Chapter 2
The Competitive Environment:
Assessing Industry Attractiveness
External Environment
• External environments are uncontrollable,
multifaceted. They frame your firm’s opps/threats,
your strategic options.
• You must understand what elements are critical, how
do they affect you, where are they now, and where
are they likely to be in the future?
• They don’t affect everyone in the same way.
• 2 levels:
• Macro- broad, general, all encompassing, affects all
• Industry or competitive environment
• Demographic – characteristics of the people in an area or
• Political – focuses primarily on governmental activities –
regulation, policies, taxation, support of business or industries,
• Social/Cultural – attitudes, values, lifestyles, aspirations
• Technological – technological developments that may have an
impact on your industry or firm; product or process
• Global – What has caused it? What does it mean? What
opportunities and threats does it present? What risks and
competition exist? What are some of the implementation and
control issues involved?
Competitive Environment
• More specific and focused than macro. Looking at the specific
industry a firm competes in and its characteristics or properties.
• Porter’s Five Forces Model of Competition is perhaps the most
widely used framework. Exhibit 2-1, p. 44.
• Threat of New Entrants – Barriers to entry
• Bargaining Power of Customers
• Bargaining Power of Suppliers
• Competing Rivalry among existing sellers
• Potential Product Substitutes
• Question becomes: What do you do about each force? Each
has strategic implications.
Strategic Groups
• Groups of firms in a single industry that pursue
similar strategies
– Or compete in the same niche
• Understanding SG will help identify who your specific
competition is
• It is more important to look at the competition within
groups rather than the competition between groups
• Groups do shift, firms change focus, customer needs
• Look at Honda and Toyota
Information Gathering
Main issues revolve around ethical data gathering
Data storage
Data interpretation
Data dissemination
How do you make sense of it all?