MM5009 - Strategic Management & Agile

Enterprise 2024

STRATEGIC
MANAGEMENT:
Concepts and Cases 9e
Part I : Strategic Management
Inputs
Chapter 2 : The External Environment:
Opportunities, Threats,
Industry Competition and
Competitor Analysis
The Strategic
Management
Process
 Overview: Seven content areas
• The firm’s external environment

CHAPTER 2 • General and industry environment

• External environment analysis process
The External activities

Environment: • General environment segments

• Porter’s 5 Competitive Forces
Opportunities,
• Strategic groups: Definition and
Threats, Industry influence
Competition • Competitor Analysis: Intelligence and
and Competitor ethics
Analysis
Effects of External Environment:
Philip Morris International (PMI)
• Largest international market share and leading company in 11
of top 30 cigarette markets
• Implementing strategies in anticipation of future external
environmental conditions
– Working with foreign governments on regulatory framework
– Opportunities in emerging markets
– Smokeless tobacco in anticipation of fewer smokers
– Support of sustainable farming
– Waste reduction in manufacturing
 Overview: Seven content areas
• The firm’s external environment

CHAPTER 2 • General and industry

environment
The External • External environment analysis process
Environment: activities
Opportunities, • General environment segments
• Porter’s 5 Competitive Forces
Threats, Industry
• Strategic groups: Definition and
Competition influence
and Competitor • Competitor Analysis: Intelligence and
Analysis ethics
External
Three External Environments
Environment: include:
❖General
General, Industry ❖Industry
and Competitor ❖Competitor
The External
Environment
 The General Environment
➢ The broader society dimensions that influence an industry and
the firms within it
➢ Grouped into 7 dimensions OR ‘environmental segments’ Each
segment composed of elements
 Industry Environment
➢ Set of factors directly influencing
○ A firm’s competitive actions/responses
○ Relates to Porter’s 5 Forces – see upcoming slides
○ Competitor analysis: gather and interpret competitor
information
 Competitor Environment
➢ Gives details about
○ A firm’s direct and indirect competitors
○ The competitive dynamics expected to impact a firm's
efforts to generate above-average returns
 Overview: Seven content areas
• The firm’s external environment

CHAPTER 2 • General and industry environment

• External environment analysis
The External process activities
Environment: • General environment segments
Opportunities, • Porter’s 5 Competitive Forces

Threats, Industry • Strategic groups: Definition and

influence
Competition
• Competitor Analysis: Intelligence and
and Competitor ethics
Analysis
 External Environment
Analysis
Opportunity Threat

● General environment condition ● General environment condition

that, if exploited, helps a that may hinder a company's
company achieve strategic efforts to achieve strategic
competitiveness competitiveness
 4 components of
External Environment
Analysis
Scanning
Monitoring
Forecasting
Assessing
 Overview: Seven content areas
• The firm’s external environment

CHAPTER 2 • General and industry environment

• External environment analysis process
The External activities
Environment: • General environment segments
Opportunities, • Porter’s 5 Competitive Forces

Threats, Industry • Strategic groups: Definition and

influence
Competition • Competitor Analysis: Intelligence and
and Competitor ethics
Analysis
 7 Segments of the General
Environment

Demographic
Technological
Economic
Global
Political/Legal Physical
Environment
Sociocultural
 Overview: Seven content areas
• The firm’s external environment

CHAPTER 2 • General and industry environment

• External environment analysis process
The External activities
Environment: • General environment segments
Opportunities, • Porter’s 5 Competitive Forces
Threats, Industry • Strategic groups: Definition and

Competition influence
• Competitor Analysis: Intelligence and
and Competitor ethics
Analysis
 Nature of Competition: Basic
•concepts
Strategic Competitiveness
Achieved when a firm formulate & implements a value-creating
strategy

• Strategy
Integrated and coordinated set of commitments and actions
designed to exploit core competencies and gain a competitive
advantage

• Above Average Returns

– Returns in excess of what investor expects in comparison to other
investments with similar risk
The Five Forces
of Competition
Model
 ● Can threaten market share of existing
competitors
● May bring additional production capacity

1/5 ● Function of two factors

○1: Barriers to entry
New ● Economies of scale
● Product differentiation

Entrants ● Capital requirements

● Switching costs
● Access to distribution channels
● Cost disadvantages independent of scale
● Gov’t policy

○2: Expected retaliation

2/5: ● They are powerful when …
1. Few large companies and more concentrated than

Bargaining the industry to which they sell

2. No substitutes

power of 3. Industry firms not significant customer to supplier

gp

suppliers 4. Supplier’s goods are critical to buyer’s success

5. High switching costs due to effectiveness of
supplier’s products
6. Threat of forward integration
3/5: ● They are powerful when …
1. Purchase large portion of industry’s total

Bargaining output
2. Product sales accounts for significant seller

power of annual revenue

3. Low switching costs (to other industry product)

buyers [Link] products are undifferentiated

standardized and threat of backward integration
or
4/5:
Goods or services outside of given industry
Threat of perform same or similar functions at a
competitive price (i.e., plastic has replaced steel
substitute in many applications)

products
5/5:
❖ Numerous or equally balanced competitors
Intensity of ❖ Slow industry growth
❖ High fixed costs or high storage costs
Rivalry ❖ Lack of differentiation or low switching costs

Among ❖ High strategic stakes

❖ High exit barriers

Competitors
5/5:
❖ High exit barriers (Cont’d)
Intensity of ➢ 1. Specialized assets
➢ 2. Fixed costs of exit (i.e., labor agreements)
Rivalry ➢ 3. Strategic interrelationships (i.e., one
business depends on another)
Among ➢ 4. Emotional barriers (i.e., loyalty to
employees, etc.)
Competitors ➢ 5. Government and social restrictions
 Overview: Seven content areas
• The firm’s external environment

CHAPTER 2 • General and industry environment

• External environment analysis process
The External activities

Environment: • General environment segments

• Porter’s 5 Competitive Forces
Opportunities,
• Strategic groups: Definition
Threats, Industry
and influence
Competition • Competitor Analysis: Intelligence and
and Competitor ethics
Analysis
 Strategic Groups
❖ Strategic Groups
➢ Set of firms emphasizing similar strategic dimensions to use a similar
strategy
➢ Implications
■ Because firms within a group compete (offer similar products) rivalry can be
intense – the greater the rivalry the greater the threat to each firm’s profitability
■ Strengths of the 5 forces differs across strategic groups
■ The closer the strategic groups, in terms of strategy, the greater the likelihood of
rivalry
 Overview: Seven content areas
• The firm’s external environment

CHAPTER 2 • General and industry environment

• External environment analysis process
The External activities

Environment: • General environment segments

• Porter’s 5 Competitive Forces
Opportunities,
• Strategic groups: Definition and
Threats, Industry influence
Competition • Competitor Analysis:
and Competitor Intelligence and ethics
Analysis
Competitor
Analysis
Components
 Competitor Analysis
• Competitor analysis and organization response:
– What drives competitors
• Shown by organization's future objectives
– What the competitor is doing and can do
• Revealed in organization's current strategy
– What the competitor believes about the industry
• Shown in organization's assumptions
– What the competitor’s capabilities are
• Shown by organization's strengths and weaknesses
 Intelligence Collection (Cont’d)
• Follow ethical practices when gathering competitor intelligence
– Obtain public information
– Attend trade fairs and shows and collect brochures, view exhibits, listen to their
discussions
• Some practices may be legal, but unethical
• Unethical tactics can include
– Blackmail
– Trespassing
– Eavesdropping
– Stealing drawings, samples or documents
MINI CASE
 1. Can any firm beat Amazon in the marketplace? If not, why
not?
If so, how can they best do so?

MINI CASE 2. How formidable a competitor is Google for Amazon? Please

explain.

3. What are Amazon’s major strengths? Does it have any

weaknesses? Please explain.

4. Is [Link] a potential concern for Amazon? Why or why not?