Slide 1Slide 2Slide 3Slide 4Slide 5Slide 6Slide 7Slide 8Slide 9Slide 10Slide 11Slide 12Slide 13Slide 14Slide 15Slide 16Slide 17Slide 18Slide 19External EnvironmentsComponents of External AnalysisAssessing the General EnvironmentGeneral Environment1) Demographic Segment2) Economic Segment3) Political/Legal Segments4) Sociocultural Segment5) Technological Segment6) Global SegmentGeneral EnvironmentROIC Across Industries 1995-2004Porter’s Five ForcesSlide 33Slide 34Slide 35Slide 36Slide 37Potential New EntrantsBarriers to EntrySuppliersBuyersBuyersSubstitutesSubstitutes and Business DefinitionRivalry and ProfitabilityRivalry – What drives it?Exit BarriersIndustries and SegmentsSegments in the Automotive IndustrySegments in the Automotive IndustryPorter’s..in conclusionStatic model & HypercompetitionComplementorsInterpreting Industry AnalysisAnalysis of Direct CompetitorsImplications from Strategic Group DynamicsCompetitor Analysis ComponentsIdentification of Key Success Factors?Slide 59Example: KSFs for Beer IndustryIdentifying Key Success Factors (KSFs) - vary by segmentExerciseCompeting For AdvantagePart II – Strategic AnalysisChapter 3 – The External Environment:Opportunities, Threats, Industry Competition, and Competitor Analysis“Computers in the future may weigh no more than 1.5 tons”“Computers in the future may weigh no more than 1.5 tons”Popular Science Magazine, forecasting the relentless march of Science - 1949In 1968, a 100 megabyte hard drive weighed 4,500 pounds cost more than $130,000“I think there is a world market for maybe five computers”Thomas Watson, Chairman of IBM, 1943“But what….is it good for?”Engineer at IBM, commenting on the microchip, 1968“The idea is interesting and well-formed, but in order to earn better than a “C” the idea must be feasible” Yale University Professor in response to Fred W. Smith’s paper proposing an overnight delivery serviceFedEx now delivers well over 7.5 million packages a day – 2.7 billion a year“We don’t like their music and guitar music is on the way out” Decca Records Company in rejecting the Beatles, 1962“ Who the hell wants to hear actors talk” H. M. Warner, 1927“There is no reason why anyone would want a computer in their home”Ken Olson, president, chairman, and founder of Digital Equipment Corporation, 1977“This ‘telephone” has too many shortcoming to be seriously considered a means of communication. The device is inherently of no value to us.”Internal Memo, Western Union, 1876“Everything that can be invented has been invented”Charles H. Duell, Commissioner of the U.S. Patents Office,1899“640K of RAM ought to be enough for anybody”Bill Gates, 1981Subway opens a new store every 3 hoursStarbucks every 11 hoursQuiznos every 16 hoursWSJ, Oct 1, 2003“I see no scenario whatsoever where Toyota will pass us in share”Chrysler CEO, January 2002“I see no scenario whatsoever where Toyota will pass us in share”Chrysler CEO, January 2002September 2003, “The Big Three” became GM, Ford, and Toyota“Nothing important happened today”Journal entry made by King George III, July 4, 1776, the day the United States declared independence from EnglandCompetitive strategy must grow out a sophisticated understanding of the rules of competition that determine industry attractiveness.Michael PorterWhen an industry with a reputation for bad economics meets a manager with a reputation for excellence, it’s usually the industry that leaves with its reputation intact.Warren BuffettSkate to where the puck is going, not to where the puck has been.Wayne GretskyExternal EnvironmentsKey TermsGeneral Environment – composed of dimensions in the broader society that influence an industry and the firms within itIndustry Environment – set of factors that directly influence a firm and its competitive actions and competitive responsesCompetitor Environment – details about a firm’s direct and indirect competitors and the competitive dynamics expected to impact a firm's efforts to generate above-average returnsComponents of External AnalysisScanning – Identifying early signalsMonitoring – Following signals or change identifies in scanning to identify patternsForecasting – Projections of what might happenAssessing – Determining the timing and significance of forecasted changeAssessing the General EnvironmentGeneral Environment1) Demographic2) Economic3) Political 4) Socioculture5) Technical6) Global1) Demographic SegmentCharacteristics of the populatione.g., age, race, gender, sexual orientation and social classesEthnic structureIncome distributionGeographic distribution2) Economic SegmentGeneral health/wellbeing of the local, regional, national or global economy.e.g., Interest rates, unemployment rates, consumer spending, confidence and savings, energy costs, personal disposable income, inflation rates, housing costs3) Political/Legal SegmentsTax laws, minimum wages, environmental laws, labor laws, consumer protection, product liability, etc.4) Sociocultural SegmentAttitudes of society towards work, careers, products, services and consumer activism.e.g., concern for quality of life, birth rates, woman in the work force, low-carb dieting, health consciousness, respect for intellectual property, desire for “green retailing”, savings rates, etc.5) Technological SegmentChanges in technology that affect the workplace, and the products and services consumers expecte.g., Information technologies, entertainment technologies, product technologies.6) Global SegmentNew and existing markets around the world, and changes in the political, cultural and institutional terrain.General EnvironmentFirms can not influence them, but they can have a significant influence on the firm, its industry, its strategy, and its performanceCast a wide net and to identify the emerging trendsThen determine which factors are relevant, and how these changes will have an effect upon the firm.ROIC Across Industries 1995-2004Porter’s Five ForcesCompetitive RivalryPower of BuyersPower of SuppliersPotential EntrantsSubstitute ProductsEach of these forces affect costs/prices, therefore, profitabilitySubstituteProducts(of firms inother industries)RivalryAmongCompetingSellersPotentialNewEntrantsSuppliers of Key InputsBuyersPriceCostsProfits{What factors increase/decrease margins within an industry,
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