The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis - PowerPoint PPT Presentation

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

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suppliers' goods are critical to buyers' marketplace success ... Complementary assets the innovator has that can be used to exploit and market the innovation. ... – PowerPoint PPT presentation

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Title: The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis


1
The External Environment Opportunities, Threats,
Industry Competition, and Competitor Analysis
Chapter 3
2
The External Environment
Environment
Industry Environment Threat of new entrants Power
of suppliers Power of buyers Product
substitutes Intensity of rivalry
General
General
Competitor Environment
Environment
Environment
General
3
External Environmental Analysis
  • A continuous process which includes
  • 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

4
External Environmental Analysis
Analysis of general environment
Analysis of industry environment
Analysis of competitor environment
The External Environment
The External Environment
Strategic Intent Strategic Mission
5
Industry Environment
  • A set of factors that directly influences a
    company and its competitive actions and responses
  • Interaction among these factors determine an
    industrys profit potential
  • Threat of new entrants
  • Power of suppliers
  • Power of buyers
  • Product substitutes
  • Intensity of rivalry

6
Analyzing Industry Environment
  • Opportunities and threats are competitive
    challenges arising for changes in industry
    conditions.
  • Analytic tools such as the five forces model
    help managers formulate appropriate strategic
    responses.

7
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

8
Five Forces Model of Competition
Five Forces of Competition
Rivalry Among Competing Firms
Threat of New Entrants
Bargaining Power of Suppliers
Threat of Substitute Products
Bargaining Power of Buyers
9
Potential Competitors
  • New entrants into an industry threaten incumbent
    companies.
  • Entry barriers reduce the threat of new and
    additional competition.

10
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

11
Rivalry Among Established Companies
  • The intensity of competitive rivalry in an
    industry arises from
  • Industrys competitive structure.
  • Demand (growth or decline) conditions in
    industry.
  • Height of industry exit barriers.

12
Rivalry Among Established Companies
  • Industry Competitive Structure

The Continuum of Industry Structures
13
Rivalry Among Established Companies (Continued)
  • Demand Conditions

vs.
14
Rivalry Among Established Companies (Continued)
  • Height of Exit Barriers in the Industry

15
High Exit Barriers
  • Common exit barriers include
  • 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 companys operation, such as shared
    facilities and access to financial markets)
  • emotional barriers (career concerns, loyalty to
    employees, etc.)
  • government and social restrictions

16
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

17
Bargaining Power of Buyers
  • Buyers (customers) are powerful when
  • they purchase a large portion of an industrys
    total output
  • the sales of the product being purchased account
    for a significant portion of the sellers annual
    revenues
  • they could easily switch to another product
  • the industrys products are undifferentiated or
    standardized, and buyers pose a credible threat
    if they were to integrate backward into the
    sellers industry

18
Threat of Substitute Products
  • Product substitutes are strong threat when
  • customers face few switching costs
  • substitute products price is lower
  • substitute products quality and performance
    capabilities are equal to or greater than those
    of the competing product

19
Substitute Products
  • The competitive threat of substitute products
    increases as they come closer to serving similar
    customer needs.

Close
Far
20
A Sixth Force Complementors
  • Complementors
  • Companies whose products are sold in tandem with
    another companys products.
  • Increased supply of a complementary product
    collaterally increases demand for the primary
    product.
  • Example
  • Faster CPU chips fuel salesof personal computers.

21
Strategic Groups
  • Strategic group a group of firms in an industry
    following the same or similar strategy along the
    same strategic dimensions
  • The strategy followed by a strategic group
    differs from strategies being implemented by
    other companies in the industry

22
Strategic Groups Within Industries
  • The concept of strategic groups
  • Within an industry, a competitor grouping using
    similar strategies that differ from other
    industry groups.
  • Implications of strategic groups
  • The closest industry competitors are those in the
    group.
  • The various industry groups are differentially
    and competitively advantaged and positioned.
  • Mobility barriers inhibit the movement of
    competitors from one strategic group to another.

23
Strategic Groups in the Pharmaceutical Industry
24
Strategic Groups in the Pharmaceutical Industry
25
Strategic Groups in the Pharmaceutical Industry
26
Limitations of the Five Forces and Strategic
Group Models
  • Both models are static and ignore innovation.
  • Their focus is on industry and group structures
    rather than individual companies.
  • Innovation creates change in industry
    structures, altering thecompetitive environment.
  • Industry structure cannot fully explain the
    performance differences between industry
    competitors.

27
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

28
Competitor Analysis
  • Future Objectives
  • How do our goals compare with our competitors
    goals?
  • Where will the emphasis be placed in the future?
  • What is the attitude toward risk?

29
Competitor Analysis
  • Current Strategy
  • How are we currently competing?
  • Does this strategy support changes in the
    competitive structure?

30
Competitor Analysis
  • 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?

31
Competitor Analysis
  • Capabilities
  • What are our strengths and weaknesses?
  • How do we rate compared to our competitors?

32
Competitor Analysis
Response
  • 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?

33
The Role of the General Environment
Buyer power
EconomicEnvironment
34
General Environment
  • Economic segment
  • Inflation rates
  • Interest rates
  • Trade deficits or surpluses
  • Budget deficits or surpluses
  • Personal savings rate
  • Business savings rates
  • Gross domestic product

35
The Role of the General Environment
Technological Environment
Buyer power
EconomicEnvironment
36
General Environment
  • Technological Segment
  • Product innovations
  • Applications of knowledge
  • Focus of private and government-supported RD
    expenditures
  • New communication technologies

37
The Role of the General Environment
Technological Environment
Buyer power
EconomicEnvironment
Social Environment
38
General Environment
  • Sociocultural segment
  • Women in the workplace
  • Workforce diversity
  • Attitudes about quality of worklife
  • Concerns about environment
  • Shifts in work and career preferences
  • Shifts in product and service preferences

39
The Role of the General Environment
Technological Environment
Buyer power
Demographic Environment
EconomicEnvironment
Social Environment
40
General Environment
  • Demographic Segment
  • Population size
  • Age structure
  • Geographic distribution
  • Ethnic mix
  • Income distribution

41
The Role of the General Environment
Political and Legal Environment
Technological Environment
Buyer power
Demographic Environment
EconomicEnvironment
Social Environment
42
General Environment
  • Political/Legal Segment
  • Antitrust laws
  • Taxation laws
  • Deregulation philosophies
  • Labor training laws
  • Educational philosophies and policies

43
The Role of the General Environment
Political and Legal Environment
Technological Environment
Global Environment
Buyer power
Demographic Environment
EconomicEnvironment
Social Environment
44
General Environment
  • Global Segment
  • Important political events
  • Critical global markets
  • Newly industrialize countries
  • Different cultural and institutional attributes

45
Globalization and Industry Structure
  • Globalization of Markets

46
Globalization and Industry Structure
  • Globalization
  • Globally dispersed production lowers costs and
    increases quality.
  • Global markets are replacing national markets.
  • Trend implications
  • No isolated national markets
  • More competitors, more intense competition
  • More rapid innovation and shorter product life
    cycles

47
Stages of the Industry Life Cycle
Competitive Changes During Industry Evolution
48
Stages of the Industry Life Cycle
Competitive Changes During Industry Evolution
(Continued)
49
Stages of the Industry Life Cycle
Competitive Changes During Industry Evolution
(Continued)
50
Growth in Demand and Capacity
Competitive Changes During Industry Evolution
(Continued)
51
Stages of the Industry Life Cycle
Competitive Changes During Industry Evolution
(Continued)
Demand
Embryonic
Growth
Shakeout
Maturity
Time
52
Stages of the Industry Life Cycle
Competitive Changes During Industry Evolution
(Continued)
53
Strategies in Fragmented Industries
  • Fragmented industry characteristics
  • Localized markets with low entry barriers (e.g.,
    Moms Diner).
  • Few economies of scale opportunities exist.
  • High transportation costs (e.g., sand) for
    products.
  • Focus strategies predominate (e.g., customer
    group, region).

54
Strategies in Fragmented Industries
  • Competing in fragmented industries requires
    strategic consolidation by
  • Chaining (Wal-Mart)
  • Franchising (McDonalds)
  • Horizontal mergers (Dillards)
  • Using the Internet (eBay)

55
Strategies in Embryonic and Growth Industries
  • Three strategies for an innovator competing in a
    newly emerging market/industry
  • Develop and market the technology itself.
  • Develop and market the technology jointly with
    another company through a strategic alliance.
  • License the technology to existing companies and
    let them develop the market.

56
Strategies in Embryonic and Growth Industries
  • An innovators optimal choice of growth industry
    strategy depends on
  • Complementary assets the innovator has that can
    be used to exploit and market the innovation.
  • High barriers to imitation by competitors (e.g.,
    patents).
  • The capability of competitors to quickly imitate
    the pioneering company.

57
Strategy in Embryonic and Growth Industries
(Continued)
Strategies Available to Innovator
  • Develop and Market the Innovation Itself
  • Develop and Market the Innovation Jointly
  • License the Innovation to Others

58
Strategy in Mature Industries
  • Mature Industries

59
Strategies to Manage Rivalry in Mature Industries
  • Price signaling
  • Leading competitors use price changes to convey
    their intentions to other competitors (i.e.,
    tit-for-tat).
  • Price leadership
  • One company sets the industry price other
    competitors reference their prices to that price.
  • Nonprice competition
  • Competition by any means other than price.

60
Strategies for Deterring Entry in Mature
Industries
Strategies for Deterring Entry
Product Proliferation
61
Product Proliferation in the Restaurant Industry
62
Strategies for Deterring Entry in Mature
Industries
Strategies for Deterring Entry
Product Proliferation
Price Cutting
63
Strategies for Deterring Entry in Mature
Industries
Strategies for Deterring Entry
Maintain Excess Capacity
Product Proliferation
Price Cutting
64
Strategies to Manage Rivalry in Mature Industries
(Continued)
  • Price Signaling
  • Price Leadership
  • Nonprice Competition
  • Capacity Control

65
Strategies to Manage Rivalry in Mature Industries
  • Capacity control strategies
  • Preempt rival firms by building capacity ahead of
    anticipated increases in demand.
  • Indirect coordination with rival firms to keep
    industry-wide capacity in line with demand.

66
Supply and Distribution Strategy in Mature
Industries
  • Vertical integration
  • Backward towards input suppliers.
  • Forward into distribution to consumers.
  • Choice of integration depends on
  • Need for close relationships with suppliers.
  • Japanese vs. American styles
  • Need to ensure customer relationships.
  • Complexity of product
  • Amount of product information required

67
Strategy in Declining Industries
  • Leadership
  • Niche
  • Harvest
  • Divestment

68
Strategies in Declining Industries
  • Leadership strategy
  • A firm seeks to become dominant in the industry.
  • Niche strategy
  • Focuses on demand pockets declining more slowly
    than the industry as a whole.
  • Harvest strategy
  • Limits investment and optimizes cash flow.
  • Divestment strategy
  • Company exits the industry by selling out early
    to others, avoiding liquidation.

69
Factors That Determine the Intensity of
Competition in Declining Industries
70
Strategy Selection in a Declining Industry
71
Strategy Selection in a Declining Industry
72
Strategy Selection in a Declining Industry
73
Strategy Selection in a Declining Industry
74
Strategy Selection in a Declining Industry
75
Strategy Selection in a Declining Industry
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