Crafting and Executing Strategy 14e

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Chapter
Analyzing a Companys External Environment
Screen graphics created by Jana F. Kuzmicki,
Ph.D. Troy State University-Florida and Western
Region
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Chapter Roadmap

• The Strategically Relevant Components of a
  Companys External Environment
• Thinking Strategically About a Companys Industry
  and Competitive Environment
• Question 1 What Are the Industrys Dominant
  Economic Features?
• Question 2 What Kinds of Competitive Forces Are
  Industry Members Facing?
• Question 3 What Factors Are Driving Industry
  Change and What Impacts Will They Have?
• Question 4 What Market Positions Do Rivals
  OccupyWho Is Strongly Positioned and Who Is Not?
• Question 5 What Strategic Moves Are Rivals
  Likely to Make Next?
• Question 6 What Are the Key Factors for Future
  Competitive Success?
• Question 7 Does the Outlook for the Industry
  Present an Attractive Opportunity?

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What Is Situation Analysis?

• Two considerations
• Companys external ormacro-environment
• Industry and competitive conditions
• Companys internal ormicro-environment
• Competencies, capabilities,resource strengths
  and weaknesses,and competitiveness

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Fig. 3.1 From Thinking Strategically about
the Companys Situation to Choosing a
Strategy
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Fig. 3.2 The Components of a Companys
Macro-Environment
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Key Questions Regarding theIndustry and
Competitive Environment
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Q 1 What are the Industrys Dominant
Economic Traits?

• Market size and growth rate
• Scope of competitive rivalry
• Number of rivals
• Buyer needs and requirements
• Production capacity
• Pace of technological change
• Vertical integration
• Product innovation
• Degree of product differentiation
• Economies of scale
• Learning and experience curve effects

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Q 2 What Kinds of Competitive Forces Are
Industry Members Facing?

• Objectives are to identify
• Main sources of competitive forces
• Strength of these forces
• Key analytical tool
• Five Forces Modelof Competition

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Fig. 3.3 The Five ForcesModel of
Competition
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Fig. 3.4 Weapons for Competing andFactors
Affecting Strength of Rivalry
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What Are the TypicalWeapons for Competing?

• Vigorous price competition
• More or different performance features
• Better product performance
• Higher quality
• Stronger brand image and appeal
• Wider selection of models and styles

• Bigger/better dealer network
• Low interest rate financing
• Higher levels of advertising
• Stronger product innovation capabilities
• Better customer service
• Stronger capabilities to provide buyers with
  custom-made products

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Fig. 3.5 Factors AffectingStrength of
Threat of Entry
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Common Barriers to Entry

• Sizable economies of scale
• Cost and resource disadvantages independent of
  size
• Brand preferences and customer loyalty
• Capital requirements and/or otherspecialized
  resource requirements
• Access to distribution channels
• Regulatory policies
• Tariffs and international trade restrictions

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Fig. 3.6 Factors AffectingCompetition From
Substitute Products
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Fig. 3.7 Factors Affecting theBargaining
Power of Suppliers
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Competitive Pressures Collaboration Between
Sellers and Suppliers

• Sellers are forging strategic partnershipswith
  select suppliers to
• Reduce inventory and logistics costs
• Speed availability of next-generationcomponents
• Enhance quality of parts being supplied
• Squeeze out cost savings for both parties
• Competitive advantage potential may accrue to
  sellers doing the best job of managing
  supply-chain relationships

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Fig. 3.8 Factors AffectingBargaining Power
of Buyers
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Strategic Implications of theFive
Competitive Forces

• Competitive environment is unattractive fromthe
  standpoint of earning good profits when
• Rivalry is vigorous
• Entry barriers are lowand entry is likely
• Competition from substitutes is
  strong
• Suppliers and customers haveconsiderable
  bargaining power

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Strategic Implications of theFive
Competitive Forces

• Competitive environment is ideal froma
  profit-making standpoint when
• Rivalry is moderate
• Entry barriers are highand no firm is likely to
  enter
• Good substitutesdo not exist
• Suppliers and customers arein a weak bargaining
  position

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Q 3 What Factors Are Driving Industry
Change and What Impacts Will They Have?

• Industries change because forcesare driving
  industry participantsto alter their actions
• Driving forces are themajor underlying causesof
  changing industry andcompetitive conditions

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Question 4 What Market Positions Do Rivals
Occupy?

• One technique to revealdifferent competitive
  positionsof industry rivals isstrategic group
  mapping
• A strategic group is acluster of firms in an
  industrywith similar competitiveapproaches and
  market positions

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Strategic Group Mapping

• Firms in same strategic group have two or more
  competitive characteristics in common
• Have comparable product line breadth
• Sell in same price/quality range
• Emphasize same distribution channels
• Use same product attributes to appealto similar
  types of buyers
• Use identical technological approaches
• Offer buyers similar services
• Cover same geographic areas

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Q 5 What Strategic MovesAre Rivals Likely
to Make?

• A firms best strategic moves are affected by
• Current strategies of competitors
• Future actions of competitors
• Profiling key rivals involves gatheringcompetitiv
  e intelligence about
• Current strategies
• Most recent actions and public announcements
• Resource strengths and weaknesses
• Efforts being made to improve their situation
• Thinking and leadership styles of top executives

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Q 6 What Are the Key Factors for
Competitive Success?

• KSFs are those competitive factors most affecting
  everyindustry members ability to prosper. They
  concern
• Specific strategy elements
• Product attributes
• Resources
• Competencies
• Competitive capabilities
• that a company needs to have to be competitively
  successful
• KSFs are attributes that spell the difference
  between
• Profit and loss
• Competitive success or failure

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Q 7 Does the Outlook for the Industry
Present an Attractive Opportunity?

• Involves assessing whether the industryand
  competitive environment is attractiveor
  unattractive for earning good profits
• Under certain circumstances, a firm
  uniquelywell-situated in an otherwise
  unattractive industrycan still earn unusually
  good profits
• Attractiveness is relative, not absolute
• Conclusions have to be drawn from theperspective
  of a particular company