Chapter 3 Management 6721

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Chapter 3 Management 6721

• Analyzing a Companys External Environment
• and
• Macroenvironmental Analysis (MEA)

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(No Transcript)
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MACROENVIRONMENTAL SEGMENTS

• POLITICAL
• Special Interest Groups
• Regulatory

• SOCIAL
• Demographics
• Life-styles
• Values

PTE

• TECHNOLOGICAL
• Pacing
• Key
• Base

• ECONOMIC
• Cyclical
• Structural

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MEA 3 Goals

• Identify and Understand existing and potential
  changes in the Macroenvironment
• Integrate relevant environmental information into
  the organizations decision-making process
• Stimulate Strategic Thinking (develop, evaluate,
  and select strategic alternatives a strategic
  decision

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MACROENVIRONMENTAL ANALYSIS (MEA)
Competition
Natural Environment
TASK ENV
Public Image
Customers
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Regulatory (Government / Courts)
Economic Conditions
PTE
Suppliers
Special Interest Groups
Labor Market (Critical Skill) Availability
Technology Criticality Rate of Change
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ENVIRONMENTAL ? ORGANIZATIONAL LINK FRAMEWORK
PERCEIVED TASK ENVIRONMENT
FIRM PERFORMANCE
STRATEGY
STRUCTURE
RESOURCE VALUATION (/-)
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ENVIRONMENTAL ASSESSMENT AND UNCERTAINTY
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Common Types of Driving Forces MEA Segments

• Increasing globalization of industry (All
  Sectors)
• Changes in cost and efficiency (Economic)
• Market shift from standardized to differentiated
  products (or vice versa) (Technology)
• New regulatory policies and/or government
  legislation (Political)
• Changing societal concerns, attitudes, and
  lifestyles (Social)
• Changes in degree of uncertainty and risk (All
  Sectors)

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Substitute Products (of firms in other industries)
Rivalry Among Competing Sellers
Suppliers of Key Inputs
Buyers
Potential New Entrants
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The Five Forces Model of Competition (Fig.
3.3)
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Typical Weapons for Competing?

• Vigorous price competition
• More or different performance features
• Better product performance
• Higher quality
• Stronger brand image and appeal
• Wider selection of models and styles

• Bigger/better dealer network
• Low interest rate financing
• Higher levels of advertising
• Stronger product innovation capabilities
• Better customer service
• Stronger capabilities to provide buyers with
  custom-made products

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Common Barriers to Entry

• Sizable economies of scale
• Cost and resource disadvantages independent of
  size
• Brand preferences and customer loyalty
• Capital requirements and/or other specialized
  resource requirements
• Access to distribution channels
• Regulatory policies
• Tariffs and international trade restrictions

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Competitive Pressures Collaboration Between
Sellers and Suppliers

• Sellers are forging strategic partnership with
  select suppliers to
• Reduce inventory and logistics costs
• Speed availability of next-generation components
• Enhance quality of parts being supplied
• Squeeze out cost savings for both parties
• Competitive advantage potential may accrue to
  sellers doing the best job of managing
  supply-chain relationships

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Power of Buyers

• Who are the Buyers?
• Can they force lower prices, higher quality
  and service, or play competitors against one
  another?
• Based on two issues
• 1. Price sensitivity
• purchase is a large portion of costs
• no differentiation
• if they exist in a competitive, low profit
  industry
• 2. Whether buyers can bargain down prices
• few buyers
• buyers are knowledgeable
• low switching costs
• backward integration is a valid threat

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Managing Buyer-Supplier Relationships

• Partnerships are an increasingly important
  competitive element in business-to-business
  relationships
• Collaboration may result in mutual benefits
  regarding
• Just-in-time deliveries
• Order processing
• Electronic invoice payments
• On-line sharing of sales at the cash register
• Competitive advantage may accrue to firms that do
  the best job of managing seller-buyer partnerships

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Threat of Substitutes

• Product/service which fulfills similar need
• Price cap
• 3 Questions
• Are they available?
• Price-performance relationship?
• Can we switch?

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Strategic Implications of theFive
Competitive Forces

• Competitive environment is ideal from a
  profit-making standpoint when
• Rivalry is moderate
• Entry barriers are high and no firm is likely to
  enter
• Good substitutes do not exist
• Suppliers and customers are in a weak bargaining
  position

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• RIVALRY is usually the most powerful of the Five
  Forces
• How actively and aggressively are rivals
  employing competitive weapons in jockeying for a
  stronger market position and increasing sales?
• Is price competition vigorous?
• Active efforts to improve quality?
• Are rivals racing to offer better performance
  features? better customer service?
• Lots of advertising/sales promotions?
• Active efforts to build a stronger dealer
  network?
• Active product innovation?
• Active use of other weapons of rivalry?

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Rivalry What drives it?

• Numerous, equally balanced competitors
• Perceptions of high payoff from competitive
  actions
• Slow growth, excess capacity
• High fixed, storage, obsolescence costs
• High exit barriers
• Diversity of competitors
• Low switching costs
• Lack of differentiation

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Assessing Rival Market Positions

• One technique to reveal different competitive
  positions of industry rivals is strategic group
  mapping
• A strategic group is a cluster of firms in an
  industry with similar competitive approaches and
  market positions

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Strategic Group Mapping

• Firms in same strategic group have two or more
  competitive characteristics in common
• Have comparable product line breadth
• Sell in same price/quality range
• Emphasize same distribution channels
• Use same product attributes to appeal to similar
  types of buyers
• Use identical technological approaches
• Offer buyers similar services
• Cover same geographic areas

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National Jewelry Retailers
Cartier Tiffany
Price
Jerrods Marks Morgan
Zales Kay
WalMart K-Mart
Quality
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National Jewelry Retailers
Cartier Tiffany
Nordstroms Sachs
Strategic Groups identify
Price
Burdines Dillards
Jerrods Marks Morgan
Sears JCP
Zales Kay
Target
Pawn Shop Chain-by-the-Foot Carts
WalMart Kmart
Breadth of Product Line
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What Are the Key Factors for Competitive
Success?

• KSFs are those competitive factors most affecting
  everyindustry members ability to prosper. They
  concern
• Specific strategy elements
• Product attributes
• Resources
• Competencies
• Competitive capabilities
• that a company needs to have to be competitively
  successful
• KSFs are attributes that spell the difference
  between
• Profit and loss
• Competitive success or failure

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KSFs for Beer Industry

• Utilization of brewing capacity -- to keep
  manufacturing costs low
• Strong network of wholesale distributors -- to
  gain access to retail outlets
• Clever advertising -- to induce beer drinkers to
  buy a particular brand

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Identifying Key Success Factors (KSFs) - vary by
segment
Automotive Industry