Environment

The External Environment

Environment

Technological General

Gl ob al vir

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Industry Environment Threat of new entrants Power of suppliers Power of buyers Product substitutes Intensity of rivalry Competitor Environment

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Economic

What do they have in common ? Branded food and beverage Telecommunications Financing of personal loans

External Environmental Analysis A continuous process which includes ●

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Scanning: Identifying early signals of environmental changes and trends Monitoring: Detecting meaning through ongoing observations of environmental changes and trends Forecasting: Developing projections of anticipated outcomes based on monitored changes and trends Assessing: Determining the timing and importance of environmental changes and trends for firms’ strategies and their management

Analysis of general environment Analysis of industry environment Analysis of competitor environment The External Environment Strategic Intent Strategic Mission

General Environment Economic segment

Sociocultural segment     

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Women in the workplace Attitudes about quality of work life Concerns about environment Shifts in work and career preferences Shifts in product and service preferences

Political/Legal  Taxation laws Segment   

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Inflation rates Interest rates Budget deficits or surpluses Personal savings rate Business savings rates Gross domestic product

Global Segment    

Deregulation philosophies Labor laws Educational philosophies and policies

Important political events Critical global markets Newly industrialize countries Different cultural and institutional attributes

Technological SegmentDemographic  Product innovations  Segment Population size  Applications of knowledge  Focus on R&D expenditures  New communication technologies

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Age structure Geographic distribution Ethnic mix Income distribution

Can firms anticipate new entrants to the market? ( Retailing) India's retail market is forecast to double in

another six years from the current $375 billion Earlier, Wal-Mart had faced tough opposition in India from small traders and the Left parties government should look at opening up retail by bringing in foreign direct investment," said Rajan Bharti Mittal Britain's Marks and Spencer and Tesco also have concluded alliances with local Indian partners

Industry Environment A set of factors that directly influences a

company and its competitive actions and responses Interaction among these factors determine an industry’s profit potential  Threat

of new entrants  Power of suppliers  Power of buyers  Product substitutes  Intensity of rivalry

Five Forces Model of Competition Identify current and potential competitors

and determine which firms serve them Conduct competitive analysis Recognize that suppliers and buyers can become competitors Recognize that producers of potential substitutes may become competitors

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Bargaining Power of Buyers 11

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

Bargaining Power of Suppliers A supplier group is powerful when:      

it is dominated by a few large companies satisfactory substitute products are not available to industry firms industry firms are not a significant customer for the 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 integrate forward into the buyers’ industry

Bargaining Power of Buyers Buyers (customers) are powerful when:  

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they purchase a large portion of an industry’s total output the sales of the product being purchased account for a significant portion of the seller’s annual revenues they could easily switch to another product the industry’s products are undifferentiated or standardized, and buyers pose a credible threat if they were to integrate backward into the seller’s industry

Threat of Substitute Products Product substitutes are strong threat

when:   

customers face few switching costs substitute product’s price is lower substitute product’s quality and performance capabilities are equal to or greater than those of the competing product

Intensity of Rivalry Intensity of rivalry is stronger when

competitors:      

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

High Exit Barriers Common exit barriers include:   

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specialized assets (assets with values linked to a particular business or location) fixed costs of exit such as labor agreements strategic interrelationships (relationships of mutual dependence between one business and other parts of a company’s operation, such as shared facilities and access to financial markets) emotional barriers (career concerns, loyalty to employees, etc.) government and social restrictions

Competitor Environment Competitor intelligence is the ethical gathering of needed information and data about competitors’ objectives, strategies, assumptions, and capabilities    

what drives the competitor as shown by its future objectives 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

Competitor Analysis Future objectives

Future Objectives: 

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How do our goals compare with our competitors’ goals? Where will the emphasis be placed in the future? What is the attitude toward risk?

Competitor Analysis Future objectives

Current strategy

Current Strategy:  

How are we currently competing? Does this strategy support changes in the competitive structure?

Competitor Analysis Assumptions: Future objectives

Current strategy

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Assumptions

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?

Competitor Analysis Capabilities: Future objectives

Current strategy

Assumptions

Capabilities

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What are our strengths and weaknesses? How do we rate compared to our competitors?

Response

Future objectives

Current strategy

Response:  

Assumptions 

Capabilities

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?