Chapter III

ANALYZING A COMPANY'S EXTERNAL ENVIRONMENT

 

 I. Methods of Industry and Competitive Analysis

bullet Industry and competitive analysis uses a tool kit of concepts and techniques to get a fix on key industry traits, intensity of competition, drivers of change, etc.
bullet Involves the following seven questions:

 

1) What are the industry's dominant economic features? (Example -- Table 3.1, page 49)

bullet Market size
bullet Scope of rivalry
bullet Market growth rate
bullet Number of buyers, size, and requirements
bullet Production capacity
bullet Etc.

 

2)  What kinds of Competitive Forces are Industry Members Facing? (Fig. 3.3, page 51)

bullet Porter's Five Force Model:
bullet Rivalry among competing sellers (1)
bullet Greater as number of sellers increases
bullet Greater when demand is growing slowly
bullet Greater when price cuts used
bullet Greater when switching costs are low
bullet Greater when competitors bolster stand
bullet Greater when costs much to exit market
bullet Greater when competitors are diverse
bullet Etc.
bullet Potential entry of new competitors (2)
bullet Greater when low scale of economies exist
bullet Greater when easy to gain technology/know how, etc.
bullet Greater when low experience curve exists
bullet Greater when low brand preference and customer loyalty exists
bullet Greater when easy access to distribution channels exists
bullet Greater when low trade restrictions exist
bullet Etc.
bullet Substitute products (3)
bullet Greater when low price substitutes available
bullet Greater when substitute products have satisfying attributes
bullet Greater when buyers can easily switch
bullet Suppliers (4)
bullet Greater when supplies are not "standard"
bullet Greater when suppliers are few in number
bullet Greater when supplies are major component of product
bullet Etc.
bullet Buyers (5)
bullet Greater when switching costs are low
bullet Greater when number of buyers are few
bullet Greater when buyers are well informed
bullet Greater when buyers have discretion
bullet Etc.
bullet Note:  See Fig. 3.4, page 52 for weapons for competing and factors affecting the strengths of rivals

 

3)  What factors are driving industry change and what impacts will they have?

bullet Common driving forces:
bullet The internet and the new e-commerce opportunities
bullet Change in industry growth rate
bullet Change in who buys and how they use product/service
bullet Product innovation
bullet Marketing innovation
bullet Entry/exit of major firms
bullet Technological change
bullet Increasing globalization
bullet Changes in cost and efficiency
bullet Changes in government policies
bullet Changes in societal concerns
bullet Etc.

 

4)  What  market positions do rivals occupy, and who is strongly positioned and who is not?

bullet See the Strategic Group Map, Capsule 3.1, page 176

 

5)  What strategic moves are rivals likely to make next?

bullet Must identify competitive strategies and resource strengths and weaknesses
bullet Must try to predict competitor's next moves

 

6)  What are the Key Success Factors (KSFs) for competitive success?

bullet See table 3.3, page 81

 

7)  Does the outlook for the industry present an attractive opportunity?

bullet Must consider:
bullet Industry growth potential
bullet Company competitive position
bullet How well competitive capacity matches KSFs
bullet Degree of risk/uncertainty
bullet Problems/issues facing industry
bullet Driving forces of industry
bullet Etc.

Next Steps:  Please review the PowerPoint Overview slides (1-37) for this chapter.  Then proceed to the Discussion Area.

 
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