MGT 4090 Management Policy & Strategy Week 2
Welcome to MGT 4090 Management Policy & Strategy
Week 2, Session 2: External Analysis
Date: Thu, 15 Jan 2026
Today’s Agenda
Announcement
External environment
Porter’s five-forces and competition
Announcement
Deadlines for completing:
Express Yourself: by 10 pm on Jan 16
Capstone Registration: by 10 pm on Jan 19
Training modules: by 10 pm on Jan 21
Team Formation:
Teams will be formed by 10 pm on Jan 20
Learning Outcomes
Identify the factors affecting business performances in general.
Distinguish among competitive forces and their effects on industry performance.
How External Factors Impact a Firm
General Environment:
Managers have little control over this environment.
Macroeconomic factors are included.
Examples: Interest rates, exchange rates, etc.
Task Environment:
Managers can influence this environment to a certain extent.
Includes the composition of strategic groups.
Includes the structure of the industry.
The Firm within Its External Environment
Exhibit 3.1
The PESTEL Model
Groups environmental factors into six segments:
Political
Economic
Sociocultural
Technological
Ecological
Legal
A straightforward way to scan, monitor, and evaluate external factors.
Political Factors
Processes and actions of government bodies that influence the firm.
Can be shaped through:
Lobbying
Public Relations
Contributions
Litigation
Political and legal forces are closely related.
Political pressures sometimes result in changes in legislation.
Economic Factors
Largely macroeconomic.
Affect economy-wide phenomena.
Examples include:
Growth rates
Levels of employment
Interest rates
Price stability
Currency exchange rates
Sociocultural Factors
Society’s cultures, norms, and values:
Are constantly in flux.
Differ across groups.
Trends should be monitored.
Demographic trends:
Population characteristics: Age, gender, family size, ethnicity, sexual orientation, religion, and socioeconomic class.
Technological Factors
Application of knowledge:
New processes and products
Innovations in process technology:
Lean manufacturing, Six Sigma quality, and biotechnology
Innovations in product technology:
Smartphones, wearable devices, and high-performing electric cars
Advances in artificial intelligence and machine learning.
Ecological Factors
Broad environmental issues:
Natural environment
Global warming
Sustainable economic growth
The relationship between organizations and the environment can be:
Adversarial
Can provide business opportunities.
Legal Factors
Official outcomes of political processes:
Laws
Mandates
Regulations
Court decisions
Many industries have been deregulated:
For example: Airlines, telecom, energy, and trucking.
Legal factors often coexist or result from political will.
Industry vs. Firm Effects
Industry Effects:
Outcome of the economic structure of the industry.
Elements are common to all:
Entry and exit barriers
Number and size of companies
Types of products and services offered
Firm Effects:
Attribute firm performance to the manager’s actions.
More important than industry effects.
Explaining Firm Performance
Exhibit 3.2
Industry and Industry Analysis
Industry:
Group of incumbent firms.
Relatively similar suppliers and buyers.
Similar products and services.
Industry analysis is a method to:
Identify an industry’s profit potential.
Derive implications for a firm’s strategic position.
The Five Forces Model
Helps strategic leaders understand:
The profit potential of different industries.
How they can position their firms to gain and sustain competitive advantage.
Two key insights about this model:
Competition is viewed more broadly in the five forces model.
Profit potential is a function of the five competitive forces.
Porter’s Five Forces Model
Exhibit 3.3
Source: Porter, M. E. (2008, Jan.). “The five competitive forces that shape strategy,” Harvard Business Review.
Threat of Entry
The risk that potential competitors will enter an industry:
Lowers industry profit potential.
Increases spending among incumbent firms.
Entry barriers include:
Economies of scale
Network effects
Customer switching costs
Capital requirements
Advantages independent of size
Government policy
Credible threat of retaliation.
Power of Suppliers
Pressures that industry suppliers can exert on an industry’s profit potential.
Lowers industry profit potential if:
Suppliers demand higher prices for their inputs.
Suppliers capture part of the economic value created.
The power of suppliers is high when:
Supplier’s industry is more concentrated than the industry it sells to.
Suppliers do not depend heavily on the industry for their revenues.
Incumbent firms face significant switching costs when changing suppliers.
Suppliers offer products that are differentiated.
No readily available substitutes for the suppliers’ offer.
Suppliers can credibly threaten to forward-integrate.
Power of Buyers
Lowers industry profit potential if:
Buyers get price discounts, reducing revenue.
Buyers demand higher quality/service, raising production costs.
The power of buyers is high when:
Only a few buyers; each buying in bulk.
Products are standardized or undifferentiated.
Buyers face low or no switching cost.
Buyers can credibly threaten to backward-integrate.
Threat of Substitutes
Meet the same basic customer need:
In a different way.
Available from outside the given industry.
Examples:
Software vs. professional services.
Energy drinks vs. coffee.
Videoconferencing vs. business travel.
Wireless phone services vs. internet-based services (e.g., Zoom).
Summary
Understood:
External forces affecting business in general.
Four of the five forces that shape competition.
How we should manage these forces.
Reminders:
Deadlines for group projects.
Next Session
Date: Tuesday, Jan 20, 2026
Focus: Continue on External analysis
Reading: Chapter 3
Practice Questions
Thank You!
Date: Thu, 15 Jan 2026