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The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis
Strategic Management
PowerPoint Presentation by Charlie Cook The University of West Alabama 2007 Thomson/South-Western. All rights reserved.
FIGURE 2.1
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General Environment
Dimensions in the broader society that influence an industry and the firms within it:
Demographic
Economic Political/legal Sociocultural Technological
Global
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TABLE
2.1
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Industry Environment
The set of factors directly influencing a firm and its competitive actions and competitive responses
Threat of new entrants Power of suppliers Power of buyers Threat of product substitutes Intensity of rivalry among competitors
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Competitor Analysis
Gathering and interpreting information about all of the companies that the firm competes against. Understanding the firms competitor environment complements the insights provided by studying the general and industry environments.
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Industry environment
Focused on factors and conditions influencing a firms profitability within an industry
Competitor environment
Focused on predicting the dynamics of competitors actions, responses and intentions
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Threat
A condition in the general environment that may hinder a companys efforts to achieve strategic competitiveness.
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FIGURE
2.2
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Barriers to Entry
Economies of Scale
Marginal improvements in efficiency that a firm experiences as it incrementally increases its size
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Switching Costs
One-time costs customers incur when they buy from a different supplier New equipment Retraining employees Psychic costs of ending a relationship
Capital Requirements
Physical facilities Inventories Marketing activities Availability of capital
Expected retaliation
Responses by existing competitors may depend on a firms present stake in the industry (available business options)
Government policy
Licensing and permit requirements Deregulation of industries
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Differentiated industry products that are valued by customers reduce this threat.
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Unattractive Industry
Low profit potential
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Attractive Industry
High profit potential
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Strategic Groups
Strategic Group Defined
A set of firms emphasizing similar strategic dimensions and using similar strategies Internal competition between strategic group firms is greater than between firms outside that strategic group. There is more heterogeneity in the performance of firms within strategic groups. Similar market positions Similar products Similar strategic actions
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Strategic Groups
Strategic Dimensions
Extent of technological leadership Product quality Pricing Policies
Distribution channels
Customer service
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Competitor Analysis
Competitor Intelligence
The ethical gathering of needed information and data that provides insight into: A competitors direction (future objectives) A competitors capabilities and intentions (current strategy) A competitors beliefs about the industry (its assumptions) A competitors capabilities
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FIGURE
2.2
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Complementors
Complementors
The network of companies that sell complementary products or services or are compatible with the focal firms own product or service. If a complementors product or service adds value to the sale of the focal firms product or service, it is likely to create value for the focal firm. However, if a complementors product or service is in a market into which the focal firm intends to expand, the complementor can represent a formidable competitor.
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Ethical Considerations
Practices considered both legal and ethical:
Obtaining publicly available information Attending trade fairs and shows to obtain competitors brochures, view their exhibits, and listen to discussions about their products
Eavesdropping
Stealing drawings, samples, or documents
2007 Thomson/South-Western. All rights reserved. 226
KSFs are competitive elements that most affect every industry members ability to prosper in the marketplace
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On what basis do customers choose between competing brands of sellers? What must a seller do to be competitively successful -what resources and competitive capabilities does it need? What does it take for sellers to achieve a sustainable competitive advantage?
KSFs consist of the 3 - 5 really major determinants of financial and competitive success in an industry
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Utilization of brewing capacity -- to keep manufacturing costs low Strong network of wholesale distributors -- to gain access to retail outlets Clever advertising -- to induce beer drinkers to buy a particular brand
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Locating plants close to end-use customers -- to keep costs of shipping empty cans low Ability to market plant output within economical shipping distances
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