1 ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM STRATEGIC MANAGEMENT BUAD 4980.

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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM

STRATEGIC MANAGEMENT BUAD 4980

STRATEGIC MANAGEMENT BUAD 4980

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External Environment AwarenessExternal Environment Awareness

STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980

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Environmental Scanning & MonitoringEnvironmental Scanning & Monitoring

External Scanning – general surveillance of the firm’s external environment

Predict emerging environmental changes

Proactive, ongoing activity

Alerts the firm to critical potential environmental trends before they impact the firm or competitors become aware of them


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Environmental Scanning & MonitoringEnvironmental Scanning & Monitoring

External Monitoring – tracking progress of environmental trends

Ongoing assessment of environmental trends identified during surveillance

Tracks evolution of trends as changes occur

Use multiple information sources or develop new ones targeted to specific environmental trends


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Define the industry and competitors

Industry structure, critical success factors

Environmental factors directly impacting the industry

Competitive analysis

Fundamental Data / Background

Strengths

Weaknesses

Apparent strategy

Competitive IntelligenceCompetitive Intelligence


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Environmental ForecastingEnvironmental Forecasting Plausible projections about the future

state of the firm’s environment

Direction, scope, intensity and speed of future environmental changes

May include probabilistic evaluation of individual environmental scenarios

Can incorporate experts’ evaluation of macro environmental trends:

Societal, economic, political, regulatory, technological trends


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Assessing the General EnvironmentAssessing the General Environment General external environmental factors that impact

a firm, but are generally not controllable by the firm:

Demographic

Socio-cultural

Legal / regulatory

Political

Economic

Technological

Global


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Assessing the General EnvironmentAssessing the General Environment Demographic factors

Population size, age, ethnicity

Personal income / standard of living

Geographical distribution

Family size


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Assessing the General EnvironmentAssessing the General Environment Socio-cultural factors

Level of education of men and women

Presence of women in the workforce

Health and wellness

Environmental awareness / sensitivity / activism

Age of women at childbirth

Number of dual-income families


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Assessing the General EnvironmentAssessing the General Environment Political / Legal factors

Political party in power and political agenda

Taxation policies

Regulatory policies and regulatory activism

Legal reforms (tort reform)

Social welfare reform

Healthcare reform

Minimum wage standards


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Assessing the General EnvironmentAssessing the General Environment Technological factors / Advances

Data processing

Genetic engineering / biological sciences

Electronic communication

Nano-technology

Materials science

Manufacturing technology / robotics

Software systems

Logistics systems


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Assessing the General EnvironmentAssessing the General Environment Economic factors

Inflation, consumer prices, wholesale prices

Interest rates

Unemployment

GDP

Stock market levels and trends

Energy prices


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Assessing the General EnvironmentAssessing the General Environment Global factors

Currency exchange rates

Balance of trade

Tariffs and trade regulation

Foreign direct investment

Political and economic stability

Emergence / growth of market economies in developing nations


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SWOT AnalysisSWOT Analysis

Strengths

Weaknesses

Opportunites

Threats


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SWOT AnalysisSWOT Analysis A useful analytical tool to evaluate

competitive positioning within the industry

Perform SWOT analyses on each competitor and on your own firm

Position your own firm relative to each competitor, categorized by relevant internal and external environmental factors


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SWOT AnalysisSWOT Analysis How can a firm’s strengths be used to create

competitive advantage?

Can these strengths be expanded or leveraged further?

How can a firm correct its weaknesses or create a solution that remedies their negative effect?

How best can a firm take advantage of opportunities presented?

How can a firm protect itself from threats, or proactively respond to them if they materialize?


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Competitive Environment – Porter’s Five Forces Model

Competitive Environment – Porter’s Five Forces Model


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New entrants may erode the market position and profitability of existing competitors

Divert sales volume from existing producers

Lower profit margins of existing competitors by increasing supply of product and creating greater price competition

Cause existing competitors to spend more on sales and marketing to create value differentiation among customers

Competitive Environment – The Threat of New Entrants



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Threat of new entrants is HIGH when

Economies of scale are LOW

Product differentiation is LOW

Capital requirements are LOW

Switching costs are LOW

Incumbent’s control over distribution channels is LOW

Incumbent’s proprietary knowledge is LOW

Incumbent’s control over raw material supply is LOW

Incumbent’s access to government subsidies is LOW




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Increased bargaining power of buyers can threaten existing competitors by

Forcing down prices

Demanding higher quality or more services

Playing competitors against each other

Competitive Environment – The Bargaining Power of Buyers



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The power of buyers is HIGH when:

Concentration of buyers relative to suppliers Is HIGH


Product differentiation of suppliers is LOW

Threat of backward integration by buyers is HIGH

Extent of buyer’s profits is LOW

Importance of the supplier’s input to quality of buyer’s final product is LOW




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Suppliers can adversely impact firms by

Raising prices

Lowering material quality or reducing the range of services offered

Competitive Environment – The Bargaining Power of SuppliersCompetitive Environment – The Bargaining Power of Suppliers


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The power of suppliers is HIGH when:

Concentration relative to buyer industry is HIGH

Availability of substitute products is LOW

Importance of customer to the supplier is LOW

Differentiation of the supplier’s products and services is HIGH

Switching costs of the buyer are HIGH

Threat of forward integration by the supplier is HIGH

Competitive Environment – The Bargaining Power of SuppliersCompetitive Environment – The Bargaining Power of Suppliers


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The availability of substitute products and services can adversely impact firms by

Creating a ceiling on prices that producers can charge for the same products

Offering products with more attractive price/performance ratios that will be more appealing to customers

Competitive Environment – The Threat of Substitute Products

Competitive Environment – The Threat of Substitute Products


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Intense competitive rivalry can result in

Increased price competition

Increased marketing and advertising effort / cost

New product introductions

Offering better warranties or increased customer service

Competitive Environment – Intensity of Rivalry Among Competitors



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The intensity of competitive rivalry is HIGH when:

The number of competitors is HIGH

Industry growth rate is LOW

Fixed costs are HIGH

Storage costs are HIGH

Product differentiation is LOW


Exit barriers are HIGH

Strategic stakes are HIGH




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Competitive Environment – The Impact of the Internet

Competitive Environment – The Impact of the Internet


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Strategic Groups can facilitate industry analysis

Competitors more like each other than the rest of the industry members

Strategic groups tend to have similar strategies

Competition within strategic groups tends to be greater than with competitors outside of the groups

Members of strategic groups will be impacted by changes in the industry environment in a similar fashion

How well the parameters are set that determine a strategic group will impact the usefulness of grouping for analytical purposes

Competitive Environment – Strategic Groups

Competitive Environment – Strategic Groups


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Virgin Mobile is a joint venture between Virgin Group and Sprint Nextel

Virgin Mobile created a young customer focus group and rewarded them with free calling minutes for their input regarding Virgin Mobile’s service

The company also provided rewards to all its customers if they commented on Virgin Mobile’s 30-second corporate-sponsor advertising and other services

Case Analysis: How Virgin Mobile USA Uses Crowdsourcing

Case Analysis: How Virgin Mobile USA Uses Crowdsourcing


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United Technologies is a global corporation which manufactures many technology-based products and owns brands such as Otis Elevators, Sikorsky Helicopters and Carrier Air Conditioners

UT’s ethical competitive intelligence guidelines are very specific and prohibit the following types of actions:

Coercion to obtain information

Being in an unrestricted area of a customer’s facility without permission

Using evasive or covert surveillance to obtain information

Misleading someone to share information

Evasion of security systems designed to protect information

Case Analysis: Ethical Guidlelines on Competitive Intelligence -

United Technologies

Case Analysis: Ethical Guidlelines on Competitive Intelligence -

United Technologies


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Shell Oil Company uses analytical scenario planning to anticipate possible outcomes from potential events so that it is prepared to act strategically whichever potential outcome becomes reality

Interviews with internal and external experts

Creation of “natural agendas” based on the results from interview

Synthesis of these “natural agendas” to develop underlying areas of uncertainty/conjecture and interrelationships between issues

Workshops explore key issues and identify gaps in research needed

Workshops to develop several key scenarios that may occur over the next 10-15 years

Testing strategies against scenarios to assess effectiveness

Case Analysis: Scenario Planning at Shell Oil Company



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Shell Oil Company uses analytical scenario planning to anticipate possible outcomes from potential events so that it is prepared to act strategically whichever potential outcome becomes reality

Interviews with internal and external experts

Creation of “natural agendas” based on the results from interview

Synthesis of these “natural agendas” to develop underlying areas of uncertainty/conjecture and interrelationships between issues

Workshops explore key issues and identify gaps in research needed

Workshops to develop several key scenarios that may occur over the next 10-15 years

Testing strategies against scenarios to assess effectiveness




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Microsoft has historically fought US H1B visa restrictions on hiring foreign skilled workers to work at its facilities

Many of the individuals Microsoft would like to hire are highly educated

Microsoft has maintained that the US will lose its competitiveness if it cannot capture talented individuals, wherever they come from

After being rejected in its appeals to relax H1B restrictions, Microsoft has set up operations in Vancouver BC Canada where there are no visa restrictions on foreign skilled labor

Microsoft has used this Canadian facility to perform functions it would otherwise have conducted at its Washington state location, Just 150 miles south of Vancouver

Case Analysis: Microsoft’s Approach to H1B Visa Restrictions

Case Analysis: Microsoft’s Approach to H1B Visa Restrictions


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The internet provides a platform for many applications, connecting industries across the globe in numerous ways

Worldwide growth of internet usage exceeds 300% over the past decade

Developing nations have experienced the bulk of the increase in internet usage

Companies are benefitting from increased internet access and usage through online marketing, linkages with suppliers and other business partners

Entrepreneurial ventures are able to accomplish the same access to international markets that larger companies formerly enjoyed

Case Analysis: The Internet and Digital TechnologiesCase Analysis: The Internet and Digital Technologies


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Delta Pride Catfish was formed as a result of supplier mistreatment by major fish processing corporations

Large agribusiness companies, such as ConAgra used to have complete control over processing of farm-raised catfish by independent suppliers

When these independent suppliers were prevented from marketing their fish due to the large processor’s desire to curtail supply and increase prices, they formed their own processing venture

Delta Pride Catfish now processes its own internal supply of catfish and has significantly reduced major agribusiness firm’s market share in this product category

Case Analysis: Enjoying Supplier Power – Delta Pride Catfish

Case Analysis: Enjoying Supplier Power – Delta Pride Catfish


1 ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM STRATEGIC MANAGEMENT BUAD 4980.

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Transcript of 1 ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM STRATEGIC MANAGEMENT BUAD 4980.