environment analysis 1.ppt
TRANSCRIPT
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Ch2-1
Chapter 2
The External Environment:
Opportunities, Threats, Industry
Competition, and Competitor Analysis
Michael A. Hitt
R. Duane Ireland
Robert E. Hoskisson
2000 South-Western College Publishing
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Ch2-2
Political/
Legal
Economic
Technological
Global
DemographicSociocultural
Competitive
Environment
Industry
Environment
Components of the General Environment
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Ch2-3
SWOT Analysis
Strengths
Weaknesses
Opportunities
Threats
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Ch2-4
The purpose of SWOT Analysis
It is an easy-to-use tool for developing
an overview of a companys strategic
situation It forms a basis for matching your
companys strategy to its situation
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Ch2-5
SWOT is the starting point
It provides an overview of the strategic
situation.
It provides the raw material to do moreextensive internal and external analysis.
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Ch2-6
Opportunities
An OPPORTUNITY is a chance for firmgrowth or progress due to a favorable
juncture of circumstances in thebusiness environment.
Possible Opportunities:
Emerging customer needs Quality Improvements
Expanding global markets
Vertical Integration
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Threats
A THREAT is a factor in yourcompanys external environment that
poses a danger to its well-being. Possible Threats:
New entry by competitors
Changing demographics/shifting demand
Emergence of cheaper technologies
Regulatory requirements
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Opportunities and Threats form a
basis for EXTERNAL analysis By examining opportunities, you can
discover untapped markets, and newproducts or technologies, or identifypotential avenues for diversification.
By examining threats, you can identify
unfavorable market shifts or changes intechnology, and create a defensiveposture aimed at preserving yourcompetitive position.
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The purpose of
Five-Forces Analysis The five forces are environmental forces
that impact on a companys ability to
compete in a given market.
The purpose of five-forces analysis is to
diagnose the principal competitive
pressures in a market and assess how
strong and important each one is.
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Threat ofNew
Entrants
Threat of
New
Entrants
Porters Five Forces
Model of Competition
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Threat of New Entrants
Barriers to
Entry
Expected Retaliation
Government Policy
Economies of Scale
Product Differentiation
Capital Requirements
Switching Costs
Access to Distribution Channels
Cost Disadvantages Independent
of Scale
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Bargaining
Power of
Suppliers
Threat ofNew
Entrants
Threat of
New
Entrants
Porters Five Forces
Model of Competition
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Bargaining Power of Suppliers
Suppliers exert power
in the industry by:
* Threatening to raise
prices or to reduce quali ty
Powerful suppliers
can squeeze industry
profitability if firms
are unable to recover
cost increases
Suppliers are likely to be powerful if:
Supplier industry is dominated by afew firms
Suppliers products have few substitutes
Buyer is not an important customer tosupplier
Suppliers product is an importantinput to buyers product
Suppliers products are differentiated
Suppliers products have highswitching costs
Supplier poses credible threat of
forward integration
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Bargaining
Power of
Buyers
Threat ofNew
Entrants
Threat of
New
Entrants
Bargaining
Power of
Suppliers
Porters Five Forces
Model of Competition
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Bargaining Power of Buyers
Buyers compete
with the supplying
industry by:
* Bargaining down pr ices
* Forcing higher quality
* Playing fi rms off of
each other
Buyer groups are likely to be powerful if:
Buyers are concentrated or purchases
are large relative to sellers sales
Purchase accounts for a significantfraction of suppliers sales
Products are undifferentiated
Buyers face few switching costs
Buyers industry earns low profits
Buyer presents a credible threat ofbackward integration
Product unimportant to quality
Buyer has full information
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Threat of
Substitute
Products
Threat ofNew
Entrants
Threat of
New
Entrants
Bargaining
Power of
Buyers
Bargaining
Power of
Suppliers
Porters Five Forces
Model of Competition
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Threat of Substitute Products
Products
with similar
functionlimit the
prices firms
can charge
Keys to evaluate substitute products:
Products with improving
price/performance tradeoffs
relative to present industryproducts
Example:
Electronic security systems inplace of security guards
Fax machines in place of
overnight mail delivery
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Threat of
Substitute
Products
Threat ofNew
Entrants
Threat of
New
Entrants
Rivalry Among
Competing Firms
in Industry
Bargaining
Power of
Buyers
Bargaining
Power of
Suppliers
Porters Five Forces
Model of Competition
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Rivalry Among Existing Competitors
Intense rivalry often plays out in the following ways:
Jockeying for strategic position
Using price competition
Staging advertising battles
Making new product introductions
Increasing consumer warranties or service
Occurs when a firm is pressured or sees an opportunity
Price competition often leaves the entire industry worse off
Advertising battles may increase total industry demand, but
may be costly to smaller competitors
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Cutthroatcompetitionis more likely to occur when:
Rivalry Among Existing Competitors
Numerous or equally balanced competitors
Slow growth industry
High fixed costs
Lack of differentiation or switching costs
High storage costs
Capacity added in large increments
High strategic stakes
High exit barriers
Diverse competitors
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The Five Forces are Unique to
Your Industry
Five-Forces Analysis is a framework for
analyzing a particular industry. Yet, the five forces affect all the other
businesses in that industry.
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Ch2-22
Competitor Analysis
The follow-up to Industry Analysis is
effective analysis of a firms Competitors
Competitive
Environment
Industry
Environment
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Ch2-23
Competitor Analysis
Assumptions
What assumptions do ourcompetitors hold about the futureof industry and themselves?
Current Strategy
Does our current strategy supportchanges in the competitiveenvironment?
Future Objectives
How do our goals compare to our
competitors goals?
Capabilities
How do our capabilities compare
to our competitors?
Response
What will ourcompetitors do in thefuture?
Where do we have acompetitiveadvantage?
How will this changeour relationship withour competition?
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Ch2-24
Future Objectives
How do our goals compare
to our competitors goals?
Where will emphasis be
placed in the future?
What is the attitude
toward risk?
What Drives the competitor?
Competitor Analysis
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Ch2-25
What is the competitor doing?
What can the competitor do?
Future Objectives
How do our goals compare
to our competitors goals?
Where will emphasis be
placed in the future?
What is the attitude
toward risk?
Current Strategy
How are we currently
competing?Does this strategy
support changes in the
competitive structure?
Competitor Analysis
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Ch2-26
What does the competitor believe
about itself and the industry?
Future Objectives
How do our goals compare
to our competitors goals?
Where will emphasis be
placed in the future?
What is the attitude
toward risk?
Current Strategy
How are we currently
competing?Does this strategy
support changes in the
competition structure?
Do we assume the future
will be volatile?
Are we assuming stable
competitive conditions?
What assumptions do our
competitors hold about the
industry and themselves?
Assumptions
Competitor Analysis
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Ch2-27
What are the competitors
capabilities?
Future Objectives
How do our goals compare
to our competitors goals?
Where will emphasis be
placed in the future?
What is the attitude
toward risk?
Current Strategy
How are we currently
competing?Does this strategy
support changes in the
competition structure?
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?
Assumptions
What are my competitors
strengths and weaknesses?
How do our capabilities
compare to our
competitors?
Capabilities
Competitor Analysis
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Future Objectives
How do our goals compare
to our competitors goals?
Where will emphasis be
placed in the future?
What is the attitude
toward risk?
Current Strategy
How are we currently
competing?Does this strategy
support changes in the
competition structure?
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?
Assumptions
Response
What will our competitors
do in the future?
Where do we have a
competitive advantage?
How will this change ourrelationship with our
competition?
Capabilities
What are my competitors
strengths and weaknesses?
How do our capabilities
compare to our
competitors?
Competitor Analysis