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Chapter 3 Themes
for Class Discussion
Environmental Analysis:
Tools to Identify Attractive
Markets
McGraw-Hill/Irwin
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.
The Seven Domains of Attractive
Opportunities
Market Domains
Macro
Level
Micro
Level
Industry Domains
Market Attractiveness
Industry Attractiveness
Mission,
Aspirations,
Propensity
for Risk
Ability to
Execute
on CSFs
Team
Domains
Connectedness up
and down Value Chain
Target Segment Benefits
and Attractiveness
Sustainable Advantage
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3-3
Key Aspects of the Seven
Domains Model
• Market analysis is different to industry
analysis
• Both macro and micro level perspectives
are important
• Analysis of the team domain goes beyond
the experience and character of the team
members
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What’s a market?
• A group of individuals or organizations
(i.e., buyers) having the willingness and
ability to buy goods or services to satisfy a
particular class of wants or needs
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What’s an industry?
• A group of organizations (i.e., sellers)
offering goods or services that are similar
and close substitutes for one another
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Is the market’s industry
distinction important?
Why or why
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Market Attractiveness – Macro
Level
A broad perspective to determine the scale
of the opportunity
• Market size and trend data: (number of
customers; total expenditures; total
volumes; growth trends & forecasts)
• Macro trends and their likely effect on
market development (demographic; sociocultural; economic; technological;
regulatory; natural)
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Let’s identify a trend or
two of each type and
consider what businesses
might be affected.
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What are the key
questions a macro trends
analysis should answer?
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Does industry
attractiveness matter?
Why or why not?
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Industry Attractiveness
– Macro Level
• An attractive industry offers more profit
opportunity
• Assessment of industry attractiveness can
be undertaken using Porter’s Five Forces
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A Tool for Assessing Industry
Attractiveness: Porter’s Five Forces
Threat of new
entrants
Bargaining
power
of suppliers
Rivalry among
existing industry
firms
Bargaining
power
of buyers
Threat of substitute
products
Source: Adapted from Michael E. Porter, “Industry Structure and Competitive Strategy: Keys to Profitability,” Financial Analysts Journal,
July-August 1980, p. 33.
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Market Attractiveness
– Micro Level
• Ability to offer compelling benefits to
particular market segments at a price
customers are willing to pay
• Nature and size of segment
• Opportunity to differentiate from
competitors
• Access to other segments (pathways to
growth)
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Industry Attractiveness
- Micro Level
• Assessment of the sustainability of the
proposed new firm’s competitive
advantage:
– presence of proprietary elements
– whether the firm has superior organisational
processes, capabilities or resources
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The Team Domain
Takes into account:
• Business mission, personal aspirations and
risk propensity
• Ability to execute on the critical success
factors (CSFs)
• Connectedness up, down and across the
value chain
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Using the Seven Domains
Framework
• The domains are not additive; their
relative importance can vary
• Strength on some factors may mitigate
weakness on others
• It is crucial to identify opportunities which
are flawed:
– Abandon those that cannot be fixed
– Reshape those which might be viable
Opportunity/Threat Matrix for a
Telecommunications Company in the UK in
2005
Exhibit 3.15.
Level of Impact
on Company*
1.
2.
3.
4.
Probability of Occurrence (2010)
High
Low
High
4
1
Low
2
3
Wireless communications technology will make networks based on
fiber and copper wires redundant.
Technology will provide for the storage and accessing of vast
quantities of data at affordable prices
The price of large screen (over 36 inch) digitalized TV sets will reach
mass market prices
Internet telephony will emerge as the dominant force in the
telecommunications industry.
*Profits or market share or both.
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