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Chapter 3: Analyzing a Company’s External Environment

Chapter 3: Analyzing a Company’s External Environment. Team 1: Godfrey Fenyi, Emmanuel Shirima and Matt Poole. What Is Situation Analysis?. Two considerations Company’s external or macro-environment Industry and competitive conditions Company’s internal or micro-environment

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Chapter 3: Analyzing a Company’s External Environment

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  1. Chapter 3: Analyzing a Company’s External Environment Team 1: Godfrey Fenyi, Emmanuel Shirima and Matt Poole

  2. What Is Situation Analysis? • Two considerations • Company’s external ormacro-environment • Industry and competitive conditions • Company’s internal ormicro-environment • Competencies, capabilities,resource strengths and weaknesses,and competitiveness

  3. Industry’s dominant economic traits Competitive forces and strength of each force Drivers of change in the industry Conclusions: Industry attractiveness Key success factors Competitor analysis Key Questions Regarding theIndustry and Competitive Environment

  4. Question #1: What are the Industry’s 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

  5. Question #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 Modelof Competition

  6. The Five Forces Model of Competition

  7. Vigorous price competition More or different performance features Better product performance Higher quality Stronger brand image and appeal Wider selection of models and styles Bigger/better dealer network Low interest rate financing Higher levels of advertising Stronger product innovation capabilities Better customer service Stronger capabilities to provide buyers with custom-made products What Are the TypicalWeapons for Competing?

  8. Strategic Implications of theFive Competitive Forces • Competitive environment is unattractive fromthe standpoint of earning good profits when • Rivalry is vigorous • Entry barriers are lowand entry is likely • Competition from substitutes is strong • Suppliers and customers haveconsiderable bargaining power

  9. Strategic Implications of theFive Competitive Forces • Competitive environment is ideal froma profit-making standpoint when • Rivalry is moderate • Entry barriers are highand no firm is likely to enter • Good substitutesdo not exist • Suppliers and customers arein a weak bargaining position

  10. Question #3: What Factors Are Driving Industry Change? • Industries change because forcesare driving industry participantsto alter their actions • Driving forces are themajor underlying causesof changing industry andcompetitive conditions

  11. Question #4: What Market Positions Do Rivals Occupy? • One technique to revealdifferent competitive positionsof industry rivals isstrategic group mapping • A strategic group is acluster of firms in an industrywith similar competitiveapproaches and market positions

  12. Question #5: What Strategic Moves Are Rivals Likely to Make? • A firm’s 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

  13. Question #6: What Are the Key Factors for Competitive Success? • KSFs are those competitive factors most affecting every industry member’s ability to prosper. They concern • Specific strategy elements • Product attributes • Resources • Competencies • Competitive capabilities

  14. Question #7: Does the Outlook for the Industry Present an Attractive Opportunity? • Involves assessing whether the industryand competitive environment is attractiveor unattractive for earning good profits • Under certain circumstances, a firm uniquelywell-situated in an otherwise unattractive industry can still earn unusually good profits • Attractiveness is relative, not absolute • Conclusions have to be drawn from theperspective of a particular company

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  16. Summary • Key Questions Regarding theIndustry and Competitive Environment • Question #1: What are the Industry’s Dominant Economic Traits? • Question #2: What Kinds of Competitive Forces Are Industry Members Facing? • The Five Forces Model of Competition • Question #3: What Factors Are Driving Industry Change and What Impacts Will They Have? • Question #4: What Market Positions Do Rivals Occupy? • Question #5: What Strategic MovesAre Rivals Likely to Make? • Question #6: What Are the Key Factors for Competitive Success? • Question #7: Does the Outlook for the Industry Present an Attractive Opportunity?

  17. Sources • Thompson, A, Strickland III, A., Gamble, J. (2008). Crafting and Executing Strategy: The Quest for Competitive Advantage: Concepts and Cases, 14/e McGraw Hill. • McGraw-Hill Online Learning Center. Www.mhhe.com/thompson • Www.utube.com

  18. Source Critique… Team Analysis… Questions?

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