Chapter 3 Worksheet
The concepts in this worksheet correspond directly with the text. If you do not understand the concept or
need to refresh your memory, please refer to the text. I provide the page reference for each of the criteria.
You should also use the CD-ROM for concepts that require more detailed explanation than the text
provides.
The purpose of the external analysis is to identify opportunities and threats for the industry you are
analyzing. Do not focus on the company under analysis. Focus on the industry in which the company
competes. Make sure your analysis of the facts leads to a logical determination of specific opportunities
and threats associated with the criterion you are analyzing. Consider each criterion from a strategic
perspective. Use the scientific method (data, analysis of the data, conclusions based on the analysis.) In
other words, does your analysis lead you to conclude how or in which ways does the criterion under
analysis create opportunities or threats for the industry or specific companies in the industry? State the
specific nature of the opportunity or threat. This will strengthen your analysis and help you with your
subsequent SWOT analysis.
Do not use speculative statements. Typical key words indicating speculation include: if, should, could,
would, and may. Avoid contractions in written business reports. You only use contractions in a business
report when it involves a direct quote.
Avoid vague pronouns. Pronouns such as this, these and it used out of context and without attribution
are examples. Often students will have a paragraph in the facts column that consists of several sentences.
The students then start the analysis with the pronoun “this”. The reader cannot determine the reference
the appropriate idea without considerable guessing.
Refer to the examples of prior case analyses provided on the web site to assist you with understanding the
desired quality of analysis and statement of opportunities and threats.
Macro-environment forces
Criteria
(Refer to page 51.)
The economy at large
Facts
What does this mean?
(Address the economic conditions
during the timeframe of the case.)
Legislative, regulatory and
political environments
Population demographics
(Population demographics analysis
relies on developing various
categories of the population and
analyzing their impact on the
industry. Typical categories include
gender, age, education level,
geographic location, income, life
stage, household size, occupation,
and race. In addition to population
demographics, this type of
categorization includes geographic
segmentation (region, city or country
size, density), benefit segmentation
(comfort, convenience, durability,
Thompson, Arthur and Strickland, A.J. Strategic Management: Concepts and Readings. McGrawHill Irwin. NY. 15th Edition
Chapter 3 Worksheet
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health, luxury, safety, status), and
volume segmentation (usage, loyalty
status). Marketing is the usual
company source for these types of
analysis.)
Societal values and lifestyles
Ethnographics and
psychographics provide the
following categories: personality,
values, and lifestyle.
Technology
1. What are the Industry's dominant economic features (page 52)?
Please note that table 3.1 provides a sample profile of the sulfuric acid industry. Table 3.1 provides
examples of the strategic significance of each of the criterion. Make sure you know the industry you are
analyzing.
Criteria
Facts
What does this mean?
Market size
Scope of the competitive
rivalry
(The competitive scope
criteria addresses
geographic scope (Global,
National, Regional, Local),
product scope, market
scope and so on.)
Market growth rate and
position in the business
cycle (development,
growth, maturity, decline)
Number of rivals and
their relative size
(Relative size refers to each
rival’s market share based
on total sales for the overall
market or, when applicable,
individual market
segments.)
Number of buyers and
their relative size
(Address the number of
buyers in each market and
market segment. Buyer
size refers to the buyer’s
volume of sales for the
industry.)
Extent of rivals’ vertical
integration (How far
forward or backwards have
the rivals extended their
value chain?)
Extent of rivals’
horizontal integration
Thompson, Arthur and Strickland, A.J. Strategic Management: Concepts and Readings. McGrawHill Irwin. NY. 15th Edition
Chapter 3 Worksheet
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(Horizontal integration
applies to using the
synergies in your value
chain to produce different
products or provide
services for a different
industry or market
segment.)
Types of distribution
channels rivals use to
access customers. (Do
the channel types vary by
customer segment?)
Pace of technological
innovation in
production process
innovation
Pace of technological
innovation in product
introduction
Extent to which the
rivals differentiate their
products and/or services
Extent to which rivals
use economies of scale
in:
 Purchasing
 Manufacturing
 Services
 Transportation
(logistics)
 Marketing
 Advertising
 General and
Administration
 Other steps in the
value chain (Refer to
chapter 4 for the
description of the
value chain.)
Extent to which the key
industry participants are
clustered in one
geographic location
Extent to which certain
industry activities result
from learning and
experience curve effects
Capacity surplus or
shortage in the industry
(Capacity refers to the total
Thompson, Arthur and Strickland, A.J. Strategic Management: Concepts and Readings. McGrawHill Irwin. NY. 15th Edition
Chapter 3 Worksheet
3
manufacturing output
capability for the industry.
Capacity surplus would
indicate that the industry
has the capability to
produce more products
than the market demands.)
Capital requirements and
the ease of entry into or
exit from the industry
Industry profitability
(The annual net profit
margin for the industry.)
Degree of alliances
(You can provide
additional economic
features applicable to the
industry you are
analyzing.)
2. What is competition like and how strong are each of the competitive forces (page 54)?
Criteria
RIVALRY (pages 5560)
Facts
What does this mean?
(Does this make the force strong or weak
for the industry?)
Under this heading you are supposed to
address how the criterion affects the
rivalry between the competitors. When
rivalry increases, it generally is a threat
to the industry. When the rivalry
decreases, it generally is an opportunity
for the industry.
How many competitors
are there in this
industry?
What is the relative size
(market share based on
their percentage of industry
sales) of each
competitor?
What is the industry
concentration ratio (C4)?
 Top 4 company’s sales
Industry sales
What is the product or
service demand growth
rate? (Use the industry’s
total sales over multiple
years to determine the
industry growth rate. Use
the rival’s sales over
Thompson, Arthur and Strickland, A.J. Strategic Management: Concepts and Readings. McGrawHill Irwin. NY. 15th Edition
Chapter 3 Worksheet
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multiple years to determine
individual growth rate.)
Are rivals using price
cuts or other competitive
weapons to boost unit
volume?
Are the customer's
switching costs low?
Are rivals launching
moves to change their
market share or industry
position at the expense
of other industry
participants?
What are the payoffs for
strategic moves?
Does it cost more to exit
the industry than to
continue participation?
How consistent are rivals
strategic visions,
strategic intents,
objectives, strategies,
resources and origins?
The greater the
consistency, the more
likely there is increased
rivalry.
Are strong new entrants
acquiring weaker rivals
and launching wellfunded, aggressive
moves?
THREAT OF ENTRY
(pages 60-64)
Under the heading of new entrants, your
analysis should lead you to conclude that
new entrants are likely or unlikely to
challenge the existing firms in the industry.
Therefore, new entrants are likely (threat) or
unlikely (opportunity) to pose an opportunity
or threat to the existing firms in the
industry.
What economies of scale
exist in each of the
following areas:
 Production
 Purchasing
 Inbound and
outbound logistics
 Advertising
Thompson, Arthur and Strickland, A.J. Strategic Management: Concepts and Readings. McGrawHill Irwin. NY. 15th Edition
Chapter 3 Worksheet
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




Financing
Customer service
Raw materials
R&D
Other steps in the
value chain?
(Please note that synergies
across the value chains of
related diversified
corporations also constitute
economies of scale.)
Cost and resource
disadvantages
independent of size
What are the learning
curve and experience
effects to enter the
industry?
Inability to match the
technology and
specialized know-how of
firms already in the
industry. How
accessible is the
industry's technology?
Brand preferences and
customer loyalty
What are the capital
requirements to enter?
What other resource
requirements are
necessary to enter?
What is the access to
distribution channels?
What regulatory policies
apply?
What tariffs and trade
restrictions apply?
SUBSTITUTES (pages
64-63)
Under the heading of substitutes, your
analysis should lead you to conclude that
substitutes are likely or unlikely to challenge
the existing products the industry produces.
Therefore, substitutes are likely (threat) or
unlikely (opportunity) to pose an opportunity
or threat to the existing firms in the
industry.
What is the availability
of attractively priced
substitutes?
Is the substitute of better,
Thompson, Arthur and Strickland, A.J. Strategic Management: Concepts and Readings. McGrawHill Irwin. NY. 15th Edition
Chapter 3 Worksheet
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worse, or equal quality?
Is the substitute of better,
worse or equal
performance?
Is the substitute of better,
worse or equal _______
(You fill in the attribute
or attributes that are
specific to the product or
service.)?
Can buyers easily switch
to the substitutes?
SUPPLIERS (pages 6669
Please note, that this section applies to
the companies that supply the industry
under analysis.
Is the item or service a
commodity available on
the open market from
many suppliers who are
capable of filling the
order?
Are there good
substitutes for the
product or service to
which the buyers can
easily switch?
Is the company a major
buyer?
Does the supplier
dominate the industry?
(The supplier provides the
industry with an item that
accounts for a sizable
fraction of the costs of an
industry's product (or
service), is crucial to the
industry, or significantly
affects product quality.)
Does an outside supplier
provide a cost advantage
over vertical integration?
Does an outside supplier
provide other advantages
over vertical integration?
What types of working
relationships exist? Start
by listing the types of
working relationships
that exist. Then, focus
Thompson, Arthur and Strickland, A.J. Strategic Management: Concepts and Readings. McGrawHill Irwin. NY. 15th Edition
Chapter 3 Worksheet
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on the strategic
importance of
relationships with
suppliers in this industry.
Are these relationships
of strategic value for the
competitors in the
industry? If so, why and
how do the relationships
impact the competitive
structure and
environment of the
industry?
What is the relative
quality of the supplier
and his services or
products?
BUYERS (pages 70-72)
Please note, that this section applies to
the companies that purchase goods or
services from the industry under
analysis. Buyers include any purchaser
downstream from the industry.
What is the cost to the
buyer of switching to a
competitor or a
substitute?
How many buyers are
there in this industry?
What is the relative size
(based on the amount
they purchase) of each
buyer?
What is the buyer's
knowledge level?
Can the buyers threaten
the industry with
backward integration?
Are the industry's
products discretionary
purchases?
Thompson, Arthur and Strickland, A.J. Strategic Management: Concepts and Readings. McGrawHill Irwin. NY. 15th Edition
Chapter 3 Worksheet
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3. What is (and how are they) causing the industry's competitive structure and business environment to change (page 93)?
Please refer to the Cannondale1 example on the web site for good examples of appropriate analysis for this question.
Factors
Industry competitive structure
Industry business environment
Strategic implications
(pages 74-81)
This factor is supposed to capture how the
This factor is supposed to capture how
drivers of change are altering the industry's
the drivers of change are altering the
competitive structure.
industry's business environment.
The competitive structure of an industry entails the number of suppliers, competitors and
buyers and the number of and complexity of the competitive relationships. For example,
an industry entering maturity causes fewer, larger competitors. This affects the industry's
structural arrangement between rivals, buyers and suppliers. When the industry
approaches maturity or when it is in decline, the industry's business environment will
create intense rivalry for a diminishing market.
Internet and new e-commerce
opportunities
Increasing globalization of the
industry
Long term industry growth rate
Who buys the product and how
do they use it
Product innovation
Technological change
Marketing innovation
Entry of major firms
Exit of major firms
Diffusion of technical knowhow
Cost and efficiency
Growing buyer preferences for
differentiated products instead
of a commodity product
Regulatory and government
policy changes
Societal concerns, attitudes and
lifestyle changes
Thompson, Arthur and Strickland, A.J. Strategic Management: Concepts and Readings. McGraw-Hill Irwin. NY. 15th Edition
Chapter 3 Worksheet
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Reductions in uncertainty and
risk
4. Which companies are in the strongest/weakest positions (page 81)?
High
Price
Medium
Low
narrow
broad
market scope
Develop additional strategic group maps using additional criteria such as quality, image, value added, resources available, or competitive
advantages. Price, quality and image are not the only factors that you can use for developing strategic group maps to determine which companies
are in the strongest and weakest positions. You will probably find that some companies are stronger on some dimensions while weaker on others.
Determine the opportunities and threats arising from the application of this tool (pages 101-103). Do the industry driving forces and competitive
pressures favor some strategic groups and hurt others? Does the profit potential of different strategic groups vary due to the strengths and
weaknesses in each group's market position?
Thompson, Arthur and Strickland, A.J. Strategic Management: Concepts and Readings. McGraw-Hill Irwin. NY. 15th Edition
Chapter 3 Worksheet
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What does this mean in terms of
their most likely moves?
What is their competitive strategy
(low cost, differentiation, broad
or narrow, best value)?
What is their strategic posture
(offensive, defensive, both)?
What is their competitive position
(getting stronger, well
entrenched, stuck in the middle,
going after different market
position, losing ground,
retrenching)?
What is their market share
objective (aggressive expansion,
expansion via internal growth,
expand by acquisition, hold
present share, give up share)?
What is their strategic intent
(dominant leader, overtake the
leader, top 5, move up a position,
maintain position, survive)?
What is the competitive scope of
each (local, regional, national,
multi-country, or global)?
List the competitors
5. What strategic moves are rivals likely to make next (page 85)?
Refer to Table 3.3 on page 105.
Thompson, Arthur and Strickland, A.J. Strategic Management: Concepts and Readings. McGraw-Hill Irwin. NY. 15th Edition
Chapter 3 Worksheet
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What is their capability for
this factor?
What is their capability for
this factor?
What is their capability for
this factor?
6. What are the key factors for competitive success (in this industry) (page 87)?
How does each competitor fare on each success factor? To use this tool, start by determining which of the KSFs apply. Then provide your
justification for choosing these KSFs. Generally, there are less than ten (10) KSFs applicable to an industry. Then assess each of the industry
competitor's capabilities for the KSF. Please note I provide space for three competitors. You should add the number of columns necessary to
evaluate all of the competitors in an industry. You should also add industry specific KSFs when they apply. Refer to Table 3.4 on page 107.
Competitor
Competitor
Competitor
You can provide your justification for
What
What
What
selecting the KSFs underneath the
does this
does this
does this
KSK.
mean?
mean?
mean?
Technology related KSFs
Scientific research and expertise
Technical capability to make
innovative improvements in production
processes
Product innovation quality
Expertise in a given technology
Internet expertise
Manufacturing (production of the
product or service) related KSFs
Low-cost production efficiency
Manufacturing quality
High fixed asset utilization
Low cost plant locations
Access to adequate supplies of skilled
labor
High labor productivity
Thompson, Arthur and Strickland, A.J. Strategic Management: Concepts and Readings. McGraw-Hill Irwin. NY. 15th Edition
Chapter 3 Worksheet
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Low cost product (service) design and
engineering
Manufacturing flexibility
Distribution related KSFs
(Note: This applies to inbound and
outbound logistics.)
Network strength
Electronic (Internet) tracking
Ample space on retailer's shelves
Company owned retail outlets
Low distribution costs
Speed of distribution
Marketing related KSFs
Fast, accurate technical service
Customer service
Accurate buyer order filling
Breadth of product line and selection
Merchandising skills
Attractive styling/packaging
Guarantees and warranties
Advertising
Skills related KSFs
Workforce talent
Quality control know-how
Design expertise
Expertise in a particular technology
Ability to develop innovative products
and product improvements
Speed of getting new products to
market
Organizational capability KSFs
Thompson, Arthur and Strickland, A.J. Strategic Management: Concepts and Readings. McGraw-Hill Irwin. NY. 15th Edition
Chapter 3 Worksheet
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Superior information systems
Ability to respond quickly to shifting
market conditions
Use of the Internet and Enterprise
Information systems
Overall experience
Managerial know-how
Other KSFs
Image and reputation
Overall low cost
Convenient retail locations
Pleasant employees in all customer
contact positions
Access to financial capital
Patent protection
Others?
7. Is this industry attractive and what are its prospects for above-average profitability (page 89)?
Criteria
Industry growth potential
Does competition permit adequate profit
potential?
Does competition lead to stronger or weaker
forces?
Will the prevailing driving forces positively
or negatively impact profit potential?
What is the company's relative competitive
potential in this industry?
What is the company's ability to capitalize on
its competitor's weaknesses?
Can the company defend against or is it
insulated from the factors that make this
industry unattractive?
How well do the company's capabilities
Facts
What does it mean?
Thompson, Arthur and Strickland, A.J. Strategic Management: Concepts and Readings. McGraw-Hill Irwin. NY. 15th Edition
Chapter 3 Worksheet
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match the industry's KSFs?
What are the future uncertainties and risks
for this industry?
What is the severity of the issue(s) or
problem(s) facing this industry?
If a corporation, will continued participation
in this industry positively or negatively
impact its ability to compete in other
industries?
8. Summary matrix
Prepare a summary matrix of the opportunities and threats you derived from your external analysis. I suggest you reference the opportunities
and threats to the applicable sections of the external analysis. You may use the following matrix as guidance.
External analysis section
Opportunity
Threat
Macro-environment
Industry’s dominant economic
traits
Five forces
Drivers of change in the industry
Strategic group map
Competitor’s next moves
Key success factors
Industry profitability
Thompson, Arthur and Strickland, A.J. Strategic Management: Concepts and Readings. McGraw-Hill Irwin. NY. 15th Edition
Chapter 3 Worksheet
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