Internal and External Analysis

substitutes

-Become a threat when their services meet the needs of our customers by alternative means. •They threaten our economic position by: oPlacing a "ceiling" on the prices that firms can charge and the profits that they can earn oSUBSTITUTES come from OUTSIDE the industry - they are NOT our rivals!

complimentors (not in model)

-Customers value a firm's goods or services MORE when they also have access to a complementor's services or products. •Complementors can increase the size of the market •They can serve to DISTINGUISH us from rivals •There is a risk - guilt by association - if our complementor delivers an inferior product

Rivalries

-Direct competition - threaten a firm by reducing their economic profits. -Rivalries often lead to: •1. Frequent price cutting •2. Frequent introduction of new products •3. Intense advertising campaigns •4. Rapid competitive actions and reactions

threat of new entrants

-If other organizations can easily enter an industry, then a firm's competitive position will be challenged. •The number of new players will be determined by "barriers" to entry. These include: oEconomies of scale (The cost advantage that arises with increased output of a product, Inverse relationship between quantity produced and per-unit fixed cost, The greater the # of units produced the lower the cost per-unit because spread over larger # of goods) oProduct differentiation oAccess to needed inputs (think college recruiting) oTechnology and know-how oGovernmental policies

Buyers (Power)

-Their actions can decrease a firm's revenues by "squeezing" the organization. -They have an advantage when: •There are a small number of buyers •Our services are undifferentiated and standard •Our products provide minimal *perceived* benefit to the user •They could attempt backward vertical integration

supplier (Power)

-Threaten an organization's performance by increasing their prices or reducing product quality. •Suppliers have an advantage when: oThere are a small number of suppliers oThey sell unique or differentiated products/services oThey are not threatened by substitutes oThey could attempt forward vertical integration Your firm is not an important customer

external analysis- industry threats

any individual, group, or organization outside the firm that seeks to reduce its level of performance -the five forces framework (porter): buyers, rivalries, threat of new entrants, supplier, substitutes, complimentors

external analysis- general environment

demographic trends, cultural trends, economic climate, political and legal conditions, technological change, important events

general environment

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

competitor environment

focuses on each company against which a firm directly competes

VRIO

oVRIO framework is a tool to examine the internal environment of a firm. -four questions

industry environment

set of factors that directly influences a firm and its competitive actions and response

VRIO four questions

•1 - The Question of Value: Does a resource enable a firm to exploit an environmental opportunity, and/or neutralize an environmental threat? •2 - The Question of Rarity: Is a resource currently controlled by only a small number of competing firms? [are the resources used to make the products/services or the products/services themselves rare?] •3 - The Question of Imitability: do firms without a resource face a cost disadvantage in obtaining or developing it? [is what a firm is doing difficult to imitate?] •4 - The Question of Organization: Are a firm's other policies and procedures organized to support the exploitation of its valuable, rare, and costly-to-imitate resources?"

technological change

•A new innovation that creates opportunities for some, threats for others -Examples - Streaming video to handheld devices

value chain

•A value chain is a common tool used to accomplish this. •A value chain identifies the supporting activities (employee skills, technology, infrastructure, etc.) and the primary activities (acquiring inputs, operations, distribution, sales, etc.) that can potentially create profit

external analysis

•An external analysis will allow an organization to: o1. Determine the threats and opportunities that exist in the environment. o2. Understand that nature of competition (the dynamics) that exist in an industry. o3. Make more "informed" decisions in the strategies that are in the best interest of the organization. •Like all things related to strategic management, the process of scanning the external environment is like a funnel - moving from very general to highly actionable information

important events

•Events that have an impact on the lives of those that have a relationship with the organization -Examples - Boston Marathon

VRIO answers to four questions

•Not valuable→ competitive disadvantage •Valuable, but not rare→ competitive parity (equality) •Valuable and rare, but not costly to imitate→ temporary competitive advantage •Valuable, rare, and costly to imitate→ sustained competitive advantage (if organized properly)

internal analysis

•Strategic management (SM) is the managerial responsibility to achieve competitive advantage through optimizing internal resources while capturing external opportunities and avoiding external threats. oWhile different businesses have different internal conditions, it is easiest to view these potential attributes as generalized categories. oIn order for the SM process to begin, managers are required to conduct an internal analysis oAn internal analysis involves identifying the business' strengths & weaknesses by analyzing its competencies. oManagers also look to identify the business' competitive advantage •For strategies to be effective, an organization must exploit and expand on its strengths oMust also reduce and/or eliminate weaknesses oDoing so furthers competitive advantage = profitability (we hope) oA business' competencies are its resources and capabilities that allow the business to differentiate itself & its products/services or reduce its costs when compared with competitors. oA business' resources are its assets which may be tangible (equipment/tech) or intangible such as brand name or expertise. oIn order to analyze your internal assets (along with external) managers may conduct a VRIO or SWOT analysis

demographic trends

•The distribution of individuals in a society that determine its buying patterns -Age, race, gender, marital status, etc.

economic climate

•The overall "health" of the economic system within which an organization operates -Prosperity (demand is high, unemployment is low)

political and legal conditions

•The relationship between business and government -Examples - Anti-trust, environmental standards, worker safety/right to work, etc.

cultural trends

•The values, beliefs, and norms that guide behavior in the environment -Religion, political orientation, cultural interests