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.
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 (cause and effect logic) that leads to conclusions (opportunities or threats). State the specific nature
of the opportunity or threat to strengthen your analysis and help you with your subsequent SWOT analysis.
Follow the quality of writing tips (e.g. expressions, word to avoid) listed on the back side of the memo grading rubric.
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
The economy at large
Facts
Analysis
Conclusions
(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,
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density), benefit segmentation
(comfort, convenience,
durability, 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
Ethno-graphics and
psychographics
Technology
1. What are the Industry's dominant economic features? (Make sure you know the industry you are analyzing.)
Criteria
Facts
Analysis
Market size
Scope of the
competitive rivalry
Conclusions
(The competitive scope
criteria address
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
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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
(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
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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
certain industry
activities result from
learning and
experience curve
effects
Capacity surplus or
shortage in the
industry
(Capacity refers to the
total manufacturing
output capability for the
industry. Capacity
surplus would indicate
that the industry has the
capability to produce
more products than the
Crafting and Executing Strategy: Concepts and Cases, McGraw-Hill. NY. 17th Edition
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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 the competitive forces?
Criteria
Facts
Under this heading you are
RIVALRY
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
Analysis
Conclusions
on their percentage of
industry sales) of each
competitor?
What is the industry
concentration ratio
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(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
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,
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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
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
 Financing
 Customer service
 Raw materials
 R&D
 Other steps in the
value chain?
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(Please note that
synergies across the
value chains of related
diversified corporations
also constitute
economies of scale.)
Cost and resource
disadvantages
independent of
economies of scale
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?
Ability to build a
network of
distributors or
retailers and securing
adequate shelf space
What regulatory
policies apply?
What tariffs and trade
restrictions apply?
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Ability or inclination
of the industry’s
incumbents to launch
vigorous initiatives
SUBSTITUTES
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?
Do buyers view the
substitutes as being
comparable or better
in terms of quality?
Do buyers view the
substitutes as being
comparable or better
in terms of
performance?
Do buyers view the
substitutes as being
comparable or better
in terms of _______
(You fill in the
attribute or attributes
that are specific to the
product or service.)?
Can buyers easily
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switch to the
substitutes?
SUPPLIERS
Please note, 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 only a few
large suppliers to the
industry?
Is it difficult or costly
to switch from one
supplier to another or
to switch to
attractively priced
substitutes?
Are needed inputs in
short supply?
Do certain suppliers
provide a
differentiated input
that enhances the
performance or
quality of the
industry’s products?
Do certain suppliers
provide equipment or
services that deliver
valuable cost saving
efficiencies to
industry members in
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operating their
production processes?
Do suppliers provide
an item that accounts
for a sizable fraction
of the costs of the
industry’s products?
Are the industry
members major
customers of
suppliers?
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 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
Crafting and Executing Strategy: Concepts and Cases, McGraw-Hill. NY. 17th Edition
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the competitive
structure and
environment of the
industry?
BUYERS
Please note, 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?
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3. What is (and how are they) causing the industry's competitive structure and business environment to change?
Criteria
Industry competitive structure
Industry business environment
Your analysis determines how the
Your analysis determines how the
drivers of change are altering the
drivers of change are altering the
industry's competitive structure.
industry's competitive business
environment.
List the facts associated with the
criteria and the industry structure.
Analysis
Conclusions
List the facts associated with the
criteria and the industry’s
competitive environment.
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
Reductions in uncertainty and
risk
The competitive structure of an industry entails the number of suppliers, competitors and buyers and the quantity and complexity of the competitive relationships. For example, an industry entering
maturity causes fewer, larger competitors. The mature nature of the industry 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. There will be industry consolidation as firms exit the industry or through mergers and
acquisitions.
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4. What market positions do industry rivals occupy and which companies are in the strongest/weakest positions?
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 89-90). 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?
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5. What strategic moves are rivals likely to make next?
List the
What are the
Which
What is their
competitors competitor’s
competitors
strategic intent
strategies?
are poised to
(dominant
Which is the
gain market
leader,
best suited for
share? Which overtake the
the driving
competitors
leader, top 5,
forces? Which will lose
move up a
strategies are
ground?
position,
weak or
maintain
flawed?
position,
survive)?
Which rivals
need to
increase sales
and market
share? What
strategic
options are
they most
likely to
pursue (see
page 86)?
Which rivals
have strong
incentive (and
resources) to
make major
strategic
changes?
Which rivals
are locked in
to their
strategies?
Crafting and Executing Strategy: Concepts and Cases, McGraw-Hill. NY. 17th Edition
Chapter 3 Worksheet
Which rivals
are likely
acquisition
targets?
Which rivals
are looking to
acquire a
weaker
competitor?
Which rivals
are strong
candidates to
expand their
product/servic
e offerings
and/or enter
new product
segments ?
Based on your
analysis of the
preceding
questions,
what are the
respective
rivals’ most
likely
strategic
moves?
15
6. What are the key factors for competitive success (in this industry)?
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 there is space provided 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.
Competitor
Competitor
Competitor
You can provide your justification
What is their
Analysis and
What is their
Analysis and
What is their
Analysis and
for selecting the KSFs underneath
capability for
conclusions
capability for
conclusions
capability for
conclusions
the KSF.
this factor?
this factor?
this factor?
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
Low cost product (service) design
and engineering
Manufacturing flexibility
Distribution related KSFs
(Note: This applies to inbound and
outbound logistics.)
Network strength
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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
Superior information systems
Ability to respond quickly to
shifting market conditions
Use of the Internet and Enterprise
Information systems
Overall experience
Managerial know-how
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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?
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 are the future uncertainties and risks
for this industry?
How severe are the problems (e.g.
regulatory, environmental, buyer demand,
capacity, increased competition) the
industry faces?
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
match the industry's KSFs?
Facts
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Chapter 3 Worksheet
Analysis
Conclusions
18
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?
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