MBA 817

Steven Tam, PhD

A STORY TO TELL.

START
CORPORATELEVEL
STRATEGIES

EXTERNAL
ANALYSIS

INTERNAL
ANALYSIS

INDUSTRY
EVOLUTION

BIZ-LEVEL
STRATEGIES

Key Concepts of Strategic Management

The External Environment:

Opportunities, Threats, Industry Competition,
and Competitor Analysis
Please also read Ch.1 and Ch.2 of textbook
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The External Environment

Environment
Economic
Industry
Environment
Threat of new entrants
Power of suppliers
Power of buyers
Product substitutes
Intensity of rivalry
Competitor
Environment

Technological

General

External Environmental Analysis

Analysis of general environment
Analysis of industry environment
Analysis of competitor environment

The External
Environment
Strategic Intent
Strategic Mission
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General Environment

Sociocultural segment

Women in the workplace

Workforce diversity
Attitudes about quality of worklife
Concerns about environment
Shifts in product and service preferences

General Environment

Economic segment

Inflation rates
Interest rates
Trade deficits or surpluses
Gross domestic product

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General Environment

Political/Legal Segment

Antitrust laws
Taxation laws
Deregulation
Labor training laws
Educational policies

General Environment

Technological Segment

Product innovation
Encourage applications of knowledge
Support R&D expenditures
New communication technologies

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General Environment

Global Segment

Important political events

Critical global markets

General Environment

Demographic Segment

Population
Age structure
Geographic distribution
Ethnic mix
Income distribution

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Industry Environment

(Competitive)

A set of factors that directly influences

a company and its competitive actions
and responses

Interaction among these factors
determine an industrys profit potential

Threat of new entrants

Power of suppliers
Power of buyers
Product substitutes
Intensity of rivalry
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Five Forces Model of Competition

Identify current and potential competitors

Recognize that suppliers and buyers can
become competitors

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Five Forces Model of Competition

Five Forces of
Competition

Bargaining Power of
Buyers

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Threat of New Entrants

Barriers to entry

Economies of scale
Product differentiation
Capital requirements
Switching costs
Access to distribution channels
Cost disadvantages
Government policy

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Bargaining Power of Suppliers

A supplier group is powerful when:

it is dominated by few suppliers

Substitute products are not available to industry
firms
industry firms are not a significant customer for
the supplier group
suppliers goods are critical to buyers
marketplace success
the effectiveness of suppliers products has
created high switching costs
suppliers are a credible threat to integrate
forward into the buyers industry
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Bargaining Power of Buyers

Buyers (customers) are powerful

when:

they purchase a large portion of an industrys

total output
the sales of the product being purchased
account for a significant portion of the sellers
annual revenues
they could easily switch to another product
the industrys products are undifferentiated or
standardized, and buyers pose a credible threat
if they were to integrate backward into the
sellers industry
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Threat of Substitute Products

Product substitutes are strong threats

when:

customers face low switching costs (easy to

switch)
substitute products price is lower
substitute products quality and performance
capabilities are similar

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Intensity of Rivalry

Intensity of rivalry is stronger when

competitors:

are many or similar in terms of capabilities

under slow industry growth
have high fixed costs in business, high exit
barriers
lack differentiation or low switching costs

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High Exit Barriers

Common exit barriers include:

high investment in specialized assets

labor agreements
mutual dependence between you and your
partners in the business chain
emotional barriers

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Strategic Groups
A group of firms in an industry
following similar business
strategies/models in their
products/services to serve similar
targets of customers.

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Competitor Environment
Competitor intelligence is the ethical
gathering of needed information and
data about competitors objectives,
strategies, assumptions, and capabilities

what drives the competitor as shown by its future

objectives
what the competitor is doing and can do as
revealed by its current strategy
What the competitor believes about itself and the
industry, as shown by its assumptions
What the competitor may be able to do, as shown
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by its capabilities

Competitor Analysis
Future objectives

Future Objectives:

How do our goals compare

with our competitors
goals?
Where will the emphasis
be placed in the future?

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Competitor Analysis
Future objectives

Current Strategy:

How are we currently

competing?

Current strategy

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Competitor Analysis
Future objectives

Assumptions:

Current strategy

What assumptions do our

competitors hold about
the industry and
themselves?
Are we operating under
status quo? Or change?

Assumptions

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Competitor Analysis
Future objectives

Current strategy

Capabilities:

What are our strengths

and weaknesses?
How do we rate ourselves
as compared to our
competitors?

Assumptions

Capabilities
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Competitor Analysis
Future objectives

Current strategy

Assumptions

Response

Response:

What will our competitors

do in the future?
Where do we hold an
advantage over our
competitors?

Capabilities
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