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SILVIA DIANI Summary Chapter 3

Eks B 36 A

Chapter 3. Evaluating a Company’s External Environment

This chapter explains several considerations of well-validated concepts and analytic tools for examining
the external environment that executives must monitor to lead their organizations strategically.

PESTEL analysis is one important tool that executives can rely on to organize factors within the macro
environment and to identify how these factors influence company and also to identify major opportunities
and threats and then adjust firms’ strategies accordingly. In particular;

(1) Political  centers on the role of governments in shaping business.

(2) Economic  centers on the economic conditions within which organizations operate.
(3) Social  Include population size, age, and ethnic mix, as well as cultural trends such as attitudes
toward obesity and consumer activism
(4) Technological  centers on improvements in products and services that are provided by science.
(5) Environmental  involves the physical conditions within which organizations operate.
(6) Legal  centers on how the courts influence business activity.

Other analytic tools is the five forces framework. The purpose of five forces analysis is to identify how
much profit potential exists in an industry. To do so, five forces analysis considers the interactions (rivalry)
among the competitors in an industry, The Threat of potential new entrants to the industry, substitutes
for the industry’s offerings, the power of suppliers to an industry, and the power of an industry’s buyers.

Five forces analysis is useful, but it has some limitations too. The description of five forces seems to
assume that, if a firm is to make more profit, it must take that profit from a rival, a supplier, or a buyer. In
some settings, however, collaboration can create a larger pool of profit that benefits everyone involved
in the collaboration e.g joint ventures.

In term of driving forces in the industry  Industry and competitive conditions change because due to
industry's macro-environment and changes originating within the industry. Such changes include:
increasing globalization, changing buyer demographics, technological change, Internet-expansion,
product and marketing innovations, entry or exit of major firms, diffusion of know-how, efficiency
improvements in adjacent markets, reductions in uncertainty and business risk, government policy
changes, and changing societal factors. Once an industry's change drivers have been identified, the
analytical task becomes one of determining the effect on of them industry growth and competition.

Next Mapping Strategic groups which are valuable for understanding close competitors that affect a firm
more than other industry members. Strategic groups are sets of industry competitors that have similar
characteristics to one another but differ in important ways from the members of other groups

Competitor analysis  Studying competitors’ past behavior and preferences provides a valuable assist in
anticipating what moves rivals are likely to make next and outmaneuvering them in the marketplace.
Michael Porter’s Framework for Competitor Analysis points to four indicators of a rival’s likely strategic
moves and countermoves. These include a rival’s current strategy, objectives, resources and capabilities,
and assumptions about itself and the industry.

Key success factors (KSFs) are those competitive factors that most affect industry members’ ability to
survive includes the strategy elements, product and service attributes, operational approaches, resources,
and competitive capabilities that are essential to surviving and thriving in the industry.

Each of the frameworks presented in this chapter—PESTEL, five forces analysis, driving forces, strategy
groups, competitor analysis, and key success factors— provides a useful perspective on an industry’s
outlook for future profitability. Putting them all together provides an even richer and more nuanced