External Analysis
The Identification of Opportunities and Threats
Strategy is a choice
on how to compete.
- Michael
Porter
EXTERNAL ANALYSIS
The purpose of external analysis is to identify the strategic opportunities and threats in the
organizations operating environment that will affect how it pursues its mission.
We assess 1
Monopoly
3
The wider socioeconomic or macro environment that may affect the company and
its industry
Social
Government
Legal
Technological
International
INDUSTRY ANALYSIS :
DEFINING AN INDUSTRY
Industry
A group of companies offering products or services that are close
substitutes for each
other and that satisfy the same basic
customer needs.
Industry boundaries
The basic customer needs that are served by a market
define industry boundary.
May change as customer needs evolve and technology changes.
Non-Carbonated drinks)
Sector
Coca-Cola Mid-90s : Soda market (carbonated soft drinks) or Soft Drinks (incl.
Market Segments
Potential Competitors are companies that are not currently competing in an industry
but have the capability to do so if they choose.
Barriers to new entrants include:
1.
2.
Brand Loyalty
By creating well-established customer preferences.
Difficult for new entrants to take market share from established brands.
3.
4.
5.
Competitive Rivalry refers to the competitive struggle between companies in the same
industry to gain market share from each other. Intensity of rivalry is a function of:
1. Industry Competitive Structure
Number and size distribution of companies.
Consolidated vs. fragmented.
2. Demand Conditions
Growing demand - tends to moderate competition and reduce rivalry.
Declining demand - encourages rivalry for market share and revenue.
3. Cost Conditions
High fixed costs profitability leveraged by sales volume (Shipping, Airlines, Telecom,
Slow demand and growth can result in intense rivalry and lower profits.
4. Height of Exit Barriers prevents companies from leaving industry even when
4.
High fixed costs of exit severance pay,
unprofitable, demand declining..
health
1.
2.
3.
Industry Buyers may be the consumers or end-users who ultimately use the product
or intermediaries that distribute or retail the products. These buyers are most
powerful when:
1. Buyers are dominant.
Buyers are large and few in number.
Auto, Aircraft Manu
The industry supplying the product is composed of many small companies
Component Manu
Large
Wal-
______
______
Suppliers are organizations that provide inputs such as material and labor into the
industry. These suppliers are most powerful when:
1. The product supplied is vital to the industry and has few substitutes.
e.g. Intel Microprocessors
Suppliers can use their inputs to produce and compete with companies already
in the industry.
SUBSTITUTE PRODUCTS
Substitute Products are the products from different businesses or industries that can
satisfy similar customer needs.
1. The existence of close substitutes is a strong competitive threat.
Substitutes limit the price that companies can charge for their product.
Strategic Groups are groups of companies that follow a business model similar to
other companies within their strategic group but are different from that of other
companies in other strategic groups.
The basic differences between business models in different strategic groups can be
captured by a relatively small number of strategic factors.
1. Implications of Strategic
Groups
The closest competitors are within
the same Strategic Group and may
be viewed by customers as
substitutes for each other.
Each Strategic Group can have
different
competitive forces and may face a
different set of opportunities and
threats.
Strategic Barrier
Lack of R&D Skills to
develop new
proprietary drugs
1.
2.
3.
4.
5.
Industry Shakeout:
Rivalry Intensifies with
growth in excess
capacity
addition
to
industry
Industry Structure
revolutionized by
innovation
Periods of
long term
stability
Periods of
long term
stability
and
competence
of