The External Environment:
Opportunities and Threats
Hierarchy of External Influences
• Social
• Economic
• Technical
• Global
• Political/Legal
Firm
• Five Forces
• Competitor Intelligence
• Industry Structure
• Strategic Groups
• Political/Legal
Stakeholders
• Shareholders
• Government
• Financial Community
• Host Community
• Ecological Environment
• Society in General
Firm
• Rivals
• Customers
• Suppliers
• Employees
• Managers
• Board Members
Industry Vital Statistics
• How is the industry defined?
• Size
• Growth
• Key Players: Rivals, customers,
suppliers, government agencies
• Structure
• Performance
Life Cycle Stage
Growth Rate
Time
Concentrated Structure
Fragmented Structure
Porter’s Five Forces Model of Competition
Threat of
Threat of
New
New (+) or (-) influence... Prices
Entrants
Entrants
Bargaining Rivalry Among Bargaining
Power of Competing Firms Power of
Suppliers in Industry Buyers
Threat of
Substitute
Products
Costs
Threat of New Entrants
* Economies of Scale -- Memory
Barriers to * Product Differentiation
Entry
* Capital Requirements
* Switching Costs -- Frequent flyer
* Access to Distribution Channels
* Cost Disadvantages
Independent of Scale
* Government Policy
* Expected Retaliation
Bargaining Power of Suppliers
Suppliers are likely to be powerful if:
* Supplier industry is dominated by
Powerful a few firms -- Microprocessors
suppliers can * Suppliers’ products have few
squeeze industry substitutes -- Intel, PowerPC
profits if firms * Buyer is not an important customer
are unable to to supplier
recover cost * Suppliers’ product is an important
increases input to buyers’ product
* Suppliers’ products are differentiated
* Suppliers’ products have high
switching costs
* Supplier poses credible threat of
forward integration -- Nike
Bargaining Power of Buyers
Buyer groups are likely to be powerful if:
* Buyers purchases are large relative to
seller’s sales -- Wal-Mart
Buyers compete
* Purchase accounts for a significant with the supplying
fraction of supplier’s sales industry by:
* Products are undifferentiated
* Bargaining down prices
* Buyers face few switching costs -- * Forcing higher quality
Gasoline
* * Playing firms off of
each
* Buyer presents a credible threat of other
backward integration
* Product unimportant to quality
* Buyer has full information
Threat of Substitute Products
Keys to evaluate substitute products:
Products * Products with improving
with similar price/performance tradeoffs
function
relative to present industry
limit the
prices firms products
can charge
For Example:
• On-line trading in place of
stock brokers
• Plastic vs. glass vs. aluminum
containers for soft drinks
Intensity of Rivalry Among Existing Competitors
Plays out in the following ways:
* Jockeying for strategic position
* Using price competition -- AT&T vs. MCI
* Staging advertising battles -- Bud vs. Miller
* Increasing consumer warranties or service
* Making new product introductions
Intensity of Rivalry Among Existing Competitors
Cutthroat competition is more likely to occur when:
* Numerous or equally balanced competitors
* Slow growth industry -- Heavy trucks
* High fixed costs
* High storage costs
* Lack of differentiation -- Long distance phone svc.
* Capacity added in large increments
* Diverse competitors
* High strategic stakes
* High exit barriers
Environmental Scanning Grid
IMPACT
Serious Mild Potential Strong
Threat Threat Benign Oppty. Oppty.
General Economics
Environment Demographics
Political-Legal
Sociocultural
Technological
Global
Competitive Potential Entry
Environment Suppliers
Customers
Substitutes
Rivalry
TOTAL IMPACT
Strategic Group Map
Department Stores
High Upscale
Quality
Branded
Wholesale Chains
Clubs
Low
Quality Closeout
Low Price High Price
Strategic Group Map: Beer
(Pre-light / Pre-microbrew)
Dark/Full
Guinness
Amber
Heineken
Regular
Old Swill Miller
Bud
Light
Low Price High Price
Strategic Group Map: Beer
Dark/Full Guinness
Blackened Voodoo
Killian’s Brown
Anchor Porter
Lowenbrau Dark
Amber Killian’s Red Amber Bock
Sam Adams
Red Wolf
Bass Ale
Lowenbrau
Pilsner Urquell
Regular Old Swill Bud
Miller
Miller Lite Amstel
Milwaukee’s
Light Bud Ice Cardinal
Best Light
Low Price High Price