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Evaluating A Companys External Environment Claudia Stevian

Dini Wulansari Rinda Wulandary Siti Fatimah Ulfa Muchaji

Introduction
To evaluate a business prospects, managers should know what is the companys present situation. Diagnosis of a companys external & internal environments is a prerequite for it. This chapter presents the concept and analytical tools for zeroing in on those aspects of a companys external environment that should be considered in

From Thinking Strategically about the Companys Situation to Choosing a Strategy


Thinking strategically about a firms external environment

Thinking strategically about a firms internal environment

Forming a strategic vision of where the firm needs to head

Identifying promising strategic options for the firm

Selecting the best strategy and business model for the firm

Components of Companys Macro Environment

The Seven Components of the Macro-Environment

Thinking Strategically About a Companys Industry & Competitive Environment


To gain a deep understanding of a companys industry and competitive environment, managers do not need to gather all the information. They can focus more directly on using some well-defined concept and analytical tools through this 7 questions: 1.Does the industry offer attractive opportunities for growth? 2.What kind of competitive forces are industry members facing, and how strong is each force? 3.What factors are driving changes in the industry, and what impact will these changes have on competitive intensity and industry profitability? 4.What market positions do industry rivals occupy-who is strongly positioned and who is not? 5.What strategic moves are rivals likely to make next? 6.What are key factors for competitive succes in the industry? 7.Does the industry offer good prospects for attractive profits?

Question 1: Does the Industry Offer Attractive Opportunities for Growth?

It begins with a consideration of weather if offers good opportunities for growth. Growth cannot guarantee a profitability. Key economic indicators of an industrys growth prospects:
Market size and growth rate Number of rivals Number and types of buyers Life cycle stage Differentiation and innovation

Question 2: What kinds of Competitive forces are Industry members facing & How strong are they?

1. Rivalry Among Competing Sellers


Buyer demand is growing slowly Buyer demand is falling off and sellers find themselves with excess capacity and/or inventory Buyer costs to switch brands are low The products of industry members are commodities or else weekly differentiated Competitors have numerous or are

2. Potential New Entrants


Entry barriers are low Industry members are unwilling or unable to strongly contest the entry of newcomers There is a large pool of potential entrants, some of which have the capabilities to overcome high entry barriers Existing industry members are looking to expand their market

3. Substitutes Product
Goods substitutes are readily available or new ones are emerging Substitutes are attractively priced Substitutes have comparable or better performance features Buyers have low costs in switching to substitutes

4. Supplier Bargaining Power


Supplier products / service are in short supply Supplier products / service are differentiated Supplier products / service are critical to industry members production processes Industry members incurred high

5. Buyers Bargaining Power


Buyer costs of switching to competing products are low The industrys products are standardized or undifferentiated Buyers are large and few in number relative to the number of industry sellers Buyer demand is weak in

Question 3: What factors are driving industry change & What impacts will they have?

Analyzing Industry Dynamics 1.Identifying an Industrys Drivers of Change 2.Assessing the impact of the Factors Driving Industry Change 3.Developing a strategy That Takes the Changes in Industry Conditions into Account

Question 4: How are industry rivals positioned Who is strongly positioned & Who is not?
Companies competition in :
Different price / quality ranges Different distribution channels Product features that appeal to different types of buyers Different geographic coverage

It stands to reason that some companies are stronger or more attractive market positions than other companies. Understanding : Which companies are strongly positioned, and Which are weakly positioned is an integral part to analyzing an industrys competitive structure. The BEST TECHNIQUE is Strategic Group Mapping
For revealing the market positions and the different competitive positions of industry competitors.

Using

STRATEGIC GROUP MAPS

: To assess the Market Positions of

Key Competitors >> used for the purpose of displaying the competitive positions tha rival firms occupy in the industry. >> it becomes important to analyze the industrys competitive structur and indentify the strategic group.

A STRATEGIC GROUP : >> is a cluster of industry rivals that similar competitive approaches
and market positions.

Companies (in the same strategic group) can resemble one another in any of several ways : - Comparable product-line breadth sell in the same price / quality ranges in the same distribution channels similar types of buyers identical technological approaches offer buyers with similar services

The Procedure for constructing a Strategic Group Map : STEP 1 >> Identify the competitive characteristics that differentiate firms in the industry. STEP 2 >> Plot the firms on a two-variables map using pairs of these differentiating characteristics. STEP 3 >> Assign firms occupying about the same map location to the same strategic group. STEP 4 >> Draw circles around each strategic group, making the circles EXAMPLE : TWO the size of proportional to DIMENSIONAL the groups share of total industry sales DIAGRAM revenues.

Maps :
1. Two variables selected as axes should not be highly corelatted. 2. The Variables chosen as axes should expose a big difference between the variables. This will help to easily identify the rivals position in the market place. 3. The variables selected dont have to be either quantitative or continuous. 4. Drawing a size of circle proportional to combined sales of the firms in each strategic group allow map to reflect relative sizes of each strategic group. 5. If more than two good competitive variables can be used as axes for the map, several maps can be drawn, it means ; >> Different competitive variables should be used as axes for the map because there is not necessarily one best map.

1. Identification of close and distant rivals. This is important to know because close strategic groups have stronger cross-group competitive rivalry. 2.Identification of attractive and unattractive positions of the firms in industry. 3.Strategic group mapping helps in identifying the strategic group a firm should consider entering. >> In Strategic Group equally attractive. << Maps , there is not all positions on the map are

Two reasons for why some positions can be more attractive than others : Some strategic groups are more favorably positioned than others because they confront weaker competitive forces and/or because they are more favorably impacted by the drivers of industry changes. Prevailing competitive pressures in the industry and drives of changes favor some strategic groups and hurt others. Profit prospects vary from strategic group to strategic group. Part of strategic group map analysis always entails drawing conclusions about >> the profit of firms in different strategic groups can vary from where on the map is the best rate to the principal buyer good to poor because of differing growth place forbe and why ? Which served by each group. segments companies/ strategic groups are destined to prosper because of their
positions ? Which companies/ strategic groups seem destined to struggle because of their positions ? What account for why some parts of the map are better than others ?

Question 5: What strategic moves are rivals likely to make next?

Company pays attention to the strategies and situations of competitors, and has some inkling of what moves they will be making next strategic.

A firms own best strategic moves are affected by:


- current strategic of competitors - actions competitors are likely to take next step

Profiling key Rivals involves studying :


current position in industry strategic objectives basic competitive approaches

Competitive Intelligence :

>> about rivals strategies, their latest actions and announcements, financial performance, strengths and weakness, leadership styles,. >> for anticipating the strategic moves competitors are likely to make next plans. >> Many company have a Competitive Intelligence unit that sifts through the available information to construct up-to-date strategic profiles of rivals : Their current strategies Resources

GOOD Competitive Intelligence : >> helps managers avoid the damage to sales and profits that comes from being caught napping by the surprise moves of rivals. >> COMPETITORS ANALYSIS << Successful strategist take great pains in scouting competitors : - understanding their strategies - watching their actions - Evaluating their vulnerability to driving forces and competitive pressures - Sizing up their resources strengths and weakness, and their capabilities - Trying to anticipate rivals next moves >> PREDICTING MOVES OF RIVALS << Predicting rivals next moves involves : - analyzing their current competitive positions - Examining public pronouncements about what it will take to be successful in industry - Gathering information from grapevine about current activities and potential changes - Studying past actions and leadership

Several useful questions that company managers can pose to help predict the likely actions of important rivals :
1)Which competitors have strategies that are producing good results, and thus are likely to make only minor strategic adjustments ? 2)Which competitors are losing ground in the marketplace or otherwise struggling to come up with a good strategy ? 3)Which competitors are poised to gain market share ? And which ones seem destined to lose ground ? 4)Which competitors are likely to rank among the industry leaders five years from now ? Considering about which competitors who has strong ambitions and the resources needed to overtake the current industry leader ? 5)Which rivals badly need to increase their unit sales and market share ? What strategic options are they most likely to pursue several main aspects (lowering prices, new models and styles, boosting advertising, build better brand name awareness, etc) ? 6)Which rivals are likely to enter new geographic markets or make major To succeed in predicting a competitors next moves, company strategists moves to substantially increase their sales and market share in a need to have good understanding of each rivals situation, it pattern particular geographic region ? of behavior in the past, how its managers think, and what the rivals 7)Which rivals are strong candidates to expand their product offering and best strategic options are. enter new product segments where they do not currently have a presence ? 8)Which rivals are good candidates to be acquired ? Which rivals may be SCOUTING the competitors well enough to anticipate next moves that looking to make an acquisitions and are financially able to do so ? allows managers to prepare effective countermoves & to take rivals probable actions into account in crafting their own best course of

Question 6 : What are the key factors for future competitive success? Key Success Factors (KSF)
Those competitive factors that affect industry members ability to survive and prosper in the marketplace.

Identifying KSF is a top priority in analytical and strategy-making considerations.

Key Success Factors


KSFs include :
The strategy elements Product attributes Operational approaches Resources Competitive capabilities

3 Questions on Key Success Factors


1.What product attributes and service characteristics are crucial? 2.What resources and competitive capabilities must a company have to be competitively successful? 3.What shortcomings are almost certain to put a company at a significant competitive

Question 7: Does the industry offer good prospects for attractive profits?
Determining whether the industry presents the company with strong prospects for attractive profits. Important factors:
Industrys growth potential Whether strong competitive forces are squeezing industry profitability to subpar levels Whether industry profitability will be favorably or unfavorably affected by the prevailing drivers of change in the industry Whether the company occupies a stronger market position than rivals & whether this is likely to change in the course of competitive interactions How well the companys strategy delivers on the industry key success factors