Chapter 3

1. Chapter 3 Evaluating a Company’s External Environment

2. Assessing a Company’s Industry and Competitive Environment • What are the industry’s business and economic traits? • What are the nature and strength of competitive forces? • What forces are driving industry change? • What market positions do industry rivals occupy?

3. Assessing a Company’s Industry and Competitive Environment • What strategic moves are rivals likely to make next? • What are the key factors of competitive success? • Does the industry outlook offer good prospects for profitability?

4. How Strong are the Industry’s Competitive Forces? The nature of competitive forces differs across industries Competitive forces go beyond rivalry and include four coexisting forces

5. Porter’s Five Forces Model of Competition

6. When the Five Competitive Forces Result in Attractive Market Conditions • An industry’s competitive environment tends to be attractive from a profit-making standpoint when • Rivalry is moderate • Entry barriers are highand no firm is likely to enter • Good substitutesdo not exist • Suppliers and customers arein a weak bargaining position thereby producing competitive pressures that are very weak!

7. The Concept of Driving Forces Driving Forces are powerful external influences acting to reshape the industry landscape and alter competitive conditions.

8. Analyzing Driving Forces • Identify forces likely to reshape industry competitive conditions • Changes likely to take place within next 1 – 3 years • Usually no more than 3 - 4 factors qualify asreal drivers of change

9. Analyzing Driving Forces • Assess impact of driving forces on industry attractiveness • Are the driving forces causing demand for productto increase or decrease? • Are the driving forces acting to make competitionmore or less intense? • Will the driving forces lead to higher or lowerindustry profitability? • Determine what strategy changes are needed to prepare for impact of driving forces

10. Identifying the Market Positions of Rivals

11. What Can Be Learned from Strategic Group Maps • Driving forces and competitive pressures often favor some strategic groups and hurt others • Competitive pressures may cause the profit potential of different strategic groups to vary

12. Predicting the Next StrategicMoves Rivals Are Likely to Make • Profiling key rivals involves gathering competitive intelligence about • Thinking and leadership styles of top executives • Identifying trends in the timing of new product launches and marketing promotions • Considering which rivals have the motivation and capability to make major strategy changes

13. Pinpointing the Key Factorsfor Future Competitive Success • Key Success Factors(or KSFs) are competitive factors most affecting every industry member’s ability to prosper. • KSFs include: • Specific product attributes • Necessary resources, competencies, and capabilities • Specific intangible assets • Competitive capabilities

14. Three Questions to Ask in Identifying Industry Key Success Factors • On what basis do buyers choose between brands? • What resources are needed to compete successfully? • What shortcomings are almost certain to put a company at a competitive disadvantage?

15. Deciding Whether the IndustryPresents an Attractive Opportunity • Involves assessing whether the industryand competitive environment is attractive or unattractive for earning good profits • Draws upon all the previous analysis • The industry’s growth potential • The intensity of competition • Whether the impacts of the driving forcesare positive or negative • The company’s competitive position in the industry relative to rivals • How well the company performs the industry’s key success factors