Competing For Advantage

1. Competing For Advantage Part II – Strategic Analysis Chapter 3 – The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis

2. The Strategic Management Process

3. External Environments • Key Terms • General Environment –composed of dimensions in the broader society that influence an industry and the firms within it • Industry Environment –set of factors that directly influence a firm and its competitive actions and competitive responses • Competitor Environment –details about a firm’s direct and indirect competitors and the competitive dynamics expected to impact a firm's efforts to generate above-average returns

4. Assessing the General Environment

5. Assessing the General Environment

6. Assessing the Industry Environment • Threat of new entrants • Bargaining power of suppliers • Bargaining power of buyers • Threat of substitute products • Intensity of rivalry among competitors

7. External Environmental Analysis • Key Terms • Opportunity– condition in the external environment that, if exploited, helps a company achieve value creation • Threat– condition in the general environment that may hinder a company's efforts to achieve value creation

8. External Environment Analysis

9. External Environment Analysis • Key Terms • Scanning –study of all segments in the general environment • Monitoring –observance of environmental changes to identify important emerging trends from among those spotted by scanning • Forecasting –developing feasible projections of potential events • Assessing –determining the timing and significance of the effects of environmental changes and trends on the strategic management of the firm

10. Segments of the General Environment

11. The Demographic Segment • Key Terms • Demographic Segment– the section of the environment concerned with a population's size, age structure, geographic distribution, ethnic mix, and income distribution

12. The Demographic Segment – Characteristics • Population size • Age structure • Geographic distribution • Ethnic mix • Income distribution

13. The Economic Segment • Key Terms • Economic Segment– the nature and direction of the economy in which a firm competes or may compete

14. The Economic Segment – Aspects • Gross National Product (GNP) • Interest rates • Inflation/Deflation • Foreign exchange rates • Trade balances

15. The Political Segment • Key Terms • Political/Legal Segment– arena in which organizations and interest groups compete for attention, resources, and a voice in order to oversee the body of laws and regulations guiding the interactions among nations

16. The Political Segment – Affects Competition • Laws • Regulations • Policies

17. The Sociocultural Segment • Key Terms • Sociocultural Segment– the part of the environment concerned with a society's attitudes and cultural values

18. The Sociocultural Segment – Considerations • Workforce diversity • Changing attitudes toward work • Saving and retirement planning • Concern for the environment • Concern for quality of work life • Residential decisions • Shifts in product/service preferences

19. The Technological Segment • Key Terms • Technological Segment – part of the environment that includes the institutions and activities involved with creating new knowledge and translating that knowledge into new outputs, products, processes, and materials

20. The Technological Segment –Issues • Rapid pace of technological change • Promise of greater returns for early adopters of new technologies • Impact of the Internet on business practices • Impact of wireless communications on business practices

21. The Global Segment • Key Terms • Global Segment– part of the environment that includes relevant new global markets, existing markets that are changing, important international political events, and critical cultural and institutional characteristics of global markets

22. The Global Segment – Interdependence and Opportunities • The flow of goods, services, financial capital, and knowledge is increasing, and is easier than at any time in the past • Economically maturing markets are opening up • Reaching beyond national borders extends potential and increases the likelihood of earning a return on new innovations • Current demographic changes and trends need to be understood by businesses

23. The Global Segment – Challenges • The low cost of goods developed in countries with extremely low wage rates threatens industries in higher wage nations • There are risks associated with investing in less economically mature markets • Different sociocultural and institutional attributes need to be recognized when expanding into global markets

24. Industry Environment Analysis • Key Terms • Industry – group of firms producing products that are close substitutes

25. Five Competitive Forces

26. Threat of New Entrants • Factors that affect the likelihood that firms will enter an industry: • Barriers to entry • Expected retaliation from current industry participants

27. Threat of New Entrants • Barriers to entry are desired by existing competitors in an industry • Barriers to entry reduce the likelihood that new competitive firms will enter their market and threaten their market share by adding new production capacity, holding down consumer costs, lowering revenue, and reducing returns for competing firms

28. Market Entry Barriers • Economies of scale yields high volume, low cost production advantages for existing firms • Mass customization can result in quick responsiveness to customer demands • Perceived product differentiation can generate a strong customer following that is difficult to overcome • Capital requirements can demand substantial investment resources to compete • Customer switching costs to change products can make it undesirable for consumers to try new products

29. Market Entry Barriers • Access to distribution channels may be restricted by existing relationships between manufacturers and their distribution networks • Existing competitors may have a lock on other (independent of scale) cost advantages that are difficult for new businesses to replicate • Some government policies control entry into an industry through licensing, regulation, and other requirements • An expectation of vigorous competitive response from existing industry participants can interfere with decisions to enter a market, with the exception of underserved market niches or neglected segments

30. Bargaining Power of Suppliers • Supplier concentration • No substitutes • Small customers • Critical product • High switching cost • Threat of forward integration

31. Bargaining Power of Buyers • Large buyers in industry • Large buyer to seller • Low switching costs • Standardized product • Threat of backward integration

32. Threat of Substitute Products • Few switching costs • Lower price • Quality and performance capabilities meet or exceed product

33. Intensity of Rivalry • Numerous or equally-balanced competitors • Slow industry growth • High fixed costs or high storage costs • Lack of differentiation or low switching costs • High strategic stakes • High exit barriers

34. Complementors • Key Terms • Complementors– companies that sell complementary goods or services that are compatible with the focal firm's own product or services

35. Interpreting Industry Analysis The ways in which competitive analysis provides insight into the attractiveness of an industry by determining its potential for above-average returns over the long term

36. Analysis of Direct Competitors • Key Terms • Strategic Group–set of firms emphasizing similar strategic dimensions to use a similar strategy • Strategic Dimensions–areas that firms in a strategic group treat similarly

37. Implications from Strategic Group Dynamics • Intra-strategic group rivalry is more intense than inter-strategic group rivalry • Membership in a strategic group partially defines the essential characteristics of firms' strategies • The more similar strategies are seen across strategic groups, the greater the level of expected rivalry • The strengths of industries' five forces differ across strategic groups

38. Understanding Competitors and Their Intentions • Key Terms • Competitor Intelligence–set of data and information the firm gathers to better understand and anticipate competitors' objectives, strategies, assumptions, and capabilities

39. Competitor Analysis Components

40. Ethical Questions How can a firm use its “code of ethics” as it analyzes the external environment?

41. Ethical Questions What ethical issues, if any, may be relevant to a firm’s monitoring of its external environment? Does use of the Internet to monitor the environment lead to additional ethical issues? If so, what are they?

42. Ethical Questions What is an ethical issue associated with each segment of a firm’s general environment? Are firms across the globe doing enough to deal with this issue?

43. Ethical Questions Why are ethical practices critical in the relationships between a firm and its suppliers?

44. Ethical Questions In an intense rivalry, especially one that involves competition in the global marketplace, how can the firm gather competitor intelligence ethically while maintaining its competitiveness?

45. Ethical Questions What makes an intelligence-gathering practice ethical or not ethical? Do you see this changing as the world’s economies become more interdependent? If so, why? Do you see this changing because of the Internet? If so, how?