Chapter content

IV. Industry and Competitor Analysis

4.1 Industrial Analysis (Porter’s five force
model)
4.2 Competitor Analysis
The External Environment
 External Environmental Analysis
A continuous process which includes
 Scanning: Identifying early signals of environmental changes and
trends
 Monitoring: Detecting meaning through ongoing observations of
environmental changes and trends
 Forecasting: Developing projections of anticipated outcomes based
on monitored changes and trends
 Assessing: Determining the timing and importance of environmental
changes and trends for firms’ strategies and their management
 The Process of Performing an External Audit

1. Gather competitive intelligence and information about economic,

social, cultural, demographic, environmental, political, governmental,
legal, and technological trends.
2. Assimilate and evaluate the information gathered from different
sources
3. Prepare a prioritized list of the evaluated factors
 This can be done by listing the key external factors on flip charts or
a chalkboard.
4. Requesting all managers rank the factors identified
 from 1 for the most important opportunity/threat to 20 for the least
important.
External Environmental Analysis
 General Environment
 Socio-cultural segment
 Women in the workplace
 Workforce diversity
 Attitudes about quality of work
life
 Concerns about environment
 Shifts in work and career
preferences
 Shifts in product and service
preferences
 Economic segment
 Inflation rates
 Interest rates
 Trade deficits or surpluses
 Budget deficits or surpluses
 Personal savings rate
 Business savings rates
 Gross domestic product
 General Environment
 Political/Legal Segment
 Anti-trust laws – designed to prevent monopolies and encourage market
competition
 Taxation laws
 Deregulation philosophies
 Labor training laws
 Educational philosophies and policies
 Technological Segment
 Product innovations
 Applications of knowledge
 Focus of private and government-supported R&D expenditures
 New communication technologies
 General Environment
Global Segment
 Important political events
 Critical global markets
 Newly industrialized countries
 Different cultural and institutional attributes

Demographic Segment
 Population size
 Age structure
 Geographic distribution
 Ethnic mix
 Income distribution
Industry Environment

 Porter’s five force model (Industry Analysis)

 A set of factors that directly influences a company and
its competitive actions and responses
Industry Environment
Interaction among these factors
determine an industry’s profit potential
1.Threat of new entrants
2.Power of suppliers
3.Power of buyers
4.Product substitutes
5.Intensity of rivalry
 Industry Environment
Porter’s Five force model (Industry Analysis)
 recognize current and potential competitors by
identifying potential customers as well as the firms
serving them
 Conduct competitive analysis
 Recognize that suppliers and buyers can become
competitors
 Recognize that producers of potential substitutes may
become competitors
 Industry Environment
Five Forces Model of Competition
 Threat of New Entrants
Barriers to entry
 Economies of scale
 Product differentiation
 Capital requirements
 Switching costs
 Access to distribution channels
 Cost disadvantages independent of scale
 Government policy
 Expected retaliation from existing companies
 Bargaining Power of Suppliers
 A supplier group is powerful when:

 Itis dominated by a few large companies

 Satisfactory substitute products are not available to industry firms
 Industry firms are not a significant customer for the supplier group
 Suppliers’ goods are critical to buyers’ marketplace success
 Effectiveness of suppliers’ products has created high switching costs
 Suppliers are a credible threat to integrate forward into the
buyers’ industry
Bargaining Power of Buyers
Buyers (customers) are powerful when:
 they purchase a large portion of an industry’s total
output
 the sales of the product being purchased account for a significant
portion of the seller’s annual revenues
 they could easily switch to another product
 the industry’s products are undifferentiated or standardized, and
 buyers pose a credible threat if they were to integrate backward into
the seller’s industry
Threat of Substitute Products
Product substitutes are strong threat when:
 customers face few switching costs
 substitute product’s price is lower
 substitute product’s quality and performance capabilities
are equal to or greater than those of the competing
product
 Intensity of Rivalry
Intensity of rivalry is stronger when competitors:
 Are numerous or equally balanced
 Experience slow industry growth

 Have high fixed costs or high storage costs

 Lack of differentiation or low switching costs

 Experience high strategic stakes

 Have high exit barriers

 High Exit Barriers
 Common exit barriers include:
 Specialized assets (assets with values linked to a particular business or
location)
 Fixed costs of exit such as labor agreements
 Strategic interrelationships (relationships of mutual dependence
between one business and other parts of a company’s operation, such
as shared facilities and access to financial markets)
 Emotional barriers (career concerns, loyalty to employees, etc.)
 Government and social restrictions
Competitor Environment
 Competitor Environment
Competitor intelligence is the ethical gathering of
needed information and data about competitors’
objectives, strategies, assumptions, and capabilities
 What drives the competitor as shown by its future objectives?
 What the competitor is doing and can do as revealed by its current
strategy?
 What the competitor believes about itself and the industry, as shown
by its assumptions?
 What the competitor may be able to do, as shown by its capabilities?
Competitor Analysis
Future Objectives:
 How do our goals compare with
our competitors’ goals?
 Where will the emphasis be
placed in the future?
 What is the attitude toward risk?
Competitor Analysis
Current Strategy:
 How are we currently
competing?
 Does this strategy support
changes in the competitive
structure?
Competitor Analysis
Assumptions:
 Do we assume the future will be
volatile?
 Are we operating under a status
quo?
 What assumptions do our
competitors hold about the
industry and themselves?
Competitor Analysis
Capabilities:
 What are our strengths and
weaknesses?
 How do we rate compared to our
competitors?
Competitor Analysis

Response:
 What will our competitors do in the
future?
 Where do we hold an advantage over
our competitors?
 How will this change our relationship with
our competitors?
End of Chapter - 4