Chapter 2

The External Environment: Opportunities, Threats

What are the external factors that

influence the firm?

What do we want to know?

Is the factor
favorable?
Is the factor
unfavorable?

Opportunity

Threat

Opportunities - Condition in the

environment, that if exploited correctly
will benefit the company and help the
company reach its strategic
competitiveness

Threats - Condition in the environment

that slows a company in their goal of
reaching strategic competitiveness

Ways to enhance external Analysis

Scanning

Monitoring

Observe environmental changes to see if an important trend or idea is emerging from the data collected
while scanning

Competitive intellegence

Studying all segments in the general environment

Important in highly volatile environments

Analyze the information gathered and monitored to determine the timing and significance of the affects of
environmental changes and trends that have been identified

Forecasting

Develop feasible predictions of what might happen and the timing of it

Shortening the life cycles of products

The General, Industry, and Competitor

Environments
External Environment: Includes the industry in which a
firm competes as well as those against whom it competes.
Three components:
1. General
2. Industry
3. Competitor

General Environment
Factors in the general environment

Political
Economic
Social
Technological

Industrial environment

Competitive Threats within the Retail-chain Industry

New
New stores
stores
to
to open
open
nearby
nearby

Potential Entrant

Rivalry

Supplier

Buyer
Substitution

Amazon.com
Amazon.com
Value Chain

What will be needed to reduce the

threats?
Suppliers

Competitors

Buyers

Substitutions

New entrants

Bargaining power

Market power

Actors in the industry

New entrants
Substitutes
Competitors

Suppliers

Resource similarity

Buyers

Focal firm

Complementors

Market commonality

Strategic Groups
Strategic Group: Set of firms emphasizing similar strategic
dimensions and using similar strategy.
Membership in a particular strategic group defines the
essential characteristics of a firm's strategy.
Can be useful for analyzing an industrys competitive
structure.

Competitor Analysis
What drives competitors? According to its future objectives
What the competitor is doing and can do, as revealed by its
current strategy
What the competitor believes about the industry, as shown by its
assumptions
What the competitors capabilities are, as shown by its strengths
and weaknesses

External analysis: Chapter summary

Objectives

Method

Opportunities

Scanning

Threats

Monitoring

Models
PEST (general)

Competitive intelligence

Political
Economic
Social
Technological

Bargaining power of supplier

Bargaining power of buyer
Threat of new entrant
Threat of substitution
Threat of rival

Forecasting
Five-forces
(Industrial)

Competitor analysis Competitor identification

Action - response
(Competitive)