The External Environment: Opportunities,
Threats, Industry Competition, Competitive
Dynamics and Competitor Analysis
External Audit
To assure victory, always
carefully survey the field
before battle.
Sun Tzu
The External Environment
Environment
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Gl
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Po
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Competitor
Environment
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Industry
Environment
Ge
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So
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De
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Economic
Technological
General
External Environmental Analysis
Analysis of general environment
Analysis of industry environment
Analysis of competitor environment
The External
Environment
Strategic Vision
and Mission
PEST
PESTEL
STEEPA
General Environment
Demographic Environmental Analysis
Population changes
Age
Geographic distribution
Income
General Environment
Social Environmental Analysis
Gender emancipation
Workforce changes
Attitudes about quality of work life
Ecology
General Environment
Economic Environmental Analysis
GDP
Inflation
Interest
Trade deficits and surpluses
BOP
Personal savings rate
Financial environment
Economic infrastructure
8
General Environment
Political and Legal Environmental Analysis
Legal Systems
Monopolies
Taxes
Competition
Personnel and Labour Welfare and Development
Legal platforms and structure developments
thereof
9
General Environment
Technological Environmental Analysis
R&D - expenditure, infrastructure and availability
Innovations Attitude and its impact
Applications of knowledge
Focus of private and government-supported R&D
expenditures
New communication technologies
10
General Environment
Global Environmental Analysis
Political events
Global markets
NIC
BEMs
Trade Barriers and international institutions
11
Industry Environment
A set of factors that directly influences a
company and its competitive actions and
responses
Interaction among these factors determine
an industrys profit potential
Threat of new entrants
Power of suppliers
Power of buyers
Product substitutes
Intensity of rivalry
12
Five Forces Model
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Five Forces
Barg
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Sup Power
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Bargaining Power of Buyers
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Threat of New Entrants
Barriers to entry
Bring additional capacity
Increase process efficiency
Firm entry is function of two factors
Internet marketing
Barriers to entry
Retaliation
High barrier increase return of existing players
Exceptions
Ryan Air
Made Aer Lingus bankrupt
14
Economies of scale
Outcome of incremental efficiency
Airtel
mobile telephone/landline/Internet/Dish TV
New entrants dilemma
Small scale entry puts them at a cost disadvantage- they can not
derive economies of scale
If they make a large entry invite retaliation by being large and
visible
15
Product differentiation
L'Oral, Revlon, Estee Lauder, Levi jeans
Capital requirements
Boeing or Airbus, oil refinery
Switching costs
Customer loyalty
If high, no entry Operating systems/softwares on Windows/Mac
If low, easier entry Bisleri/Acquafina, Sugar Free
Access to distribution channels Coke/UL
Government policy- New banks, new private universities
Expected retaliation
Honda entry to US with small model to avoid Harley Davidson
retaliation
16
Bargaining Power of Suppliers
A supplier
group is powerful when
It is dominated by a few large companies
Satisfactory substitute products are not available to industry
firms
Industry firms are not a significant customer for the supplier
group
Suppliers goods are critical to buyers marketplace success
Effectiveness of suppliers products has created high
switching costs
Suppliers are a credible threat to integrate forward into the
17
buyers industry
Bargaining Power of Buyers
Buyers
(customers) are powerful when
They purchase a large portion of an industrys total
output
The sales of the product being purchased account for a
significant portion of the sellers annual revenues
They could easily switch to another product
The industrys products are undifferentiated or
standardized, and buyers pose a credible threat if they
were to integrate backward into the sellers industry
18
Threat of Substitute Products
Product
substitutes are strong threat when
Customers face few switching costs
Substitute products price is lower
Substitute products quality and performance
capabilities are equal to or greater than those of the
competing product
19
Intensity of Rivalry
Intensity of rivalry is stronger when competitors
Are numerous and/or equally balanced
Desktop at home
Experience slow industry growth
Have high fixed costs and/or high storage cost
Lack differentiation or low switching costs
Commodities
Petrol
Cement
Have high exit barriers
Airline industry/ Steel industry
Spicejet
High strategic stakes
Japanese automobiles in US as it is the largest market
20
High Exit Barriers
Common
Specialized assets (assets with values linked to a
particular business or location)
exit barriers include
Heart Lung Machine, MRI
Fixed costs of exit such as labor agreements
Strategic interrelationships (relationships of mutual
dependence between one business and other parts of a
companys operation, such as shared facilities and access
to financial markets)
Emotional barriers (career concerns, loyalty to employees,
etc.)
21
Government and social restrictions
Complementors
Good roads for high speed cars
Availability of inexpensive fuel for SUV/bigger
vehicles
Continues electricity for deep freezer
complementing purchase of milk weekly
22
Strategic Groups
Strategic
group: a group of firms in an industry following the
same or similar strategy along the same strategic dimensions
Strategic dimensions in luxury hotel are
Swimming pool, atleast two restaurants, Gym, Room service, High prices,
High level of comfort, Wifi
Taj, Marriott, ITC, Sheraton, Intercontinental
Competition
within strategic groups will be intense than
between groups or a firm outside that strategic group
Sheraton competing with Fortune
Ginger competing with Intercontinental/Ibis competing with Marriot
The
strategy followed by a strategic group differs from
strategies being implemented by other companies in the
industry
23
Competitor Environment
Competitor
intelligence is collection of needed information and data
about competitors objectives, strategies, assumptions, and capabilities
Airbus and Boeing
Embraer, Cessna and Lear Jet
Collection
of information along four dimensions helps firms prepare
anticipated response profile
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What drives the competitor as shown by its future
objectives
What the competitor is doing and can do as revealed by
its current strategy
What the competitor believes about itself and the
industry, as shown by its assumptions
What the competitor may be able to do as shown by its
capabilities
25
Competitor Analysis
Future objectives
Future Objectives:
How do our goals compare with
our competitors goals?
Gulf Stream/Embraer for
personal jets/Boeing and Air
bus for mass transportation
Where will the emphasis be
placed in the future?
Cargo or Human
What is the attitude toward risk?
Risk averse or risk taker26
Competitor Analysis
Future objectives
Current Strategy:
Current strategy
How are we currently
competing?
Between Airbus and Boeingon fuel consumption or
speed
or capacity or
price
Does this strategy support
changes in the competitive
structure?
[Link] [Link]
27
Competitor Analysis
Future objectives
Assumptions:
Current strategy
Assumptions
Do we assume the future will
be volatile?
Are we operating under a
status quo?
What assumptions do our
competitors hold about the
industry and themselves?
Maglev Train Japan 600 km/hr.
28
Competitor Analysis
Future objectives
Capabilities:
Current strategy
What are our strengths and
weaknesses?
How do we rate compared to
our competitors?
Assumptions
Capabilities
29
Competitor Analysis
Response
Future objectives
Response:
Current strategy
Assumptions
Capabilities
What will our competitors do in
the future?
Where do we hold an
advantage over our
competitors?
How will this change our
relationship with our
competitors?
30
Creating EFE Matrix
Allows strategists to summarize and evaluate
STEEPA information. Can be developed in 5
steps
1.
Include total of 10-20 factors, both from opportunities & threats
2.
Assign each factor a weight from 0 (absolutely unimportant) to 1 (very
important). Sum should be 1
3.
Assign a rating from 1 to 4 to each factor to indicate how effectively
firms current strategies respond to the factor where,
4=response is superior, 3=response is above average,
2=response is average, 1=response is poor
Weights in #2 are industry based, ratings at #3 are company
based
4.
Multiply each factors weight by its rating to determine weighted score
5.
Sum the weighted score for each variable
EFE Matrix Mobile Phone-Samsung
Weight
Rating
Weighted
Score
Global mobile phone market to grow 20% in 2015, compared to 12% in
2014
0.10
0.3
Cost of Mobile phone components to decrease by 10% in 2015
0.05
0.15
Growth in young population in BRIC
0.10
0.2
China opened its market
0.10
0.3
Average incomes rising in India-DINKs
0.10
0.3
Intense rivalry in industry
0.10
0.2
Financial Melt Down in General especially in Greece & Ireland
0.20
0.8
Birth rate declining in Europe
0.05
0.05
Medical advice against mobile phone use
0.05
0.05
Disruptive Technologies (Higher R&D Expenses)
0.05
0.1
China and India started selling cheaper models
0.10
0.2
Key External Factors
OPPORTUNITIES
THREATS
TOTAL
2.65
IFE Sony TV (2015)
Weight
Rating
Wtd
Score
Several executive with world-class skills and leadership experience
0.05
0.2
Continuous decline in operating costs and cost of goods sold
0.05
0.15
Well-known brand name
0.05
0.15
Consumer Reports (Dec.13) recommended SONY as #1
0.1
0.4
As a direct seller, Sony holds high brand recognition
0.05
0.15
Sony diversifying into TV products Set Top box/Serials/Movies
0.1
0.3
Good relationship with its suppliers
0.05
0.2
Economies of scale, the 3rd largest TV maker in the world
0.05
0.2
Sony World retails stores excellent
0.05
0.15
High operating expense (22% of revenue vs 10% for LG)
0.05
0.15
12% budget for R&D vs LGs 18% of revenue
0.1
0.1
Low return on assets ratio
0.05
0.05
No niche market
0.05
0.1
Shortage of cash due to expansion
0.1
0.2
Limited number of stores
0.05
0.1
Weak performance in Asian market
0.05
0.1
Key Internal Factors
STRENGTHS
WEAKNESSES
Competitive Profile Matrix (CPM)
Identifies firms major
competitors and their
strengths and
weaknesses in relation
to a specific firms
strategic position
Value Assignment for CPM
Absolutely Arbitrary
Major Strength
Minor Strength
Minor Weakness
Major Weakness
Lenovo
CSFs
Apple
Dell
Wt
Rating
Wtd Rating Wtd Rating
Score
Score
Product Quality
0.15
0.30
0.60
0.45
Inventory System
0.10
0.20
0.30
0.40
Financial Position
0.10
0.20
0.30
0.20
Consumer Loyalty
0.15
0.15
0.60
0.30
Sales Distribution
0.10
0.30
0.30
0.40
E-commerce
0.05
0.10
0.10
0.20
Customer Service
0.10
0.10
0.30
0.20
Prices
0.15
0.60
0.30
0.30
Product Look
0.05
0.15
0.15
0.15
Org. Structure
0.05
0.10
0.15
0.10
Total
1.00
2.20
3.10
Wtd
Score
2.70
Industry Analysis CPM
Just because one firm receives 3.10 and other 2.20
it does not follow that the first firm is 41% better
than the second
Numbers reveal relative strengths of firms but
implied precision is an illusion
Numbers are not magic
The aim is to assimilate and evaluate information in
meaningful manner so that correct decisionmaking may take place