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7/28/2019 6 External Environmet Analysis
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McGraw-Hill/Irwin 2005 The McGraw-Hill Companies, Inc. All rights reserved.3-1
Analyzing a CompanysExternal Environment
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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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The Components of a Companys Macro-Environment
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Key Questions Regarding External Analysis
What are the Industrys dominant economic traits/features
What are the Competitive forces/pressures and
strength of each force What the Drivers of change in the industry
What are the relative position of the competitors(Competitor analysis)
What are the Key Success Factors (KSF) of theindustry
Conclusions: Is the Industry is attractive to remainor invest more?
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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 Model
of Competition
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Five Forces
Model of Competition
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Strategic Implications of the
Five Competitive Forces
Competitive environmentisunattractive from
the standpoint of earning good
profits when
Rivalry is vigorous
Entry barriers are low
and entry is likely
Competition from
substitutes is strong
Suppliers and customers have
considerable bargaining power
Competitive environmentisidealfrom
a profit-making standpoint when
Rivalry is moderate
Entry barriers are highand no firm is likely to enter
Good substitutes
do not exist
Suppliers and customers are
in a weak bargaining position
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Q #3: What Factors Are Driving Industry Change and
What Impacts Will They Have?
Driving forces are the major underlying causes
of changing industry and competitive conditions
Industries change becauseforces are driving
industryparticipants to change their actions
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Question 4: What Market Positions Do
Rivals Occupy?
One technique to reveal different competitive
positions
of industry rivals is strategic group mapping
A strategic group is a cluster of firms in an industry
with similar competitive approaches and marketpositions
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common characteristics of Strategic
Group
Firms in same strategic group have two or morecompetitive 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 Moves
Are Rivals Likely to Make?
A firms best strategic moves are affected by Current strategies of competitors
Future actions of competitors
Profiling key rivals involves gatheringcompetitive 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?
Attractiveness is relative, not absolute
Under certain circumstances, afirm uniquely
well-situatedin an otherwise unattractive
industry
can still earn unusually goodprofits
Invest, Remain, or Divest