1. McGraw-Hill/Irwin STRATEGIC MANAGEMENT Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. Gregory G. Dess, G. T. Lumpkin and Marilyn L. Taylor2 Analyzing the External Environment of the Firm

2. Chapter 2 McGraw-Hill/Irwin STRATEGIC MANAGEMENT Gregory G. Dess, G. T. Lumpkin and Marilyn L. Taylor Learning Objectives  The importance of developing forecasts of the business environment.  Why environmental scanning, monitoring, and collecting competitive intelligence are critical inputs to forecasting.  Why scenario planning is a useful technique for firms competing in industries characterized by unpredictability and change.  The impact of the general environment on a firm’s strategies and performance.  How forces in the competitive environment can affect profitability and how a firm can improve its competitive position by increasing its power vis-à-vis these forces.  How trends and events in the general environment and forces in the competitive environment are interrelated and affect performance.  The concept of strategic groups and their strategy and performance implications. After studying this chapter, you should have a good understanding of: TRANSPARENCY-11 Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

3. Chapter 2 McGraw-Hill/Irwin STRATEGIC MANAGEMENT Gregory G. Dess, G. T. Lumpkin and Marilyn L. Taylor Inputs to Forecasting Exhibit 2.1 TRANSPARENCY-12 Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

4. Chapter 2 McGraw-Hill/Irwin STRATEGIC MANAGEMENT Gregory G. Dess, G. T. Lumpkin and Marilyn L. Taylor What Competitive Intelligence (CI) Is and Is Not! Exhibit 2.2 TRANSPARENCY-13

5. Chapter 2 McGraw-Hill/Irwin STRATEGIC MANAGEMENT Gregory G. Dess, G. T. Lumpkin and Marilyn L. Taylor General Environment: Key Trends and Events Exhibit 2.3 Demographic – Aging population – Rising affluence – Changes in ethnic composition – Geographic distribution of population – Greater disparities in income levels Sociocultural – More women in the workforce – Increase in temporary workers – Greater concern for fitness – Greater concern for environment – Postponement in family formation Political/Legal – Tort reform –ADA (Americans with Disabilities Act) –Repeal of Glass-Stegall Act in 1999 (now banks may now offer brokerage services) –Deregulation of utility and other industries –Increases in Federally-mandated minimum wages – Taxation at local, state, federal levels – Legislation on corporate governance reforms in bookkeeping, stock options, etc. (Sarbanes-Oxley Act) Technological – Genetic engineering – Emergence of Internet technology – Computer Aided Design/Computer-Aided Manufacturing Systems (CAD/CAM) – Research in synthetic and exotic materials – Pollution/Global warming – Miniaturization of computing technologies – Wireless communications – Nanotechnology Economic – Interest rates – Unemployment – Consumer Price Index – Trends in GDP – Changes in stock market valuations Global – Increasing Global trade – Currency Exchange Rates – Emergence of the Indian and Chinese Economies – Trade Agreements among regional blocs (e.g. NAFTA, EU, ASEAN) – Creation of WTO (leading to decreasing tariffs/free trade in services) TRANSPARENCY-14 Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

6. Chapter 2 McGraw-Hill/Irwin STRATEGIC MANAGEMENT Gregory G. Dess, G. T. Lumpkin and Marilyn L. Taylor Impact of General Environmental Trends on Various Industries Segment/Trends/EventsIndustryPositiveNeutralNegative Demographic Aging population Rising affluence Health Care Baby products Brokerage services Fast foods Upscale pets and supplies Exhibit 2.4 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 IncreasesResidential construction Most common grocery products Global Increasing Global Trade Emergence of China as an economic power Shipping Personal service Soft drinks Defense TRANSPARENCY-15 Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

7. Chapter 2 McGraw-Hill/Irwin STRATEGIC MANAGEMENT Gregory G. Dess, G. T. Lumpkin and Marilyn L. Taylor Porter’s Five Forces Model of Industry Competition Exhibit 2.5 Reprinted with the permission of The Free Press, a division of Simon & Schuster, Inc. from Competitive Strategy: Techniques for Analyzing Industries and Competitors by Michael E. Porter. Copyright © 1980, 1998 by The Free Press. TRANSPARENCY-16 POTENTIAL ENTRANTS SUBSTITUTES SUPPLIESBUYERS

8. Chapter 2 McGraw-Hill/Irwin STRATEGIC MANAGEMENT Gregory G. Dess, G. T. Lumpkin and Marilyn L. Taylor What Buyers Have Saved on Freemarkets Auctions Exhibit 2.6 Source: Tully, S. 2000. The B2B tool that really is changing the world. Fortune, March 20: 132-145. Semiconductors, metal stampings, etc. Delphi Automotive $420 (yearly total) $360 14 AluminumCommonwealth Of Pennsylvania $2.8$2.5 9 Packaging materials, etc. Owens Corning$129 (yearly total) $120 7 Circuit boardsUnited Technologies $74$42 43 ItemBuyerExpected outlay (in millions) Actual outlay (in millions) Savings (%) TRANSPARENCY-17

9. Chapter 2 McGraw-Hill/Irwin STRATEGIC MANAGEMENT Gregory G. Dess, G. T. Lumpkin and Marilyn L. Taylor The World Automobile Industry: Strategic Groups Exhibit 2.8 * Chrysler and Mercedes (part of DiamlerChrysler) are separated for purposes of illustration. Note: Members of each strategic group are only illustrative – not inclusive. TRANSPARENCY-18

10. Chapter 2 McGraw-Hill/Irwin STRATEGIC MANAGEMENT Gregory G. Dess, G. T. Lumpkin and Marilyn L. Taylor The Value Net Exhibit 2.7 TRANSPARENCY-19 Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.