Chapter 3: Analyzing the Environment

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Understanding the Factors that Determine a Companys Situation

Diagnosing a companys situation has

two facets
Assessing the companys external or macroenvironment

Industry and competitive conditions Forces acting to reshape this environment

Assessing the companys internal or
micro-environment

Market position and competitiveness Competencies, capabilities,

resource strengths and weaknesses, and competitiveness
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THREE CRITERA OF A WINNING STRATEGY

1. Appraisal of company External and internal situations. 2. Evaluation of most promising strategy options. 3. Choice of a strategy and the business models.

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RELEVANT COMPONENTS OF EXTERNAL ENVIRONMENT

S- SOCIAL P- POLITICAL E-ECONOMICS L- LEGAL T-TECHNOLOGY

And such others and any relevant factors Thinking strategically about a companys

industry and competitive environment.

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7 KEY QUESTIONS

1. 2. 3. 4. 5. 6. 7. 8.

DOMINANT ECONOMIC FEATURES OF INDUSTRY COMPETETIVE FORCES, INDUSTRY, MEMBERS FACING FORCES DRIVING CHANGES IN INDUSTRY POSITIONS OF INDUSTRY RIVALS LIKELY STRATEGY MOVES OF RIVALS KEY FACTORS OF COMPETITIVE SUCCESS INDUSTRY OUTLOOK SUFFICIENTLY ATTRACTIVE ANSWERS TO ABOVE 7 QS PROVIDE THE DIAGONOSIS OF INDUSTRY AND COMPETETIVE ENVIRONMENT
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Q1. What are the industrys dominant economic features?

Market size and growth rate Scope of competitive rivalry Number of rivals Buyer needs and requirements Production capacity Pace of technological change Vertical integration Product innovation Degree of product differentiation Economics of scale Learning and experience curve effects
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Q2. What kind of competitive forces is the industry facing?

FORCES MODEL OF

COMPETITION By Michael E Porter

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FORCES MODEL OF COMPETITION

1. 2.

3.
4. 5.

The rivalry among competing sellers Potential entry of new competitors Competitive pressures of substitute products Pressures from supplier bargaining power Pressures from buyer bargaining power

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 Hence

Determine whether the collective strengths of 5 competitive forces promote profitability

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Q3. What factors are driving industry change and what impacts will they have?
Concept of driving forces
--- are those that have the biggest influence on

what kind of changes will take place in the industrys structure and competitive environments.--

Note: some originate from within the companys

more immediate industry; some originate in companys microenvironment

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HENCE ANALYSIS OF 2 STEPS

STEP 1. Identifying an industrys driving

forces
STEP 2. assessing their impact on industry

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STEP 1:Identifying an industrys driving forces

1. 2 3 4 5 6 7 8

Internet technology globalization Industry growth rate User/ usage changes Product innovation techno/ mfg innovation Marketing innovation entry / exit

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STEP 1:Identifying an industrys driving forces Contd..

9 10 11 12 13 14 15 16

Cost/ efficiency changes diffusion forces Differentiated products not commodity products Risk / uncertainty reduction regulatory changes lifestyles and attitudes changing society

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STEP 2.ASSESSING THE IMPACT OF DRIVING FORCES

CHECK A) IMPACT ON DEMAND B) IMPACT ON COMPETITION C) IMPACT ON PROFITABILITY

Hence, the link between driving forces and technology

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Q 4. What market positions do rivals occupy ?

WHAT MARKET POSITIONS DO RIVALS

OCCUPY
WHO IS STRONGLY POSITIONED AND WHO IS

NOT?

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STRATEGIC GROUP MAPPING(SGM)

--- IS A TECHNIQUE FOR DEPLOYING THE

DIFFERENT MARKET OR COMPETITIVE POSITIONS THAT RIVAL FIRMS OCCUPY IN THE INDUSTRY---

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USING SGM TO ACCESS MARKET POSITIONS

IDENTIFY VARIABLE PLOT ON TWO VARIABLE MAP ASSIGN FIRMS DRAW CIRCLES PROPORTIONAL TO BUSINESS. E.g. price/ quality V geographic coverage for Gucci, channel fends to walmart kmart. Hence learning from SGM

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Q 5- WHAT STRATEGIC MOVES ARE RIVALS LIKELY TO MAKE NEXT

Identifying competitors strategy on Resource

Strength and weaknesses

1. identifying competitors strategy on resource,

strength and weakness. 2 Predicting competitors next moves

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Q.6 What are the key factors for success?

Technology Manufacturing Distribution Marketing Skills and capability Other types Any All

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Q 7. DOES THE OUTLOOK FOR THE INDUSTRY PRESENT AN ATTRACTIVE OPPORTUNITY?

A general preposition
If an industrys over all profit prospects

performance are above average, the industry environment is basically attractive; if below average=- un attractive

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 NOTE: Important factors could be, 1. Industry growth potential

2
3 4

Future uncertainty Power groups of leaders Issues of industry And such other relevant factors!---

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Figure 3.1: From Thinking Strategically About the Companys Situation to Choosing a Strategy

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