The External Environment

General environment six segments

1. Demographic 2. Economic 3. Political/Legal 4. Sociocultural 5. Technological 6. Global

Components of the external environmental analysis

1. Scanning 2. Monitoring 3. Forecasting 4. Assessing

External environment's three major areas

1. general environment 2. industry environment 3. competitor environment

A supplier group is powerful when

1. it is dominated by a few large companies and is more concentrated than the industry to which it sells 2. satisfactory substitute products are not available to industry firms 3. industry firms are not a significant customer for the supplier group 4. supplier's goods are critical to buyers' marketplace success 5. the effectiveness of suppliers' products has created high switching costs for industry firms 6. it poses a credible threat to integrate forward into the buyers' industry

Intense rivalry often plays out in the following ways

1. jockeying for strategic position 2. using price competition 3. staging advertising battles 4. increasing consumer warranties or service 5. making new product introductions

Cutthroat competition is most likely to occur when

1. numerous or equally balanced competitors 2. slow growth industry 3. high fixed and storage costs 4. lack of differentiation or switching costs 5. capacity added in large increments 6. diverse competitors 7. high strategic stakes 8. high exit barriers

Buyer groups are powerful when

1. they purchase a large portion of an industry's total output 2. the sales of the product being purchased account for a significant portion of the seller's annual revenues 3. they could switch to another product at little, if any, cost 4. the industry's products are undifferentiated or standardized, and the buyers pose a credible threat if they were to integrate backward into the sellers' industry

The Five forces of competition model

1. threat of new entrants 2. bargaining power of suppliers 3. bargaining power of buyers 4. threat of substitute products 5. rivalry among competing firms

Forecasting

analysts develop feasible projections of what might happen, and how quickly, as a result of the changes and trends detected through scanning and monitoring

Monitoring

analysts observe environmental changes to see if an important trend is emerging from among those spotted by scanning. Detecting meaning through ongoing observations of environmental changes and trends

Threat of substitute products

are goods or services from outside a given industry that perform similar or the same functions as a product that the industry produces

Economies of scale

are the marginal improvements in efficiency that a firm experiences as it incrementally increases in size

Threat of new entrants

can threaten the market share of existing companies

Intensity of rivalry among competitors

competitive rivalry intensifies when a firm is challenged by a competitor's actions or when an opportunity to improve its market position is recognized

Scanning

entails the study of all segments in the general environment. Firms identify early signals of potential changes in the general environment and detect changes that are already under way

Competitor analysis

how companies gather and interpret information about their competitors

Global segment

includes relevant new global markets, existing markets that are changing, important international political events, and critical cultural and institutional characteristics of global markets

Technological segment

includes the institutions and activities involved with creating new knowledge and translating that knowledge into new outputs, products, processes, and materials

Bargaining power of suppliers

increasing prices and reducing the quality of its products are potential means used by suppliers to exert power over firms competing within the industry

Opportunity

is a condition in the general environment that if exploited, helps a company achieve strategic competitiveness

Threat

is a condition in the general environment that may hinder a company's efforts to achieve strategic competitiveness

Industry

is a group of firms producing products that are close substitutes

Strategic group

is a set of firms emphasizing similar strategic dimensions to use a similar strategy

General environment

is composed of dimensions in the broader society that influence an industry and the firms within it

Demographic segment

is concerned with a population's size, age structure, geographic distribution, ethnic mix, and income distribution

Sociocultural segment

is concerned with a society's attitudes and cultural values

Political/legal segment

is the arena in which organizations and interest groups compete for attention, resources, and a voice of overseeing the body of laws and regulations guiding the interactions among nations

Competitor intelligence

is the set of data and information the firm gathers to better understand and better anticipate competitors' objectives, strategies, assumptions, and capabilities

Industry environment

is the set of factors that directly influences a firm and its competitive actions and competitive responses: the threat of new entrants, the power of suppliers, the power of buyers, the threat of product substitutes, and the intensity of rivalry among competitors

Assessing

is to determine the timing and significance of the effects of environmental changes and trends on the strategic management of the firm

Barriers to entry

make it difficult for new firms to enter an industry and often place them at a competitive disadvantage even when they are able to enter

Economic environment

refers to the nature and direction of the economy in which a firm competes or may compete

Bargaining power of buyers

to maximize the return on their invested capital

High exit barriers

which take the form of economic, strategic or emotional factors which cause companies to remain in an industry even when future profitability is questionable