The Strategic Management Process

Chapter 2: The External Environment:

Opportunities, Threats, Industry Competition
and Competitor Analysis
Ove
Overview:
ve :
The firms external environment
External environmental analysis
General environmental segments
Industry environment (and analysis)
Porters 5 Competitive Forces
Strategic groups: Definition and influence
Competitors and competitive
competiti e intelligence

External Environment Analysis

4 components
p
Scanning the study of all segments in the

general environment
Monitoring
M i i observing
b
i environmental
i
l changes
h
to
see if an important trend is emerging
Forecasting
g the development
p
of feasible
projections of what might happen and how
quickly as a result of the changes and trends
detected
Assessing determining the timing and
significance of the effects of environmental
changes and trends on the firm
3

External Environment Analysis

Opportunity
General environment condition that, if exploited
effectively,
ff i l helps
h l a company achieve
h
strategic
i
competitiveness
Threat
General environment condition that may hinder a
company's efforts to achieve strategic competitiveness

The External Environment:

General Industry
General,
Industry, and Competitor

The General Environment

The General Environment
The broader society dimensions that influence an industry and

the firms within it

Grouped
p into 7 dimensions OR environmental segments
g
Demographic populations size, age structure, geographic
distribution, ethnic mix, and income distribution
Economic nature and direction of economy
y
Political/Legal laws and regulations
Sociocultural societys attitudes and cultural values
Technological new technologies and firms that create them
Global new global markets, existing markets that are changing,
and their characteristics
Physical potential and actual changes in physical environment
and business practices
6

The Industry Environment

Industry
dust y Environment
v o
e t
Set of factors directly influencing a firms competitive
actions/responses
Industry
Definition: Group of firms producing products that are
close
l
substitutes
b tit t
Industry environment, in comparison to the general
environment,, has more direct effect on firms

Strategic competitiveness and

Above-average returns

Intensity of industry competition and industrys profit

potential are a function of 5 forces

7