2 - The External Environment: Opportunities, Threats, Industry Competition & Competitor Analysis Flashcards
external environment
consists of 3 environments:
- general
- industry
- competitor
general environment
broad society dimensions:
- demographic
- economic
- political/legal
- sociocultural
- technological
- global
- physical environment
industry environment
influences firm’s competitive actions/responses
- more direct impact on firm
Porter’s 5 Forces
competitor environment
provides info on:
- direct + indirect competitors
- competitive dynamics expected to generate AAR
external environment analysis process
scanning (early signals of trends)
monitoring (detect meaning through observations)
forecasting (anticipated outcomes based on observed trends)
assessing (determine timing + importance of trends)
= identify its opportunities and threats
Porter’s Five Forces of Competition Model
function of intensity of industry competition + industry’s profit potential
- threat of new market entrants
- bargaining power of suppliers
- bargaining power of buyers
- threat of substitute products
- rivalry among competing firms
- threat of new market entrants
may threaten market share of existing competitors
function of 2 factors:
- barriers to entry
- expected retaliation
- bargaining power of suppliers
stronger when:
- no substitutes
- their effectiveness created high switching costs
- goods supplied are critical for buyer’s success
- threat of forward integration into buyer’s industry
- bargaining power of buyers
stronger when:
- purchase large portion of industry’s total output
- low switching costs
- threat of backward integration
- threat of substitute products
goods/services outside of given industry perform same/similar functions at a competitive price
- rivalry among competing firms
numerous competitors slow industry growth high storage costs lack of differentiation or low switching costs high exit barriers
strategic groups
firms emphasizing similar strategic dimensions to use a similar strategy
implications:
- greater rivalry
- different strengths of 5 forces across strategic groups
components of competitor analysis
future objectives
current strategy
assumptions
capabilities
= will impact organization response
barriers to entry
economies of scale switching costs gov policy product differentiation access to distribution channels capital requirements
how do the 5 forces of competition affect an industry’s profitability?
by studying these forces a firm can identity how to position themselves in the industry to:
- influence forces in its favour
- buffer itself from power of forces
= in order to achieve strategic competitiveness + AAR
