24459427 Environment Five Forces Industry Analysis 2

8/3/2019 24459427 Environment Five Forces Industry Analysis 2

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Ch2-1

Political/

Legal

Economic

Technological

Global

DemographicSociocultural

Competitive

Environment

Industry

Environment

Components of the General Environment



Ch2-2

SWOT Analysis

• Strengths

• Weaknesses

• Opportunities

• Threats



Ch2-3

The purpose of SWOT Analysis

• It is an easy-to-use tool for developingan overview of a company’s strategic

situation – It forms a basis for matching your

company’s strategy to its situation



Ch2-4

SWOT is the starting point

• It provides an overview of the strategicsituation.

• It provides the “raw material” to do moreextensive internal and external analysis.



Ch2-5

Opportunities

• An OPPORTUNITY is a chance for firmgrowth or progress due to a favorable

juncture of circumstances in thebusiness environment.

• Possible Opportunities:

– Emerging customer needs – Quality Improvements

– Expanding global markets

– Vertical Integration



Ch2-6

Threats

• A THREAT is a factor in yourcompany’s external environment that

poses a danger to its well-being.• Possible Threats:

– New entry by competitors

– Changing demographics/shifting demand

– Emergence of cheaper technologies

– Regulatory requirements


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Opportunities and Threats form a

basis for EXTERNAL analysis• By examining opportunities, you can

discover untapped markets, and newproducts or technologies, or identifypotential avenues for diversification.

• By examining threats, you can identify

unfavorable market shifts or changes intechnology, and create a defensiveposture aimed at preserving yourcompetitive position.



The purpose of

Five-Forces Analysis• The five forces are environmental forces

that impact on a company’s ability tocompete in a given market.

• The purpose of five-forces analysis is todiagnose the principal competitivepressures in a market and assess howstrong and important each one is.



Threat of New

Entrants

Threat of

New

Entrants

Porter’s Five Forces

Model of Competition



Threat of New Entrants

Barriers to

Entry

Expected Retaliation

Government Policy

Economies of Scale

Product Differentiation

Capital Requirements

Switching Costs

Access to Distribution Channels

Cost Disadvantages Independent

of Scale



Bargaining

Power of

Suppliers

Threat of New

Entrants

Threat of

New

Entrants





Bargaining Power of Suppliers

Suppliers exert power

in the industry by:

* Threatening to raise

prices or to reduce quality

Powerful suppliers

can squeeze industry

profitability if firms

are unable to recover

cost increases

Suppliers are likely to be powerful if:

Supplier industry is dominated by afew firms

Suppliers’ products have few substitutes

Buyer is not an important customer tosupplier

Suppliers’ product is an importantinput to buyers’ product

Suppliers’ products are differentiated

Suppliers’ products have highswitching costs

Supplier poses credible threat of

forward integration



Bargaining

Power of

Buyers

Threat of New

Entrants

Threat of

New

Entrants

Bargaining

Power of

Suppliers





Bargaining Power of Buyers

Buyers compete

with the supplying

industry by:

* Bargaining down prices

* Forcing higher quality

* Playing firms off of

each other

Buyer groups are likely to be powerful if:

Buyers are concentrated or purchases

are large relative to seller’s sales

Purchase accounts for a significantfraction of supplier’s sales

Products are undifferentiated

Buyers face few switching costs

Buyers’ industry earns low profits

Buyer presents a credible threat of backward integration

Product unimportant to quality

Buyer has full information



Threat of

Substitute

Products

Threat of New

Entrants

Threat of

New

Entrants

Bargaining

Power of

Buyers

Bargaining

Power of

Suppliers





Threat of Substitute Products

Products

with similar

function limit the

prices firms

can charge

Keys to evaluate substitute products:

Products with improving

price/performance tradeoffs

relative to present industryproducts

Example:

Electronic security systems inplace of security guards

Fax machines in place of

overnight mail delivery



Threat of

Substitute

Products

Threat of New

Entrants

Threat of

New

Entrants

Rivalry Among

Competing Firms

in Industry

Bargaining

Power of

Buyers

Bargaining

Power of

Suppliers





Rivalry Among Existing Competitors

Intense rivalry often plays out in the following ways:

Jockeying for strategic position

Using price competition

Staging advertising battles

Making new product introductions

Increasing consumer warranties or service

Occurs when a firm is pressured or sees an opportunity

Price competition often leaves the entire industry worse off

Advertising battles may increase total industry demand, but

may be costly to smaller competitors



Cutthroat competition is more likely to occur when:

Rivalry Among Existing Competitors

Numerous or equally balanced competitors

Slow growth industry

High fixed costs

Lack of differentiation or switching costs

High storage costs

Capacity added in large increments

High strategic stakes

High exit barriers

Diverse competitors



The Five Forces are Unique to

Your Industry

• Five-Forces Analysis is a framework for

analyzing a particular industry. – Yet, the five forces affect all the other

businesses in that industry.



Competitor Analysis

The follow-up to Industry Analysis is

effective analysis of a firm’s Competitors

Competitive

Environment

Industry

Environment



Ch2-22

Competitor Analysis

Assumptions

What assumptions do ourcompetitors hold about the futureof industry and themselves?

Current Strategy

Does our current strategy supportchanges in the competitiveenvironment?

Future ObjectivesHow do our goals compare to ourcompetitors’ goals?

CapabilitiesHow do our capabilities compare

to our competitors?

Response

What will ourcompetitors do in thefuture?

Where do we have acompetitiveadvantage?

How will this changeour relationship withour competition?



Ch2-23

Future Objectives

How do our goals compare

to our competitors’ goals?

Where will emphasis be

placed in the future?

What is the attitude

toward risk?

What Drives the competitor?

Competitor Analysis



Ch2-24

What is the competitor doing?

What can the competitor do?

Future Objectives






toward risk?

Current Strategy

How are we currently

competing?Does this strategy

support changes in the

competitive structure?

Competitor Analysis



Ch2-25

What does the competitor believe

about itself and the industry?

Future Objectives






toward risk?

Current Strategy




competition structure?

Do we assume the future

will be volatile?

Are we assuming stable

competitive conditions?

What assumptions do our

competitors hold about the

industry and themselves?

Assumptions

Competitor Analysis



Ch2-26

What are the competitor’s

capabilities?

Future Objectives






toward risk?

Current Strategy






will be volatile?

Are we operating under

a status quo?




Assumptions

What are my competitors’

strengths and weaknesses?

How do our capabilities

compare to our

competitors?

Capabilities

Competitor Analysis



Future Objectives






toward risk?

Current Strategy






will be volatile?

Are we operating under

a status quo?




Assumptions

Response

What will our competitors

do in the future?

Where do we have a

competitive advantage?

How will this change ourrelationship with our

competition?

Capabilities

What are my competitors’

strengths and weaknesses?

How do our capabilities

compare to our

competitors?

Competitor Analysis

24459427 Environment Five Forces Industry Analysis 2

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