Crafting and Executing Strategy 14e

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Chapter
Analyzing a Companys External Environment

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What Is Situation Analysis?

• Two considerations
• Companys external ormacro-environment
• Industry and competitive conditions
• Companys internal ormicro-environment
• Competencies, capabilities,resource strengths
  and weaknesses,and competitiveness

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MACROENVIRONMENTAL SEGMENTS

• POLITICAL
• Special Interest Groups
• Regulatory

• SOCIAL
• Demographics
• Life-styles
• Values

PTE

• TECHNOLOGICAL
• Pacing
• Key
• Base

• ECONOMIC
• Cyclical
• Structural

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MEA 3 Goals

• Identify and Understand existing and potential
  changes in the Macroenvironment
• Integrate relevant environmental information into
  the organizations decision-making process
• Stimulate Strategic Thinking (develop, evaluate,
  and select strategic alternatives a strategic
  decision

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MACROENVIRONMENTAL ANALYSIS (MEA)
Competition
Natural Environment
TASK ENV
Public Image
Customers
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Regulatory (Government / Courts)
Economic Conditions
PTE
Suppliers
Special Interest Groups
Labor Market (Critical Skill) Availability
Technology Criticality Rate of Change
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ENVIRONMENTAL ? ORGANIZATIONAL LINK FRAMEWORK
PERCEIVED TASK ENVIRONMENT
FIRM PERFORMANCE
STRATEGY
STRUCTURE
RESOURCE VALUATION (/-)
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ENVIRONMENTAL ASSESSMENT AND UNCERTAINTY
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Key Issues Regarding the Industry and
Competitive Environment
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What are the Industrys 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

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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

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The Five Forces Model of Competition(Michael
Porter)
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What Are the Typical Weapons for Competing?

• 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

• Vigorous price competition
• More or different performance features
• Better product performance
• Higher quality
• Stronger brand image and appeal
• Wider selection of models and styles

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Common Barriers to Entry

• Sizable economies of scale
• Cost and resource disadvantages independent of
  size
• Brand preferences and customer loyalty
• Capital requirements and/or otherspecialized
  resource requirements
• Access to distribution channels
• Regulatory policies
• Tariffs and international trade restrictions

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Competitive Pressures Collaboration Between
Sellers and Suppliers

• Sellers are forging strategic partnershipswith
  select suppliers to
• Reduce inventory and logistics costs
• Speed availability of next-generationcomponents
• Enhance quality of parts being supplied
• Squeeze out cost savings for both parties
• Competitive advantage potential may accrue to
  sellers doing the best job of managing
  supply-chain relationships

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Strategic Implications of the Five
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

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Strategic Implications of the Five
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

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What Factors Are Driving Industry Change
and What Impacts Will They Have?

• Industries change because forcesare driving
  industry participantsto alter their actions
• Driving forces are themajor underlying causesof
  changing industry andcompetitive conditions

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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

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Strategic Group Mapping

• Firms in same strategic group have two or more
  competitive characteristics in common
• Have comparable product line breadth
• Sell in same price/quality range
• Emphasize same distribution channels
• Use same product attributes to appealto similar
  types of buyers
• Use identical technological approaches
• Offer buyers similar services
• Cover same geographic areas

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What Strategic Move Are Rivals Likely to
Make?

• A firms best strategic moves are affected by
• Current strategies of competitors
• Future actions of competitors
• Profiling key rivals involves gatheringcompetitiv
  e 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

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What Are the Key Factors for Competitive
Success?

• KSFs are those competitive factors most affecting
  everyindustry members ability to prosper. They
  concern
• Specific strategy elements
• Product attributes
• Resources
• Competencies
• Competitive capabilities
• that a company needs to have to be competitively
  successful
• KSFs are attributes that spell the difference
  between
• Profit and loss
• Competitive success or failure

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Q 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 industrycan still earn unusually
  good profits
• Attractiveness is relative, not absolute
• Conclusions have to be drawn from theperspective
  of a particular company