M

A
R
C
U
S
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2
EXTERNAL
ANALYSIS

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 2-3

Chapter Objectives
 Understand how to analyze the external environment
of the firm.
 Being aware that the external environment consists
of three elements – the immediate industry
environment, the larger macroenvironment, and the
environment of groups with a stake in the firm.
 Using these three elements to identify opportunities
and threats the firm faces.
 Using them to construct scenarios of possible futures
and repertoires of responses and other moves that
the firm might take in the light of divergent
contingencies.

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 2-4

Strategic Thinking: Linking the

Ex. 2.1

Firm and the External Environment

THE EXTERNAL
ENVIRONMENT

•Industry
environment THE INTERNAL
STRATEGY
•Macro-environment ENVIRONMENT
•Stakeholders

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 2-5

External Environment
Industry Environment
 The immediate context in which the firm operates
Macroenvironment
 Consisting of forces such as politics and law,
technology, demography, society, the economic
climate, and the state of the physical environment
Stakeholder Groups
 Groups that affect and are affected by the firm’s
activities

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 2-6

Critical Questions in Developing a

Strategy

 Is the game good?

 What is the company’s position in the
game?
Michael Porter

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 2-7

Ex. 2.2 Porter’s Five Forces Affecting

Industry Attractiveness

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Main Entry Barriers

 Scale economies
 Product differentiation
 Capital requirements
 Learning-and experience-curve effects
 Distribution channels
 Government policies

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 2-9

Ex. 2.3 Profitability of U.S. Industries,

1985-1995

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Ex. 2.4 10 Best and Worst Performing Industries:

Stock Market Performance 2002

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The Strategist’s Role in Industry

Analysis
Industry analysis provides critical information and should
always be carried out before a company makes a move.
The strategist must examine the structure of an industry
and understand the five forces. Each industry is likely to
be somewhat different. In each industry, some of the five
forces are likely to be more significant than others. For the
strategist, it is important to figure out which are the most
important forces and what can be done about them. He or
she should give greatest attention to the forces that can be
most readily influenced in a way that improves a
company’s performance.

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Ex. 2.5 From Industry Analysis to Analysis

of the Macroenvironment

From
From IIndust
ndustry
ry Anal
Analysi
ysiss ttoo Anal
Analysi
ysiss of
of
tthe
he MM acroenvi
acroenvironm
ronment
ent

Government Social Structure

THE INDUSTRY
ENVIRONMENT & Demography
National & • Suppliers
International •NewEntrants
Economies •Substitutes
•Competitors
Energy & the
•Customers
Natural
Technology Environment

• Industry environment -- at core of Macroenvironment

•Macroenvironment impacts through industry

environment

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 2-13

External Environment - Technology

Invention is the creation of an item

or process, usually in a laboratory

Innovation is the process putting

an invention into widespread use

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 2-14

Technological Environment –
Factors Affecting a Project’s Feasibility

 Probable development, production, and

marketing costs
 The approximate timing of these costs
 Probable future income streams
 The time these income streams are likely to occur

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 2-15

Ex. 2.8 Promising Technological Developments

(Abridged)

 Genetic Engineering
 Advanced Computing
 Telecommunications
 Biomedical Engineering
 Material Sciences
 Energy

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 2-16

Achieving Eco-Efficiency

 Reduce the material intensity of goods and services

 Reduce the energy intensity of goods and services
 Reduce toxic dispersion
 Enhance material recyclability
 Maximize sustainable use of renewable resources
 Increase material durability
 Increase the service intensity of goods and services

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 2-17

Questions to Ask in Assessing the

Macroenvironment

 Which segment is currently most important and is

likely to dominate the choices available to the
company now?
 What are the emerging trends?
 Which segment is likely to be most important in
the future and dominate the choices available to
a company then?

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 2-18

Scenarios
A scenario is essentially a story or plot that
describes how a particular end point might
be reached under certain conditions.
Scenarios play out various “what-if”
possibilities.

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Ex. 2.9 Eco-Efficiency Strategies

(Abridged)

COPING INFORMED PROACTIVE

Possible Internal Drivers: Possible Internal Drivers: Possible Internal Drivers:
•Cost Reduction •Product Quality •Employee Morale/Rel.

•Health and Safety of •Material/Energy Efficien. •Stimulate Innovation

Employees •Standards •L-T Profitability
•Productivity Concerns

Possible External Drivers: Possible External Drivers Possible External Drivers:

•Reduce Liability •Activities of Ind/Trade
•Regulations/Legislation Organizations
•Financial Performance •Customer Demands
•Product, Corp. & Brand
Image
•Supplier Act./Demands
•Gaining Comp. Adv.
•Establishing New Mkts.
•L-T Access to Capital/Fin
•Changing Soc. Attitudes

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Ex. 2.11 Value Net – An Alternative to

Five Forces?

CUSTOMERS

COMPETITORS COMPANY COMPLEMENTORS

SUPPLIERS

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 2-21

Ex. 2.12 Stakeholder Map

External Stakeholders Contributors

•Customers THE
•Suppliers CORPORATION
•Competitors
•Governments Inducements
•Scientific/Technical Inducements
Contributors
organizations
•Local Communities Internal Stakeholders
•The Media •Shareholders
•General Public •Board Members
•Environmental •Managers
Advocates •Scientists/Engineers
•Employees/Unions

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