Company Name

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
STRATEGIC MANAGEMENT BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
External Environment Awareness
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Environmental Scanning Monitoring

• External Scanning general surveillance of the
  firms external environment
• Predict emerging environmental changes
• Proactive, ongoing activity
• Alerts the firm to critical potential
  environmental trends before they impact the firm
  or competitors become aware of them

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Environmental Scanning Monitoring

• External Monitoring tracking progress of
  environmental trends
• Ongoing assessment of environmental trends
  identified during surveillance
• Tracks evolution of trends as changes occur
• Use multiple information sources or develop new
  ones targeted to specific environmental trends

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Competitive Intelligence

• Define the industry and competitors
• Industry structure, critical success factors
• Environmental factors directly impacting the
  industry
• Competitive analysis
• Fundamental Data / Background
• Strengths
• Weaknesses
• Apparent strategy

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Environmental Forecasting

• Plausible projections about the future state of
  the firms environment
• Direction, scope, intensity and speed of future
  environmental changes
• May include probabilistic evaluation of
  individual environmental scenarios
• Can incorporate experts evaluation of macro
  environmental trends
• Societal, economic, political, regulatory,
  technological trends

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Assessing the General Environment

• General external environmental factors that
  impact a firm, but are generally not controllable
  by the firm
• Demographic
• Socio-cultural
• Legal / regulatory
• Political
• Economic
• Technological
• Global

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Assessing the General Environment

• Demographic factors
• Population size, age, ethnicity
• Personal income / standard of living
• Geographical distribution
• Family size

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Assessing the General Environment

• Socio-cultural factors
• Level of education of men and women
• Presence of women in the workforce
• Health and wellness
• Environmental awareness / sensitivity / activism
• Age of women at childbirth
• Number of dual-income families

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Assessing the General Environment

• Political / Legal factors
• Political party in power and political agenda
• Taxation policies
• Regulatory policies and regulatory activism
• Legal reforms (tort reform)
• Social welfare reform
• Healthcare reform
• Minimum wage standards

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Assessing the General Environment

• Technological factors / Advances
• Data processing
• Genetic engineering / biological sciences
• Electronic communication
• Nano-technology
• Materials science
• Manufacturing technology / robotics
• Software systems
• Logistics systems

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Assessing the General Environment

• Economic factors
• Inflation, consumer prices, wholesale prices
• Interest rates
• Unemployment
• GDP
• Stock market levels and trends
• Energy prices

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Assessing the General Environment

• Global factors
• Currency exchange rates
• Balance of trade
• Tariffs and trade regulation
• Foreign direct investment
• Political and economic stability
• Emergence / growth of market economies in
  developing nations

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
SWOT Analysis

• Strengths
• Weaknesses
• Opportunites
• Threats

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
SWOT Analysis

• A useful analytical tool to evaluate competitive
  positioning within the industry
• Perform SWOT analyses on each competitor and on
  your own firm
• Position your own firm relative to each
  competitor, categorized by relevant internal and
  external environmental factors

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
SWOT Analysis

• How can a firms strengths be used to create
  competitive advantage?
• Can these strengths be expanded or leveraged
  further?
• How can a firm correct its weaknesses or create a
  solution that remedies their negative effect?
• How best can a firm take advantage of
  opportunities presented?
• How can a firm protect itself from threats, or
  proactively respond to them if they materialize?

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Competitive Environment Porters Five
Forces Model
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Competitive Environment The
Threat of New Entrants

• New entrants may erode the market position and
  profitability of existing competitors
• Divert sales volume from existing producers
• Lower profit margins of existing competitors by
  increasing supply of product and creating greater
  price competition
• Cause existing competitors to spend more on sales
  and marketing to create value differentiation
  among customers

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Competitive Environment The
Threat of New Entrants

• Threat of new entrants is HIGH when
• Economies of scale are LOW
• Product differentiation is LOW
• Capital requirements are LOW
• Switching costs are LOW
• Incumbents control over distribution channels is
  LOW
• Incumbents proprietary knowledge is LOW
• Incumbents control over raw material supply is
  LOW
• Incumbents access to government subsidies is LOW

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Competitive Environment The
Bargaining Power of Buyers

• Increased bargaining power of buyers can threaten
  existing competitors by
• Forcing down prices
• Demanding higher quality or more services
• Playing competitors against each other

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Competitive Environment The
Bargaining Power of Buyers

• The power of buyers is HIGH when
• Concentration of buyers relative to suppliers Is
  HIGH
• Switching costs are LOW
• Product differentiation of suppliers is LOW
• Threat of backward integration by buyers is HIGH
• Extent of buyers profits is LOW
• Importance of the suppliers input to quality of
  buyers final product is LOW

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Competitive Environment The
Bargaining Power of Suppliers

• Suppliers can adversely impact firms by
• Raising prices
• Lowering material quality or reducing the range
  of services offered

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Competitive Environment The
Bargaining Power of Suppliers

• The power of suppliers is HIGH when
• Concentration relative to buyer industry is HIGH
• Availability of substitute products is LOW
• Importance of customer to the supplier is LOW
• Differentiation of the suppliers products and
  services is HIGH
• Switching costs of the buyer are HIGH
• Threat of forward integration by the supplier is
  HIGH

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Competitive Environment The
Threat of Substitute Products

• The availability of substitute products and
  services can adversely impact firms by
• Creating a ceiling on prices that producers can
  charge for the same products
• Offering products with more attractive
  price/performance ratios that will be more
  appealing to customers

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Competitive Environment Intensity
of Rivalry Among Competitors

• Intense competitive rivalry can result in
• Increased price competition
• Increased marketing and advertising effort / cost
• New product introductions
• Offering better warranties or increased customer
  service

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Competitive Environment Intensity
of Rivalry Among Competitors

• The intensity of competitive rivalry is HIGH
  when
• The number of competitors is HIGH
• Industry growth rate is LOW
• Fixed costs are HIGH
• Storage costs are HIGH
• Product differentiation is LOW
• Switching costs are LOW
• Exit barriers are HIGH
• Strategic stakes are HIGH

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Competitive Environment The
Impact of the Internet
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Competitive Environment Strategic
Groups

• Strategic Groups can facilitate industry analysis
• Competitors more like each other than the rest of
  the industry members
• Strategic groups tend to have similar strategies
• Competition within strategic groups tends to be
  greater than with competitors outside of the
  groups
• Members of strategic groups will be impacted by
  changes in the industry environment in a similar
  fashion
• How well the parameters are set that determine a
  strategic group will impact the usefulness of
  grouping for analytical purposes

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Case Analysis How Virgin Mobile USA Uses
Crowdsourcing

• Virgin Mobile is a joint venture between Virgin
  Group and Sprint Nextel
• Virgin Mobile created a young customer focus
  group and rewarded them with free calling minutes
  for their input regarding Virgin Mobiles service
• The company also provided rewards to all its
  customers if they commented on Virgin Mobiles
  30-second corporate-sponsor advertising and other
  services

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Case Analysis Ethical Guidlelines on
Competitive Intelligence - United
Technologies

• United Technologies is a global corporation which
  manufactures many technology-based products and
  owns brands such as Otis Elevators, Sikorsky
  Helicopters and Carrier Air Conditioners
• UTs ethical competitive intelligence guidelines
  are very specific and prohibit the following
  types of actions
• Coercion to obtain information
• Being in an unrestricted area of a customers
  facility without permission
• Using evasive or covert surveillance to obtain
  information
• Misleading someone to share information
• Evasion of security systems designed to protect
  information

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Case Analysis Scenario Planning at Shell Oil
Company

• Shell Oil Company uses analytical scenario
  planning to anticipate possible outcomes from
  potential events so that it is prepared to act
  strategically whichever potential outcome becomes
  reality
• Interviews with internal and external experts
• Creation of natural agendas based on the
  results from interview
• Synthesis of these natural agendas to develop
  underlying areas of uncertainty/conjecture and
  interrelationships between issues
• Workshops explore key issues and identify gaps in
  research needed
• Workshops to develop several key scenarios that
  may occur over the next 10-15 years
• Testing strategies against scenarios to assess
  effectiveness

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Case Analysis Scenario Planning at Shell Oil
Company

• Shell Oil Company uses analytical scenario
  planning to anticipate possible outcomes from
  potential events so that it is prepared to act
  strategically whichever potential outcome becomes
  reality
• Interviews with internal and external experts
• Creation of natural agendas based on the
  results from interview
• Synthesis of these natural agendas to develop
  underlying areas of uncertainty/conjecture and
  interrelationships between issues
• Workshops explore key issues and identify gaps in
  research needed
• Workshops to develop several key scenarios that
  may occur over the next 10-15 years
• Testing strategies against scenarios to assess
  effectiveness

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Case Analysis Microsofts Approach to H1B
Visa Restrictions

• Microsoft has historically fought US H1B visa
  restrictions on hiring foreign skilled workers to
  work at its facilities
• Many of the individuals Microsoft would like to
  hire are highly educated
• Microsoft has maintained that the US will lose
  its competitiveness if it cannot capture talented
  individuals, wherever they come from
• After being rejected in its appeals to relax H1B
  restrictions, Microsoft has set up operations in
  Vancouver BC Canada where there are no visa
  restrictions on foreign skilled labor
• Microsoft has used this Canadian facility to
  perform functions it would otherwise have
  conducted at its Washington state location, Just
  150 miles south of Vancouver

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Case Analysis
The Internet and Digital Technologies

• The internet provides a platform for many
  applications, connecting industries across the
  globe in numerous ways
• Worldwide growth of internet usage exceeds 300
  over the past decade
• Developing nations have experienced the bulk of
  the increase in internet usage
• Companies are benefitting from increased internet
  access and usage through online marketing,
  linkages with suppliers and other business
  partners
• Entrepreneurial ventures are able to accomplish
  the same access to international markets that
  larger companies formerly enjoyed

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Case Analysis Enjoying Supplier Power Delta
Pride Catfish

• Delta Pride Catfish was formed as a result of
  supplier mistreatment by major fish processing
  corporations
• Large agribusiness companies, such as ConAgra
  used to have complete control over processing of
  farm-raised catfish by independent suppliers
• When these independent suppliers were prevented
  from marketing their fish due to the large
  processors desire to curtail supply and increase
  prices, they formed their own processing venture
• Delta Pride Catfish now processes its own
  internal supply of catfish and has significantly
  reduced major agribusiness firms market share in
  this product category

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