Analyzing the External
Environment of the Firm: Creating
Competitive Advantages
Looking
Ahead
Enhancing
Awareness of
the External
Environment.
The General
Environment.
The
Competitive
Environment.
The Important of External
Environment
• Successful managers are always aware of what’s going on
outside their company. Their perceptual acuity allows them
to sense what’s coming. Detecting early warning signals,
keeping pace with changes in the external environment can
sustain a competitive advantage.
Breakout Session
• As a manager and strategist what are the
steps you take to analyze the external
environment?
• How can you gain perceptual acuity (the
ability to sense what is coming before the
fog clears)?
• What are the tools you learned so far that
can help with environmental analysis?
Enhancing
Awareness of
the External
Environment
Environmental Scanning
and Monitoring
Environmental scanning involves surveillance of a
firm’s external environment.
• Predicts environmental changes to come.
• Detects changes already under way.
• Allows firm to be proactive.
Environmental monitoring tracks evolution of
environmental trends.
• Sequences of measurable facts/events.
• Streams of activities or trends from outside the organization.
Competitive
Intelligence
Helps firms define and understand their industry.
• Collect data on competitors.
• Interpret intelligence data.
Identifies rivals’ strengths & weaknesses.
• Anticipate competitors’ moves.
• Decrease response time.
Helps firms avoid surprises.
Potential for unethical behaviour while gathering intelligence.
Environmental
Forecasting
• Environmental forecasting predicts change.
• Plausible projections about
• Direction of environmental change?
• Scope of environmental change?
• Speed of environmental change?
• Intensity of environmental change?
• Scenario analysis is an in-depth approach.
• What are some of the ways trends may
affect an issue?
• Can we project alternative futures
based on these assessments?
The Competitive
Environment
• The competitive environment consists of
factors in the task or industry environment
that are particularly relevant to a firm’s
strategy.
• Competitors (existing or potential).
• Including those considering entry
into an entirely new industry.
• Customers (or buyers).
• Suppliers.
• Including those considering
forward integration.
Porter’s Five Forces Model of Industry Competition
• Exhibit 2.4 Porter’s Five Forces Model of Industry Competition
• Source: From Michael E. Porter, “The Five Competitive Forces That Shape Strategy,” Special Issue on HBS Centennial.. Harvard
Business Review 86, No. 1 (January 2008), 78-93. Reprinted with permission of Michael E. Porter.
• Access the text alternative for slide images.
The Value Net
• Exhibit 2.6 The Value Net
• Source: Adapted from “The Right Game: Use Game Theory Shape Strategy,” by A. Brandenburger and B.J.
Nalebuff, July-August 1995 Harvard Business Review.
Strategy Groups within
Industries
• No two firms are totally different.
• No two firms are exactly the same.
Two unassailable assumptions in industry analysis:
• Breadth of product & geographic scope.
• Price/quality.
• Degree of vertical integration.
• Type of distribution.
Strategic groups – clusters of firms that share similar strategies:
Strategy
Groups as an
Analytic Tool
• Strategic groups can be analytical tools.
• Helps identify barriers to mobility that protect a
group from attacks by other groups.
• Helps identify groups whose competitive
position may be marginal or tenuous.
• Helps chart the future direction of firms’
strategies.
• Helps to think through the implications of each
industry trend for the strategic group as a whole.
Example: Strategic Groups within Industries
• Exhibit 2.7
The World
Automobil
e Industry:
Strategic
Groups
•
Note: Members
of each strategic
group are not
exhaustive, only
illustrative.
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