Chapter Two

1. Chapter Two Analyzing a Company’s External Environment

2. Introduction • Managers are not prepared to act wisely in steering a company in different direction or altering its strategy until they have a deep understanding of the pertinent factors surrounding the company’s situation. • Two facets of the company’s situation • The industry and competitive environment in which the company operates and the forces acting to reshaped this environment • The company’s marketing position and competitiveness – resources, capabilities, strength and weaknesses of the rivals.

3. Introduction • Perceptive diagnosis of a company’s external & internal environment is a pre-requisite for managers in crafting a strategy. • Three criteria of a winning strategy: • Good fit with the company’s situation. • Capable of building competitive advantage. • Holds good prospect for boosting company performance.

5. The Strategically Relevant Components of a Company’s External Environment • Company’s macroenvironment • Includes all relevant factors and influences outside the company’s boundaries. • Relevant- important enough to have a bearing on the decisions the company ultimately makes about its direction, objectives, strategy and business model. • For most part, influences coming from the outer ring of the macroenvironment have low impact on a company’s business situation. (there are exception) • Shape only the edges of the company’s direction and strategy. (There are exceptional cases)

6. The Strategically Relevant Components of a Company’s External Environment • Company’s managers must be alert for potentially important outer-ring forces, assess their impact and influences, and adapt the company’s direction and strategy is needed. • The biggest strategy-shaping impact almost always pertain to the company’s immediate industry and competitive environment.

7. Company’s Industry and Competitive Environment • What are the industry’s strategy-shaping economic features? • What kinds of competitive forces are industry members facing, and how is each force? • What forces are driving changes in the industry, and what impact will these changes have on competitive intensity and industry profitability? • What market positions do industry rivals occupy – who is strongly positioned and who is not? • What strategic moves are rivals likely to make next? • What are the key factors for future competitive success? • Does the outlook for the industry present the company with sufficiently attractive prospects for profitability?

8. Identifying Strategically Relevant Industry Features • Industries differ so significantly in their basic character and structure. • Analyzing a company’s industry and competitive environment begins with an overview of the industry’s dominant economic features. • Sets the stage for the analysis to come • Promotes understanding of the kinds of strategic moves that industry members are likely to employ.

9. Economic Features • Market size and growth rate • Position in the life cycle • Number of rivals • Buyer needs and Requirements • Production capacity • Pace of technological change

10. Analyzing the Nature & Strength of Competitive Forces • The state of competition in an industry is a composite of competitive pressures operating in five areas of the overall market: • Competitive pressures associated with the market maneuvering and jockeying for buyer patronage that goes on among rival sellers in the industry. • Competitive pressures associated with the threat of new entrants into the market.

11. Analyzing the Nature & Strength of Competitive Forces • Competitive pressures coming from the attempts of companies in other industries to win buyers over to their own substitute products • Competitive pressures stemming from supplier bargaining power and supplier-seller collaboration. • Competitive pressures stemming from buyer bargaining power and seller-buyer collaboration.