External
Environment
of the Firm:
Creating
Competitive
Advantages
chapter 2
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in whole or part.
Learning Objectives
2-2
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Learning Objectives
2-3
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The Importance of External
Environment
2-4
Consider. . .
The best CEOs are always aware of what’s going on
outside their company. Their perceptual acuity
allows them to sense what’s coming. Detecting
anomalies, keeping pace with changes in the external
environment can sustain a competitive advantage.
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This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Creating the Environmentally
Aware Organization
2-5
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Competitive Intelligence
2-7
▪Competitive intelligence
▪ Helps firms define & understand their industry
▪ Identifies rivals’ strengths & weaknesses
▪ Collect data on competitors
▪ Interpret intelligence data
▪ Helps firms avoid surprises
▪ Anticipate competitors’ moves
▪ Decrease response time
▪ Beware of the potential for unethical behavior while
gathering intelligence
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This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Example:
Using Competitive Intelligence
2-8
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Environmental Forecasting
2-9
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Question?
2-10
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SWOT Analysis
2-11
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SWOT Analysis
2-12
▪ SWOT analysis
▪ Forces managers to consider both internal &
external factors simultaneously
▪ Makes firms act proactively
▪ Raises awareness about role of strategy
▪ A firm’s strategy must build on its strengths
▪ Remedy the weaknesses or work around them
▪ Take advantage of the opportunities presented by
the environment
▪ Protect the firm from the threats
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The General Environment
2-13
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The Demographic Segment
2-14
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Insights from Research:
Demographic factors make a difference
2-15
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Insights from Research:
Demographic Factors make a difference
2-16
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The Sociocultural Segment
2-17
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The Political/Legal Segment
2-18
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The Technological Segment
2-19
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The Economic Segment
2-20
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The Global Segment
2-21
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General Environment:
Relationships among Elements
2-22
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The Competitive Environment
2-23
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Porter’s Five-Forces Model of
Industry Competition
2-24
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Question?
2-26
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The Bargaining Power of Buyers
2-27
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The Bargaining Power of Suppliers
2-28
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The Threat of Substitute Products
& Services
2-29
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The Intensity of Rivalry Among
Competitors in an Industry
2-30
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How the Internet and Digital Technologies
Affect Competitive Forces
2-31
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Example: How the Internet
Increases Rivalry
2-32
▪ 2002: Best Buy is the largest seller of PCs to consumers, the largest
seller of music and electronics and the third largest seller of major
appliances in the United States, but facing competition from Internet
sellers such as Amazon.
▪ CEO Dick Schultze realized he had to become an infomediary,
building partnerships with suppliers & customers to head off
rivalry.
▪ 2009: Best Buy drops to 20% of market share for consumer
electronics, with Amazon at #2, new CEO Brian Dunn is struggling.
▪ Showrooming was occurring - customer used physical stores to
check out products, but made purchases online.
▪ 2012: new CEO Hubert Joly faces 7% market share, revives
infomediary strategy, stressing opportunity to try products out in
the store, get immediate support, & immediate delivery -
will this be enough for Best Buy to survive?
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Using Industry Analysis:
A Few Caveats
2-33
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Doing a Good Industry Analysis
2-36
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Strategic Groups Within
Industries
2-37
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Strategic Groups Within
Industries
2-38
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Strategic Groups Within
Industries
2-39