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Chapter 2: Analyzing the External Environment of the Firms

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Jack Olson

on 16 September 2013

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Transcript of Chapter 2: Analyzing the External Environment of the Firms

Chapter 2: Analyzing the External Environment of the Firms
LO1- The elements that constitute a firm's general environment and their impact on the firm's strategies and performance.
The General Environment
Government legislation
Advance in technology
National cultural difference

Industry and Competitive Environment
An industry is viewed from the suppliers' perspective
A set of firms that produce similar products, sell to similar customers, and use similar methods of production.
When defining the industry for a strategy analysis, managers should consider other firms pricing, market and consumers bases and their business strategy as well as other possible substitute
Enhance environmental awareness, develop forecast about the future
Environmental scanning
Surveillance of a firm's external environment to predict future environment changes and detect changes already under way
Alerts the organization to trends and events before the competitor
Understand and discover new trend


LO3-Why environment scanning, environment monitoring, and collecting competitive intelligence are critical inputs to developing forecasts of the business environment
LO3-Why environment scanning, environment monitoring, and collecting competitive intelligence are critical inputs to developing forecasts of the business environment.
Environment monitoring
Tacks the evolution of environment mental trends, events, or streams of activities
Monitoring allow firms to evaluate how environment trends are changing the competitive landscape
Competitive Intelligence
Help firms define and understand their industry as well as identify rivals' strengths and weaknesses
Help company can avoid surprises by anticipating competitors' moves and decreasing its own response time

LO2- How to define the competitive environment and delineate industry boundaries
An industry can be viewed from the market's perceptive
An industry may arise from identical product offered by very different firm
Time is a factor in defining the boundaries of an industry
Technological developments
Gathering industry information and understanding the competitive dynamics
Strategy need to be always update to match the current information.

LO3- Why environment scanning, environment monitoring, and collecting competitive intelligence are critical inputs to developing forecasts of the business environment.
Environment Forecasting
Develop a projections about the direction, scope, speed and intensity
Managers may view uncertainty as black and white and ignore important gray areas
Underestimating uncertainty can lead to strategies that neither defend against looming threats nor take advantage of opportunities
At the other extreme, managers may base their strategic decisions on instinct

LO4- Why scenario planning is a useful technique for firms competing in industries characterized by unpredictability and change.
Scenario Analysis
A more in-depth approach to forecasting
It draws on a range of disciplines and interests
Represent one technique that can assist managers in coping with the uncertainty and unpredictability of today's rapidly changing world
Helps by considering not trends or forecasts but how these could be upset by unpredictable events

LO4- Why scenario planning is a useful technique for firms competing in industries characterized by unpredictability and change
SWOT Analysis
Provides a framework for analyzing elements of a company's internal and external environments
-Opportunities can arise from technological development, easing regulatory
-Threats can come from competitors, new legislation
Managers need to systematically consider each area of their general and competitive environment
SWOT is a framework not the unquestionable solution

LO5- How trends and events in the general environment and forces in the competitive environment are interrelated and affect performance.
The General Environment
The Demographics/Psychographic Segment
The Sociocultural Segment
The Political/Legal Segment
The Technological Segment
The Economic Segment
The Global Segment

LO6- How forces in the competitive environment can affect profitability and how a firm can improve its competitive position by increasing its power vis-a-vis those forces.
The Competitive Environment
The nature of competition in an industry as well as the profitability of a particular firm are more directly influenced by developments
Porter's Five-Forces Model of Industry Competition
The Threat of New Entrant
6 Major entry barriers
The Bargaining Power of Buyers
The Bargaining Power of Suppliers

LO6- How forces in the competitive environment can affect profitability and how a firm can improve its competitive position by increasing its power vis-a-vis those forces.
Porter's Five-Forces Model of Industry Competition
The threat of substitute Products and Services
Limit the potential returns of an industry by placing a ceiling on the prices that firms in that industry can charge.
The intensity of Rivalry among Competitors in an industry
Numerous or equally balances competitor
Slow industry growth
High fixed costs
Internet and digital technologies
It has fundamentally change the way businesses interact
Forces firms to created new strategic challenges

LO6- How forces in the competitive environment can affect profitability and how a firm can improve its competitive position by increasing its power vis-a-vis those forces.
To ensure analysis to be valuable, a wide variety of information is need to be collect and evaluate
The five-forces analysis determining how a firm can enhance its position relative to the forces
It can overlook the potential benefit for a win-win relationship
The Value Net
Analyzes how the player interactions affect a firm's ability to generate and appropriate value
Complementors are products that have possible impact on the value of a firm's own products
The point of industry analysis is to understand the underpinnings of competition and the root cause of profitability

LO7- The concept of strategic groups and their strategy and performance implications.
In industries analysis
2 assumption: no 2 firms are totally different and no 2 firms are exactly the same
Can be enhanced by identifying strategic groups
Strategic grouping helps
A firm identify barriers to mobility
A firm identify groups whose competitive position may be marginal or tenuous
Help chart the future direction
Are helpful in thinking through the implication of trend
Full transcript