Environmental and Industry

Analyses
Learning Objectives
Independently conduct Environmental
and Industry Analyses
Understand how to get started on Strategic
Analysis assignments
MGT 450: Business Policy & Strategy
Ranucci, Spring 2016

33

The External
Environment
The external
environment creates
opportunities and
threats that collectively
affect a firms strategic
actions
Environmental
Analysis
Industry Analysis (5
Forces)

Demographic
Physical

Political/
Legal
GlobalTrade

Sociocultural

Macro
Economic

Technological

MGT 450: Business Policy & Strategy

Ranucci, Spring 2016

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General
Environment
Analysis

Firms have little control

over the general
environment
Analysis:
Scan for changes and trends
Monitor them to detect
meaning
Forecast impact
Assess importance for
strategies

Goal: To Identify
Opportunities and
Threats
MGT 450: Business Policy & Strategy
Ranucci, Spring 2016

Demographic
Populationsize&
growth
Agestructure
Population
segmentation
Income
distribution

Technological
Emergent
technology
Private&public
research
funding
Intellectual
property
legislation,
licensing,&
patents

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Sociocultural
Lifestyletrends&
societalpreferences
Socialissues

Mediainfluence
Attitudestoward
diversity,worklife
balance,etc.

MacroEconomic
Inflation,Interest
rates,GDP
Marketvolatility
Demandseasonality
Taxationissues
Physical
Energy
consumption
Wateravailability
Naturalorman
madedisasters
Disease

Political/Legal
Antitrust,Taxation&
Laborlaws
RelevantRegulatory
bodiesandpending
legislation
Publicfunding
Lobbying&advocacy
groups
GlobalTrade
Exchangerates
International
monetary&trade
policies
New&changing
globalmarkets
International
politicalevents

Industry Analysis
industry supply chain
potential new entrants
substitute industries

Bargaining
Powerof
Suppliers

Intensityof
Rivalryamong
competitors

Current
Industry
Participants

Suppliers

Buyers
Substitutes

Threatof
New
Entrants
MGT 450: Business Policy & Strategy
Ranucci, Spring 2016

Comparedtogeneralenvironment,the
industryenvironmenthasamoredirect
effectonthefirmsstrategic
competitiveness
FiveForces:Examineanindustrysprofit
potential

New
Entrants

An industry is a group of firms

that produce similar products or
services
Industry analysis considers

SupplyChain

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Threatof
Substitutes

Bargaining
Powerof
Buyers

Intensityof
Rivalry
among
competitors

Common rivalry dimensions are price, quality,

innovation
Competitive rivalry among existing firms is
high when
There are many firms or equal sized firms
Incentives to fight (usually on price) are high
when there is:
Slow industry growth
Lack of differentiation between firms
Low customer switching costs

High exit barriers

Specialized assets or assets with strategic
interrelationships with other internal businesses
High fixed costs (e.g. labor agreements, PPE)
Emotional, social, and governmental barriers

MGT 450: Business Policy & Strategy

Ranucci, Spring 2016

37

Threat
ofNew
Entrants

New entrants are threatening because they increase

production capacity (holds consumer cost down)
and force changes (efficiency, competition on new
dimensions)
Threat of new entrants is low when barriers to entry
are high. Barriers to Entry make it difficult for
new firms to enter an industry and place them at a
disadvantage when they are able to enter. Some
common barriers to entry are:
High sunk costs to enter are large capital
requirements that are risky and can not be
repurposed or recovered (e.g. specialized facilities &
equipment, R&D, large inventories)

MGT 450: Business Policy & Strategy

Ranucci, Spring 2016

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 More barriers to entry include:

Incumbents with a competitive advantage
Threat
ofNew
Entrants

Restrictive government policy and regulation

including licensing, patents and permit requirements
Differentiated Products among industry participants
including brand image, consumer loyalty, unique products
Limited Access to Distribution Channels which can
occur when distributors own capacity is limited and/or
switching costs are high
Economies of scale among industry participants
Large existing firms can produce more efficiently (cost of
producing each unit declines as the quantity of the product
produced increases)
Cost Disadvantages Independent of Scale. For
example, current participants have proprietary technology,
better access to raw materials, better location, or government
subsidies

Expected retaliation is higher when incumbents have

a major stake in the industry, have substantial resources
and/or industry growth is slow or constrained
MGT 450: Business Policy & Strategy
Ranucci, Spring 2016

39

Threatof
Substitutes

Substitute products are goods or

services outside a given industry
that perform the same or similar
functions
Threat of substitute products
increases when:
Low buyer switching costs
Substitute product attributes are
better (e.g. lower price point, higher
quality, better performance)

MGT 450: Business Policy & Strategy

Ranucci, Spring 2016

40

Bargaining
Powerof
Suppliers

MGT 450: Business Policy & Strategy

Ranucci, Spring 2016

Suppliers provide resources (people, raw

materials, components, information, financing)

Supplier power increases when

Suppliers are more concentrated (fewer) than the
industry to which it sells and has more control over
price
Buying industry firms are not a significant customer
for a supplier group
Supplier goods are critical to buying industry firms
marketplace success (no substitutes)
Effectiveness of supplier products has created high
switching costs for buying industry firms
Suppliers pose a credible threat of forward
integration into the buying industry

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Bargaining
Powerof
Buyers

MGT 450: Business Policy & Strategy

Ranucci, Spring 2016

Buyers can be end consumers, other

businesses or distributors & intermediaries

Buyer/customer groups power increases

when:
They purchase a large portion of an industrys
total output and the sales buyers generate
account for a significant portion of the firms
annual revenues
The product is undifferentiated (low brand
loyalty, equivalents or substitutes available)
Buyers are price sensitive
Switching costs for buyers are low (the internet
distribution channel has drastically decreased
buyer switching costs in many industries)
Buyers pose a credible threat of backward
integration into the selling industry

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Interpreting the 5 Forces

Is the industry attractive in terms of profit potential?

What are the controlling forces?
High entry

Low entry barriers

barriers

Suppliers and buyers

have strong positions

Unattractive
Industry

Suppliers and
buyers have
weak positions

Attractive
Industry

LOWPROFIT
POTENTIAL

Few threats from

substitute products

HIGHPROFIT
POTENTIAL

Strong threats from

substitute products
Intense rivalry among
competitors

Moderate rivalry
among competitors

Letsanalyzethehighereducationindustry..
Butwheredowestarttogatherthisinformation?
MGT 450: Business Policy & Strategy
Ranucci, Spring 2016

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Lets Analyze the Higher

Education Industry

Library databases: http://libguides.southernct.edu/az.php

Mergent Intellect
Mergent Online
Valueline
Popular media to identify trends, emerging competitors, etc.
* But be critical and thoughtful

What new information did you learn from this clip?

What biases or opinions are apparent in this clip? (i.e. Did they
make any statements where you wish they had provided more
supporting evidence?)

MGT 450: Business Policy & Strategy

Ranucci, Spring 2016

44

Small group exercise

Break into small groups

I will assign each group a set of environmental factors and an industry

forces.
1.
2.
3.
4.
5.

Demographic & Sociocultural Factors AND Power of Buyers

Global Trade Factors AND Power of Suppliers
Macroeconomic Factors AND Intensity of Rivalry among competitors
Political-Legal Factors AND Threat of New Entrants
Technological & Physical Factors AND Threat of Substitutes

Based on what you know about higher education discuss your assigned
factors & forces

What are the controlling forces and factors in the higher education industry?

MGT 450: Business Policy & Strategy

Ranucci, Spring 2016

45

Lets consider 5 forces in StratSim

Substitutes
Suppliers

Current
Industry
Participants
/Rivalry

Manufacturing
RelativeSize

New
Entrants

SupplyChain

What does the Auto Industry Supply Chain look like?

What components of the Five Forces can you impact in some way?
With fewer forces to consider the StratSim Environment is less complex..

Differentiation:
Technology,
Product,
Marketing
MGT 450: Business Policy & Strategy
Ranucci, Spring 2016

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Dealers
Distribution
Concentration
Differentiation:
Technology,
Product,
Marketing

Consumers
Differentiation:
Technology,
Product,
Marketing

However you do have information to

conduct a general environment analysis
Market Tab
To give you more
opportunity to
purchase consumer
customers reports
for your general
environment
analysis I am
extending the
practice round to
2/8
MGT 450: Business Policy & Strategy
Ranucci, Spring 2016

Demographic
Sizeand
Sociocultural
characteristicsof
Values,attitudes,needs
yourconsumer
andpreferencesofyour
MacroEconomic markets
consumermarkets
GasPrices
Geographic
Emergingneeds(new
Inflation
differences
customers)
Interestrates
GDP
Technological
Materialand
Considertechnology
laborcosts
needsoftheconsumer
MarketDemand
markets
Considertechnology
capacityofyourfirms
andyourcompetitors

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You can now get started on

your Strategic Analyses

Group assignment related to StratSim (1 submitted per group)

Use the group space on Blackboard to work collaboratively

1,000 words excluding tables and figures
First Draft due 2/18
Team writing Conference 2/23
Final Version due 3/1

Part 1 of Your Individual Project

1,200 1,500 words excluding tables and figures

First Draft due 3/10
Team writing Conference 3/15
Final Version due 3/31

MGT 450: Business Policy & Strategy

Ranucci, Spring 2016

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Strategic Analyses

See syllabus for more detailed grading criteria because it is slightly

different for the group and individual assignments. But has the
following in common:
1.

Conduct a comprehensive analysis using analysis tools:

StratSim: Environmental Analysis, Competitor Analysis, Capabilities Analysis,
Strategy Maps and Portfolio Planning Matrices
Individual project: All StratSim assigned tools plus 5 forces, Competitive life cycle,
& Stakeholder analyses

2.

Develop insights based on your analysis

StratSim and the library databases are rich in information (which you need to cite if
you reference this information in your project) to populate the analysis tools (#1).
But that is not enough..Your contribution is to draw strategic insights across all of
the information you gather What does this mean for the company (e.g. 5 forces
might indicate low future profit potential for the industry)

3.

Writing precision and quality (Use the Academic Success Center)

I strongly recommend you work on both your StratSim and Individual

projects as you learn each new tool

MGT 450: Business Policy & Strategy

Ranucci, Spring 2016

49

Take-Aways
Environment and Industry (5 Forces) Analysis helps
us
Identify underserved markets
Understand the key triggers to industry profitability
Determine the controlling forces and factors in the
industry in order to identify opportunities and threats
presenting a firm.

No analytical tool is perfect What are some

weaknesses of the 5 forces model?
Now you can start your two Strategic Analysis assignments

MGT 450: Business Policy & Strategy

Ranucci, Spring 2016

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