Chapter 2The Competitive Environment:

Assessing Industry Attractiveness

External Environment

• External environments are uncontrollable, multifaceted. They frame your firm’s opps/threats, your strategic options.

• You must understand what elements are critical, how do they affect you, where are they now, and where are they likely to be in the future?

• They don’t affect everyone in the same way.

• 2 levels: • Macro- broad, general, all encompassing, affects all

industries• Industry or competitive environment

Macro-Environment

• Demographic – characteristics of the people in an area or market

• Political – focuses primarily on governmental activities – regulation, policies, taxation, support of business or industries, stability

• Social/Cultural – attitudes, values, lifestyles, aspirations• Technological – technological developments that may have an

impact on your industry or firm; product or process• Global – What has caused it? What does it mean? What

opportunities and threats does it present? What risks and competition exist? What are some of the implementation and control issues involved?

Competitive Environment

• More specific and focused than macro. Looking at the specific industry a firm competes in and its characteristics or properties.

• Porter’s Five Forces Model of Competition is perhaps the most widely used framework. Exhibit 2-1, p. 44.

• Threat of New Entrants – Barriers to entry• Bargaining Power of Customers• Bargaining Power of Suppliers• Competing Rivalry among existing sellers• Potential Product Substitutes• Question becomes: What do you do about each force? Each

has strategic implications.

Strategic Groups

• Groups of firms in a single industry that pursue similar strategies – Or compete in the same niche

• Understanding SG will help identify who your specific competition is

• It is more important to look at the competition within groups rather than the competition between groups

• Groups do shift, firms change focus, customer needs change

• Look at Honda and Toyota

Information Gathering

Main issues revolve around ethical data gathering

Data storage

Data interpretation

Data dissemination

How do you make sense of it all?