EXTERNAL ANALYSIS
(INDUSTRY AND COMPETITION)
Payne
(3)
“Analysis is the
critical starting
point of strategic
thinking.”
Kenichi Ohmae
1
Environmental Analysis Levels
EXTERNAL or
MACROENVIRONMENT
Macro Level
Economic
Industry Level
Competitors
Firm
Demographic
Suppliers
Connect
Connect
Social
Global
Substitutes
Political/Legal
Industry
and
competitive conditions
(opportunities and
threats)
INTERNAL or
Customers
Technological
MICROENVIRONMENT
Its
competencies,
capabilities, resources,
and competitiveness
(strengths and
weaknesses)
2
Macro Environment (1)

Socio-cultural segment

Women in the workplace
 Workforce diversity
 Attitudes about quality of worklife
 Concerns about environment
 Shifts in work and career preferences
 Shifts in product and service preferences

Political/Legal Segment





Antitrust laws
Taxation laws
Deregulation philosophies
Labor training laws
Educational philosophies and policies
3
Macro Environment (2)

Economic segment








Inflation rates
Interest rates
Trade deficits or surpluses
Budget deficits or surpluses
Personal savings rate
Business savings rates
Gross domestic product
Technological Segment




Product innovations
Applications of knowledge
Focus of private and government-supported R&D
expenditures
New communication technologies
4
Macro Environment (3)

Global Segment





Important political events
Critical global markets
Newly industrialize countries
Different cultural and institutional attributes
Demographic





Population size
Age structure
Geographic distribution
Ethnic mix
Income distribution
5
Five Forces Model of Competition
Substitute
Products
(of firms in
other industries)
Suppliers of
Key Inputs
Rivalry Intensity
Among
Competing
Sellers
Bargaining Power of Buyers
Threat of Substitutes
Buyers
Threat of New Entrants
Potential
New
Entrants
6
Stakeholder Analysis and Social Capital
Stakeholder A
Focal Firm
Stakeholder B
Stakeholder C
7
Who are Stakeholders?

Identifying stakeholders is one way of sizing up the
internal and external constituents that influence the firm.




Stakeholders are individuals and groups who can affect and are
affected by a firm’s strategic outcomes and who have
enforceable claims on its performance
Stakeholders include individuals, groups, and other
organizations who have an interest in the actions of an
organization and who have the ability to influence it
Stakeholders may be categorized as internal, interface and
external.
Analyzing stakeholders involves 1) determining who
matters and 2) how they might be managed for the
betterment of the firm.
8
Social Capital

Social capital is “the sum of actual and potential resources
embedded within, available through, and derived from the
network of relationships possessed by individuals or social
units,” Nahapiet and Ghoshal’s (1998, p. 243)


The “bonding” view of social capital suggests that persons
derive social capital from the internal forces within their
collective. This is achieved primarily as the collective matures
and strong recursive bonds develop between actors who interact
frequently (Coleman, 1988).
The “bridging” view of social capital (e.g., Burt, 2000)
represents the value of resources derived from connections
spanning structural holes in a network.
9
Key Success Factors

KSFs or CSFs are competitive elements that most
affect every strategic group member’s ability to
prosper in the marketplace:

Specific strategy elements
 Product attributes
 Resources or Competencies
 Competitive capabilities

KSFs spell difference between:


Profit and loss
Competitive success or failure
Ask: For our organization to be successful, we
MUST be especially good at ___________?
10
Key Success Factors
KSF 1
Optimize
Performance
KSF 3
KSF 2
A sound strategy incorporates efforts to be
competent on all industry key success
factors and to excel on at least one factor!
11
Strategic Group Mapping

One technique for revealing the different competitive
positions of industry rivals is strategic group mapping

A strategic group consists of those rivals with similar
competitive approaches in an industry
12
Strategic Group Mapping

Firms in same strategic group have two or more
competitive characteristics in common . . .
 Sell in same price/quality range






Cover same geographic areas
Be vertically integrated to same degree
Have comparable product line breadth
Emphasize same types of distribution channels
Offer buyers similar services
Use identical technological approaches
13
A Framework of Competitor Analysis
High
II I
III IV
Market
Commonality
Low
KEY
The shaded area represents
degree of market commonality
between two firms
Low
Resource
Similarity
High
Resource endowment A
Resource endowment B
14
Market Commonality

Market Commonality is concerned with



Most industries’ markets are somewhat related in
terms of



the number of markets with which a firm and a
competitor are jointly involved
the degree of importance of the individual markets to
each competitor
technologies
core competencies
Multi-market competition

Firms competing in several markets
15
Resource Similarity

Resource similarity


Firms with similar types and amounts of resources
are likely to



the extent to which the firm’s tangible and intangible
resources are comparable to a competitor’s in terms of
both type and amount
have similar strengths and weaknesses
use similar broad strategies
Assessing resource similarity can be difficult if
critical resources are intangible rather than
tangible
16
Procedure: Constructing a Strategic
Group Map
STEP 1: Identify competitive characteristics that
differentiate firms in an industry from
one another
STEP 2: Plot firms on a two-variable map using
pairs of these differentiating
characteristics
STEP 3: Assign firms that fall in about the same
strategy space to same strategic group
STEP 4: Draw circles around each group, making
circles proportional to size of group’s
respective share of total industry sales
17
Interpreting Strategic Group Maps
(i.e., Implications of the Strategic Groups Concept)

Driving forces and competitive pressures often favor
some strategic groups and hurt others – such
recognition may be the key to developing a
competitive advantage.

Profit potential of different strategic groups varies
due to strengths and weaknesses in each group’s
market position. Important niches may be identified
that are not currently being filled by competitors.

The closer strategic groups are on map, the stronger
the competitive rivalry among member firms tends to
be (“Organizations most like yours are the most
dangerous.”)
18
Within or Between Strategic Groups
Price / Quality / Image
High
Medium
Low
Specialty
Full-line
Providers
Limited-category
Retailers
Broad-category
Retailers
Product Line / Merchandise Mix
19
Categorizing the Objectives and
Strategies of Competitors
Competitive
Scope
Strategic Intent
Market Share
Objective
Competitive
Position
Strategic
Posture
• Aggressive
expansion via
acquisition &
internal growth
•Getting
stronger; on the
move
•Mostly
offensive
•Striving for
low-cost
leadership
•Wellentrenched
•Mostly
defensive
•Mostly
focusing on a
market niche
• Local
• Be dominant
leader
• Regional
• Overtake
industry leader
• National
• Be among
industry leaders
• Expansion via
internal growth
•Stuck in the
middle of the
pack
•Combination of
offensive &
defensive
• Multi-country
• Move to top 10
• Expansion via
acquisition
•Going after a
different
position
•Aggressive
risk-taker
• Global
• Move up a
notch in
rankings
• Hold on to
present share
•Struggling;
losing ground
•Conservative
follower
• Maintain
current position
• Just survive
•Give up
present share to
achieve shortterm profits
•Retrenching to
a position that
can be defended
Competitive
Strategy
•Pursuing
differentiation
based on
– Quality
– Service
– Technology
superiority
– Breadth of
product line
– Image &
reputation
– More value
for the money
– Other
attributes
20
Unweighted Competitive Strength Assessment
KSF/Strength Measure
ABC Co.
Rival 1
Rival 2
Rival 3
Rival 4
Quality/product performance
8
5
10
1
6
Reputation/image
8
7
10
1
6
Manufacturing capability
2
10
4
5
1
Technological skills
10
1
7
3
8
Dealer network/distribution
9
4
10
5
1
New product innovation
9
4
10
5
1
Financial resources
5
10
7
3
1
Relative cost position
5
10
3
1
4
Customer service capability
5
7
10
1
4
Overall strength rating
61
58
71
25
32
Rating Scale: 1 = Very weak; 10 = Very strong
21
A Weighted Competitive Strength Assessment
KSF/Strength Measure
Weight
ABC Co.
Rival 1
Rival 2
Rival 3
Rival 4
Quality/product performance
0.10
8/0.80
5/0.50
10/1.00
1/0.10
6/0.60
Reputation/image
0.10
8/0.80
7/0.70
10/1.00
1/0.10
6/0.60
Manufacturing capability
0.10
2/0.20
10/1.00
4/0.40
5/0.50
1/0.10
Technological skills
0.05
10/0.50
1/0.05
7/0.35
3/0.15
8/0.40
Dealer network/distribution
0.05
9/0.45
4/0.20
10/0.50
5/0.25
1/0.05
New product innovation
0.05
9/0.45
4/0.20
10/0.50
5/0.25
1/0.05
Financial resources
0.10
5/0.50
10/1.00
7/0.70
3/0.30
1/0.10
Relative cost position
0.35
5/1.75
10/3.50
3/1.05
1/0.35
4/1.40
Customer service capability
0.15
5/0.75
7/1.05
10/1.50
1/0.15
4/1.60
Sum of weights
1.00
6.20
8.20
7.00
2.10
2.90
Overall strength rating
Rating Scale: 1 = Very weak; 10 = Very strong
22