1. “Analysis is the critical starting point of strategic thinking.”
EXTERNAL ANALYSIS
(INDUSTRY AND COMPETITION)
Payne
(4)
Key Text Readings: Chapter 2, Chapter 3, Appendix A
“Analysis is the critical starting point of strategic thinking.”
Kenichi Ohmae

2. Assessing
Environmental
Scanning
Formulation
& Planning
Environmental
Monitoring
Forecasts
projections
Forecasting: Involves the development of plausible projections about the direction, scope, speed and intensity of environmental change.
Competitive
Intelligence

3. INTERNAL or MICRO-ENVIRONMENT
Environmental Analysis Levels
EXTERNAL or MACRO-ENVIRONMENT
Industry and competitive conditions (opportunities and threats)
INTERNAL or MICRO-ENVIRONMENT
Its competencies, capabilities, resources, and competitiveness (strengths and weaknesses)
Connect
Firm
Industry Level
Macro Level
Competitors
Suppliers
Substitutes
Customers
Demographic
Technological
Political/Legal
Social
Economic
Global

4. Health Care Environment
Environmental Analysis Levels
(of a Health Care Organization)
General Environment
Government Institutions
Educational Institutions
Religious Institutions
Research Organizations
Consumers
Service Area
Competitors
Government Services
Businesses
Non-profits
Other Locals
Educational Institutions
Individuals/Consumers
Health Care Environment
Planning / Regulatory
Primary Providers
Secondary Providers
Provider Representative
Consumers/Patients
Organization

5. Macro Environment (1) Socio-cultural segment Political/Legal Segment
Women in the workplace
Workforce diversity
Attitudes about quality of worklife
Concerns about environment
Shifts in work and career preferences
Shifts in product and service preferences
Political/Legal Segment
Antitrust laws
Taxation laws
Deregulation philosophies
Labor training laws
Educational philosophies and policies

6. Macro Environment (2) Economic segment Technological Segment
Inflation rates
Interest rates
Trade deficits or surpluses
Budget deficits or surpluses
Personal savings rate
Business savings rates
Gross domestic product
Technological Segment
Product innovations
Applications of knowledge
Focus of private and government-supported R&D expenditures
New communication technologies

7. Macro Environment (3) Global Segment Demographic
Important political events
Critical global markets
Newly industrialize countries
Different cultural and institutional attributes
Demographic
Population size
Age structure
Geographic distribution
Ethnic mix
Income distribution

8. Impact of General Environmental Trends on Various Industries
Segment/Trends/Events
Industry
Positive
Neutral
Negative
Demographic
Aging population
Rising affluence
Health Care
Baby products
Brokerage services
Fast foods
Upscale pets and supplies 
Sociocultural
More women in the
workforce
Greater concern for health & fitness
Clothing
Baking Products (staples)
Home exercise equipment
Meat products 
Political/legal
Tort reform
ADA (Americans with
Disabilities Act)
Legal Services
Auto Manufacturing
Retail
Manufacturers of elevators, escalators & ramps 
Technological
Genetic engineering
Pollution/global warming
Pharmaceutical
Publishing
Engineering Services
Petroleum 
Economic
Interest Rate Increases
Residential construction
Most common grocery products 
Global
Increasing Global Trade
Emergence of China as an economic power
Shipping
Personal service
Soft drinks
Defense

9. Five Forces Model of Competition
Substitute
Products
(of firms in
other industries)
Threat of Substitutes
Rivalry Intensity
Among
Competing
Sellers
Suppliers of
Key Inputs
Buyers
Bargaining Power of Buyers
Bargaining Power of Suppliers
Threat of New Entrants
Potential
New
Entrants

10. Analyzing the Five Competitive Forces: How to Do It
Assess strength of each competitive force (Strong? Moderate? Weak? )
Rivalry among competitors
Substitute products
Potential entry
Bargaining power of suppliers
Bargaining power of buyers
Explain how each force acts to create competitive pressure
Decide whether overall competition is brutal, fierce, strong, normal/moderate, or weak

11. Rivalry Among Competing Sellers
Usually the most powerful of the five forces
Check which weapons of competitive rivalry are most actively used by rivals in jockeying for position
Price
Quality
Performance features offered
Customer service
Warranties/guarantees
Advertising/promotions
Dealer networks
Product innovation

12. What Causes Rivalry to Be Stronger?
Lots of firms, more equal in size and capability
Slow market growth
Industry conditions tempt some firms to go on the offensive to boost volume and market share
Customers have low costs in switching brands
One or more firms initiates moves to bolster their standing at expense of rivals
A successful strategic move carries a big payoff
Costs more to get out of business than to stay in
Firms have diverse strategies, corporate priorities, resources, and countries of origin

13. Competitive Force of Threat of New Entry
Seriousness of threat depends primarily on:
Barriers to entry
Reaction of existing firms to entry
Barriers exist when:
Newcomers confront obstacles
Economic factors put potential entrant at a disadvantage relative to incumbent firms

14. Common Barriers to Entry
Economies of scale
Inability to gain access to specialized technology
Existence of learning/experience curve effects
Strong brand preferences and customer loyalty
Capital requirements and/or other specialized resource requirements
Cost disadvantages independent of size
Access to distribution channels
Regulatory policies, tariffs, trade restrictions

15. How to Tell Whether Substitute Products Are a Strong Force
Sales of substitutes are growing rapidly
Producers of substitutes are planning to add new capacity
Substitutes’ profits are up
The competitive threat of substitutes is stronger when they are:
Readily available
Attractively priced
Believed to have comparable or better performance features
Customer switching costs are low

16. Competitive Force of Substitute Products
Concept
Substitutes matter when customers are attracted to the products or services of firms in other industries
Examples
Eyeglasses vs. Contact Lens
MD vs. DPM vs. DC
Plastic vs. Glass vs. Metal

17. Competitive Force of Suppliers
Suppliers are a strong competitive force when:
Item makes up large portion of product costs, is crucial to production process, and/or significantly affects product quality
It is costly for buyers to switch suppliers
They have good reputations and growing demand
They can supply a component cheaper than industry members can make it themselves
They do not have to contend with substitutes
Buying firms are not important customers
Suppliers are a stronger force the more they can exercise power over:
Prices charged
Quality/performance of items supplied
Amounts and delivery times

18. Competitive Force of Buyers
Buyers are a strong competitive force when:
They are large and purchase a sizable percentage of industry’s product
They buy in volume quantities
They can integrate backward
Industry’s product is standardized
Their costs in switching to substitutes or other brands are low
They can purchase from several sellers
Product purchased does not save buyer money
Buyers are a stronger competitive force the more they have leverage to bargain over:
Price or Quality or Service
Other terms and conditions of sale

19. Strategic Implications of the Five Forces
Competitive environment is unattractive when:
Rivalry is strong
Entry barriers are low
Competition from substitutes is strong
Suppliers and customers have considerable bargaining power
Competitive environment is ideal when:
Rivalry is moderate
Entry barriers are high
Good substitutes do not exist
Suppliers and customers are in a weak bargaining position
Objective is to craft a strategy that will:
Insulate firm from competitive forces
Influence competitive pressures in ways that favor firm
Build a sustainable competitive advantage

20. Stakeholder Analysis

21. Who are Stakeholders?
Identifying stakeholders is one way of sizing up the internal and external constituents that influence the firm.
Stakeholders are individuals and groups who can affect and are affected by a firm’s strategic outcomes and who have enforceable claims on its performance
Stakeholders include individuals, groups, and other organizations who have an interest in the actions of an organization and who have the ability to influence it
Stakeholders may be categorized as internal, interface and external.

22. Building Stakeholder Relationships
Managing down
Relationships with subordinates
Managing up
Relationships with bosses and corporate staff
Managing out
Relationships with customers and suppliers
Managing across
Relationships with peers

23. Stakeholder Analysis

24. Examples of Stakeholder Groups
Internal stakeholders
Management
Professionals
Support Personnel
Interface stakeholders
Shareholders
Board of Directors
Medical Staff
External stakeholders
Suppliers
Competitors
Government Agencies
Patients

25. Relationships with Stakeholders
Organizations have dependency relationships with stakeholders
Firms are not equally dependent on all stakeholders and not every stakeholder has the same level of influence
An effective organization strategy requires consensus from a plurality of key stakeholders about what it should be doing and how these things should be done

26. Key Success Factors
KSFs or CSFs are competitive elements that most affect every strategic group member’s ability to prosper in the marketplace:
Specific strategy elements
Product attributes
Resources or Competencies
Competitive capabilities
KSFs spell difference between:
Profit and loss
Competitive success or failure
Ask: For our organization to be successful, we MUST be especially good at ___________?

27. Key Success Factors
Optimize Performance
A sound strategy incorporates efforts to be competent on all industry key success factors and to excel on at least one factor!

28. Identifying Key Success Factors
Answers to three questions pinpoint KSFs
On what basis do customers choose between competing brands or offerings of sellers?
What must a seller/provider do to be competitively successful -- what resources and competitive capabilities does it need?
What does it take for sellers/providers to achieve a sustainable competitive advantage?
KSFs consist of the really major determinants of financial and competitive success in a strategic group.
(Recall our discussion on developing objectives?)

29. Common Types of Key Success Factors
Technology-related
Manufacturing-related
Distribution-related
Marketing-related
Skills-related
Organizational capability
Other types
Scientific research expertise; Product innovation capability; Expertise in a given technology; Capability to use Internet to conduct various business activities
Low-cost production efficiency; Quality of manufacture; High use of fixed assets; Low-cost plant locations; High labor productivity; Low-cost product design; Flexibility to make a range of products
Strong network of wholesale distributors/dealers; Gaining ample space on retailer shelves; Having company-owned retail outlets; Low distribution costs; Fast delivery
Fast, accurate technical assistance; Courteous customer service; Accurate filling of orders; Breadth of product line; Merchandising skills; Attractive styling; Customer guarantees; Clever advertising
Superior workforce talent; Quality control know-how; Design expertise; Expertise in a particular technology; Ability to develop innovative products; Ability to get new products to market quickly
Superior information systems; Ability to respond quickly to shifting market conditions; Superior ability to employ Internet to conduct business; More experience & managerial know-how
Favorable image/reputation with buyers; Overall low-cost; Convenient locations; Pleasant, courteous employees; Access to financial capital; Patent protection

30. Example: KSFs for the Refractive Eye Surgery Industry
High numbers of procedures, which is a component of price, experience, and service.
Low rate of complications and high rate of success (20/20)
Positive word-of-mouth and reputation

31. Strategic Group Mapping
One technique for revealing the different competitive positions of industry rivals is strategic group mapping
A strategic group consists of those rivals with similar competitive approaches in an industry

32. Strategic Group Mapping
Firms in same strategic group have two or more competitive characteristics in common . . .
Sell in same price/quality range
Cover same geographic areas
Be vertically integrated to same degree
Have comparable product line breadth
Emphasize same types of distribution channels
Offer buyers similar services
Use identical technological approaches

33. Procedure: Constructing a Strategic Group Map
STEP 1: Identify competitive characteristics that differentiate firms in an industry from one another
STEP 2: Plot firms on a two-variable map using pairs of these differentiating characteristics
STEP 3: Assign firms that fall in about the same strategy space to same strategic group
STEP 4: Draw circles around each group, making circles proportional to size of group’s respective share of total industry sales

34. Example: Strategic Group Map of Retail Jewelry Industry
High
Small Independent Guild Jewelers
National, Regional, & Local Guild - “Fine Jewelry” Stores
Prestige Departmentalized Retailers
Upscale Department Stores
Price / Quality / Image
Medium
National Jewelry Chains
Local Jewelers
Chains
Credit Jewelers
Catalog Showrooms
Off-Price Retailers
Discounters
Outlet Mall Retailers
Low
Specialty Jewelers
Full-line Jewelers
Limited-category Retailers
Broad-category Retailers
Product Line / Merchandise Mix

35. Guidelines: Strategic Group Maps
Variables selected as axes should not be highly correlated
Variables chosen as axes should expose big differences in how rivals compete
Variables do not have to be either quantitative or continuous
Drawing sizes of circles proportional to combined sales of firms in each strategic group allows map to reflect relative sizes of each strategic group
If more than two good competitive variables can be used, several maps can be drawn

36. Interpreting Strategic Group Maps (i. e
Interpreting Strategic Group Maps (i.e., Implications of the Strategic Groups Concept)
Driving forces and competitive pressures often favor some strategic groups and hurt others – such recognition may be the key to developing a competitive advantage.
Profit potential of different strategic groups varies due to strengths and weaknesses in each group’s market position. Important niches may be identified that are not currently being filled by competitors.
The closer strategic groups are on map, the stronger the competitive rivalry among member firms tends to be (“Organizations most like yours are the most dangerous.”)

37. Within or Between Strategic Groups
High
Price / Quality / Image
Medium
Low
Specialty
Full-line Providers
Limited-category Retailers
Broad-category Retailers
Product Line / Merchandise Mix

38. Breadth of Product Line
The World Automobile Industry
High
Ferrari
Lamborghini
Porsche
Mercedes*
BMW
Toyota
Ford
General
Motors
Chrysler*
Honda
Nissan
Price
Hyundai
Kia
High
Low
Low
Breadth of Product Line

39. Strategic Groups Within the World Petroleum Industry
INTERNATIONAL
UPSTREAM
COMPANIES
Premier
Oil
INTEGRATED OIL MAJORS
INTERNATIONAL
UPSTREAM,
REGIONALLY
FOCUSED
DOWNSTREAM
Apache
Dana Petroleum
Kuwait Petroleum
PDVSA
INTEGRATED
DOMESTIC
OIL COMPANIES
NATIONAL
PRODUCTION
COMPANIES
Iran
NOC
Statoil
BP-Amoco
Exxon
-Mobil
Vertical Balance
Chevron
Texaco
Pemex
Petronas
INTEGRATED
INTERNATIONAL
MAJORS
Royal Dutch
-Shell Gp.
Lukoil
Conoco Phillips
ENI
Elf-Fina-Total
Repsol YPF
PetroChina
Indian Oil
Phillips
Petrobras
ENI
Nippon
Repsol
INTERNATIONAL
DOWNSTREAM
OIL COMPANIES
Valero
Neste
Ashland
Sunoco
NATIONALLY-FOCUSED
DOWNSTREAM COMPANIES
Geographical Scope

40. Competitor Analysis and Strength Assessment
Successful strategists take great pains in scouting competitors
Understanding their strategies
Watching their actions
Evaluating their vulnerability to driving forces and competitive pressures
Sizing up their resource strengths and weaknesses and their capabilities
Trying to anticipate rivals’ next moves

41. Predicting Strategic Moves of Rivals
A firm’s own best strategic moves are affected by:
Current strategies of competitors
Actions competitors are likely to take next
Predicting rivals’ next moves involves:
Analyzing their current competitive positions
Examining public pronouncements about what it will take to be successful in industry
Gathering information from grapevine about current activities and potential changes
Studying past actions and leadership
Determining who has flexibility to make major strategic changes and who is locked into pursuing same basic strategy

42. Categorizing the Objectives and Strategies of Competitors
Competitive Scope
Strategic Intent
Market Share Objective
Competitive Position
Strategic Posture
Competitive Strategy
Local
Be dominant leader
Aggressive expansion via acquisition & internal growth
Getting stronger; on the move
Mostly offensive
Striving for low-cost leadership
Regional
Overtake industry leader
Well-entrenched
Mostly defensive
Mostly focusing on a market niche
National
Be among industry leaders
Expansion via internal growth
Stuck in the middle of the pack
Combination of offensive & defensive
Pursuing differentiation based on
Quality
Service
Technology superiority
Breadth of product line
Image & reputation
More value for the money
Other attributes
Multi-country
Move to top 10
Expansion via acquisition
Going after a different position
Aggressive risk-taker
Global
Move up a notch in rankings
Hold on to present share
Struggling; losing ground
Conservative follower
Maintain current position
Give up present share to achieve short-term profits
Retrenching to a position that can be defended
Just survive

43. Assessing a Company’s Competitive Strength versus Key Rivals
1. List industry key success factors and other relevant measures of competitive strength
2. Rate firm and key rivals on each factor using rating scale of (1 = weak; 10 = strong)
3. Decide whether to use a weighted or unweighted rating system
4. Sum individual ratings to get overall measure of competitive strength for each rival
5. Determine whether the firm enjoys a competitive advantage or suffers from competitive disadvantage

44. Unweighted Competitive Strength Assessment
KSF/Strength Measure
ABC Co.
Rival 1
Rival 2
Rival 3
Rival 4
Quality/product performance 8 5 10 1 6
Reputation/image 8 7 10 1 6
Manufacturing capability 2 10 4 5 1
Technological skills 10 1 7 3 8
Dealer network/distribution 9 4 10 5 1
New product innovation 9 4 10 5 1
Financial resources 5 10 7 3 1
Relative cost position 5 10 3 1 4
Customer service capability 5 7 10 1 4
Overall strength rating 61 58 71 25 32
Rating Scale: 1 = Very weak; 10 = Very strong

45. A Weighted Competitive Strength Assessment
KSF/Strength Measure
Weight
ABC Co.
Rival 1
Rival 2
Rival 3
Rival 4
Quality/product performance
0.10
8/0.80
5/0.50
10/1.00
1/0.10
6/0.60
Reputation/image
0.10
8/0.80
7/0.70
10/1.00
1/0.10
6/0.60
Manufacturing capability
0.10
2/0.20
10/1.00
4/0.40
5/0.50
1/0.10
Technological skills
0.05
10/0.50
1/0.05
7/0.35
3/0.15
8/0.40
Dealer network/distribution
0.05
9/0.45
4/0.20
10/0.50
5/0.25
1/0.05
New product innovation
0.05
9/0.45
4/0.20
10/0.50
5/0.25
1/0.05
Financial resources
0.10
5/0.50
10/1.00
7/0.70
3/0.30
1/0.10
Relative cost position
0.35
5/1.75
10/3.50
3/1.05
1/0.35
4/1.40
Customer service capability
0.15
5/0.75
7/1.05
10/1.50
1/0.15
4/1.60
Sum of weights
1.00
Overall strength rating
6.20
8.20
7.00
2.10
2.90
Rating Scale: 1 = Very weak; 10 = Very strong