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What do they have in
common ?
Branded food and beverage
Telecommunications
Financing of personal loans
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
 Analysis of general
environment
Analysis of industry
environment
Analysis of competitor
environment

The External
Environment

Strategic Intent
Strategic Mission
 General Environment
Sociocultural segment
 Women in the workplace
 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
 Budget deficits or surpluses
 Personal savings rate
 Business savings rates
 Gross domestic product

Political/Legal Global Segment

 Important political events
Segment
 Taxation laws
 Critical global markets
 Deregulation philosophies
 Newly industrialize countries
 Labor laws
 Different cultural and institutional
 Educational philosophies and policies
attributes

Technological SegmentDemographic
 Segment
 Product innovations
Population size
 Applications of knowledge  Age structure
 Focus on R&D expenditures
 Geographic distribution
 New communication technologies
 Ethnic mix
 Income distribution
Can firms anticipate new
entrants to the market?
( Retailing)
India's retail market is forecast to double in
another six years from the current $375 billion
Earlier, Wal-Mart had faced tough opposition
in India from small traders and the Left parties
government should look at opening up retail
by bringing in foreign direct investment," said
Rajan Bharti Mittal
Britain's Marks and Spencer and Tesco also
have concluded alliances with local Indian
partners
Industry Environment
A set of factors that directly influences a
company and its competitive actions and
responses
Interaction among these factors determine an
industry’s profit potential
 Threat of new entrants
 Power of suppliers
 Power of buyers
 Product substitutes
 Intensity of rivalry
Five Forces Model of
Competition
Identify current and potential competitors
and determine which firms serve them
Conduct competitive analysis
Recognize that suppliers and buyers can
become competitors
Recognize that producers of potential
substitutes may become competitors
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Bargaining Power of
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11
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
Bargaining Power of
Suppliers
A supplier group is powerful when:

 it is 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 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 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 the competitor may be able to do, as
shown by its capabilities
Competitor Analysis
Future Objectives:
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
Future objectives
Current Strategy:
 How are we currently
competing?
Current strategy
 Does this strategy support
changes in the competitive
structure?
Competitor Analysis
Assumptions:
Future objectives
 Do we assume the future
will be volatile?
 Are we operating under a
Current strategy
status quo?
 What assumptions do our
competitors hold about
Assumptions
the industry and
themselves?
Competitor Analysis
Capabilities:
Future objectives
 What are our strengths
and weaknesses?
Current strategy
 How do we rate compared
to our competitors?

Assumptions

Capabilities
Future objectives Response

Response:
Current strategy  What will our competitors
do in the future?
 Where do we hold an
Assumptions advantage over our
competitors?
 How will this change our
Capabilities relationship with our
competitors?