Chapter 2TopicsCreating the Environmentally Aware OrganizationEnvironmental ScanningEnvironmental MonitoringCompetitive IntelligenceWhat Competitive Intelligence Is and Is NotEnvironmental ForecastingThe General EnvironmentDemographic SegmentSociocultural SegmentPolitical/Legal SegmentTechnological SegmentEconomic SegmentGlobal SegmentThe Competitive EnvironmentPorter’s Five Forces Model of Industry CompetitionThe Threat of New EntrantsThe Bargaining Power of BuyersSlide 20The Bargaining Power of SuppliersSlide 22Slide 23The Threat of Substitute Products and ServicesThe Intensity of Rivalry among Competitors in an IndustrySlide 26Using Industry Analyses: A Few CaveatsThe Value NetStrategic Groups within IndustriesSlide 30The World Automobile Industry: Strategic GroupsChapter 2Chapter 2Analyzing the External Environment of the Firm2-2Topics•The importance of developing forecasts of the business environment.•Environmental scanning, monitoring, and competitive intelligence as critical inputs to forecasting.•General environment /Task Environment•Five forces analysis•Strategic groups2-3Creating the Environmentally Aware Organization2-4Environmental ScanningSurveillance of a firm’s external environment•Predict environmental changes to come• Detect changes already under way•Proactive mode2-5Environmental MonitoringTrack evolution of•Environmental trends•Sequences of events•Streams of activities2-6Competitive Intelligence•Define and understand a firm’s industry•Identify rivals’ strengths and weaknesses•Intelligence gathering (data)•Interpretation of intelligence data•Helps a firm avoid surprises2-7What Competitive Intelligence Is and Is NotCompetitive Intelligence Is …1. Information that has been analyzed to the point where you can make a decision.2. A tool to alert management to early recognition of both threats and opportunities.3. A means to deliver reasonable assessments.4. A way of life, a process.Competitive Intelligence Is Not …1. Spying. Spying implies illegal or unethical activities. It is a rare activity.2. A crystal ball. CI is good approximation of reality, it does not predict the future.3. Database search. Data by itself is not good intelligence.4. A job for one smart person.2-8Environmental Forecasting•Plausible projections about•Direction of environmental change•Scope of environmental change•Speed of environmental change•Intensity of environmental change•Scenario analysis2-9The General Environment•General environmental trends and events•Little ability to predict them•Even less ability to control them•Can vary across industriesGeneral EnvironmentDemographicSocioculturalPolitical/LegalTechnologicalEconomicGlobal2-10Demographic Segment•Aging population•Rising affluence•Changes in ethnic composition•Geographic distribution of population•Greater disparities in income levelsGeneral EnvironmentDemographicSocioculturalPolitical/LegalTechnologicalEconomicGlobal2-11Sociocultural Segment•More women in the workforce•Increase in temporary workers•Greater concern for fitness•Greater concern for environment•Postponement of family formationGeneral EnvironmentDemographicSocioculturalPolitical/LegalTechnologicalEconomicGlobal2-12Political/Legal Segment•Tort reform•Americans with Disabilities Act (ADA)•Repeal of Glass-Steagall Act in 1999•Deregulation of utility and other industries•Increases in federally mandated minimum wages•Taxation at local, state, federal levels•Legislation on corporate governance reforms (Sarbanes-Oxley Act)General EnvironmentDemographicSocioculturalPolitical/LegalTechnologicalEconomicGlobal2-13Technological Segment•Genetic engineering•Emergence of Internet technology•Computer-aided design/computer-aided manufacturing systems (CAD/CAM)•Research in synthetic and exotic materials•Pollution/global warming•Miniaturization of computing technologies•Wireless technologyGeneral EnvironmentDemographicSocioculturalPolitical/LegalTechnologicalEconomicGlobal2-14Economic Segment•Interest rates•Unemployment•Consumer Price index•Trends in GDP•Changes in stock market valuationsGeneral EnvironmentDemographicSocioculturalPolitical/LegalTechnologicalEconomicGlobal2-15Global Segment•Increasing global trade•Currency exchange rates•Emergence of the Indian and Chinese economies•Trade agreements among regional blocs (NAFTA, EU, ASEAN)•Creation of WTO (decreasing tariffs/free trade in services)General EnvironmentDemographicSocioculturalPolitical/LegalTechnologicalEconomicGlobal2-16The Competitive Environment•Sometimes called the task or industry environment•Includes•Competitors (existing and potential)•Customers•Suppliers•Porter’s five-forces modelCompetitive EnvironmentCompetitorsCustomersSuppliers2-17Porter’s Five Forces Model of Industry CompetitionThreat ofnew entrantsBargaining power of buyersBargaining power of suppliersThreat ofSubstitute products and services2-18The Threat of New Entrants•Profits of established firms in the industry may be eroded by new competitors•High entry barriers lead to low threat of new entries•Economies of scale•Product differentiation•Capital requirements•Switching costs•Access to distribution channels•Cost disadvantages independent of scale2-19The Bargaining Power of Buyers•Buyers threaten an industry•Force down prices•Bargain for higher quality or more services•Play competitors against each other2-20The Bargaining Power of Buyers•A buyer group is powerful when•It is concentrated or purchases large volumes relative to seller sales•The products it purchases from the industry are standard or undifferentiated•The buyer faces few switching costs•It earns low profits•The buyers pose a credible threat of backward integration•The industry’s product is unimportant to the quality of the buyer’s products or services2-21The Bargaining Power of Suppliers•Suppliers can exert power by threatening to raise prices or reduce the quality of purchased goods and services2-22The Bargaining Power of Suppliers•A supplier group will be powerful when•The supplier group is dominated by a few companies and is more concentrated than the industry it sells to•The supplier group is not obliged to contend with substitute products for sale to the industry•The industry is not an important customer of the supplier group2-23The Bargaining Power of Suppliers•A