Chapter 3: Evaluating a Company's External Environment

Common types of key success factors (KSFs)

- Technology-related - Manufacturing-related - Distribution-related - Marketing-related - Skills- and capability- related - Other (organizational capability-related)

Five Forces Model of Competition

1) Competitive pressures stemming from buyer bargaining power. 2) Competitive pressures coming from companies in other industries to win buyers over to substitute products. 3) Competitive pressures stemming from supplier bargaining power. 4) Competitive pressures associated with the threat of new entrants into the market. 5) Competitive pressures associated with rivalry among competing sellers to attract customers. This is usually the strongest of the five competitive forces.

Strategic group mapping

A technique for displaying the different market or competitive positions that rival firms occupy in the industry Useful for comparing the market positions of industry competitors or for grouping industry combatants into like positions

PESTEL analysis

An acronym for the six principal components of the macro-environment 1) Political factors 2) Economic conditions in the firm's general environment 3) Sociocultural forces 4) Technological factors 5) Environmental forces 6) Legal/regulatory factors

Objectives

An organization's performance targets - the results management wants to achieve

Strategic group

Consists of those industry members with similar competitive approaches and positions in the market A cluster of industry rivals that have similar competitive approaches and market positions

Economic conditions (PESTEL)

Economic conditions include the general economic climate and specific factors such as interest rates, exchange rates, the inflation rate, the unemployment rate, the rate of economic growth, trade deficits or surpluses, savings rates, and per capita domestic product. Economic factors also include conditions in the markets for stocks and bonds, which can affect consumer confidence and discretionary income. Some industries, such as construction, are particularly vulnerable to economic downturns but are positively affected by factors such as low interest rates. Others, such as discount retailing, may benefit when general economic conditions weaken, as consumers become more price-conscious. Economic characteristics of the industry such as market size and growth rate are also important to evaluate when assessing an industry's prospects for growth and attractive profits

Macro-environment

Encompasses all of the relevant factors making up the broad environmental context in which a company operates

Sociocultural forces (PESTEL)

Sociocultural forces include the societal values, attitudes, cultural factors, and lifestyles that impact businesses, as well as demographic factors such as the population size, growth rate, and age distribution. Sociocultural forces vary by locale and change over time. An example is the trend toward healthier lifestyles, which can shift spending toward exercise equipment and health clubs and away from alcohol and snack foods. Population demographics can have large implications for industries such as health care, where costs and service needs vary with demographic factors such as age and income distribution.

Technological factors

Technological factors include the pace of technological change and technical developments that have the potential for wide-ranging effects on society, such as genetic engineering and nanotechnology. They include institutions involved in creating knowledge and controlling the use of technology, such as R&D consortia, university-sponsored technology incubators, patent and copyright laws, and government control over the Internet. Technological change can encourage the birth of new industries, such as those based on nanotechnology, and disrupt others, such as the recording industry.

Relevant

The factors that are important enough that they should shape management's decisions regarding the company's long-term direction, objectives, strategy, and business model

Driving forces

The most powerful industry change agents The major underlying causes of change in industry and competitive conditions 3 steps: 1) Identifying what the driving forces are 2) assessing whether the drivers of change are individually or collectively acting to make the industry more or less attractive 3) Determining what strategy changes are needed to prepare for the impact of the driving forces

Key success factors (KSFs)

The strategy elements, product attributes, competitive capabilities, or intangible assets with the greatest impact on future success in the marketplace The factors that most affect industry member's ability to prosper in the marketplace

Political Factors (PESTEL)

These factors include political policies and processes, including the extent to which a government intervenes in the economy. They include such matters as tax policy, fiscal policy, tariffs, the political climate, and the strength of institutions such as the federal banking system. Some political factors, such as bailouts, are industry-specific. Others, such as energy policy, affect certain types of industries (energy producers and heavy users of energy) more than others.

Legal and regulatory factors

These factors include the regulations and laws with which companies must comply such as consumer laws, labor laws, antitrust laws, and occupational health and safety regulations. Some factors, such as banking deregulation, are industry-specific. Others, such as minimum wage legislation, affect certain types of industries (low-wage, labor-intensive industries) more than others.

Environmental forces (PESTEL)

These include ecological and environmental forces such as weather, climate, climate change, and associated factors such as water shortages. These factors can directly impact industries such as insurance, farming, energy production, and tourism. They may have an indirect but substantial effect on other industries such as transportation and utilities.