitly assumes a zero-sum
game
# ?ive ?orces analysis is essentially a static analysis
- alue net
# )uppliers and customers the vertical net/
# )ubstitutes and complements the horizontal net/
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he ?ale ,et
#$nsert %&hibit '.(C
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#trategic 6ro's !ithin (n+stries
# T!o unassailable assumptions in industry analysis
- 2o t!o firms are totally different
- 2o t!o firms are e&actly the same
# )trategic groups
# 0luster of firms that share similar strategies
- 7readth of product and geographic scope
- *rice;quality- +egree of vertical integration
- Type of distribution system
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#trategic 6ro's !ithin (n+stries
# alue of strategic groups as an analytical tool
- $dentify barriers to mobility that protect a group from
attacs by other groups
- $dentify groups !hose competitive position may bemarginal or tenuous
- 0hart the future direction of firms’ strategies
- Thining through the implications of each industry trend for
the strategic group as a !hole