1. Analyzing the environment
Objectives
To analyze the 5-forces
To evaluate the 5-forces model
To investigate the application of environmental scanning and scenario planning

2. Demographic Economic Socio cultural Technological Global
Industry environment threat of new entrants
Power of Suppliers
Power of Buyers
Product Substitute
Intensity of Rivalry
Socio cultural
Political/ Legal
Technological
Global

3. What environmental factors are affecting the organization?
Which of these are the most important at the present time? In the next few years?
Political/ Legal Economic factors
● Monopolies legislation ● Business cycles
● Environmental protection laws ● GNP trends
● Taxation policy ● Interest rates
● Foreign trade regulations ● Money supply
● Employment law ● Inflation
● Government stability ● Unemployment
● Disposable income
● Energy resources and cost

4. What environmental factors are affecting the organization?
Which of these are the most important at the present time? In the next few years?
Socio-cultural factors Technological
● Population demographics ● Government spending on research
● Income distribution ● Government and industry focus on
● Social mobility technological effort
● Lifestyle changes ● New discoveries/ development
● Attitudes to work and leisure ● Speed of technology
● Consumerism ● Rates of obsolescence
● Levels of education

5. Key questions to ask regarding the external environment
What are the industry’s dominant economic traits?
What competitive forces are at work in the industry and how strong are they?
What are the drivers of change in the industry and what impact will they have?
Which companies are in the strongest/ weakest positions?

6. Key questions to ask regarding the external environment …
Who is likely to make what competitive move next?
What key factors will determine competitive success or failure?
How attractive is the industry in terms of its prospects for above-average profitability?

7. Michael Porters’s Five Forces Model Analysis
Bargaining Power of Buyers
Threat of Forward Integration
Can Influence Price/ Volume
Few Suppliers
High Switching costs
Bargaining Power of Suppliers
Backward Integration
Few Buyers
Excess Supply
Influence Price/ Volume
High Switching Costs
Competitive Rivalry
Threat of Substitute Products
Threat of New Entrants
Price War
Quality Diff
Features
Customer Service
Easy Access
Low Price
Better Quality
Replacement Phenomenon
Govt. Regulation
Capital Intensive
Cost Disadvantages
Technology Barriers

8. 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

9. 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

10. The Industry is Highly competitive if the following conditions prevail
High Threat of Substitutes
Low Entry Barriers
High Bargaining Power of Buyers
Intense Competitive Rivalry
The Industry is less competitive if the Following Conditions Prevail
Low Threat of Substitutes
High Entry Barriers
Low Bargaining Power of Buyers
Moderate Competitive Rivalry
e. g.
Video Rentals
Telecom
e. g.
Bio Pharma
Bio Fertilizers

11. Implications: Future Strategy
Absurd to stop abruptly after analyzing
The external environment using the 5 force model
Develop strong alliance with buyers/ suppliers
Achieve cost efficiency
Adopt superior technology
Competitive pricing
Deliver value to customer

12. Environmental scanning
Monitoring and interpreting sweep of
Social
Political
Economic
Ecological
Technological events
To spot budding trends that could eventually impact industry

13. Environmental scanning …
Its purpose is to
Raise consciousness of managers about potential developments that could
Have an important impact on industry conditions
Pose new opportunities and threats

14. Competitor Analysis Framework
Response
What will our competitors do in the Future?
Where do we held an advantage over our competitors?
How will this change our relationship with our competitors?
Future Objectives
How do our goals compare with our competitors goals?
Current Strategy
How are we currently competing?
Does this strategy support changes in the competitive structure
Capabilities
What are our strengths & weaknesses?
How do we rate compared to our competitors?

15. Identifying industry key success factors
Answers to three questions pinpoint KSFs
On what basis do customers choose between competing brands of sellers?
What must a seller do to be competitively successful – what resources and competitive capabilities does it need?
What does it take for sellers to achieve a sustainable competitive advantage?
KSFs consist of the 3-5 really major determinants of financial and competitive success in an industry

16. Example: KSFs for the brewery industry
Utilization of brewing capacity – to keep manufacturing costs low
Strong network of wholesale distributors – to gain access to retail outlets
Clever advertising – to induce beer drinkers to buy a particular brand

17. Example: KSFs for the aluminum industry
Locating plants close to end-use customer – to keep costs of shipping empty cans low
Ability to market plant output within economical shipping distances
Locating plants closer to bauxite reserves
Captive power plants