Professional Documents
Culture Documents
4-2
The Firm’s External Environment
4-3
Remote Environment
Economic Factors
Social Factors
Political Factors
Technological Factors
Ecological Factors
4-4
Economic Factors
1. Prime interest rates
2. Inflation rates
3. Trends in the growth of the gross
national product
4. Unemployment rates
5. Globalization of the economy
6. Outsourcing
4-5
Social Factors
4-7
Technological Factors
Technological forecasting helps protect and
improve the profitability of firms in growing
industries.
It alerts strategic managers to
impending challenges and
promising opportunities.
The key to beneficial forecasting of technological
advancement lies in accurately predicting future
technological capabilities and their probable impacts.
4-8
Ecological Factors
Ecology refers to the relationships among human
beings and other living things and the air, soil, and
water that supports them.
Threats to our life-supporting ecology caused
principally by human activities in an industrial society
are commonly referred to as pollution
Loss of habitat and biodiversity
Environmental legislation
Eco-efficiency
4-9
International Environment
4-11
Competitive Forces Shape Strategy
The essence of strategy formulation is coping with
competition.
Intense competition in an industry is neither
coincidence nor bad luck.
Competition in an industry is rooted in its underlying
economics, and competitive forces exist that go well
beyond the established combatants in a particular
industry.
The corporate strategists’ goal is to find a position in the
industry where his or her company can best defend itself
against these forces or can influence them in its favor.
4-12
Ex. 4.8 Forces Driving Industry Competition
4-13
Contending Forces
https://www.youtube.com/watch?v=OCnlArFuU-E
Threat of Entry
Economies of Scale
Product Differentiation
Capital Requirements
Cost Disadvantages Independent of Size
Access to Distribution Channels
Government Policy
4-14
Powerful Suppliers
A supplier group is powerful if:
It is dominated by a few companies and is more
concentrated than the industry it sells to
Its product is unique or at least differentiated, or if
it has built-up switching costs
It is not obliged to contend with other products for
sale to the industry
It poses a credible threat of integrating forward into
the industry’s business
The industry is not an important customer of the
supplier group
4-15
Powerful Buyers
A buyer group is powerful if:
It is concentrated or purchases in large volumes
The products it purchases from the industry are standard
The products it purchases from the industry form a
component of its product and represent a significant
fraction of its cost
It earns low profits
The industry’s product is unimportant to the quality of the
buyers’ products or services
The industry’s product does not save the buyer money
The buyers pose a credible threat of integrating backward
4-16
Substitute Products
4-17
Jockeying for Position
Intense rivalry occurs when:
Competitors are numerous or are roughly equal
Industry growth is slow, precipitating fights for market
share that involve expansion
The product or service lacks differentiation or switching
costs
Fixed costs are high or the product is perishable,
creating strong temptation to cut prices
Capacity normally is augmented in large increments
Exit barriers are high
Rivals are diverse in strategy, origin, and personality
4-18
Industry Analysis & Competitive Analysis
4-19
Competitive Analysis
4-20
Operating Environment
Also called competitive or task environment
Includes competitor positions and customer
profiling based on the following factors:
Geographic
Demographic
Psychographic
Buyer Behavior
Also includes suppliers & creditors and HRM
4-21
HR: Nature of the Labor Market
4-22
Emphasis on Environmental Factors
4-23