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					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

				
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posted:8/26/2012
language:English
pages:18