Strategic Management

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Strategic Management

• External Analysis Assessing Opportunities and
  Threats

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Learning Outline

• What is an external analysis?
• Differentiate between external opportunities and
  threats.
• Distinguish between the environment as
  information perspective and the environment as
  source of resources perspective.
• Explain how an external analysis is more than
  scanning the environment.
• How do you do an external analysis?
• Describe the components in an organizations
  specific environment.
• Explain each of the forces in Porters five
  forces model.

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SWOT Analysis
Threat
Organization
Strength
Weakness
Opportunity
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Organizations as Open Systems
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Environment as.

• A source of information
• Correct and timely information is obtained by
  analyzing external environment
• A source of resources
• Controlling environmental resources means knowing
  about the environment and attempting to change or
  influence it

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What is an external analysis?

• External analysis builds upon the notion that
  organizations are open systems.
• Often success is determined by the environment
  around the organization and not the intelligence
  inside the organization
• Organizations need to pay attention to
  Opportunities and Threats
• Opportunities are positive external environmental
  trends that improve the organizations
  performance
• Threats are negative external environmental
  trends that hinder the organization's performance

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External Analysis
General Environment
Technological
Economic
Specific Environment Industry-Competitors
Substitute Products
Current Rivalry
Organization
Bargaining Power of Suppliers
Potential Entrants
Bargaining Power of Buyers
Political-Legal
Demographic
Sociocultural
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Economic Environment

• Interest rates
• Monetary exchange rates
• Inflation rates
• GNP or GDP
• Consumer income, spending, and debt levels
• Unemployment levels
• Workforce productivity

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Demographic Environment

• Gender
• Age
• Income levels
• Ethnic makeup
• Education
• Family composition
• Geographic location
• Birth rates

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Socio-Cultural Environment

• Countrys culture
• Social Values
• Traditions
• Values
• Attitudes
• Beliefs
• Tastes
• Patterns of behavior

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Political Legal Environment

• Federal, state, and local
• Laws
• Regulations
• Judicial decisions
• Political forces
• Examples of legal changes
• Occupational Safety and Health Act of 1970
• Americans with Disabilities Act of 1990
• Family and Medical Leave Act of 1993
• North American Free Trade Agreement of 1993

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Technical Environment

• Communications
• Computing
• Transportation
• Robotics
• Biotechnology
• Medicine and medical
• Telecommunications
• Consumer electronics

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Industrys environment
POTENTIAL ENTRANTS
Threat of New Entrants
INDUSTRY COMPETITORS
Bargaining Power of Suppliers
Bargaining Power of Buyers
SUPPLIERS
BUYERS
Rivalry Among Existing Firms
Threat of Substitute Products
SUBSTITUTES
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Industry Competitors

• Opportunity
• Few competitors
• Industry sales growing
• Low fixed or inventory storage costs
• Significant differentiation
• Minimal exit barriers

• Threat
• Numerous competitors
• Industry sales slowing
• High fixed or inventory storage costs
• No differentiation
• High exit barriers

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Potential Entrants

• Opportunity
• Significant economies of scale
• Strong product differentiation
• Significant switching costs
• Controlled access to distribution channels

• Threat
• No or low economies of scale
• Weak product differentiation
• Minimal switching cost
• Open access to distribution channels

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Bargaining power of buyers

• Opportunity
• Buyer purchases small volumes
• Purchases highly differentiated and unique
• Buyers profits are strong
• Buyer cant manufacture products
• Buyers have limited information

• Threats
• Buyer purchases large volumes
• Purchases standard or undifferentiated
• Buyers profits are weak
• Buyer can manufacture product
• Buyer has full information

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Bargaining Power of Supplier

• Opportunity
• Supplying industry is fragmented
• Suppliers products have substitutes
• Suppliers products arent differentiated
• Minimal switching costs in suppliers products

• Threats
• Supplying industry has a few companies
• Supplier products do not have substitutes
• Suppliers products are differentiated
• Significant switching costs

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Substitute Products

• Opportunities
• There are no good substitutes

• Threat
• There are few good substitutes
• There are several not-so-good substitutes

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How do you do an external analysis?

• Find data
• Informal
• Customer comments
• Reading trade journals and general news media
• Talking with suppliers' sales representatives
• Formal
• External Information System (EIS)
• Market and customer surveys
• Evaluate whether data is good or bad

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Why do an external analysis?

• Anticipate changes and plan accordingly
• Provide information for planning, decision making
  strategy formulation
• Acquire and control needed resources
• Make a difference with higher performance
• Cautions
• Rapid environmental changes are difficult to keep
  up with
• Amount of time that analysis can consume
• Forecasts and trend analyses are not actual fact

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Take Aways

• Environment and Industry analysis informs a
  company of what they SHOULD do
• Know Porters 5 forcesdominant industry analysis
  tool
• 5 forces are static, need to make them dynamic
• Understand how all factors in the environment
  (general and specific) affect your company