17-May-16

BRAC University
BRAC Business School

Todays lecture outline

MGT 601; Sec. 1

Strategic Management
Summer Semester, 2016
Lecture 3

External environment
The macro-environment
Industry structure
Strategic group mapping
Competitors analysis
Driving forces
Critical success factors

The External Environment

A companys external environment
includes all relevant factors & influences
outside the companys boundaries; by
relevant, means important enough to
have a bearing on the decisions the
company ultimately makes about its
direction, objectives, strategy, &
business model

External Environment

Why is an external analysis important?

Why organisations should look externally

Components of the Macro Environment

Technological

Central components of external analysis

The macro-environment/general environment

Global

Industry structure
Strategic group mapping

Industry Environment

Economic

Competitor
Demographic

Environment

Political/Legal

Competitor analysis
Driving forces

Socio-cultural

Critical success factors

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The Macro Environment (cont.)

The Global Segment
Political events
Global markets
Overseas financial markets
Wars
Political regimes
Trade blocs
Trade boycotts
Changing cultural patterns

The Macro Environment (cont.)

Demographics
Population growth rates
Life spans
Age of population
Ethnic mix
Geographic dispersion

The Macro Environment (cont.)

Socio-cultural
Workforce diversity
Work life quality
Health consciousness
Women in the workforce
Environmental movement
Time poor professionals
High disposable incomes
Inner city living

The Macro Environment (cont.)

Economic Segment
Inflation rates
Interest rates
GDP
Currency exchange rates
Unemployment levels
Disposable income & personal savings rates

The Macro Environment (cont.)

Political/Legal Forces
Legislation & proposed legislative changes
Taxation law
Labour law
Deregulations
Trade practices
Employment
Government policy
Trends in governments role

The Macro Environment (cont.)

Technological
Technological change
Computers
Internet & e-commerce

Communications
R&D
Product innovations
o Technological innovation will provide a basis for
the creation of new companies and the decline
of others

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The Industry Environment

The Industry Environment

The industry environment has a more direct effect

on the individual organization

What is an industry?
Four Dimensions
Products
Customers
Geography
Stages in the production distribution
pipeline

Porters Five Forces Model

(the industry environment more direct effect on the individual organisation)

What is an industry?
A group of organisations producing a product(s) or
providing a service(s) which is (are) close
substitutes

What is it?
A model devised by Michael Porter to
aid firms in analyzing competitive forces
in an industry environment.
(see Porter, M.E. 1979, How Competitive Forces Shape Strategy,
Harvard Business Review, Mar-Apr, pp. 137-45)

Five Forces Model of Competition

Substitute
Products
(of firms in
other industries)
Suppliers of
Key Inputs
Rivalry
Among
Competing
Sellers

Buyers

Potential New Entrants

(Porter,1979)

Porters Five Forces Model (cont.)

Porters Rule
The stronger is each of these forces, the
more limited is the ability of established
companies to raise prices and earn higher
profits

Interpreting industry analyses

Low entry barriers
Suppliers and buyers have strong positions
Strong threats from substitute products

Unattractive
Industry

Intense rivalry among competitors

Low profit potential

The task of strategic manager

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Interpreting Industry Analyses

Strategic Groups within Industries

The concept of strategic groups

High entry barriers

Suppliers and buyers have weak positions
Few threats from substitute products

Attractive
Industry

Moderate rivalry among competitors

High profit potential

Within an industry, a competitor grouping using

similar strategies that differ from other industry
groups

Strategic blocks are groups of companies within

an industry that exhibit denser strategic links
among themselves than with other companies in
the industry

Strategic groups in the international airline industry

Competitor Analysis
Competitor intelligence
The ethical gathering of needed information
& data that provides insight into the competitors:
Future objectives
What drives the competitor?
Current strategy
What the competitor is doing & can do
Assumptions
What the competitor believes about its own firm & the
industry
Capabilities
Competitor firms capabilities, strengths & weaknesses

Business Business Business Your Own

A
B
C
Business

Future
strategic
objectives
Current
Strategy
Capabilities

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Competitor Analysis Components

Driving Forces

Incentives
or
Pressures??
DFthat creates change

Common Types of Driving Forces

Increasing

Market shift

globalisatio
n of
industry
Changes in
cost &
efficiency

from
standardised to
differentiated
products
New regulatory
policies and/or
government
legislation

Changing

societal
concerns,
attitudes, &
lifestyles
Changes in
degree of
uncertainty &
risk

Critical Success Factors (Key Success Factors)

An industrys key success factors (KSFs) are those things that
most affect industry members ability to prosper in the
marketplace
Particular strategy elements
product attributes
Resources
Competencies
Competitive capabilities
Business outcomes that spell the difference between
profit and loss (Thomson & Strickland, 2007)

Three questions to help in identifying CSFs

1. On what basis do customers choose between the

competing brands of sellers? (what product attributes?)
2. What resources and competitive capabilities does a seller
need to have to be competitively successful?
3. What does it take for sellers to achieve a sustainable
competitive advantage?

Presentation Group & Areas

A. Introduction & history of CR
B. Macro/general environment analysis: 3
components (global, economic, &
political/legal)
C. Macro/general environment analysis: 3
components (demographic, socio-cultural, &
technological)
D. Industry analysis through 5-forces
E. Strategic group mapping & competitor
analysis
F. Identify the critical/key success factor of
apparel industry in the USA..Conclusion &
Recommendation