Lecture 02 External Analysis
External Analysis: Key concept in strategic management focusing on evaluating external factors impacting a business.
Page 2: The Strategic Management Process
Step 1: Define current business mission and objectives.
Step 2: Perform external and internal audits.
Step 3: Formulate strategies based on audits.
Step 4: Translate strategies into operational goals.
Step 5: Formulate operational tactics.
Step 6: Implement strategies and tactics.
Step 7: Evaluate performance against strategic goals.
Page 3: Inputs from Internal Analysis
Identify Resources: Valuable, rare, difficult to imitate, and substitute resources.
Capabilities: Understand the firm's internal capabilities.
Strengths and Weaknesses: Conduct analysis to identify strengths and weaknesses.
Value Chain Analysis: Analyze the value-adding processes in the business.
Business Level Strategies: Focus on potential strengths/weaknesses and market opportunities.
Inputs from External Analysis:
Macro Environment Analysis
Industry Analysis
Competitors’ Objectives and Strategies
SWOT Analysis: Strengths, Weaknesses, Opportunities, Threats.
Strategic Groups Analysis: Examine similar firms within an industry.
Page 4: Environmental Analysis Levels
Levels of Analysis:
Firm Level: Internal resources and capabilities.
Industry Level: Competitive forces shaping the industry.
Macro Level: External environmental factors impacting all players in the industry.
Determining Opportunities and Threats: Analyze external factors affecting industry and firm performance.
Page 5: Environmental Analysis Tools
Types of Analysis:
PEST Analysis: Political, Economic, Social, Technological factors.
SWOT Analysis: Assess internal inputs for strength and weaknesses.
Porter’s Five Forces Analysis: Analyze competitive environment.
Key Success Factors: Identify critical areas for competitive success.
Strategic Group Mapping: Visual representation of competitive positioning.
Page 6: Macro Environment (Socio-Cultural & Political/Legal)
Socio-Cultural Segment Factors:
Women in the workforce, attitudes about quality of work life, workforce diversity.
Concerns about the environment, shifts in work preferences.
Political/Legal Factors:
Antitrust laws, taxation, labor laws, deregulation.
Page 7: Macro Environment (Economic & Technological)
Economic Factors:
Inflation rates, interest rates, trade deficits, savings rates, GDP.
Technological Factors:
Innovations, R&D focus, communication technologies.
Page 8: Macro Environment (Global & Demographic)
Global Factors:
Key global political events, new markets, differences in culture and institutional behavior.
Demographic Factors:
Population size, age structure, geographic distribution, ethnic mix.
Page 9: Environmental Trends Impacting Industries
Industry Trends:
Aging population, rising affluence, health care demand.
Sociocultural Trends:
More women in the workforce, increased health and fitness awareness.
Political/Legal Trends:
Tort reform impacts on legal services, ADA implications in various sectors.
Technological Trends:
Genetic engineering implications across various industries.
Economic Trends:
Increasing interest rates and their implications on different sectors.
Page 10: SWOT Analysis Overview
Strengths: Internal advantages.
Weaknesses: Internal limitations.
Opportunities: External potential advantages.
Threats: External challenges.
Strategy Alignment: Ensure strategies align with internal capabilities and external opportunities.
Page 11: Detailed SWOT Analysis Example
Resource Strengths:
Core competencies, strong brand presence, economies of scale.
Resource Weaknesses:
Lack of managerial talent, obsolete facilities, debt issues.
Opportunities:
Expansion, new technology adoption, regulatory changes.
Threats:
Competition, market saturation, adverse regulations.
Page 12: Porters Five Forces Model of Competition
Competitive Forces:
Rivalry: Intensity among existing competitors.
New Entrants: Threat posed by new companies entering the market.
Substitutes: Competitive pressure from alternative products.
Suppliers: Bargaining power of suppliers.
Buyers: Bargaining power of purchasers.
Page 13: Analyzing the Five Competitive Forces
Assessment Criteria:
Strength of each force: strong, moderate, weak.
Understanding how each force creates competitive pressure.
Page 14: Rivalry Among Competing Sellers
Key Drivers:
Price, quality, innovation, customer service, advertising.
Competitive Tools: How firms compete to gain market share.
Page 15: Factors Affecting Rivalry Strength
When Rivalry is Strong:
Many equally sized firms, slow market growth, low switching costs.
Page 16: Competitive Force of Threat of New Entry
Threat Level: Depends on entry barriers and reactions from existing firms.
Page 17: Common Barriers to Entry
Types of Barriers:
Economies of scale, brand loyalty, capital requirements, regulatory obstacles.
Page 18: Assessing Substitute Products Threat
Indicators of Threat:
Growth in substitution sales, low customer switching costs.
Page 19: Importance of Substitute Products
Customer Preference: Attraction to substitutes from competing industries affects market dynamics.
Page 20: Competitive Force of Suppliers
When Suppliers are Powerful:
Product significance, high switching costs, unique components.
Page 21: Competitive Force of Buyers
When Buyers are Strong:
Large purchases, ability to integrate backwards, low switching costs.
Page 22: Implications of the Five Forces
Unattractive Environment: High rivalry, low entry barriers, strong substitutes, powerful buyers/suppliers.
Ideal Environment: Moderate rivalry, high barriers, weak substitutes.
Page 23: Key Success Factors (KSF)
Definition: Elements crucial for competitive success across strategic groups.
Strategic Focus: Understanding and excelling at KSFs to ensure long-term success.
Page 24: Strategy and KSFs
Strategic Foundation: Aiming to excel at industry KSFs can drive success in the market.
Page 25: Example of KSFs in the Beer Industry
Key Success Factors:
Brewing capacity, distribution networks, advertising effectiveness.
Page 26: Strategic Group Mapping
Purpose: To visualize competitive positions and strategy similarities among industry players.
Page 27: Example: Strategic Group in the Automobile Industry
Competitors: Highlight of various automobile brands across a spectrum of product lines.
Page 28: Constructing a Strategic Group Map
Procedure: Detailed steps for mapping competitive positioning using differentiating characteristics.
Page 29: Guidelines for Strategic Group Maps
Selecting Variables: Must be core competitive differentiators.
Page 30: Interpreting Strategic Group Maps
Insights: Understanding competition can aid in strategizing effectively against rivals.
Page 31: Strategic Group Positioning Factors
Contextual Analysis: Price versus quality, product line breadth, and competitive gap analysis.