What and How to Assess Macro

Environmental Factors
 How & What to assess these macro environmental
factors?

• Answer the following 6 questions:

1. How strong are the industry’s competitive forces? – Five
Forces Framework
2. What are the driving forces in the industry, and what impact
will they have on competitive intensity and industry
profitability? – The Driving Forces
3. What market positions of industry rivals occupy – who is
strongly positioned and who is not? – Competitor Analysis
4. What strategic moves rivals likely to make next? Competitor
Analysis
5. What are the industry’s key success factors – Key Success
factors
6. Is the industry outlook conducive to good profitability? –
Value net
 Assessing the Co’s Industry & Competitive contd…

 How to assess these macro environmental factors?

 Answer the following questions:
1. How strong are the industry’s competitive forces?
Analysis of the answers of these six
2. What are the driving forces in the industry, and what impact
questions provide managers the
will they have on competitive intensity and industry
understanding needed to craft a
profitability?

strategy
3. What market positions of industry rivals occupy – who is
fits
thatand who to
strongly positioned co’s EXTERNAL
is not?

Environment
4. What strategic moves rivals likely to make next?
5. What are the industry’s key success factors
6. Is the industry outlook conducive to good profitability?
Question 1: How Strong are the
Industry’s Competitive Forces
Question 1: Strength of Industry's competitive forces: Five Forces
Framework

 Mgrs need to analyze competitive forces in industry

environment – to identify O & T.
 The competitive forces are never the same over time and
same for all the industries
 Michael E Porter’s framework “Porter’s Five Forces Model/ Five
Forces Framework” – helps mgrs to do so.
 These 5 forces that shape competition within an industry.
 Stronger each of the forces is, the more limited is the
ability of established co to raise price & earn greater
profit.
 The Five Forces Model of Competition: A key
Analytical Tool
Risk of Entry of
Potential
Competitors

Bargaining Intensity of Bargaining

Power of Rivalry among Power of
Supplier Established Buyer
Firms.

Threat of
Substitute
Question 1: Strength of Industry's competitive forces: Five Forces Framework
contd..

 This model depicts – the state of competition in an

industry.
 A STRONG competitive force can be regarded as a threat
because it depresses profit.
 A WEAK force can be viewed as opportunity because
allows a co to earn profit.
 Three steps to be followed for using this model
 to determine the strength of competitive pressure (see
next page)
 USING THE FIVE-FORCES MODEL
OF COMPETITION

For each of the five forces, identify the different parties

Step 1 involved, along with the specific factors that bring about
competitive pressures.

Evaluate how strong the pressures stemming from each of

Step 2
the five forces are (strong, moderate, or weak).

Determine whether the five forces, overall, are supportive

Step 3
of high industry profitability.

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Question 1: Strength of Industry's competitive forces: Five Forces Framework contd..

• Task of managers is to -
 recognize how changes in 5 forces give rise to new
O & T.
 Formulate appropriate strategic response
 Alter the Strength of one or more of the 5 forces to
its advantage through its choices of strategy.
 Porter’s Five Forces Model

1st Force: Competitive Pressure Created by the Rivalry

Among Established Companies
 Strongest of the five forces is often the intensity of the
rivalry amongst exiting competitors
 Rivalry refers to the competitive struggle between
companies in an industry to gain market share from
each other.
 Competitive struggle can be fought using price, product
design advertising, promotion spending, direct selling
efforts, & after-sales service & support.
 More intense rivalry implies – lowering prices & rising
cost.
 Porter’s Five Forces Model

• So, intense rivalry is mostly the function of three factors:

i. Industry competitive Structure •High fixed cost of exit
ii. Demand condition •Emotional attachment
•Economic dependency
iii. Height of exit barrier.
• There are some other common factors too…
• (See the diagram in the next slide)