strategic management concepts and cases. exploring the external environment: competition and...
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Strategic Management Concepts and Cases
Exploring the External Environment: Competition and Opportunities
Studying this chapter should provide you with the strategic management knowledge needed to:
• 1. Explain the importance of analyzing and understanding the firm’s external environment.
• 2. Define and describe the general environment and the industry environment.• 3. Discuss the four activities of the external environmental analysis process.• 4. Name and describe the general environment’s six segments.• 5. Identify the five competitive forces and explain how they determine an industry’s
profit potential.• 6. Define strategic groups and describe their influence on the firm.• 7. Describe what firms need to know about their competitors and different methods
(including ethical standards) used to collect intelligence about them.
Many U.S. airlines have filed bankruptcy in recent years.
The General, Industry, and Competitor Environments
• An integrated understanding of the external and internal environments is essential for firms to understand the present and predict the future.7 As shown in Figure 2.1, a firm’s external environment is divided into three major areas: the general, industry, and competitor environments.
• The general environment is composed of dimensions in the broader society that influence an industry and the firms within it.
Components of the General EnvironmentComponents of the General Environment
• The industry environment is the set of factors that directly influences a firm and its competitive actions and competitive responses: the threat of new entrants, the power of suppliers, the power of buyers, the threat of product substitutes, and the intensity of rivalry among competitors.
External Environmental AnalysisExternal Environmental Analysis
The external environmental analysis process should be conducted on a The external environmental analysis process should be conducted on a continuous basis. This process includes four activities:continuous basis. This process includes four activities:
ScanningScanning
MonitoringMonitoring
ForecastingForecasting
AssessingAssessing
Identifying early signals of environmental Identifying early signals of environmental changes and trendschanges and trends
Detecting meaning through ongoing observations Detecting meaning through ongoing observations of environmental changes and trendsof environmental changes and trends
Developing projections of anticipated outcomes Developing projections of anticipated outcomes based on monitored changes and trendsbased on monitored changes and trends
Determining the timing and importance of Determining the timing and importance of environmental changes and trends for firms' environmental changes and trends for firms' strategies and their managementstrategies and their management
Top 10 U.S. States MovingTop 10 U.S. States MovingToward Digital EconomyToward Digital Economy
States in the top 10 of those that are trying to transform themselves to the realities and needs of a digital economy may experience an influx of high-tech companies and skilled workers as well as increases in tax revenues
External Environmental AnalysisExternal Environmental Analysis
Segments of the General Environment
• The demographic segment• The economic segment• The political segment• The sociocultural segment• The technological segment• The global segment
CSI TV appeals to a changing Hispanic market.
Agencies such as the FDA are continually being swayed one way or another by external critics from the consumerside and from the drug industry side.
Global markets offer firms more opportunities to obtain the resources needed for success.The Kuwait Investment Authority is the second largest shareholder of DaimlerChrysler.
Threat of Substitute Products
Threat of Substitute Products
Threat of New
Entrants
Threat of New
Entrants
Threat of New
Entrants
Rivalry Among Competing Firms
in Industry
Rivalry Among Competing Firms
in Industry
Bargaining Power of Buyers
Bargaining Power of Buyers
Bargaining Power of Suppliers
Bargaining Power of Suppliers
Industry Environment AnalysisIndustry Environment Analysis
Effects of Entry Barriers and Exit Barriers on Industry Profits
Effects of Entry Barriers and Exit Barriers on Industry Profits
Entry Barriers
Exit Barriers
High
Low
HighLow
Low, Stable Returns
Low, Stable Returns
Entry Barriers
Exit Barriers
High
Low
HighLow
Effects of Entry Barriers and Exit Barriers on Industry Profits
Effects of Entry Barriers and Exit Barriers on Industry Profits
High, Stable Returns
High, Stable Returns
Entry Barriers
Exit Barriers
High
Low
HighLow
Low, Stable Returns
Low, Stable Returns
Effects of Entry Barriers and Exit Barriers on Industry Profits
Effects of Entry Barriers and Exit Barriers on Industry Profits
Low, Risky Returns
Low, Risky Returns
Entry Barriers
High
LowLow, Stable
ReturnsLow, Stable
Returns
High, Stable Returns
High, Stable Returns
Effects of Entry Barriers and Exit Barriers on Industry Profits
Effects of Entry Barriers and Exit Barriers on Industry Profits
High
Exit Barriers
Low
High, Risky Returns
High, Risky Returns
Entry Barriers
Exit Barriers
High
Low
HighLow
Low, Stable Returns
Low, Stable Returns
High, Stable Returns
High, Stable Returns
Low, Risky Returns
Low, Risky Returns
Effects of Entry Barriers and Exit Barriers on Industry Profits
Effects of Entry Barriers and Exit Barriers on Industry Profits
Competitor AnalysisCompetitor Analysis
The follow-up to Industry Analysis is The follow-up to Industry Analysis is effective analysis of a firm’s effective analysis of a firm’s CompetitorsCompetitors
CompetitiveCompetitiveEnvironmentEnvironment
Industry Environment
Industry Environment
Competitor AnalysisCompetitor Analysis
AssumptionsAssumptionsWhat assumptions do our competitors hold about the future of industry and themselves?
Current StrategyCurrent StrategyDoes our current strategy support changes in the competitive environment?
Future ObjectivesFuture ObjectivesHow do our goals compare to our competitors’ goals?
CapabilitiesCapabilitiesHow do our capabilities compare to our competitors?
ResponseResponseWhat will our competitors do in the future?
What will our competitors do in the future?
Where do we have a competitive advantage?
Where do we have a competitive advantage?
How will this change our relationship with our competition?
How will this change our relationship with our competition?
• 1. Why is it important for a firm to study and understand the external environment?
• 2. What are the differences between the general environment and the industry environment? Why are these differences important?
• 3. What is the external environmental analysis process? What does the firm want to learn when using this process?
• 4. What are the six segments of the general environment? Explain the differences among them.
• 5. How do the five forces of competition in an industry affect its profit potential? Explain.
• 6. What is a strategic group? Of what value is knowledge of the• firm’s strategic group in formulating that firm’s strategy?• 7. What is the importance of collecting and interpreting data and
information about competitors? What practices should a firm use to gather competitor intelligence and why?
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