Strategic management Ch 02

8/3/2019 Strategic management Ch 02

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Strategic Management:Concepts and Cases

Part I: Strategic Management Inputs

Chapter 2: The External Environment:Opportunities, Threats, Industry Competition

and Competitor Analysis


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The Strategic Management Process


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Chapter 2: The External Environment:

Opportunities, Threats, Industry Competition


Overview: Seven content areas

The firms external environment

General and industry environment

External environment analysis process activities(N=4)

General environmental segments (N=6)

Porters 5 Competitive Forces Strategic groups: Definition and influence

Competitors and intelligence collection methods


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Environmental Pressures: Wal-Mart (WM)

Emerged from a small-town in Arkansas, USA

Slogan: EVERYDAY LOW PRICES Based on cost leadership strategy

Since 2005 growth formula not as effective In 2006, U.S. division saw 1.9% gain in same-store

sales worst performance ever

WHY? COMPETITION (Target, Costco, Kroger,

Safeway): growing 2 5 times faster than WM WM plagued by many problems including (but not

limited to) employee-related, environmentalists

and external govt/political entities


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External Environment:

General, Industry and Competitor

Three External Environments include:

General

Industry

Competitor


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General, Industry and Competitor (Contd)

The General Environment The broader society dimensions that influence an industry

and the firms within it

Grouped into 6 dimensions OR environmental segmentsEach segment composed of elements


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The External Environment


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General, Industry and Competitor (Contd)

Industry Environment

Set of factors directly influencing

A firms competitive actions/responses

Relates to Porters 5 Forces see upcoming slides Competitor analysis: gather and interpret competitor

information

Competitor Environment

Gives details about A firms direct and indirect competitors

The competitive dynamics expected to impact a firm'sefforts to generate above-average returns


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External environment analysis processactivities (N=4)





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External Environment Analysis

Opportunity

General environment condition that, if exploited, helps acompany achievestrategic competitiveness

Threat

General environment condition that may hinderacompany's efforts to achieve strategic

competitiveness


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External Environment Analysis (Contd)

4 components of External Environment

Scanning

Monitoring

Forecasting

Assessing


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Porters 5 Competitive Forces

Strategic groups: Definition and influence



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Industry Environment Analysis

Industry

Definition: Group of firms producing products that areclose substitutes

Industry environment, in comparison to the generalenvironment, has more direct effect of firms

Strategic competitiveness and

Above-average returns

Intensity of industry competition and industrys profitpotential are a function of 5 forces (See next slide)


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The Five Forces of Competition Model


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Industry Environment Analysis (Contd)

Porters 5 Forces 1/5: New entrants

Can threaten market share of existing competitors

May bring additional production capacity

Function of two factors 1: Barriers to entry

Economies of scale

Product differentiation

Capital requirements

Switching costs Access to distribution channels

Cost disadvantages independent of scale

Govt policy

2: Expected retaliation


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Porters 5 Forces

2/5: Bargaining power of suppliers

They are powerful when

1. Few large companies and more concentrated than theindustry to which they sell

2. No substitutes

3. Industry firms not significant customer to supplier gp

4. Suppliers goods are critical to buyers success

5. High switching costs due to effectiveness of suppliers

products

6. Threat of forward integration


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Porters 5 Forces

3/5: Bargaining power of buyers

They are powerful when

1. Purchase large portion of industrys total output2. Product sales accounts for significant seller annual revenue

3. Low switching costs (to other industry product)

4. Industry products are undifferentiated or standardized and

threat of backward integration


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Porters 5 Forces

4/5: Threat of substitute products

Goods or services outside of given industry perform

same or similar functions (I.e., sugar vs. sugarsubstitute such as NutraSweet)

5/5: Intensity of Rivalry Among Competitors

Numerous or equally balanced competitors

Slow industry growth

High fixed costs or high storage costs

Lack of differentiation or low switching costs

High strategic stakes

High exit barriers


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Porters 5 Forces

5/5: Intensity of Rivalry Among Competitors

High exit barriers (Contd)

1. Specialized assets2. Fixed costs of exit (i.e., labor agreements)

3. Strategic interrelationships (i.e., one business depends onanother)

4. Emotional barriers (i.e., loyalty to employees, etc.)

5. Government and social restrictions


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Porters 5 Competitive Forces

Strategic groups: Definition and influence



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Strategic Groups

Strategic Groups

Set of firms emphasizing similar strategic dimensionsto use a similar strategy

Implications Because firms within a group compete (offer similar

products) rivalry can be intense the greater the rivalrythe greater the threat to each firms profitability

Strengths of the 5 forces differs across strategic groups

The closer the strategic groups, in terms of strategy,the greater the likelihood of rivalry


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Competitors & intelligence collection methods


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Competitor Analysis (Contd)

Competitor analysis and organization response:

What drives competitors

Shown by organization's future objectives

What the competitor is doing and can do Revealed in organization's current strategy

What the competitor believes about the industry

Shown in organization's assumptions

What the competitors capabilities are Shown by organization's strengthsand weaknesses


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Competitor Analysis Components


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Competitor Analysis (Contd)

Competitor intelligence

Set of data and information the firm gathers tobetter understand and anticipate competitors'

objectives, strategies, assumptions, andcapabilities


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Intelligence Collection (Contd)

Follow ethical practices when gatheringcompetitor intelligence

Obtain public information

Attend trade fairs and shows and collect brochures,view exhibits, listen to their discussions

Some practices may be legal, but unethical

Unethical tactics can include

Blackmail

Trespassing

Eavesdropping

Stealing drawings samples or documents

Strategic management Ch 02

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