1. Nelson Phillips Professor of Strategy and Organizational Behaviour
External Analysis
Nelson Phillips
Professor of Strategy and Organizational Behaviour

2. Why are some industries more profitable than others over long periods of time?

3. The Objectives of Industry Analysis
To understand how industry structure drives competition, which determines the level of industry profitability.
To assess industry attractiveness
To use evidence on changes in industry structure to forecast future profitability
To formulate strategies to change industry structure to improve industry profitability
To identify Key Success Factors

4. From Environmental Analysis to Industry Analysis
The natural environment
The national/ international economy
THE INDUSTRY
ENVIRONMENT
Suppliers
Competitors
Customers
Demographic structure
Technology
Government
& Politics
Social structure
Social structure
The Industry Environment lies at the core of the Macro Environment.
The Macro Environment impacts the firm through its effect on the Industry
Environment.

5. The Determinants of Industry Profitability
3 key influences:
The value of the product to customers
The intensity of competition
Relative bargaining power at different levels within the value chain.

6. Porter’s Five Forces of Competition Framework
SUPPLIERS
Bargaining power of suppliers
INDUSTRY
COMPETITORS
Threat of
substitutes
Threat of
new entrants
POTENTIAL
ENTRANTS
SUBSTITUTES
Rivalry among
existing firms
Bargaining power of buyers
BUYERS 7

7. The Threat of Substitutes
Extent of competitive pressure from producers of
substitutes depends upon:
Buyers’ propensity to substitute
The price-performance characteristics of substitutes.

8. The Threat of Entry
Entrants’ threat to industry profitability depends upon the height of barriers to entry. The principal sources of barriers to entry are:
Capital requirements
Economies of scale
Absolute cost advantage
Product differentiation
Access to channels of distribution
Legal and regulatory barriers
Retaliation

9. Bargaining Power of Buyers
Buyer’s price sensitivity
Relative bargaining power
Cost of purchases as %
of buyer’s total costs.
How differentiated is the
purchased item?
How intense is
competition between
buyers?
How important is the
item to quality of the
buyers’ own output?
Size and concentration of
buyers relative to
sellers.
Buyer’s information .
Ability to backward
integrate.
Note: analysis of supplier
power is symmetric

10. Rivalry Between Established Competitors
The extent to which industry profitability is depressed by aggressive price competition depends upon:
Concentration (number and size distribution of firms)
Diversity of competitors (differences in goals, cost structure, etc.)
Product differentiation
Excess capacity and exit barriers
Cost conditions
Extent of scale economies
Ratio of fixed to variable costs

11. The Structural Determinants of Competition
BUYER POWER
Buyers’ price sensitivity
Relative bargaining
power
THREAT OF ENTRY
Capital requirements
Economies of scale
Absolute cost advantage
Product differentiation
Access to distribution
channels
Legal/ regulatory barriers
Retaliation
INDUSTRY RIVALRY
Concentration
Diversity of
competitors
Product differentiation
Excess capacity &
exit barriers
Cost conditions
SUBSTITUTE
COMPETITION
Buyers’ propensity
to substitute
Relative prices &
performance of
substitutes
BUYER POWER
Buyers’ price sensitivity
Relative bargaining
power

12. SWOT Exercise
Work in groups from the same business area within Veolia, analyse the industry conditions facing that business. Make sure to write down your thoughts.

13. PESTLE analysis
PESTLE is an analytical tool which considers external factors and helps you to think about their impacts 

14. PESTLE Analysis
Is a useful tool for understanding the “big picture” of the environment in which you are operating
By understanding your environment, you can take advantage of the opportunities and minimize the threats.  
This provides the context within which more detailed planning can take place to take full advantage of the opportunities that present themselves.

15. The factors in PESTLE analysis
P – Political
The current and potential influences from political pressures
E - Economic
The local, national and world economic impact
S - Sociological
The ways in which changes in society affect the project
T - Technological
How new and emerging technology affects our project / organization
L - Legal
How local, national and global legislation affects the project
E - Environmental
Local, national and global environmental issues
The factors in a PESTLE analysis are:
Political
Environmental
Social
Technological
Legal
Economic

16. PESTLE Political: Economic: Government type and stability
Freedom of the press, rule of law and levels of bureaucracy and corruption
Regulation and de-regulation trends
Social and employment legislation
Tax policy, and trade and tariff controls
Environmental and consumer-protection legislation
Likely changes in the political environment
Economic:
Stage of a business cycle
Current and projected economic growth, inflation and interest rates
Unemployment and supply of labor
Labor costs
Levels of disposable income and income distribution
Impact of globalization
Likely impact of technological or other changes on the economy
Likely changes in the economic environment
Here we have examples - the list can change depending on the project or focal problem
(We should not read out every items on this list, the participants can take a better look at it themselves, because we will focus on our case study)

17. PESTLE Sociological: Technological:
Cultural aspects, health consciousness, population growth rate, age distribution,
Organizational culture, attitudes to work, management style, staff attitudes
Education, occupations, earning capacity, living standards
Ethical issues, diversity, immigration/emigration, ethnic/religious factors
Media views, law changes affecting social factors, trends, advertisements, publicity
Demographics: age, gender, race, family size
Technological:
Maturity of technology, competing technological developments, research funding, technology legislation, new discoveries
Information technology, internet, global and local communications
Technology access, licensing, patents, potential innovation, replacement technology/solutions, inventions, research, intellectual property issues, advances in manufacturing
Transportation, energy uses/sources/fuels, associated/dependent technologies, rates of obsolescence, waste removal/recycling

18. PESTLE Legal: Environmental:
current home market legislation, future legislation
European/international legislation
regulatory bodies and processes
environmental regulations, employment law, consumer protection
industry-specific regulations, competitive regulations
Environmental:
Ecological
environmental issues, environmental regulations
customer values, market values, stakeholder/ investor values
management style, staff attitudes, organizational culture, staff engagement

19. SWOT Exercise
Work in groups from the same business area within Veolia perform a PESTLE for that business. Make sure to write down your thoughts.

20. What is SWOT Analysis?
A technique that enables a group or individual to move from everyday problems and traditional strategies to a fresh perspective.

21. SWOT is an acronym for: S – Strengths W – Weaknesses O – Opportunities
T – Threats
Internal Environment
External Environment

22. Strength
Any existing or potential resources or capability within the organisation that provides a competitive advantage in the market.
Example:
Strong distribution network
Intense Staff commitment and loyalty
Strong support from funders

23. Weakness
Any existing or potential force which could serve as a barrier to maintaining or achieving a competitive advantage in the market.
Example:
Lack of a clear organizational strategy
Lack of training opportunities for using a new software

24. Opportunity
Any existing or potential force in the external environment that, if properly leveraged, could provide a competitive advantage.
Example:
Organisation’s geographic location
New technology

25. Threat
Any existing or potential force in the external environment that could erode a competitive advantage.
Example:
A new entrant
A recession, rising interest rates, or tight credit lines

26. Aim of SWOT Analysis
Take advantage of strengths and opportunities.
Minimise weaknesses and eliminate threats

27. Analyse Internal & External Environment
How to do SWOT Analysis?
Step 1
Step 2
Step 3
Perform SWOT Analysis
Prepare Action Plans
Analyse Internal & External Environment
A SWOT analysis is useful only when action plans and strategies are developed from the results

28. SWOT Exercise
Work in groups from the same business area within Veolia.
Combine the industry analysis you performed earlier with the results of your PESTLE and construct a SWOT diagram for your business
Be prepared to present back to the group