CHAPTER 2

Environment & Industry Analysis

And Firm Performance
STRATEGIC PLANNING PROCESS
(EFE) (IFE)

• Vision
• Mission
• Strategic Objectives

• Corporate Strategies
• Business Strategies
Strategy • Competitive Strategies
Formulation • International Strategies
• Innovative Strategies

• Ethics/CSR
Strategy • Corp Dev
Implementation • HR (Organizational Design)
• Marketing
Strategy Formulation & Implementation Across
Levels
• Vertical Integration
• Horizontal Integration
• Diversification
• International

• Cost Leadership
• Differentiation
• Integration
• Competitive
• Innovative

Marketing HR Corp Dev

8-3
 STRATEGY:
GAINING & SUSTAINING COMPETITIVE
ADVANTAGE
Competitive Shareholder
Strategy Advantage Value

1. Where do we compete?
2. What unique value do we bring?
3. What resources and capabilities do we
utilize?
4. How do we sustain our value?
 SOURCES OF SUPERIOR
PROFITABILITY

Strategy to
Attractive
Offer
Industry
Unique
(Where)
Value

Superior
Profitability
 “INDUSTRY STRUCTURE” PERSPECTIVE
“FIVE FORCES” ANALYSIS OF COMPETITIVE STRATEGY

Threat of New
Entrants

Bargaining Power Rivalry Among Bargaining Power

of Suppliers Existing Competitors of Buyers

Threat of Substitutes
 “INDUSTRY STRUCTURE” PERSPECTIVE
“FIVE FORCES” ANALYSIS OF COMPETITIVE STRATEGY

SIX
Threat of New
Entrants

Bargaining Power Rivalry Among Bargaining Power

of Suppliers Existing Competitors of Buyers

Threat of Substitutes Complements

 Airline Industry
THREAT OF ENTRY
HIGH
•entrants have cost advantages
•moderate capital requirements
•little product differentiation
•deregulation of governmental
barriers

INDUSTRY RIVALRY
BUYER POWER
SUPPLIER POWER HIGH
•many companies MEDIUM/HIGH
HIGH •Buyers extremely price
•strong labor unions •little differentiation
•excess capacity sensitive
•concentrated aircraft
•Good access to
makers •high fixed/variable costs
•cyclical demand information
•Low switching costs

THREAT OF COMPLEMENTS
SUBSTITUTES LOW
MEDIUM • Hotels & Rental Cars
•Autos/train for short • If cheap & convenient
distances
Pharmaceutical Industry
THREAT OF ENTRY
LOW
•economies of scale
•capital requirements for R&D and
clinical trials (more than $300 million
per drug).
•product differentiation
•control of distribution channels
•patent protection

INDUSTRY RIVALRY BUYER POWER

LOW-MED LOW
SUPPLIER POWER •high concentration
Physician as buyer:
LOW •product differentiation
• Not price sensitive
Suppliers provide mostly •patent protection
commodity inputs •steady demand growth • No bargaining power.
•no cyclical fluctuations of (Changing with
demand managed care.)

THREAT OF COMPLEMENTS
SUBSTITUTES LOW-MED
LOW • Informed doctors &
No substitutes. consumers, favorable gov
(Changing as managed care
policies, & insurance
encourages generics.)
 EXERCISE: 6 FORCES OF
COMPETITION
1. In project teams, draw Porter’s 6 Forces for your
project company’s industry.

2. Decide if each of strength of those forces are

low, medium, or high in your project company’s
industry.

3. Provide one example of why those forces are

low, medium, or high?
 Airline Industry
THREAT OF ENTRY
HIGH
•entrants have cost advantages
•moderate capital requirements
•little product differentiation
•deregulation of governmental
barriers

INDUSTRY RIVALRY
BUYER POWER
HIGH
SUPPLIER POWER MEDIUM/HIGH
•many companies
HIGH •Buyers extremely price
•little differentiation
•strong labor unions sensitive
•concentrated aircraft •excess capacity
•Good access to
•high fixed/variable costs
makers information
•cyclical demand
•Low switching costs

THREAT OF COMPLEMENTS
SUBSTITUTES LOW
MEDIUM • Hotels & Rental Cars
•Autos/train for short • If cheap & convenient
distances
 EXERCISE: EXTERNAL ANALYSIS

1. Which ONE of Porter’s forces will likely

impact your project company the most over
the next 5 to 10 years?
2. Does this ONE force pose an Opportunity or
a Threat to your project company over the
next 5 to 10 years?

1–12
 TAKEAWAYS: 6 FORCES OF
COMPETITION
• What did you all learn about Porter’s 6 Forces
of competition?

13
ENVIRONMENT SHAPES
PROFITABILITY
ENVIRONMENT SHAPES
PROFITABILITY
8-16
 EXERCISE: 6 FORCES &
ENVIRONMENT
1. Which 1 of the 7 general environmental factors (excluding
Complements) influence your project company’s industry
profitability? How exactly would it do this?

2. How does this general environmental factor affect 1 of the

6 industry forces in your project company’s industry?

3. Does this general environmental factor pose an

Opportunity or a Threat to your project company over the
next 5 to 10 years?
ENVIRONMENT SHAPES
PROFITABILITY
 TAKEAWAYS: ENVIRONMENT & 6
FORCES
• What did you all learn about how general
environment factors affect Porter’s 6 Forces
of competition?

19
 “INDUSTRY STRUCTURE” PERSPECTIVE
“FIVE FORCES” ANALYSIS OF COMPETITIVE STRATEGY

SIX
Threat of New
Entrants

Bargaining Power Rivalry Among Bargaining Power

of Suppliers Existing Competitors of Buyers

Threat of Substitutes Complements

STRATEGIC GROUP MAP—PLOT
INDUSTRY PLAYERS
EXERCISE: STRATEGIC GROUP MAP

• For your project company’s industry, draw a

strategic group map?

22
STRATEGIC GROUP MAP—PLOT
INDUSTRY PLAYERS
 EXERCISE: STRATEGY CANVAS
• For your project company’s industry, draw a
Strategy Canvas.
• From your Strategy Canvas, what conclusions
can you make about your industry and its
competitors?
• As a tool, how is the Strategy Canvas different
than, and likely better, the Strategic map?

25
Questions and Answers
Presented By: Thomas A. Shirley (thomas.shirley@sjsu.edu)

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