the external environment chapter 2 built by stambaugh/2009 only the paranoid survive … andy grove...

The External EnvironmentChapter 2

Built by Stambaugh/2009 Only the Paranoid Survive … Andy Grove

Jeff StambaughDillard College of Business/Rm 257A

[email protected]://faculty.mwsu.edu/business/jeff.stambaugh

Today’s Objectives

Built by Stambaugh/2009

■ Understand why and how we do an external analysis■ Understand the components of the general

environment and how they affect businesses■ Understand the components of the specific

(industry) environment and how they affect businesses

Only the Paranoid Survive … Andy Grove

External Environment


■ Motivator—Andy Grove■ External environment: what’s■ outside your firm that affects your■ performance

■ General vs industry / competitive■ a common separation

■ Changes in the environment can create threats and opportunities

■ Threats and opportunities can be viewed as things you

“must do” versus resources that tell you what you “can do”


External Environment

Organization

Specific EnvironmentIndustry-Competitors

SubstituteProducts

BargainingPower of Suppliers

BargainingPower of Buyers

PotentialEntrants

Current Rivalry

General Environment

Technological

Political-Legal

Sociocultural

Demographic

Economic

Global

General Environment


Hard to predict … even harder to control Trends affect industries differently

Demographic Socio-cultural link

Political – Legal Link

Technological Oil

Economic Global

Which play a role in our SIPs


Which of these industries will benefit most from stricter

immigration laws?

25%

25%

25%

25%1. Organic food industry

2. Firms that build/operate data systems to verify status of workers

3. Defense firms that work border security issues

4. Lawyers that cater to the Hispanic populace

0 of 5

What to Do … Forecasting


• Spot these changes before they’re obvious– Back to that “threats

and opportunities” concept

– Paralysis from analysis

– Where to look (sources of info)


Dilbert On Forecasts


Porter’s Five Forces


Threat of New Entrants


Threat of new entrants greatest when Low economies of scale (or no cost

disadvantages independent of scale) Low capital requirements Low switching costs Little Differentiation Easy access to distribution channels Government policy does not inhibit new entries


Bargaining Power of Buyer


Greater when:

Buyer is a major customer for supplier

Low switching costs

Undifferentiated products

Able to backward integrate

Buyer earns low profits

Buyer doesn’t rely on product for key attributes (e.g. quality)


Bargaining Power of Suppliers


Greater when: Few large suppliers and buying firms’ industry

not concentrated. No substitute products Supplier not reliant on buyer’s business Suppliers’ goods are essential to buyer High switching costs for buyers or differentiated

product Suppliers could forward integrate into buyer’s

business


Substitute Products


The Home-town NFL versus Direct TV This is where Andy Grove’s paranoia comes in:

The car vs Southwest Airlines Email fax vs FedExing documents overnight Downloading music off the web vs CDs Print newspapers vs “the Web” TV versus videogames?


Rivalry Among Competitors


Rivalry among existing firms increases when: Little degree of differentiation Low switching costs Numerous / equally balanced competitors Slow industry growth High strategic stakes High fixed costs or high storage costs High exit barriers


Which of the following should improve industry profitability?

25%

25%

25%

25% 1. Only a few firms in an industry

2. Many suppliers selling undifferentiated products

3. Large number of buyers

4. Low capital requirements to enter an industry

0 of 5

What hath the internet wrought?


■ Made new entrants more likely■ Cut out many intermediaries (in supplier and buyer

chains)■ Increased (in general) buyer power due to more

information■ Made buyers more aware of substitute products■ Increased competitive rivalries in general


Summary of 5 Forces


Profit potential greatest within an industry when:

Low rivalry

Low threat of new entrants

Lack of substitute products

Weak buyers

Weak suppliers

Don’t forget complementors: videogame consoles and videogames; GPS navigators and auto manufacturers


IO View of Competitive Advantage


Pick a strong industry

Pick a strong position

Fortify / defend it (manipulate the 5 forces)

How much does industry matter … really?


Who is My Competitor?


Strategic Groups: Breadth of product

line

Location

Price/Quality

Distribution channels

Uses … ID Barriers to moves

Endangered groups

Direction of strategies

Implications of trends


Competitor Intelligence


Fair or Not?

Talking to their customers / supplies

Shopping at their “stores” (getting prices)

Routinely surfing their web site

Sifting their trash

Hiring their superstars (or even their Red Dwarfs)

Going on a fake job interview

Making copies of their proprietary documents


Competitor Analysis: Airbus vs Boeing

■ Airbus—Founded in 1970 as European consortium

■ Strategic Intent: Gain more market share than Boeing (achieved in 2002)

■ Both firms have high market dependence■ Competitive Strategy

■ Build great products w/full line■ Gain market share through pricing (Boeing

alleges!)■ Airbus Strengths / Weaknesses

■ Political ties in Europe (S)■ Strong Products (S)■ Launch Aid / Govt Subsidy (S)■ Alliance politics (W) Link Delayliner


Summary


■ Your business is not in this alone!!■ Changes in external environment can have big

impact on your business—both good and bad■ It’s a matter of strategic choice how you deal with

your competitors / customers / suppliers■ Innovator?■ Reactor?■ Defender?

■ The most risky of all strategies is to ignore your competitors!


Next Class


■ Chap 3: Internal Environments■ C’Ya


the external environment chapter 2 built by stambaugh/2009 only the paranoid survive … andy grove...

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