External Analysis

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External Analysis

• BUSI 7130/7136
• Dr. Shook

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Topics

• Whats an Environment?
• Analyzing the Industry
• Five Forces
• Crown Cork Seal

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Whats an External Environment?

• Everything external to the organization
• that potentially affects an organizations
• performance

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General vs. Specific

• General elements in society that can
• indirectly influence an industry and the
• firms within an industry

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Components of the General Environment
Demographic
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Components of the General Environment
Economic
Demographic
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Components of the General Environment
Demographic
Economic
Political/Legal
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Components of the General Environment
Demographic
Economic
Political/Legal
Sociocultural
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Components of the General Environment
Demographic
Economic
Political/Legal
Technological
Sociocultural
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Components of the General Environment
Demographic
Economic
Political/Legal
Global
Technological
Sociocultural
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Components of the General Environment
Demographic
Economic
Political/Legal
Global
Technological
Sociocultural
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• Specific (or task) parts of the environment
  that are directly relevant to the achievement of
  an organizations goals
• suppliers
• customers
• competitors
• governmental agencies
• special-interest groups

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Porters Five Forces Model of Competition
Threat of New Entrants
Threat of New Entrants
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Threat of New Entrants

• Barriers to entry
• Threat of retaliation

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Threat of New Entrants
Economies of Scale

Product Differentiation

Barriers to Entry
Capital Requirements

Switching Costs

Access to Distribution Channels

Cost Disadvantages Independent of Scale

Government Policy

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Porters Five Forces Model of Competition
Threat of New Entrants
Threat of New Entrants
Bargaining Power of Suppliers
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Bargaining Power of Suppliers
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Porters Five Forces Model of Competition
Porters Five Forces Model of Competition
Threat of New Entrants
Threat of New Entrants
Bargaining Power of Buyers
Bargaining Power of Suppliers
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Bargaining Power of Buyers
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Bargaining Power of Buyers
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Porters Five Forces Model of Competition
Threat of New Entrants
Threat of New Entrants
Bargaining Power of Buyers
Bargaining Power of Suppliers
Threat of Substitute Products
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Threat of Substitute Products
Products with similar function limit the prices
firms can charge
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Threat of Substitute Products
Keys to evaluate substitute products
Products with improving price/performance
tradeoffs relative to present industry products
Products with similar function limit the prices
firms can charge

For Example
Electronic security systems in place of security
guards
Fax machines in place of overnight mail delivery
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Porters Five Forces Model of Competition
Threat of New Entrants
Threat of New Entrants
Rivalry Among Competing Firms in Industry
Bargaining Power of Buyers
Bargaining Power of Suppliers
Threat of Substitute Products
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Intensity of Rivalry Among Existing Competitors
Intense rivalry often plays out in the following
ways
Jockeying for strategic position

Using price competition

Staging advertising battles

Increasing consumer warranties or service

Making new product introductions

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Intensity of Rivalry Among Existing Competitors
Intense competition is more likely to occur when
Numerous or equally balanced competitors

Slow growth industry

High fixed costs

High storage costs

Lack of differentiation or switching costs

Capacity added in large increments

High strategic stakes

High exit barriers

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Intensity of Rivalry Among Existing Competitors
High Exit Barriers are economic, strategic and
emotional factors which cause companies to remain
in an industry even when future profitability is
questionable.
Specialized assets

Fixed cost of exit (e.g., labor agreements)

Strategic interrelationships

Emotional barriers

Government and social restrictions