Bài giảng Crafting and Executing Strategy - Chapter 3: Evaluating a Company’s External Environment

Chapter 3: Evaluating a Company’s External EnvironmentScreen graphics created by:Jana F. Kuzmicki, Ph.D.Troy UniversityChapter Learning ObjectivesTo gain command of the basic concepts and analytical tools widely used to diagnose a company’s industry and competitive conditions.To become adept in recognizing the factors that cause competition in an industry to be fierce, more or less normal, or relatively weak.To learn how to determine whether an industry’s outlook presents a company with sufficiently attractive opportunities for growth and profitability.To understand why in-depth evaluation of specific industry and competitive conditions is a prerequisite to crafting a strategy well matched to a company’s situation.Chapter RoadmapThe Strategically Relevant Components of a Company’s External EnvironmentThinking Strategically About a Company’s Industry and Competitive EnvironmentQuestion 1: What Are the Industry’s Dominant Economic Features?Question 2: How Strong Are Competitive Forces?Question 3: What Forces Are Driving Industry Change and What Impacts Will They Have?Question 4: What Market Positions Do Rivals Occupy—Who Is Strongly Positioned and Who Is Not?Question 5: What Strategic Moves Are Rivals Likely to Make Next?Question 6: What Are the Key Factors for Future Competitive Success?Question 7: Does the Outlook for the Industry Offer the Company a Good Opportunity to Earn Attractive Profits?Diagnosing a company’s situation has two facetsAssessing the company’s external or macro-environment Industry and competitive conditions Forces acting to reshape this environmentAssessing the company’s internal ormicro-environment Market position and competitiveness Competencies, capabilities,resource strengths andweaknesses, and competitivenessUnderstanding the Factors that Determine a Company’s SituationFigure 3.1: From Thinking Strategically About theCompany’s Situation to Choosing a Strategy 3-5Figure 3.2: The Components of a Company’s Macro-environment3-6Thinking Strategically About aCompany’s Macro-environmentA company’s macro-environment includes all relevant factors and influences outside its boundariesDiagnosing a company’s external situation involves assessing strategically important factors that have a bearing on the decisions a company’s makes about itsDirectionObjectivesStrategyBusiness modelRequires that company managers scanthe external environment toIdentify potentially important external developmentsAssess their impact and influenceAdapt a company’s direction and strategy as neededKey Questions Regarding theIndustry and Competitive EnvironmentWhat are the industry’s dominant economic traits? How strong are competitive forces?What forces are driving change in the industry?What market positions do rivals occupy? What moves will they make next?What are the key factors for competitive success?How attractive is the industry from a profit perspective?3-8Market size and growth rateNumber of rivalsScope of competitive rivalryBuyer needs and requirementsDegree of product differentiationProduct innovationSupply/demand conditionsPace of technological changeVertical integrationEconomies of scaleLearning and experience curve effectsQuestion 1: What are the Industry’sDominant Economic Traits?Table 3.1: What to Consider in Identifyingan Industry’s Dominant Economic Features3-10Learning/Experience EffectsLearning/experience effects exist when a company’s unit costs decline as its cumulative production volume increases because ofAccumulating production know-how Growing mastery of the technology The bigger the learning or experience curve effect, the bigger the cost advantage of the firm with the largest cumulative production volumeQuestion 2: How Strong Are Competitive Forces?Objectives are to identify Main sources of competitive forces Strength of these forcesKey analytical tool Five Forces Model of CompetitionFigure 3.3: The Five Forces Model of Competition3-13Analyzing the Five Competitive Forces: How to Do ItStep 1: Identify the specific competitivepressures associated with each ofthe five forcesStep 2: Evaluate the strength of eachcompetitive force – fierce, strong,moderate to normal, or weak? Step 3: Determine whether the collectivestrength of the five competitive forcesis conducive to earning attractive profitsUsually the strongest of the five forcesKey factor in determining strength of rivalryHow aggressively are rivals using various weapons of competition to improve their market positions and performance?Competitive rivalry is a combativecontest involvingOffensive actionsDefensive countermovesCompetitive PressuresAmong Rival SellersFigure 3.4: Weapons for Competing and Factors Affecting Strength of Rivalry3-16Seriousness of threat depends onSize of pool of entry candidatesand available resourcesBarriers to entryReaction of existing firmsEvaluating threat of entry involves assessingHow formidable entry barriers are for each type of potential entrant andAttractiveness of growth and profit prospects Competitive PressuresAssociated With Potential EntryFigure 3.5: Factors Affecting Threat of Entry 3-18Sizable economies of scaleCost and resource disadvantages independent of sizeBrand preferences and customer loyaltyCapital requirements and/or otherspecialized resource requirementsAccess to distribution channelsRegulatory policiesTariffs and international trade restrictionsAbility of industry incumbents to launch vigorous initiatives to block a newcomer’s entryCommon Barriers to EntryCompetitive Pressures from Substitute ProductsSubstitutes matter when customersare attracted to the products offirms in other industries Sugar vs. artificial sweetenersEyeglasses and contact lensvs. laser surgeryNewspapers vs. TV vs. InternetConceptExamplesHow to Tell Whether SubstituteProducts Are a Strong ForceWhether substitutes are readilyavailable and attractively pricedWhether buyers view substitutesas being comparable or betterHow much it costs end usersto switch to substitutesFigure 3.6: Factors Affecting Competition From Substitute Products3-22Whether supplier-seller relationships represent a weak or strong competitive force depends onWhether suppliers can exercisesufficient bargaining leverage toinfluence terms of supply in their favorNature and extent of supplier-sellercollaboration in the industryCompetitive Pressures From Suppliersand Supplier-Seller CollaborationFigure 3.7: Factors Affecting Bargaining Power of Suppliers3-24Industry members often forge strategic partnerships with select suppliers toReduce inventory and logistics costsSpeed availability ofnext-generation componentsEnhance quality of parts being suppliedSqueeze out cost savings for both partiesCompetitive advantage potential may accrue to those industry members (sellers) doing the best job of managing supply-chain relationshipsCompetitive Pressures: Collaboration Between Sellers and SuppliersWhether the relationships between industry members and buyers represent a weak or strong competitive force depends onWhether buyers have sufficientbargaining leverage to influenceterms of sale in their favorExtent and competitive importance ofstrategic partnerships between certain industry members and the buyers Competitive Pressures From Buyersand Seller-Buyer CollaborationFigure 3.8: Factors Affecting Bargaining Power of Buyers3-27Partnerships between industry members and some/many of their customers can impact competitive pressuresCollaboration may result inmutual benefits regardingJust-in-time deliveriesOrder processingElectronic invoice paymentsData sharingCompetitive advantage may accrue to those industry members doing the best job of partnering with their customersCompetitive Pressures: CollaborationBetween Sellers and BuyersCompetitive environment isunattractive from the standpointof earning good profits whenRivalry is vigorousEntry barriers are lowand entry is likelyCompetition from substitutes is strongSuppliers and customers haveconsiderable bargaining powerStrategic Implications ofthe Five Competitive ForcesCompetitive environment is ideal froma profit-making standpoint whenRivalry is moderateEntry barriers are highand no firm is likely to enter Good substitutesdo not existSuppliers and customers arein a weak bargaining positionStrategic Implications ofthe Five Competitive ForcesObjective is to craft a strategy toInsulate firm fromcompetitive pressuresInitiate actions to producesustainable competitive advantageAllow firm to be the industry’s “mover and shaker” with the “most powerful” strategy that defines the business model for the industryCoping With theFive Competitive ForcesQuestion 3: What Forces Are Driving Industry Change and What Impacts Will They Have?Industries change because forcesare driving industry participantsto alter their actionsDriving forces are themajor underlying causesof changing industry andcompetitive conditionsWhere do driving forces originate?Outer ring of macroenvironmentInner ring of macroenvironmentSTEP 1: Identify forces likely to exert greatest influence over next 1 - 3 yearsUsually no more than 3 - 4 factorsqualify as real drivers of changeSTEP 2: Assess impactAre driving forces acting to cause market demand for product to increase or decrease?Are driving forces acting to make competition more or less intense?Will driving forces lead to higher or lower industry profitability?STEP 3: Determine what strategy changes are needed to prepare for impacts of driving forces Analyzing Driving Forces: Three Key StepsTable 3.2: The Most Common Driving Forces3-34Question 4: What MarketPositions Do Rivals Occupy?One technique to reveal different competitive positions of industry rivals isstrategic group mappingA strategic group is a cluster of firms in an industry with similar competitiveapproaches and market positionsFirms in same strategic grouphave two or more competitive characteristics in commonHave comparable product line breadthSell in same price/quality rangeEmphasize same distribution channelsUse same product attributes to appealto similar types of buyersUse identical technological approachesOffer buyers similar servicesCover same geographic areasStrategic Group MappingSTEP 1: Identify competitive characteristics that differentiate firms in an industry from one anotherSTEP 2: Plot firms on a two-variable map using pairs of these differentiating characteristicsSTEP 3: Assign firms that fall in about the same strategy space to same strategic groupSTEP 4: Draw circles around each group, making circles proportional to size of group’s respective share of total industry salesProcedure for Constructing a Strategic Group MapExample: Strategic Group Map of Selected Automobile Manufacturers 3-38Variables selected as axes should not be highly correlatedVariables chosen as axes should expose big differences in how rivals competeVariables do not have to be either quantitative or continuousDrawing sizes of circles proportional to combined sales of firms in each strategic group allows map to reflect relative sizes of each strategic groupIf more than two good competitive variables can be used, several maps can be drawnGuidelines: Strategic Group MapsInterpreting Strategic Group MapsThe closer strategic groups are on the map, the stronger the cross-group competitive rivalry tends to beNot all positions on the mapare equally attractiveDriving forces and competitive pressures oftenfavor some strategic groups and hurt othersProfit potential of different strategicgroups varies due to strengths andweaknesses in each group’s market positionA firm’s best strategic movesare affected byCurrent strategies of competitorsFuture actions of competitors Profiling key rivals involves gatheringcompetitive intelligence aboutCurrent strategiesMost recent actions and public announcementsResource strengths and weaknessesEfforts being made to improve their situationThinking and leadership styles of top executivesQuestion 5: What Strategic MovesAre Rivals Likely to Make Next?Sizing up strategies and competitive strengths and weaknesses of rivals involves assessingWhich rival has the best strategy? Whichrivals appear to have weak strategies?Which firms are poised to gainmarket share, and which onesseen destined to lose ground?Which rivals are likely to rank among the industry leaders five years from now? Do any up-and-coming rivals have strategies and the resources to overtake the current industry leader?Competitor AnalysisWhich rivals need to increase their unit sales and market share? What strategies are rivals most likely to pursue?Which rivals have a strong incentive, along with resources, to make major strategic changes?Which rivals are good candidates to be acquired? Which rivals have the resources to acquire others?Which rivals are likely to enter new geographic markets?Which rivals are likely to expand their product offerings and enter new product segments?Things to Consider inPredicting Moves of RivalsKey Success Factors (KSFs) are competitive factors and attributes that affect every industry member’s ability to be competitively and financially successfulKSFs are those particular attributes that are so important that they spell the difference betweenProfit and lossCompetitive success or failure KSFs can relate toSpecific strategy elementsProduct attributesResourcesCompetenciesCompetitive capabilitiesMarket achievementsQuestion 6: What Are the KeyFactors for Competitive Success?The answers to 3 questions often help pinpoint an industry’s KSFsOn what basis do customers choosebetween competing brands of sellers?What resources and competitive capabilities does a company need to have to be competitively successful?What shortcomings are likely to place a company at a significant competitive disadvantage?Rarely are there more than 5 - 6 factors that are truly key to the future financial and competitive success of industry membersIdentifying Industry Key Success FactorsTable 3.3: Common Types of Industry Key Success Factors3-46Involves assessing whether the industry and competitive environment presents a company with an attractive or unattractive opportunity for earning good profitsFactors to consider:Industry growth potentialWhether competitive forces are growing stronger/weakerWhether driving forces will favorable/unfavorably impact industry profitabilityDegree of risk and uncertainty in industry’s futureWhether the industry confronts severe problemsFirm’s competitive position in industry vis-à-vis rivalsFirm’s potential to capitalize on industry opportunities or the vulnerabilities of weaker rivalsWhether a firm has sufficient competitive strength todefend against unattractive industry factorsQuestion 7: Does the Outlook for theIndustry Offer an Attractive Opportunity?Factors to Consider inAssessing Industry AttractivenessAs a general propositionIf an industry’s overall profit prospects are above average, the industry environment is basically attractiveIf an industry’s overall profit prospects are below average, the industry environment is basically unattractiveHoweverAttractiveness is relative, not absoluteConclusions about attractiveness have to be drawn from the perspective of a particular companyAn industry is unlikely to be equally attractive or unattractive to all industry members Industry environments attractive to strong competitors may be unattractive to weak competitorsA favorably positioned company may survey an industry environment and see opportunities that weak competitors have little or no ability to captureIndustry environments attractive to insiders may be unattractive to potential entrantsUnder certain circumstances, a firm uniquely well-situated in an otherwise unattractive industry can still earn good profits by taking sales and market share away from weaker competitorsFactors to Consider inAssessing Industry AttractivenessCore Concept: AssessingIndustry AttractivenessThe degree to which an industryis attractive or unattractive is not the same for all industry participantsor potential entrants.The opportunities an industrypresents depend partly on acompany’s ability to capture them.3-50