The External Environment for Strategy

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The External Environment for Strategy

• Strategic Management
• Lecture 2
• ??????????B?
• 2009.09.30

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Key Objectives

• Understand how to explain the firms external
  environment
• Describe the general, industrial, and competition
  environment
• Identify the firms five competitive forces
• Explain the environmental dimensions
• Define the strategic groups
• Describe how firms need to know about their
  competitors

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External Environment

• Three Possible Environmental Analysis Layers
• General Environments
• Dimensions in the broader society that influence
  an industry and the firms within it
• Industry Environments
• The set of factors that directly influences a
  firm and its competitive actions and competitive
  responses
• Competitor Environments
• Gather and interpret information about their
  competitors

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External Environment

• Another Four Environmental Dimensions
• Market Segmentation
• How to segment the possible market, and identify
  the possible source of customer
• Growth Opportunities
• The possible growth space in the specific
  product-market line
• Market Channel Modes
• The Possible Channel to Access the Customer
• Industrial Life Cycle
• How a industry evolve

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Segments of the General Environments

• Demographic Segment
• Population Size, Age Structure, Geographic
  Distribution, Ethnic Mix, Income Distribution
• Economic Segment
• Recession, Booming, GNP, GDP, Average Income
• Political/ Legal Segment
• The Government Policy
• Socio-cultural Segment
• Customer Taste, Degree of Openness, Value
• Technological Segment
• Global Segment
• Economic or Trade Region

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Industry Environment

• Definition of Industry
• Importance of Industry Environment Analysis
• Five Forces Model within a Specific Industry
• Threat of New Entrants
• Rivalry among Competing Firms
• Bargaining Power of Suppliers
• Threat of Substitute Products
• Bargaining Power of Buyers

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Five Forces ModelThreat of New Entrants

• How to Identify a Competitor?
• Possible Threat from New Entrants
• High Entry Barrier Increase the Returns for
  Existing Firms
• How to Prevent the New Entrance?
• Establish Barrier to Entry
• Retaliation

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Five Forces ModelThreat of New Entrants

• Possible Sources of Barriers to Entry
• Economic of Scale
• Product Differentiation
• Capital Requirements
• Switching Costs
• Access to Distribution Channels
• Cost Disadvantages Independent of Scale
• Government Policy

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Five Forces ModelBargaining Power of Suppliers

• Sources of Suppliers Bargaining Power
• Fewer
• Non-substitute
• Non-significant
• Critical
• Higher Switch Cost
• Credible Threat
• Possible Methods to Lower the Bargaining Power of
  Suppliers

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Five Forces ModelBargaining Power of Buyers

• Sources of Buyers Bargaining Power
• Large Portion
• Significant Portion for Annual Revenues
• lower Switch Cost
• Undifferentiated/ Standardized Products
• Possible Methods to Lower the Bargaining Power of
  Buyers

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Five Forces ModelThreat of Substitute Products

• Definition of Substitute Products
• Possible Source of Substitute Products
• Differentiating Products along Dimensions that
  Customers Value
• Price
• Quality
• Service
• Location

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Five Forces ModelIntensity of Rivalry among
Competitors

• Possible Sources of Higher Intensity of Rivalry
• Numerous or Equally Balanced Competitors
• Slow Industry Growth
• High Fixed Costs/ High Storage Costs
• Lack of Differentiation/ Low Switching Costs
• High Strategic Stakes
• High Exit Barriers

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Competitor Analysis

• Understanding a Competitors from
• Scale, growth, profit
• Mission, commitment
• Organizational factors
• Cost structure
• Past strategies
• Resources and competencies
• How to Response the Competitors Action

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Market Segmentation

• Importance of Market Segmentation
• Market Diversity
• Limited Resources
• Monopolistic Advantage
• Market Transformation
• The Possible Variables for Segmentation
• Customer Characteristics
• Demography, Life Style and Personality, Geography
• Product Characteristics
• Interest, Purpose, Brand Identity v.s. Price
  Sensitivity

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Market Segmentation

• The Principle of Market Segmentation
• Market Boundary
• Inside similarity v.s. Outside Dissimilarity
• Measurability
• Quantity v.s Quality
• Accessibility
• The possible channel to access the customers
• Feasibility
• The resource and executive ability of the firms

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Market Channel

• The Channel Dimension
• Channel Length
• Degree of Spread
• The Players in the Channel
• The link between Upstream and Downstream
• Typology

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Market Channel

• The Influential Factors in Channel Analysis
• The Market Characteristics
• The Cost associated with the Channel
• The Value-added of the Channel
• The product Characteristics
• The Competition in the Channel

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Industry Life Cycle

• Product Life Cycle Analysis
• According the growth rate of the products sales
  volume
• Introduction stage, growth stage, maturity stage,
  decline stage
• The Evolution of an industry does not always
  follow the S curve
• Industry characteristics, Industrial structure,
  The speed of innovation and technological Change
  do matter

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Growth Opportunity

• The Possible Driving Force for Growth
• The Quantity and Frequency of the Product
• The New Use of the product
• The Degree of the Maturity of the Product (?????)
• The Potential Segmentation in the Market (?????)
• The Potential Cost Cutting Possibility
• Standardization (????????)
• The Substituted Product
• The Growth and Decline of the Customer
• The Demand Trend

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Growth Opportunity

• The Risk in Growth or Booming Market
• Over-Crowded Competition
• The Growth Rate is over-predicted
• A Powerful and Competitive New Entrant
• The Key successful factor is changed
• The Resource Limitation
• The Channel Limitation

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Discussions (I)

• What is the Driver for New Economy
• Globalization
• Technological innovation
• Internet
• Are There the Sixth Force for Analyzing the
  Competitive Environment?
• Governmental policy
• Culture, value

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Discussions (II)

• How the Concept of Boundary-less Company may
  Influence the Competitive Environment?
• The Nature of competitiveness
• The Nature of management
• The Possible Inter-organizational relationships
• Co-option, competing cooperation,
• Strategic alliance
• Business group