strat chap003
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McGraw-Hill/Irwin © 2005 The McGraw-Hill Companies, Inc. All rights reserved.3-1
33Chapter
Screen graphics created by:Jana F. Kuzmicki, Ph.D.
Troy State University-Florida and Western Region
Analyzing a Company’s Analyzing a Company’s External EnvironmentExternal Environment
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Chapter RoadmapChapter Roadmap The Strategically Relevant Components of a Company’s External
Environment Thinking Strategically About a Company’s Industry and Competitive
Environment Question 1: What Are the Industry’s Dominant Economic Features? Question 2: What Kinds of Competitive Forces Are Industry
Members Facing? Question 3: What Factors Are Driving Industry Change and What
Impacts Will They Have? Question 4: What Market Positions Do Rivals Occupy—Who Is
Strongly Positioned and Who Is Not? Question 5: What Strategic Moves Are Rivals Likely to Make
Next? Question 6: What Are the Key Factors for Future Competitive
Success? Question 7: Does the Outlook for the Industry Present an Attractive
Opportunity?
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Two considerations
Company’s external ormacro-environment
Industry and competitive conditions
Company’s internal ormicro-environment
Competencies, capabilities,resource strengths and weaknesses,and competitiveness
What Is Situation Analysis?What Is Situation Analysis?
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Fig. 3.1: From Thinking Strategically Fig. 3.1: From Thinking Strategically about the Company’s Situation about the Company’s Situation
to Choosing a Strategyto Choosing a Strategy
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Fig. 3.2: The Components of a Fig. 3.2: The Components of a Company’s Macro-EnvironmentCompany’s Macro-Environment
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Key Questions Regarding theKey Questions Regarding theIndustry and Competitive Industry and Competitive
EnvironmentEnvironmentIndustry’s dominant economic traits
Competitive forces and strength of each force
Drivers of change in the industry
Competitor analysis
Key success factors
Conclusions: Industry attractiveness
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Q #1: What are the Industry’s Q #1: What are the Industry’s Dominant Economic Traits?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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Objectives are to identify
Main sources of competitive forces
Strength of these forces
Key analytical tool
Five Forces Modelof Competition
Q #2: What Kinds of Competitive Q #2: What Kinds of Competitive Forces Are Industry Members Facing?Forces Are Industry Members Facing?
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Fig. 3.3: The Five ForcesFig. 3.3: The Five ForcesModel of CompetitionModel of Competition
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Fig. 3.4: Weapons for Competing andFig. 3.4: Weapons for Competing andFactors Affecting Strength of RivalryFactors Affecting Strength of Rivalry
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What Are the What Are the TypicalTypicalWeapons for Competing?Weapons for Competing?
Vigorous price competition
More or different performance features
Better product performance
Higher quality
Stronger brand image and appeal
Wider selection of models and styles
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
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Fig. 3.5: Factors AffectingFig. 3.5: Factors AffectingStrength of Threat of Entry Strength of Threat of Entry
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Common Barriers to EntryCommon 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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Fig. 3.6: Factors AffectingFig. 3.6: Factors AffectingCompetition From Substitute Competition From Substitute
ProductsProducts
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Fig. 3.7: Factors Affecting theFig. 3.7: Factors Affecting theBargaining Power of SuppliersBargaining Power of Suppliers
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Competitive Pressures: Competitive Pressures: Collaboration Between Sellers and Collaboration Between Sellers and
SuppliersSuppliers Sellers are forging strategic partnerships
with 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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Fig. 3.8: Factors AffectingFig. 3.8: Factors AffectingBargaining Power of BuyersBargaining Power of Buyers
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Strategic Implications of theStrategic Implications of theFive Competitive ForcesFive 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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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
Strategic Implications of theStrategic Implications of theFive Competitive ForcesFive Competitive Forces
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Q #3: What Factors Are Driving Industry Q #3: What Factors Are Driving Industry Change and What Impacts Will They Have?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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Question 4: What Market Question 4: What Market Positions Do Rivals Occupy?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 MappingStrategic 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 appeal
to similar types of buyers Use identical technological approaches Offer buyers similar services Cover same geographic areas
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Q #5: What Strategic MovesQ #5: What Strategic MovesAre Rivals Likely to Make?Are Rivals Likely to Make?
A firm’s best strategic moves are affected by Current strategies of competitors Future actions of competitors
Profiling key rivals involves gatheringcompetitive 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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Q #6: What Are the Key Factors Q #6: What Are the Key Factors for Competitive Success? for Competitive Success?
KSFs are those competitive factors most affecting everyindustry member’s 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 Q #7: Does the Outlook for the Industry Present an Attractive Industry Present an Attractive
Opportunity?Opportunity? Involves assessing whether the industry
and 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