Professional Documents
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Chapter Roadmap
The Strategically Relevant Components of a
Companys External Environment Thinking Strategically About a Companys Industry and Competitive Environment
Question 1: What Are the Industrys Dominant Economic Features? Question 2: How Strong Are Competitive Forces? Question 3: What Forces Are Driving Industry Change and What Impacts Will They Have? Question 4: What Market Positions Do Rivals Occupy Who Is Strongly Positioned and Who Is Not? Question 5: What Strategic Moves Are Rivals Likely to Make Next? Question 6: What Are the Key Factors for Future Competitive Success? Question 7: Does the Outlook for the Industry Offer the Company a Good Opportunity to Earn Attractive Profits?
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two facets
Assessing the companys external or macroenvironment
Industry and competitive conditions Forces acting to reshape this environment
Figure 3.1: From Thinking Strategically About the Companys Situation to Choosing a Strategy
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relevant factors and influences outside its boundaries Diagnosing a companys external situation involves assessing strategically important factors that have a bearing on the decisions a companys makes about its Direction Objectives Strategy Business model Requires that company managers scan the external environment to Identify potentially important external developments Assess their impact and influence Adapt a companys direction and strategy as needed
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What forces are driving change in the industry? What are the key factors for competitive success? How attractive is the industry from a profit perspective?
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Learning/Experience Effects
Learning/experience effects exist when a
companys unit costs decline as its cumulative production volume increases because of
curve effect, the bigger the cost advantage of the firm with the largest cumulative production volume
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rivalry
How aggressively are rivals using various weapons of competition to improve their market positions and performance? Competitive rivalry is a combative
contest involving
Offensive actions Defensive countermoves
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Figure 3.4: Weapons for Competing and Factors Affecting Strength of Rivalry
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of size
Brand preferences and customer loyalty Capital requirements and/or other
Examples
Sugar vs. artificial sweeteners Eyeglasses and contact lens vs. laser surgery Newspapers vs. TV vs. Internet
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to switch to substitutes
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to those industry members (sellers) doing the best job of managing supply-chain relationships
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and some/many of their customers can impact competitive pressures Collaboration may result in mutual benefits regarding
Just-in-time deliveries Order processing Electronic invoice payments Data sharing Competitive advantage may accrue to
those industry members doing the best job of partnering with their customers
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Question 3: What Forces Are Driving Industry Change and What Impacts Will They Have?
Industries change because forces
STEP 3: Determine what strategy changes are needed to prepare for impacts of driving forces
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correlated Variables chosen as axes should expose big differences in how rivals compete Variables do not have to be either quantitative or continuous
Drawing sizes of circles proportional to
combined sales of firms in each strategic group allows map to reflect relative sizes of each strategic group
If more than two good competitive variables can
are affected by
Current strategies of competitors Future actions of competitors Profiling key rivals involves gathering
Competitor Analysis
Sizing up strategies and competitive
and market share? What strategies are rivals most likely to pursue?
Which rivals have a strong incentive, along with
markets?
Which rivals are likely to expand their product
factors and attributes that affect every industry members ability to be competitively and financially successful KSFs are those particular attributes that are so important that they spell the difference between
Profit and loss Competitive success or failure
KSFs can relate to Specific strategy elements Product attributes Resources Competencies Competitive capabilities Market achievements
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an industrys KSFs
On what basis do customers choose between competing brands of sellers? What resources and competitive capabilities does a company need to have to be competitively successful? What shortcomings are likely to place a company at a significant competitive disadvantage?
factors that are truly key to the future financial and competitive success of industry members
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Question 7: Does the Outlook for the Industry Offer an Attractive Opportunity?
Involves assessing whether the industry and
competitive environment presents a company with an attractive or unattractive opportunity for earning good profits Factors to consider:
Industry growth potential Whether competitive forces are growing stronger/weaker Whether driving forces will favorable/unfavorably impact industry profitability Degree of risk and uncertainty in industrys future Whether the industry confronts severe problems Firms competitive position in industry vis--vis rivals Firms potential to capitalize on industry opportunities or the vulnerabilities of weaker rivals Whether a firm has sufficient competitive strength to defend against unattractive industry factors
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Core Concept: Assessing Industry Attractiveness The degree to which an industry is attractive or unattractive is not the same for all industry participants or potential entrants. The opportunities an industry presents depend partly on a companys ability to capture them.
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