Description
The ppt is describing about analyzing a company's external environment.
Analyzing a Company’s External Environment
Thinking Strategically..
• There are two facets of the company’s situation:
– The industry and competitive environment the company operates in; – The company’s own market position and competitiveness
Three criteria of a Winning Strategy
Strategic thinkingCompany’s External Environment
Strategic thinking – Company’s Internal Environment
Forming Strategic vision of where the company needs to go
Identifying promising strategic options for the company
Selecting the best strategy and business model for the company
Components of Company’s External Environment
General Economic Conditions
Suppliers
Substitutes
Company Buyers Rivals New Entrant s
Relevant Factors of External Environment
• Industries differ widely on
– Economic features – Competitive character – Profit outlook
Seven Key Questions
1. Dominant economic features of the industry 2. Competitive forces faced by the industry members and their strength 3. Forces driving change and impact of change on competitive intensity and industry profitability 4. Market positions 5. Strategic Moves by Rivals 6. Key Factors for future competitive success 7. Attractiveness of the industry outlook
Dominant Economic features of the Industry
• • • • • • • • • • • Market size and Growth rate Scope of competitive rivalry Number of rivals Buyers needs and requirements Production Capacity Pace of technological change Vertical Integration Product Innovation Degree of Product Differentiation Economies of Scale Learning and Experience curve effects
The Five Forces Model of Competition
(determining the competitive environment)
Substitutes
Suppliers
Rivalry Among Competing Sellers
Buyers
Potential New Entrants End
Rivalry among competing sellers
• Strongest of the five competitive forces
• Change by policy or strategy by one often results in response by the competitors in a similar manner
E.g. In terms of product attributes, marketing tactics and
competitive capabilities
Factors Influencing the tempo of Rivalry
– Competition undertakes fresh actions to boost its market standings E.g. Price competition, higher quality, improved service, advt. campaigns – Slow growth markets Less Demand and more Supply – Increase in Number of Competitors All vying for limited consumers – Standardization of Products Little product differentiation – Cost of switching Brands – Proportion of pay-off from a successful strategic move
Back
Potential entry of new competitors
• Strength of the threat depends on the size of the pool • Threat of competitors is mostly not from outsiders but current industries looking to expand
• E.g. existing industries trying to expand to more geographies
– Presence of sizeable economies of scale in prod. or operation Economies of scale ? cost advantages ? mass produce ? overcapacity – Brand Preference and Customer Loyalty E.g. Japanese consumer behavior towards cars. Hence large investment in advt and promotion – Capital Requirements Larger the investment required, lower the number of entrants. – Access to distribution channels No buyer recognition ? Reluctance of tie-up with whole seller ? investment in setting up retail dealers from scratch – Regulatory Policies Govt Agencies, Licenses, Permits, Trade Restrictions, Tariffs
Back
Barriers that new candidates must hurdle
Competitive Pressures from the sellers of Substitute Products
Largely depends on 3 factors 1. If Substitutes are readily available and attractively priced
Creates competitive pressure by placing a ceiling on the prices and indirectly the profits
2.
If Substitutes are viewed as being comparable w.r.t Cost, Quality, performance
E.g. Competition film makers are facing from digital cameras.
3.
Cost to Switch to a substitute
Back
Competitive Pressures from supplier bargaining power and collaboration
• Supplier Seller relationships depends on – If suppliers can exercise bargaining power to influence the terms and conditions of supply
– Nature of supplier seller collaboration in the industry
Factors determining the bargaining power ability of sellers
– If the commodity supplied is available from many suppliers Bargaining power is restricted – Whether the suppliers are the primary suppliers of the particular item – Ease of switching suppliers High switching costs means higher bargaining power. – Availability of commodity Short or less supply indicates high degree of pricing power – Type of input provided Specialized input indicates increase in efficiency, quality and hence performance
Back
Competitive Pressures from Buyer bargaining power and collaboration
• Buyer Seller relationships depends on
– Whether some or many buyers have the bargaining leverage to obtain price concessions and favorable terms of condition – Extent and competitive importance of seller buyer strategic partnerships
Factors determining the bargaining power ability of buyers:
– Number of buyers Lesser the number ? More important it becomes to retain the customer ? Higher the power – Demand is weak Greater is the urgency to sell ? higher is the bargaining power – Cost of switching to competing brands Low switching costs means higher bargaining power. – Knowledgeable Buyers More the commodity awareness ? greater is the bargaining power – Threat of Backward Integration Increased threat gives the buyer greater power to bargain
Back
FACTORS DRIVING INDUSTRY CHANGE
• Driving Force – major factors that influence the changes in the structure of any industry. • Analysis of “Driving forces” can be done by Identifying them and by assessing their impact on the industry • Industry change cannot anymore be related only to Life Cycle Model
Identifying Industry Drivers
• Growing use of internet and technology • Increasing Globalization- need for brands to be seen across the globe • Changes in long term industry growth rate Entry and Exit options, balance between Industry supply and buyer demand • Changes in who buys the product & its use • Product Innovation- constant enhancement
Identifying Industry Drivers contd.
• Technological Change & Manufacturing process innovation • Marketing Innovation • Entry or Exit of major firms – new companies’ entry can shake up old/ existing firms • Diffusion of technical know how across more companies • Changes in cost & efficiency • Growing preferences for differentiated products
Identifying Industry Drivers contd.
• Reduction in uncertainty and risk • Regulatory influence & govt policy changes • Changing societal concerns, attitudes and lifestyles
Assessing the impact of drivers..
Questions to be asked : • Are driving forces causing demand for industry’s products to increase or decrease? • Is competition getting more or less intense? • Are drivers leading to higher or lower profitability
What Market Positions Do Rivals Occupy?
• Who is strongly positioned and who is not? • Understanding industry’s competitive structure
Strategic Group Mapping (SGM)
• SGM is a technique for displaying the different market or competitive positions that rival firms occupy in the industry. – Strategic group is a cluster of firms with similar competitive approaches and positions.
Constructing SGM
• Identify the competitive characteristics differentiating firms in the industry • Plot the firms on a two variable map • Assign firms falling in same strategy space to same strategic groups • Draw circles around each group proportional to its total share in the industries revenue.
Analyzing SGM
• Extent of industry driving forces and competitive pressures affecting certain strategic groups • Extent of variations in profit potential of different groups due to their strengths and weaknesses • Intra and inter group competition
What Strategic Moves are Rivals Likely to make Next?
• Identify competitor’s Strategies • Identify competitor’s Resource Strengths and Weaknesses • Predict competitor’s next move • Prepare effective counter moves/ best course of action
Key Success Factors for future competitive success
What are KSFs? Any industries Key Success Factors (KSFs) are those competitive factors that most of the industry members’ to perform and prosper in the marketplace.
• They are different for different industries.
Fixing KSFs
• On what basis do industry’s buyers choose between competing brands of sellers. • What resources and capabilities does a firm need to be successful. • What shortcomings will put the company at competitive disadvantage.
Common KSFs
Technology Related
? Expertise in a particular Technology or research ? Proven ability to improve processes. Manufacturing Related ? Quality control know-how ? Low cost product design and engineering.
Distribution Related
? A strong network of wholesale distributors/dealers ? Strong direct sales capabilities
Common KSFs contd.…
Marketing Related
? Breadth of product line and product selection ? A well known and well respected brand name. Skills and capability Related ? A good technical workforce. ? Short delivery time capability.
Others
? Overall low costs ? Convenient Location.
Does Industry Outlook present Attractive Opportunity?
• The industry’s growth potential • Powerful competitive forces that effect industry profits. • The degree of risk and uncertainty in the industry’s future. • The constraints to which the industry is exposed.
Does Industry Outlook present Attractive Opportunity?
• The company’s position in the industry vis-à-vis rivals. • The company’s potential to take advantage of vulnerabilities of weaker company’s. • The strength that company has to face unfavorable condition in the industry. • Whether the presence in a particular industry helps the company to be successful in other industry in which it has interest.
Thank You
doc_438330099.ppt
The ppt is describing about analyzing a company's external environment.
Analyzing a Company’s External Environment
Thinking Strategically..
• There are two facets of the company’s situation:
– The industry and competitive environment the company operates in; – The company’s own market position and competitiveness
Three criteria of a Winning Strategy
Strategic thinkingCompany’s External Environment
Strategic thinking – Company’s Internal Environment
Forming Strategic vision of where the company needs to go
Identifying promising strategic options for the company
Selecting the best strategy and business model for the company
Components of Company’s External Environment
General Economic Conditions
Suppliers
Substitutes
Company Buyers Rivals New Entrant s
Relevant Factors of External Environment
• Industries differ widely on
– Economic features – Competitive character – Profit outlook
Seven Key Questions
1. Dominant economic features of the industry 2. Competitive forces faced by the industry members and their strength 3. Forces driving change and impact of change on competitive intensity and industry profitability 4. Market positions 5. Strategic Moves by Rivals 6. Key Factors for future competitive success 7. Attractiveness of the industry outlook
Dominant Economic features of the Industry
• • • • • • • • • • • Market size and Growth rate Scope of competitive rivalry Number of rivals Buyers needs and requirements Production Capacity Pace of technological change Vertical Integration Product Innovation Degree of Product Differentiation Economies of Scale Learning and Experience curve effects
The Five Forces Model of Competition
(determining the competitive environment)
Substitutes
Suppliers
Rivalry Among Competing Sellers
Buyers
Potential New Entrants End
Rivalry among competing sellers
• Strongest of the five competitive forces
• Change by policy or strategy by one often results in response by the competitors in a similar manner
E.g. In terms of product attributes, marketing tactics and
competitive capabilities
Factors Influencing the tempo of Rivalry
– Competition undertakes fresh actions to boost its market standings E.g. Price competition, higher quality, improved service, advt. campaigns – Slow growth markets Less Demand and more Supply – Increase in Number of Competitors All vying for limited consumers – Standardization of Products Little product differentiation – Cost of switching Brands – Proportion of pay-off from a successful strategic move
Back
Potential entry of new competitors
• Strength of the threat depends on the size of the pool • Threat of competitors is mostly not from outsiders but current industries looking to expand
• E.g. existing industries trying to expand to more geographies
– Presence of sizeable economies of scale in prod. or operation Economies of scale ? cost advantages ? mass produce ? overcapacity – Brand Preference and Customer Loyalty E.g. Japanese consumer behavior towards cars. Hence large investment in advt and promotion – Capital Requirements Larger the investment required, lower the number of entrants. – Access to distribution channels No buyer recognition ? Reluctance of tie-up with whole seller ? investment in setting up retail dealers from scratch – Regulatory Policies Govt Agencies, Licenses, Permits, Trade Restrictions, Tariffs
Back
Barriers that new candidates must hurdle
Competitive Pressures from the sellers of Substitute Products
Largely depends on 3 factors 1. If Substitutes are readily available and attractively priced
Creates competitive pressure by placing a ceiling on the prices and indirectly the profits
2.
If Substitutes are viewed as being comparable w.r.t Cost, Quality, performance
E.g. Competition film makers are facing from digital cameras.
3.
Cost to Switch to a substitute
Back
Competitive Pressures from supplier bargaining power and collaboration
• Supplier Seller relationships depends on – If suppliers can exercise bargaining power to influence the terms and conditions of supply
– Nature of supplier seller collaboration in the industry
Factors determining the bargaining power ability of sellers
– If the commodity supplied is available from many suppliers Bargaining power is restricted – Whether the suppliers are the primary suppliers of the particular item – Ease of switching suppliers High switching costs means higher bargaining power. – Availability of commodity Short or less supply indicates high degree of pricing power – Type of input provided Specialized input indicates increase in efficiency, quality and hence performance
Back
Competitive Pressures from Buyer bargaining power and collaboration
• Buyer Seller relationships depends on
– Whether some or many buyers have the bargaining leverage to obtain price concessions and favorable terms of condition – Extent and competitive importance of seller buyer strategic partnerships
Factors determining the bargaining power ability of buyers:
– Number of buyers Lesser the number ? More important it becomes to retain the customer ? Higher the power – Demand is weak Greater is the urgency to sell ? higher is the bargaining power – Cost of switching to competing brands Low switching costs means higher bargaining power. – Knowledgeable Buyers More the commodity awareness ? greater is the bargaining power – Threat of Backward Integration Increased threat gives the buyer greater power to bargain
Back
FACTORS DRIVING INDUSTRY CHANGE
• Driving Force – major factors that influence the changes in the structure of any industry. • Analysis of “Driving forces” can be done by Identifying them and by assessing their impact on the industry • Industry change cannot anymore be related only to Life Cycle Model
Identifying Industry Drivers
• Growing use of internet and technology • Increasing Globalization- need for brands to be seen across the globe • Changes in long term industry growth rate Entry and Exit options, balance between Industry supply and buyer demand • Changes in who buys the product & its use • Product Innovation- constant enhancement
Identifying Industry Drivers contd.
• Technological Change & Manufacturing process innovation • Marketing Innovation • Entry or Exit of major firms – new companies’ entry can shake up old/ existing firms • Diffusion of technical know how across more companies • Changes in cost & efficiency • Growing preferences for differentiated products
Identifying Industry Drivers contd.
• Reduction in uncertainty and risk • Regulatory influence & govt policy changes • Changing societal concerns, attitudes and lifestyles
Assessing the impact of drivers..
Questions to be asked : • Are driving forces causing demand for industry’s products to increase or decrease? • Is competition getting more or less intense? • Are drivers leading to higher or lower profitability
What Market Positions Do Rivals Occupy?
• Who is strongly positioned and who is not? • Understanding industry’s competitive structure
Strategic Group Mapping (SGM)
• SGM is a technique for displaying the different market or competitive positions that rival firms occupy in the industry. – Strategic group is a cluster of firms with similar competitive approaches and positions.
Constructing SGM
• Identify the competitive characteristics differentiating firms in the industry • Plot the firms on a two variable map • Assign firms falling in same strategy space to same strategic groups • Draw circles around each group proportional to its total share in the industries revenue.
Analyzing SGM
• Extent of industry driving forces and competitive pressures affecting certain strategic groups • Extent of variations in profit potential of different groups due to their strengths and weaknesses • Intra and inter group competition
What Strategic Moves are Rivals Likely to make Next?
• Identify competitor’s Strategies • Identify competitor’s Resource Strengths and Weaknesses • Predict competitor’s next move • Prepare effective counter moves/ best course of action
Key Success Factors for future competitive success
What are KSFs? Any industries Key Success Factors (KSFs) are those competitive factors that most of the industry members’ to perform and prosper in the marketplace.
• They are different for different industries.
Fixing KSFs
• On what basis do industry’s buyers choose between competing brands of sellers. • What resources and capabilities does a firm need to be successful. • What shortcomings will put the company at competitive disadvantage.
Common KSFs
Technology Related
? Expertise in a particular Technology or research ? Proven ability to improve processes. Manufacturing Related ? Quality control know-how ? Low cost product design and engineering.
Distribution Related
? A strong network of wholesale distributors/dealers ? Strong direct sales capabilities
Common KSFs contd.…
Marketing Related
? Breadth of product line and product selection ? A well known and well respected brand name. Skills and capability Related ? A good technical workforce. ? Short delivery time capability.
Others
? Overall low costs ? Convenient Location.
Does Industry Outlook present Attractive Opportunity?
• The industry’s growth potential • Powerful competitive forces that effect industry profits. • The degree of risk and uncertainty in the industry’s future. • The constraints to which the industry is exposed.
Does Industry Outlook present Attractive Opportunity?
• The company’s position in the industry vis-à-vis rivals. • The company’s potential to take advantage of vulnerabilities of weaker company’s. • The strength that company has to face unfavorable condition in the industry. • Whether the presence in a particular industry helps the company to be successful in other industry in which it has interest.
Thank You
doc_438330099.ppt