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The External Environment: Opportunities,

Threats, Industry Competition, and
Competitor Analysis
Date Session Time
02.02.2009. 8 & 9 1115 -1500
Analyzing Strategic Issues
Environments
External


Internal
External Environment
Proximate
Distant
Proximate
Suppliers and Vendors
Some control
Manageable
Could be industry specific

Distant
Regulations
Laws
Global treaties
Organizations have no control
Less manageable
Are similar to all industry firms

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General
Environment
Economic
Technological
The External Environment
Industry
Environment
Threat of new entrants
Power of suppliers
Power of buyers
Product substitutes
Intensity of rivalry
Competitor
Environment
External Environment
General Environment
Industry Environment
Competitive Environment
External Environment
General Environment
Influences the industry and firms inside the industry
Firms can not directly control these but collect
information and formulate strategies
Six Segments
Demographic
Economic
Political/legal
Socio- cultural
Technological
Global



Demographic Elements
Population size
Age Structure
Geographic distribution

Environmental Changes
Social Changes
Double income, consumerism, superior- higher education for
kids, working women, less time for household work, health
consciousness, healthy food, vacations.
Subway, Pizza Hut, Fortune hotels, Apollo Executive Health Check,
Crche
Demographical Changes
People live longer - Old age requirements, homes, security,
superior health services, self reliant, gadgets, entertainment to
keep busy meaningfully, to learn new hobbies without physical
demands, will remain active and healthy- find a product or
service, psychological demand - sense of belongingness-
counseling, spending of time
Medical insurance
Economic Elements
Inflation rate
Interest rates
Trade deficit or surplus
Personal savings rate
Business savings rates
Gross domestic product
Budget deficit or surplus



Political/Legal Elements
Laws
Taxation
Monopolies
Political pluralism
Political philosophy
Judicial System

Legal Changes
Governmental regulations
Helmets, fire extinguishers in vehicles, pollution control devices
and checking centers, window screens, seat belts, waste water
management in house, alternative sources of energy

Market Changes
Demand Changes,
Economic growth, leading to increase in variety and
demand
New product and services, retailing
Bharti-Wal-Mart, Reliance Fresh, Subhiksha, Biyanis
Services-BPO, KPO
Power windows, AB, ALS
Low cost carriers > Go Air, Jet Lite
Outsourcing-Medical Transcription
SEZs
Land Banking




Technological Changes
New product leading to ancillary, supporting and
enriching products and services
Mobile phone
Camera, Hands free, FM, Video, Mobile car charger, e-mail,
internet browsing
Internet
Medical transcription, on line teaching, e-bay, on line sales,
virtual showrooms, video conferencing
Ecological Changes
Tsunami, Earthquake, Floods
Low cost pre fab housing
Warning Systems
Rapid Evacuation
Ozone Layer depletion
Controlling of Chlorofluorocarbons release
Industry > air-conditioning, refrigeration, aviation


Socio - Cultural Elements
Women in Work
Work force diversity
Cultural values
Attitude towards life and quality of life and
products
Education
Materialist aspects

Technological Elements
Product Innovation
R & D spending
Quick diffusion of technology
Applications of knowledge
Focus of private and government-supported R&D
expenditures
New communication technologies
Product Obsolescence


Global Elements
Forex
Treaties
WTO
UN
Trade Barriers

Industry Environment
Influence the firm directly and Its competitive action:
Threat of new entrants
Bargaining power of suppliers
Bargaining power of buyers
The threat of product substitute
Intensity of rivalry
These 5 forces determine industry profit potential
Position your firm to influence these and defend your
firm from influence of these




Competitive Environment
Competitive analysis in similar industries
Jet and King Fisher
What drives the competitor
As shown by its future objectives
What competitor is doing and can do
As revealed by its current strategies
What competitor believes about the industry
As shown by its assumptions
What the competitors capabilities are
As shown by its strengths and weaknesses




External Environments
Features as of now
Turbulent
Complex
Demanding
Unknown trajectory and velocity


Handling Mode or Coping Mode
Scanning
Identify 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 timing and importance of environmental changes
and trends for firms strategies and their management

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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
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External Environmental Analysis
Strategic Intent
Strategic Mission
The External
Environment
Analysis of general environment
Analysis of industry environment
Analysis of competitor environment
The External
Environment
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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
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Porters Five Forces Model
Identify current and potential consumers 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
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Bargaining Power of
Buyers
Five Forces Model of Competition
Five Forces of
Competition
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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
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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
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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
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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
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Intensity of Rivalry
Intensity of rivalry is stronger when competitors:
are numerous or equally balanced
experience slow industry growth
have high fixed costs or high storage costs
lack differentiation or low switching costs
experience high strategic stakes
have high exit barriers
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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
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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
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Competitor Analysis
Future Objectives:
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?
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Competitor Analysis
Current strategy
Current Strategy:
How are we currently
competing?
Does this strategy support
changes in the competitive
structure?
Future objectives
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Competitor Analysis
Assumptions
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?
Current strategy
Future objectives
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Competitor Analysis
Capabilities
Capabilities:
What are our strengths and
weaknesses?
How do we rate compared to
our competitors?
Assumptions
Current strategy
Future objectives
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Competitor Analysis
Response
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?
Capabilities
Assumptions
Current strategy
Future objectives
Competitive Profile Matrix (CPM)
Identifies firms major competitors
and their strengths and weaknesses in
relation to a specific firms strategic
positions
Value Assignment for CPM
Major Strength 4
Minor Strength 3
Minor Weakness 2
Major Weakness 1
Absolutely Arbitrary
Lenovo Apple Dell
CSFs
Weight Rating Weighted
Score
Rating Weighted
Score

Rating Weighted
Score
Market Share 0.15 3 0.45 2 0.30 4 0.60
Inventory System 0.08 2 0.16 2 0.16 4 0.32
Financial Position 0.10 2 0.20 3 0.30 3 0.30
Product Quality 0.08 3 0.24 4 0.32 3 0.24
Consumer Loyalty 0.02 3 0.06 3 0.06 4 0.08
Sales Distribution 0.10 3 0.30 2 0.20 3 0.30
Global Experience 0.15 3 0.45 2 0.30 4 0.60
Org. Structure 0.05 3 0.15 3 0.15 3 0.15
Production Capacity 0.04 3 0.12 3 0.12 3 0.12
E-commerce 0.10 3 0.30 3 0.30 3 0.30
Customer Service 0.10 3 0.30 2 0.20 4 0.40
Price Competitiveness 0.02 4 0.08 1 0.02 3 0.06
Managerial Experience 0.01 2 0.02 4 0.04 2 0.02
Total
1.00 2.83 2.47 3.49
Industry Analysis CPM
Just because one firm receives a 3.49 rating and another
receives a 2.47 rating, it does not follow that the first firm
is 41% better than the second.
Numbers reveal the relative strengths of firms but implied
precision is an illusion.
Numbers are not magic.
The aim is to assimilate and evaluate information in a
meaningful manner so that correct decision -making may
take place.