external opportunities

8/23/2019 External opportunities

1/18

The External Environment:

Opportunities and Threats


2/18

Hierarchy of External Influences

Firm

Social Economic Technical Global Political/Legal

Five Forces Competitor Intelligence Industry Structure Strategic Groups

Political/Legal


3/18

Stakeholders

Firm

Shareholders

Government Financial Community Host Community Ecological Environment

Society in General

Rivals

Customers Suppliers Employees Managers

Board Members


4/18

Industry Vital Statistics

How is the industry defined?

Size

Growth Key Players: Rivals, customers,

suppliers, government agencies

Structure Performance


5/18

Life Cycle Stage

Gr

owthRate

Time


6/18

Concentrated Structure


7/18

Fragmented Structure


8/18

Threat of

Substitute

Products

Threat of

NewEntrants

Threat of

New

Entrants

Porters Five Forces Model of Competition

Rivalry Among

Competing Firms

in Industry

Bargaining

Power of

Buyers

Bargaining

Power of

Suppliers

Prices

Costs

(+) or (-) influence...


9/18

Threat of New Entrants

Barriers to

Entry

Economies of Scale -- MemoryEconomies of Scale -- MemoryProduct DifferentiationProduct Differentiation

Capital RequirementsCapital Requirements

Switching Costs -- Frequent flyerSwitching Costs -- Frequent flyer

Access to Distribution ChannelsAccess to Distribution Channels

Cost DisadvantagesCost Disadvantages

Independent of ScaleIndependent of Scale

**

**

**

**

**

**

Government PolicyGovernment Policy**

Expected RetaliationExpected Retaliation**


10/18

** Supplier industry is dominated bySupplier industry is dominated by

a few firms -- Microprocessorsa few firms -- Microprocessors

** Suppliers products have fewSuppliers products have few

substitutes -- Intel, PowerPCsubstitutes -- Intel, PowerPC

** Buyer is not an important customerBuyer is not an important customerto supplierto supplier

** Suppliers product is an importantSuppliers product is an important

input to buyers productinput to buyers product

** Suppliers products are differentiatedSuppliers products are differentiated

Suppliers are likely to be powerful if:Suppliers are likely to be powerful if:

** Suppliers products have highSuppliers products have high

switching costsswitching costs

** Supplier poses credible threat ofSupplier poses credible threat offorward integration -- Nikeforward integration -- Nike

Bargaining Power of Suppliers

Powerful

suppliers can

squeeze industry

profits if firms

are unable to

recover cost

increases


11/18

Bargaining Power of Buyers

Buyer groups are likely to be powerful if:Buyer groups are likely to be powerful if:

** Buyers purchases are large relative toBuyers purchases are large relative tosellers sales -- Wal-Martsellers sales -- Wal-Mart

** Purchase accounts for a significantPurchase accounts for a significant

fraction of suppliers salesfraction of suppliers sales

** Products are undifferentiatedProducts are undifferentiated

** Buyers face few switching costs --Buyers face few switching costs --

GasolineGasoline**

** Buyer presents a credible threat ofBuyer presents a credible threat of

backward integrationbackward integration

** Product unimportant to qualityProduct unimportant to quality

**Buyer has full informationBuyer has full information

Buyers compete

with the supplying

industry by:

* Bargaining down prices

* Forcing higher quality

*Playing firms off of

eachother


12/18

Threat of Substitute Products

** Products with improvingProducts with improving

price/performance tradeoffsprice/performance tradeoffs

relative to present industryrelative to present industry

productsproducts

Products

with similar

functionlimit the

prices firms

can chargeFor ExampleFor Example::

Keys to evaluate substitute products:Keys to evaluate substitute products:

On-line trading in place ofOn-line trading in place ofstock brokersstock brokers

Plastic vs. glass vs. aluminumPlastic vs. glass vs. aluminum

containers for soft drinkscontainers for soft drinks


13/18

Plays out in the following ways:Plays out in the following ways:

** Jockeying for strategic positionJockeying for strategic position

** Using price competition -- AT&T vs. MCIUsing price competition -- AT&T vs. MCI

**Staging advertising battles -- Bud vs. MillerStaging advertising battles -- Bud vs. Miller

** Making new product introductionsMaking new product introductions** Increasing consumer warranties or serviceIncreasing consumer warranties or service

Intensity of Rivalry Among Existing Competitors


14/18

CutthroatCutthroatcompetitioncompetition is more likely to occur when:is more likely to occur when:

** Numerous or equally balanced competitorsNumerous or equally balanced competitors

** Slow growth industry -- Heavy trucksSlow growth industry -- Heavy trucks

** High fixed costsHigh fixed costs

** Lack of differentiation -- Long distance phone svc.Lack of differentiation -- Long distance phone svc.

** High storage costsHigh storage costs

** Capacity added in large incrementsCapacity added in large increments

** High strategic stakesHigh strategic stakes

** High exit barriersHigh exit barriers

** Diverse competitorsDiverse competitors

Intensity of Rivalry Among Existing Competitors


15/18

Environmental Scanning Grid

IMPACTSerious Mild Potential Strong

Threat Threat Benign Oppty. Oppty.

General Economics

Environment Demographics

Political-LegalSociocultural

Technological

Global

Competitive Potential Entry

Environment Suppliers

Customers

Substitutes

Rivalry

TOTAL IMPACT


16/18

Wholesal

e

Clubs

Strategic Group Map

Department Stores

High

Quality

Low

Quality

Low Price High Price

Upscale

Closeout

BrandedChains


17/18

Strategic Group Map: Beer(Pre-light / Pre-microbrew)

Dark/Full

Light


Amber

RegularHeineken

MillerBud

Old Swill

Guinness


18/18

Strategic Group Map: Beer

Dark/Full

Light


Amber

Regular Old Swill

Guinness

Blackened Voodoo

Anchor Porter

Amstel

CardinalMiller Lite

Bud Ice

Sam Adams

Bass Ale

Pilsner Urquell

Killians RedRed Wolf

Amber Bock

Lowenbrau

Killians Brown

Lowenbrau Dark

Milwaukees

Best Light

Bud

Miller

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