1. Strategic Management Concepts and Cases

2. Exploring the External Environment: Competition and Opportunities

3. Studying this chapter should provide you with the strategic management knowledge needed to:
1. Explain the importance of analyzing and understanding the firm’s external environment.
2. Define and describe the general environment and the industry environment.
3. Discuss the four activities of the external environmental analysis process.
4. Name and describe the general environment’s six segments.
5. Identify the five competitive forces and explain how they determine an industry’s profit potential.
6. Define strategic groups and describe their influence on the firm.
7. Describe what firms need to know about their competitors and different methods (including ethical standards) used to collect intelligence about them.

4. Many U.S. airlines have filed bankruptcy in recent years.

5. The General, Industry, and Competitor Environments
An integrated understanding of the external and internal environments is essential for firms to understand the present and predict the future.7 As shown in Figure 2.1, a firm’s external environment is divided into three major areas: the general, industry, and competitor environments.

6. The general environment is composed of dimensions in the broader society that influence an industry and the firms within it.

8. Components of the General Environment10

9. The industry environment is the set of factors that directly influences a firm and its competitive actions and competitive responses: the threat of new entrants, the power of suppliers, the power of buyers, the threat of product substitutes, and the intensity of rivalry among competitors.

10. External Environmental Analysis
The external environmental analysis process should be conducted on a continuous basis. This process includes four activities:
Scanning
Monitoring
Forecasting
Assessing
Identifying early signals of environmental changes and trends
Detecting meaning through ongoing observations of environmental changes and trends
Developing projections of anticipated outcomes based on monitored changes and trends
Determining the timing and importance of environmental changes and trends for firms' strategies and their management 10

11. External Environmental Analysis
Top 10 U.S. States Moving Toward Digital Economy
States in the top 10 of those that are trying to transform themselves to the realities and needs of a digital economy may experience an influx of high-tech companies and skilled workers as well as increases in tax revenues

12. Segments of the General Environment
The demographic segment
The economic segment
The political segment
The sociocultural segment
The technological segment
The global segment

13. CSI TV appeals to a changing Hispanic market.

14. Agencies such as the FDA are continually being swayed one way or another by external critics from the consumer
side and from the drug industry side.

15. Global markets offer firms more opportunities to obtain the resources needed for success.The Kuwait Investment Authority is the second largest shareholder of DaimlerChrysler.

16. Bargaining Power of Suppliers
Industry Environment Analysis
Threat of New Entrants
Threat of New Entrants
Bargaining Power of Suppliers
Rivalry Among Competing Firms in Industry
Bargaining Power of Buyers
Threat of Substitute Products 23

17. Effects of Entry Barriers and Exit Barriers on Industry Profits
Low
High
Low
Entry Barriers
High 28

18. Effects of Entry Barriers and Exit Barriers on Industry Profits
High
Low
Low, Stable Returns
Low
Entry Barriers
High 29

19. Effects of Entry Barriers and Exit Barriers on Industry Profits
Low
High
Low, Stable Returns
Low
Entry Barriers
High
High, Stable Returns 30

20. Effects of Entry Barriers and Exit Barriers on Industry Profits
High
Exit Barriers
Low
Low, Risky Returns
Low, Stable Returns
Low
Entry Barriers
High, Stable Returns
High 31

21. Effects of Entry Barriers and Exit Barriers on Industry Profits
Low
High
Low, Stable Returns
Low, Risky Returns
Low
Entry Barriers
High, Stable Returns
High, Risky Returns
High 32

22. Competitor Analysis
The follow-up to Industry Analysis is effective analysis of a firm’s Competitors
Competitive
Environment
Industry Environment 33

23. Competitor Analysis Response Assumptions
What assumptions do our competitors hold about the future of industry and themselves?
Response
What will our competitors do in the future?
Current Strategy
Does our current strategy support changes in the competitive environment?
Where do we have a competitive advantage?
Future Objectives
How do our goals compare to our competitors’ goals?
How will this change our relationship with our competition?
Capabilities
How do our capabilities compare to our competitors? 38

25. 6. What is a strategic group? Of what value is knowledge of the
REVIEW
QUESTIONS
1. Why is it important for a firm to study and understand the external environment?
2. What are the differences between the general environment and the industry environment? Why are these differences important?
3. What is the external environmental analysis process? What does the firm want to learn when using this process?
4. What are the six segments of the general environment? Explain the differences among them.
5. How do the five forces of competition in an industry affect its profit potential? Explain.
6. What is a strategic group? Of what value is knowledge of the
firm’s strategic group in formulating that firm’s strategy?
7. What is the importance of collecting and interpreting data and information about competitors? What practices should a firm use to gather competitor intelligence and why?