MENSTRAT - CH2 - Analyzing the external environment.ppt

8/12/2019 MENSTRAT - CH2 - Analyzing the external environment.ppt

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Chapter 2Chapter 2Analyzing the

External

Environment of theFirm


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2-2

Topics

The importance of developing forecasts of

the business environment.

Environmental scanning monitoring and

competitive intelligence as critical inputs toforecasting.

!cenario planning as a useful techni"ue in

industries characterized by unpredictabilityand change.


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2-3

Topics

#eneral environment $Tas% Environment

Five forces analysis

!trategic groups


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2-4

Creating the Environmentally A&are

'rganization


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2-5

Environmental !canning

!urveillance of a firm(s

external environment

)redict environmental changes

to come

*etect changes already under

&ay

)roactive mode


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2-6

Environmental +onitoring

Trac% evolution of

Environmental trends

!e"uences of events !treams of activities


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Competitive ,ntelligence

*efine and understand afirm(s industry

,dentify rivals( strengths and

&ea%nesses ,ntelligence gathering -data

,nterpretation of intelligence

data

/elps a firm avoid surprises


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0hat Competitive ,ntelligence ,s and ,s

1ot

Competitive Intelligence Is

1. Informationthat has been

analyzed to the point &here

you can ma%e a decision.

2. A toolto alert management toearly recognition of both

threats and opportunities.

3. A means to deliver

reasonable assessments.

4. A way of life, a process.

Competitive Intelligence Is Not

1. Spying. !pying implies illegal

or unethical activities. ,t is a

rare activity.

2. A crystal ball. C, is goodapproximation of reality it

does not predict the future.

3. Database search. *ata by

itself is not good intelligence.

4. A ob for one smart person.


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Environmental Forecasting

)lausible proections about

*irection of environmental change

!cope of environmental change

!peed of environmental change

,ntensity of environmental change

!cenario analysis


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!0'T Analysis

+anagers need to analyze

The general environment

The firm(s industry and competitive environment

!0'T analysis !trengths

0ea%nesses

'pportunities Threats

3asic techni"ue for analyzing firm and industryconditions


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The #eneral Environment

#eneral environmental

trends and events

4ittle ability to predict them

Even less ability to control

them

Can vary across industries

!eneral

"nvironmen

t

DemographicSocioc#lt#ral$olitical%&egal'echnological

"conomic!lobal


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*emographic !egment

Aging population

5ising affluence

Changes in ethnic composition

#eographic distribution of population

#reater disparities in income levels

!eneral

"nvironmen

t


"conomic!lobal


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!ociocultural !egment

+ore &omen in the &or%force

,ncrease in temporary &or%ers

#reater concern for fitness

#reater concern for environment

)ostponement of family formation

!eneral

"nvironmen

t


"conomic!lobal


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)olitical$4egal !egment

Tort reform

Americans &ith *isabilities Act -A*A

5epeal of #lass6!teagall Act in 7888

*eregulation of utility and otherindustries

,ncreases in federally mandatedminimum &ages

Taxation at local state federal levels 4egislation on corporate governance

reforms -!arbanes6'xley Act

!eneral

"nvironmen

t


"conomic!lobal


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Technological !egment

#enetic engineering

Emergence of ,nternet technology

Computer6aided design$computer6aided manufacturing systems-CA*$CA+

5esearch in synthetic and exoticmaterials

)ollution$global &arming

+iniaturization of computingtechnologies

0ireless technology

!eneral

"nvironmen

t


"conomic!lobal


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Economic !egment

,nterest rates

9nemployment

Consumer )rice index

Trends in #*)

Changes in stoc% mar%et valuations

!eneral

"nvironmen

t


"conomic!lobal


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#lobal !egment

,ncreasing global trade

Currency exchange rates

Emergence of the ,ndian and Chinese

economies Trade agreements among regional

blocs -1AFTA E9 A!EA1

Creation of 0T' -decreasing

tariffs$free trade in services

!eneral

"nvironmen

t


"conomic!lobal


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The Competitive Environment

!ometimes called the tas%or industry environment

,ncludes

Competitors -existing andpotential

Customers

!uppliers

)orter(s five6forces model

(ompetitive

"nvironmen

t

(ompetitors(#stomersS#ppliers


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)orter(s Five Forces +odel of ,ndustry

Competition

Threat of

ne& entrants

3argaining

po&er of buyers3argaining po&er

of suppliers

Threat of

!ubstitute products

and services

Adapted from Exhibit 2.2 Porters Five Forces Model of Industry Competition


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The Threat of 1e& Entrants

)rofits of established firms in theindustry may be eroded by ne&competitors

/igh entry barriers lead to lo&threat of ne& entries

Economies of scale

)roduct differentiation

Capital re"uirements

!&itching costs

Access to distribution channels

Cost disadvantages independent of scale


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The 3argaining )o&er of 3uyers

3uyers threaten an industry

Force do&n prices

3argain for higher "uality or more

services

)lay competitors against each

other


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The 3argaining )o&er of 3uyers

A buyer group is po&erful &hen

,t is concentrated or purchaseslarge volumes relative to seller sales

The products it purchases from theindustry are standard or undifferentiated

The buyer faces fe& s&itching costs

,t earns lo& profits

The buyers pose a credible threat of bac%&ardintegration

The industry(s product is unimportant to the "uality ofthe buyer(s products or services


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The 3argaining )o&er of !uppliers

!uppliers can exert po&er by

threatening to raise prices or

reduce the "uality of purchased

goods and services


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The 3argaining )o&er of !uppliers

A supplier group &ill be po&erful

&hen

The supplier(s product is an

important input to the buyer(sbusiness

The supplier group(s products are differentiated or it

has built up s&itching costs for the buyer

The supplier group poses a credible threat offor&ard integration


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The Threat of !ubstitute )roducts and

!ervices

!ubstitutes limit the potential

returns of an industry

Ceiling on the prices that firms

in that industry can profitably charge )rice$performance ratio


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The ,ntensity of 5ivalry among Competitors

in an ,ndustry

:oc%eying for position

)rice competition

Advertising battles

)roduct introductions

,ncreased customer service or &arranties


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The ,ntensity of 5ivalry among Competitors

in an ,ndustry

,nteracting factors lead to

intense rivalry

1umerous or e"ually balanced

competitors !lo& industry gro&th

/igh fixed or storage costs

4ac% of differentiation or s&itching costs

Capacity augmented in large increments

/igh exit barriers


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9sing ,ndustry Analyses; A Fe& Caveats

Five6forces analysis implicitly assumes a

zero6sum game

Five6forces analysis is essentially a static

analysis


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The


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!trategic #roups &ithin ,ndustries

T&o unassailable assumptions in industryanalysis

1o t&o firms are totally different

1o t&o firms are exactly the same !trategic groups

Cluster of firms that share similar strategies 3readth of product and geographic scope

)rice$"uality *egree of vertical integration Type of distribution system


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!trategic #roups &ithin ,ndustries


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The 0orld Automobile ,ndustry; !trategic

#roups

Adapted from Exhibit 2 $ !he %orld Automobile Industry& 'trate(ic )roups

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MENSTRAT - CH2 - Analyzing the external environment.ppt