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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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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
External Environment AwarenessExternal Environment Awareness
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
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
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
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
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
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
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
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
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
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
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Assessing the General EnvironmentAssessing the General Environment Demographic factors
Population size, age, ethnicity
Personal income / standard of living
Geographical distribution
Family size
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
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
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
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
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
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
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
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
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
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
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
SWOT AnalysisSWOT Analysis
Strengths
Weaknesses
Opportunites
Threats
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
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
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
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?
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Competitive Environment – Porter’s Five Forces Model
Competitive Environment – Porter’s Five Forces Model
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
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
Competitive Environment – The Threat of New Entrants
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
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
Competitive Environment – The Threat of New Entrants
Competitive Environment – The Threat of New Entrants
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
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
Competitive Environment – The Bargaining Power of Buyers
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
The power of buyers is HIGH when:
Concentration of buyers relative to suppliers Is HIGH
Switching costs are LOW
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
Competitive Environment – The Bargaining Power of Buyers
Competitive Environment – The Bargaining Power of Buyers
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
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
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
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
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
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
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
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
Competitive Environment – Intensity of Rivalry Among Competitors
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
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
Switching costs are LOW
Exit barriers are HIGH
Strategic stakes are HIGH
Competitive Environment – Intensity of Rivalry Among Competitors
Competitive Environment – Intensity of Rivalry Among Competitors
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
Competitive Environment – The Impact of the Internet
Competitive Environment – The Impact of the Internet
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
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
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
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
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
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
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
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
Case Analysis: Scenario Planning at Shell Oil Company
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
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
Case Analysis: Scenario Planning at Shell Oil Company
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
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
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
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
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980
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ANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRMANALYZING THE EXTERNAL ENVIRONMENT OF THE FIRM
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
STRATEGIC MANAGEMENT – BUAD 4980STRATEGIC MANAGEMENT – BUAD 4980