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PowerPoint Presentation by Charlie CookPowerPoint Presentation by Charlie Cook

The University of West AlabamaThe University of West Alabama

Strategic ManagementStrategic ManagementCompetitiveness and Globalization:Competitiveness and Globalization:

Concepts and CasesConcepts and Cases

Michael A. Hitt . Duane Ireland Robert E. Hoskisson

Seventh edition

STRATEGIC

MANAGEMENT

INPUTS

STRATEGIC

MANAGEMENT

INPUTS

2007 Thomson/South2007 Thomson/South--Western.Western.

All rights reserved.All rights reserved.

Chapter 2Chapter 2

Analysis of the ExternalAnalysis of the ExternalEnvironmentEnvironment

Management of StrategyManagement of Strategy

Concepts and CasesConcepts and Cases

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2007 Thomson/South-Western. All rights reserved. 22

KKNOWLEDGENOWLEDGE OOBJECTIVESBJECTIVES

1.1. Explain the importance of analyzing and understandingExplain the importance of analyzing and understanding

the firmthe firms external environment.s external environment.

2.2. Define and describe the general environment and theDefine and describe the general environment and theindustry environment.industry environment.

3.3. Discuss the four activities of the external environmentalDiscuss the four activities of the external environmental

analysis process.analysis process.

4.4. Name and describe the general environmentName and describe the general environments sixs six

segments.segments.

5.5. Identify the five competitive forces and explain how theyIdentify the five competitive forces and explain how they

determine an industrydetermine an industrys profit potential.s profit potential.

Studying this chapter should provide you with the strategicmanagement knowledge needed to:

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KKNOWLEDGENOWLEDGE OOBJECTIVESBJECTIVES (cont(contd)d)

6.6. Define strategic groups and describe their influence onDefine strategic groups and describe their influence on

the firm.the firm.

7.7. Describe what firms need to know about theirDescribe what firms need to know about theircompetitors and different methods (including ethicalcompetitors and different methods (including ethical

standards) used to collect intelligence about them.standards) used to collect intelligence about them.

Studying this chapter should provide you with the strategicmanagement knowledge needed to:

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FIGUREFIGURE 2.12.1 TheExternalEnvironmentTheExternalEnvironment

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GeneralEnvironmentGeneralEnvironment

Dimensions in the broader society that influenceDimensions in the broader society that influencean industry and the firms within it:an industry and the firms within it:

DemographicDemographic

EconomicEconomic

Political/legalPolitical/legal

SocioculturalSociocultural

TechnologicalTechnologicalGlobalGlobal

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TABLETABLE 2.12.1 TheGeneralEnvironment: SegmentsandElementsTheGeneralEnvironment: SegmentsandElements

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IndustryEnvironmentIndustryEnvironment

The set of factors directly influencing a firm andThe set of factors directly influencing a firm andits competitive actions and competitiveits competitive actions and competitive

responsesresponses

Threat of new entrantsThreat of new entrants

Power of suppliersPower of suppliers

Power of buyersPower of buyers

Threat ofproduct substitutesThreat ofproduct substitutes

Intensity of rivalry among competitorsIntensity of rivalry among competitors

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CompetitorAnalysisCompetitorAnalysis

Gathering and interpretingGathering and interpretinginformation about all of theinformation about all of the

companies that the firmcompanies that the firm

competes against.competes against.

Understanding the firmUnderstanding the firmss

competitor environmentcompetitor environment

complements the insightscomplements the insights

provided by studying theprovided by studying the

general and industrygeneral and industry

environments.environments.

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AnalysisoftheExternalEnvironmentsAnalysisoftheExternalEnvironments

General environmentGeneral environment

Focused on the futureFocused on the future

Industry environmentIndustry environment

Focused on factors and conditions influencing a firmFocused on factors and conditions influencing a firmssprofitability within an industryprofitability within an industry

Competitor environmentCompetitor environment

Focused on predicting the dynamics of competitorsFocused on predicting the dynamics of competitors

actions, responses and intentionsactions, responses and intentions

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TABLETABLE 2.22.2 ComponentsoftheExternalEnvironmentalAnalysisComponentsoftheExternalEnvironmentalAnalysis

Scanning Identifying early signals of environmental

changes and trends

Monitoring Detecting meaning through ongoing

observations of environmental changes

and trends

Forecasting Developing projections of anticipated

outcomes based on monitored changes

and trends

Assessing Determining the timing and importance of

environmental changes and trends for

firms strategies and their management

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OpportunitiesandThreatsOpportunitiesandThreats

OpportunityOpportunity

A condition in the generalA condition in the general

environment that, if exploited,environment that, if exploited,

helps a company achievehelps a company achieve

strategic competitiveness.strategic competitiveness.

ThreatThreat

A condition in the generalA condition in the general

environment that may hinder aenvironment that may hinder acompanycompanys efforts to achieves efforts to achieve

strategic competitiveness.strategic competitiveness.

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SegmentsoftheGeneralEnvironmentSegmentsoftheGeneralEnvironment

The Demographic SegmentThe Demographic Segment

Population sizePopulation size

Age structureAge structure

Geographic distributionGeographic distribution

Ethnic mixEthnic mix

Income distributionIncome distribution

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(cont(contd)d)

The Economic SegmentThe Economic Segment

Inflation ratesInflation rates

Interest ratesInterest ratesTrade deficits or surplusesTrade deficits or surpluses

Budget deficits or surplusesBudget deficits or surpluses

Personal savings ratePersonal savings rate

Business savings ratesBusiness savings rates

Gross domestic productGross domestic product

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(cont(contd)d)

The Political/Legal SegmentThe Political/Legal Segment

Antitrust lawsAntitrust laws

Taxation lawsTaxation lawsDeregulation philosophiesDeregulation philosophies

Labor training lawsLabor training laws

Educationalphilosophies andEducationalphilosophies and

policiespolicies

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(cont(contd)d)

The Sociocultural SegmentThe Sociocultural Segment

Women in the workplaceWomen in the workplace

Workforce diversityWorkforce diversityAttitudes about quality of worklifeAttitudes about quality of worklife

Concerns about environmentConcerns about environment

Shifts in work and careerpreferencesShifts in work and careerpreferences

Shifts in product and service preferencesShifts in product and service preferences

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(cont(contd)d)

The Technological SegmentThe Technological Segment

Product innovationsProduct innovations

Applications of knowledgeApplications of knowledgeFocus ofprivate and governmentFocus ofprivate and government--supported R&Dsupported R&D

expendituresexpenditures

New communication technologiesNew communication technologies

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(cont(contd)d)

The Global SegmentThe Global Segment

Important political eventsImportant political events

Critical global marketsCritical global markets

Newly industrialized countriesNewly industrialized countries

Different cultural and institutionalDifferent cultural and institutional

attributesattributes

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IndustryEnvironmentAnalysisIndustryEnvironmentAnalysis

Industry DefinedIndustry DefinedA group of firms producing products that are closeA group of firms producing products that are close

substitutessubstitutes

Firms that influence one anotherFirms that influence one another

Includes a rich mix of competitive strategies thatIncludes a rich mix of competitive strategies thatcompanies use in pursuing strategiccompanies use in pursuing strategic

competitiveness and abovecompetitiveness and above--average returnsaverage returns

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FIGUREFIGURE 2.22.2 TheFiveForcesofCompetition ModelTheFiveForcesofCompetition Model

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ThreatofNew Entrants:BarrierstoEntryThreatofNew Entrants:BarrierstoEntry

Economies of scaleEconomies of scale Product differentiationProduct differentiation

Capital requirementsCapital requirements

Switching costsSwitching costs Access to distribution channelsAccess to distribution channels

Cost disadvantages independent of scaleCost disadvantages independent of scale

Government policyGovernment policy

Expected retaliationExpected retaliation

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BarrierstoEntryBarrierstoEntry

Economies of ScaleEconomies of Scale

Marginal improvements in efficiency that a firmMarginal improvements in efficiency that a firm

experiences as it incrementally increases its sizeexperiences as it incrementally increases its size

Factors (advantages and disadvantages) relatedFactors (advantages and disadvantages) relatedto largeto large-- and smalland small--scale entryscale entry

Flexibility in pricing and market shareFlexibility in pricing and market share

Costs related to scale economiesCosts related to scale economies

Competitor retaliationCompetitor retaliation

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BarrierstoEntry (contBarrierstoEntry (contd)d)

Product differentiationProduct differentiation Unique productsUnique products

CustomerloyaltyCustomerloyalty

Products at competitiveProducts at competitive

pricesprices

Capital RequirementsCapital Requirements

Physical facilitiesPhysical facilities

InventoriesInventories

Marketing activitiesMarketing activities

Availability of capitalAvailability of capital

Switching CostsSwitching Costs OneOne--time costs customerstime costs customers

incur when they buy from aincur when they buy from a

different supplierdifferent supplier

New equipmentNew equipment

Retraining employeesRetraining employees

Psychic costs of ending aPsychic costs of ending a

relationshiprelationship

Access to DistributionAccess to Distribution

ChannelsChannels

Stocking or shelf spaceStocking or shelf space

Price breaksPrice breaks

Cooperative advertisingCooperative advertising

allowancesallowances

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BarrierstoEntry (contBarrierstoEntry (contd)d)

Cost DisadvantagesCost DisadvantagesIndependent of ScaleIndependent of Scale

Proprietary productProprietary product

technologytechnology

Favorable access to rawFavorable access to raw

materialsmaterials

Desirable locationsDesirable locations

Government policyGovernment policy

Licensing and permitLicensing and permit

requirementsrequirements

Deregulation of industriesDeregulation of industries

Expected retaliationExpected retaliation Responses by existingResponses by existing

competitors may dependcompetitors may depend

on a firmon a firms present stake ins present stake in

the industry (availablethe industry (available

business options)business options)

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Bargaining PowerofSuppliersBargaining PowerofSuppliers

Supplierpower increases when:Supplierpower increases when:

Suppliers are large and few in number.Suppliers are large and few in number.

Suitable substitute products are not available.Suitable substitute products are not available.

Individual buyers are not large customers of suppliersIndividual buyers are not large customers of suppliersand there are many of them.and there are many of them.

SuppliersSuppliers goods are critical to the buyersgoods are critical to the buyers

marketplace success.marketplace success.

SuppliersSuppliers products create high switching costs.products create high switching costs.

Suppliers pose a threat to integrate forward intoSuppliers pose a threat to integrate forward into

buyersbuyers industry.industry.

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Bargaining PowerofBuyersBargaining PowerofBuyers

Buyerpower increases when:Buyerpower increases when:

Buyers are large and few in number.Buyers are large and few in number.

Buyers purchase a large portion of an industryBuyers purchase a large portion of an industrys totals total

output.output.BuyersBuyers purchases are a significant portion of apurchases are a significant portion of a

suppliersuppliers annual revenues.s annual revenues.

BuyersBuyers switching costs are low.switching costs are low.

Buyers can pose threat to integrate backward into theBuyers can pose threat to integrate backward into the

sellerssellers industry.industry.

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ThreatofSubstitute ProductsThreatofSubstitute Products

The threat of substitute products increasesThe threat of substitute products increaseswhen:when:

Buyers face few switching costs.Buyers face few switching costs.

The substitute productThe substitute products price is lower.s price is lower.

Substitute productSubstitute products quality and performance ares quality and performance are

equal to or greater than the existing product.equal to or greater than the existing product.

Differentiated industry products that are valuedDifferentiated industry products that are valued

by customers reduce this threat.by customers reduce this threat.

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IntensityofRivalryAmong CompetitorsIntensityofRivalryAmong Competitors

Industry rivalry increases when:Industry rivalry increases when:There are numerous or equally balanced competitors.There are numerous or equally balanced competitors.

Industry growth slows or declines.Industry growth slows or declines.

There are high fixed costs or high storage costs.There are high fixed costs or high storage costs.There is a lack of differentiation opportunities orlowThere is a lack of differentiation opportunities orlow

switching costs.switching costs.

When the strategic stakes are high.When the strategic stakes are high.

When high exit barriers prevent competitors fromWhen high exit barriers prevent competitors from

leaving the industry.leaving the industry.

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Low entry barriers

Interpreting IndustryAnalysesInterpreting IndustryAnalyses

UnattractiveUnattractiveIndustryIndustry

Suppliersand buyershavestrong positions

Strong threatsfromsubstituteproducts

Intenserivalryamong competitors

Low profit potential

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Interpreting IndustryAnalyses (contInterpreting IndustryAnalyses (contd)d)

AttractiveAttractiveIndustryIndustry

High entry barriers

Suppliersand buyershave weakpositions

Few threatsfromsubstituteproducts

Moderaterivalryamong competitors

High profit potential

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StrategicGroupsStrategicGroups

Strategic GroupDefinedStrategic GroupDefinedA set of firms emphasizing similar strategicA set of firms emphasizing similar strategic

dimensions and using similar strategiesdimensions and using similar strategies

Internal competition between strategic group firmsInternal competition between strategic group firms

is greater than between firms outside that strategicis greater than between firms outside that strategicgroup.group.

There is more heterogeneity in the performance ofThere is more heterogeneity in the performance of

firms within strategic groups.firms within strategic groups.

Similar market positionsSimilar market positionsSimilarproductsSimilarproducts

Similar strategic actionsSimilar strategic actions

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StrategicGroupsStrategicGroups

Strategic DimensionsStrategic Dimensions

Extent of technologicalleadershipExtent of technologicalleadership

Product qualityProduct quality

Pricing PoliciesPricing Policies

Distribution channelsDistribution channels

Customer serviceCustomer service

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CompetitorAnalysisCompetitorAnalysis

CompetitorIntelligenceCompetitorIntelligenceThe ethical gathering of needed information and dataThe ethical gathering of needed information and data

that provides insight into:that provides insight into:

A competitorA competitors direction (s direction (future objectivesfuture objectives))

A competitorA competitors capabilities and intentions (s capabilities and intentions (currentcurrent

strategystrategy))

A competitorA competitors beliefs about the industry (s beliefs about the industry (itsits

assumptionsassumptions))

A competitorA competitorss capabilitiescapabilities

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FIGUREFIGURE 2.22.2

CompetitorCompetitor

AnalysisAnalysisComponentsComponents

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CompetitorAnalysis (contCompetitorAnalysis (contd)d)

How do our goalsHow do our goals

compare with ourcompare with our

competitorscompetitors goals?goals?

Where will the emphasisWhere will the emphasisbe placed in the future?be placed in the future?

What is the attitudeWhat is the attitude

toward risk?toward risk?

Future ObjectivesFuture Objectives

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How are we currentlyHow are we currently

competing?competing?

Does this strategyDoes this strategysupport changes in thesupport changes in the

competitive structure?competitive structure?


Current StrategyCurrent Strategy

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Do we assume theDo we assume the

future will be volatile?future will be volatile? Are we operating underAre we operating under

a status quo?a status quo?

What assumptions doWhat assumptions do

our competitors holdour competitors holdabout the industry andabout the industry and

themselves?themselves?



AssumptionsAssumptions

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What are our strengthsWhat are our strengths

and weaknesses?and weaknesses?

How do we rateHow do we rate

compared to ourcompared to our

competitors?competitors?




CapabilitiesCapabilities

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What will ourWhat will our

competitors do in thecompetitors do in thefuture?future?

Where do we hold anWhere do we hold an

advantage over ouradvantage over our

competitors?competitors?

How will this changeHow will this change

our relationship withour relationship with

our competitors?our competitors?

ResponseResponseFuture ObjectivesFuture Objectives



CapabilitiesCapabilities

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ComplementorsComplementors

ComplementorsComplementorsThe network of companies that sell complementaryThe network of companies that sell complementary

products or services or are compatible with the focalproducts or services or are compatible with the focal

firmfirms own product or service.s own product or service.

If a complementorIf a complementors product or service adds values product or service adds valueto the sale of the focal firmto the sale of the focal firms product or service, its product or service, it

is likely to create value for the focal firm.is likely to create value for the focal firm.

However, if a complementorHowever, if a complementors product or service iss product or service is

in a market into which the focal firm intends toin a market into which the focal firm intends toexpand, the complementor can represent aexpand, the complementor can represent a

formidable competitor.formidable competitor.

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EthicalConsiderationsEthicalConsiderations

Practices considered both legal and ethical:Practices considered both legal and ethical:Obtaining publicly available informationObtaining publicly available information

Attending trade fairs and shows to obtain competitorsAttending trade fairs and shows to obtain competitors

brochures, view their exhibits, and listen tobrochures, view their exhibits, and listen to

discussions about theirproductsdiscussions about theirproducts

Practices considered both unethical and illegal:Practices considered both unethical and illegal:

BlackmailBlackmail

TrespassingTrespassingEavesdroppingEavesdropping

Stealing drawings, samples, or documentsStealing drawings, samples, or documents

AISE Ch02

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