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The External Environment Chapter 2

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The External Environment Chapter 2 Jeff Stambaugh Dillard College of Business/Rm 257A jeff.stambaugh_at_mwsu.edu http://faculty.mwsu.edu/business/jeff.stambaugh – PowerPoint PPT presentation

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Title: The External Environment Chapter 2


1
The External Environment Chapter 2
Jeff Stambaugh Dillard College of Business/Rm
257A jeff.stambaugh_at_mwsu.edu http//faculty.mwsu.e
du/business/jeff.stambaugh
Only the Paranoid Survive Andy Grove
Built by Stambaugh/2009
2
Todays Objectives
  • Understand why and how we do an external analysis
  • Understand the components of the general
    environment and how they affect businesses
  • Understand the components of the specific
    (industry) environment and how they affect
    businesses

Only the Paranoid Survive Andy Grove
Built by Stambaugh/2009
3
External Environment
  • MotivatorAndy Grove
  • External environment whats
  • outside your firm that affects your
  • performance
  • General vs industry / competitive
  • a common separation
  • Changes in the environment can create threats and
    opportunities
  • Threats and opportunities can be viewed as things
    you must do versus resources that tell you what
    you can do

Only the Paranoid Survive Andy Grove
Built by Stambaugh/2009
4
External Environment
General Environment
Economic
Technological
Specific Environment Industry-Competitors
Substitute Products
Current Rivalry
Organization
Global
Bargaining Power of Suppliers
Potential Entrants
Bargaining Power of Buyers
Political-Legal
Demographic
Sociocultural
5
General Environment
  • Hard to predict even harder to control
  • Trends affect industries differently
  • Demographic
  • Socio-cultural link
  • Political Legal Link
  • Technological Oil
  • Economic
  • Global
  • Which play a role in our SIPs

Only the Paranoid Survive Andy Grove
Built by Stambaugh/2009
6
Which of these industries will benefit most from
stricter immigration laws?
  1. Organic food industry
  2. Firms that build/operate data systems to verify
    status of workers
  3. Defense firms that work border security issues
  4. Lawyers that cater to the Hispanic populace

7
What to Do Forecasting
  • Spot these changes before theyre obvious
  • Back to that threats and opportunities concept
  • Paralysis from analysis
  • Where to look (sources of info)

Only the Paranoid Survive Andy Grove
Built by Stambaugh/2009
8
Dilbert On Forecasts
Built by Stambaugh/2009
9
Porters Five Forces
Only the Paranoid Survive Andy Grove
Built by Stambaugh/2009
10
Threat of New Entrants
  • Threat of new entrants greatest when
  • Low economies of scale (or no cost disadvantages
    independent of scale)
  • Low capital requirements
  • Low switching costs
  • Little Differentiation
  • Easy access to distribution channels
  • Government policy does not inhibit new entries

Only the Paranoid Survive Andy Grove
Built by Stambaugh/2009
11
Bargaining Power of Buyer
  • Greater when
  • Buyer is a major customer for supplier
  • Low switching costs
  • Undifferentiated products
  • Able to backward integrate
  • Buyer earns low profits
  • Buyer doesnt rely on product for key attributes
    (e.g. quality)

Only the Paranoid Survive Andy Grove
Built by Stambaugh/2009
12
Bargaining Power of Suppliers
  • Greater when
  • Few large suppliers and buying firms industry
    not concentrated.
  • No substitute products
  • Supplier not reliant on buyers business
  • Suppliers goods are essential to buyer
  • High switching costs for buyers or differentiated
    product
  • Suppliers could forward integrate into buyers
    business

Only the Paranoid Survive Andy Grove
Built by Stambaugh/2009
13
Substitute Products
  • The Home-town NFL versus Direct TV
  • This is where Andy Groves paranoia comes in
  • The car vs Southwest Airlines
  • Email fax vs FedExing documents overnight
  • Downloading music off the web vs CDs
  • Print newspapers vs the Web
  • TV versus videogames?

Only the Paranoid Survive Andy Grove
Built by Stambaugh/2009
14
Rivalry Among Competitors
  • Rivalry among existing firms increases when
  • Little degree of differentiation
  • Low switching costs
  • Numerous / equally balanced competitors
  • Slow industry growth
  • High strategic stakes
  • High fixed costs or high storage costs
  • High exit barriers

Only the Paranoid Survive Andy Grove
Built by Stambaugh/2009
15
Which of the following should improve industry
profitability?
  1. Only a few firms in an industry
  2. Many suppliers selling undifferentiated products
  3. Large number of buyers
  4. Low capital requirements to enter an industry

16
What hath the internet wrought?
  • Made new entrants more likely
  • Cut out many intermediaries (in supplier and
    buyer chains)
  • Increased (in general) buyer power due to more
    information
  • Made buyers more aware of substitute products
  • Increased competitive rivalries in general

Only the Paranoid Survive Andy Grove
Built by Stambaugh/2009
17
Summary of 5 Forces
  • Profit potential greatest within an industry
    when
  • Low rivalry
  • Low threat of new entrants
  • Lack of substitute products
  • Weak buyers
  • Weak suppliers
  • Dont forget complementors videogame consoles
    and videogames GPS navigators and auto
    manufacturers

Only the Paranoid Survive Andy Grove
Built by Stambaugh/2009
18
IO View of Competitive Advantage
  • Pick a strong industry
  • Pick a strong position
  • Fortify / defend it (manipulate the 5 forces)
  • How much does industry matter really?

Only the Paranoid Survive Andy Grove
Built by Stambaugh/2009
19
Who is My Competitor?
  • Strategic Groups
  • Breadth of product line
  • Location
  • Price/Quality
  • Distribution channels
  • Uses ID
  • Barriers to moves
  • Endangered groups
  • Direction of strategies
  • Implications of trends

Only the Paranoid Survive Andy Grove
Built by Stambaugh/2009
20
Competitor Intelligence
  • Fair or Not?
  • Talking to their customers / supplies
  • Shopping at their stores (getting prices)
  • Routinely surfing their web site
  • Sifting their trash
  • Hiring their superstars (or even their Red
    Dwarfs)
  • Going on a fake job interview
  • Making copies of their proprietary documents

Only the Paranoid Survive Andy Grove
Built by Stambaugh/2009
21
Competitor Analysis Airbus vs Boeing
  • AirbusFounded in 1970 as European consortium
  • Strategic Intent Gain more market share than
    Boeing (achieved in 2002)
  • Both firms have high market dependence
  • Competitive Strategy
  • Build great products w/full line
  • Gain market share through pricing (Boeing
    alleges!)
  • Airbus Strengths / Weaknesses
  • Political ties in Europe (S)
  • Strong Products (S)
  • Launch Aid / Govt Subsidy (S)
  • Alliance politics (W) Link Delayliner

Only the Paranoid Survive Andy Grove
Built by Stambaugh/2009
22
Summary
  • Your business is not in this alone!!
  • Changes in external environment can have big
    impact on your businessboth good and bad
  • Its a matter of strategic choice how you deal
    with your competitors / customers / suppliers
  • Innovator?
  • Reactor?
  • Defender?
  • The most risky of all strategies is to ignore
    your competitors!

Only the Paranoid Survive Andy Grove
Built by Stambaugh/2009
23
Next Class
  • Chap 3 Internal Environments
  • CYa

Only the Paranoid Survive Andy Grove
Built by Stambaugh/2009
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