STRATEGIC MANAGEMENT

2nd WEEK

TAU - BUSINESS ADMINISTRATION

 Analyzing the
External
Environment of
the Firm:
Creating
Competitive
Advantages
chapter 2
Analyzing the External Environment of the
Firm: Creating Competitive Advantages
Environmental scanning: surveillance of a firm’s external
environment to predict environmental changes and
detect changes already under way
Environmental Monitoring
Environmental monitoring: a firm’s analysis of the external
environment that tracks the evolution of environmental trends,
sequences of events, or streams of activities.
Hard trend: a projection based on measurable facts, events, or
objects. It is something that will happen. Example: The aging of
the population

Soft trend: something that might happen and for which the
probability that it might happen can be estimated.
Example: Continuing budget deficits
Competitive intelligence: a firm’s activities of collecting
and interpreting data on competitors, defining and
understanding the industry, and identifying competitors’
strengths and weaknesses.
TRENDS AND TECHNOLOGIES BUSINESS
Environmental forecasting: The development of plausible
projections about the direction, scope, speed, and
intensity of environmental change.
• Environmental forecasting predicts change
– Plausible projections about
• Direction of environmental change?
• Scope of environmental change?
• Speed of environmental change?
• Intensity of environmental change?
• Scenario analysis involves detailed
assessments of the ways trends may affect an
issue & development of alternative futures
based on these assessments
 SWOT Analysis
SWOT analysis is a basic technique for analyzing firm and industry
conditions
• Firm or internal conditions = Strengths & Weaknesses: Where the
firm excels or where it may be lacking
• Environmental or external conditions = Opportunities & Threats:
Developments that exist in the general environment & activities
among firms competing for the same customers
 The General Environment
The general environment is composed of factors that
are both hard to predict and difficult to control:
• Demographic • Technological
• Sociocultural • Economic
• Political/Legal • Global
Demographic segment of the general environment: genetic and
observable characteristics of a population, including the levels
and growth of age, density, sex, race, ethnicity, education,
geographic region, and income.

Sociocultural segment of the general environment: the values,

beliefs, and lifestyles of a society

Political/legal segment of the general environment: how a society

creates and exercises power, including rules, laws, and taxation
policies.
Technological segment of the general environment innovation and
state of knowledge in industrial arts, engineering, applied sciences,
and pure science; and their interaction with society
Economic segment of the general Environment characteristics of
the economy, including national income and monetary conditions.
Global segment of the general Environment influences from
foreign countries, including foreign market opportunities, foreign-
based competition, and expanded capital markets.
 The Competitive Environment
• The competitive environment consists of factors in the task or
industry environment that are particularly relevant to a firm’s
strategy:
– Competitors (existing or potential)
• Including those considering entry into an entirely new
industry
– Customers (or buyers)
– Suppliers: Including those considering forward integration
Porter’s Five-Forces Model of Industry
Competition
How the Internet and Digital Technologies
Affect Competitive Forces
 Using Industry Analysis: A Few Caveats
• Managers must not always avoid low profit industries –
these can still yield high returns for players who pursue
sound strategies
• Five forces analysis implicitly assumes a zero-sum game –
yet mutually beneficial relationships can still be established
with buyers & suppliers
• Five forces analysis is essentially a static analysis – yet
external forces can still change the structure of all
industries
– See the value net
• Vertical dimension = suppliers & customers
• Horizontal dimension = substitutes & complements
The Value Net
 Strategic Groups Within Industries
• Two unassailable assumptions in industry
analysis:
– No two firms are totally different
– No two firms are exactly the same
• Strategic groups – clusters of firms that share
similar strategies:
– Breadth of product & geographic scope
– Price/quality
– Degree of vertical integration
– Type of distribution
Strategic Groups Within Industries
 Strategic Groups Within Industries
• Strategic groups as an analytical tool
– Helps identify barriers to mobility that protect a group
from attacks by other groups
– Helps identify groups whose competitive position may
be marginal or tenuous
– Helps chart the future direction of firms’ strategies
– Helps to think through the implications of each
industry trend for the strategic group as a whole
“WASSALAM”