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Two
External
Analysis:
The
Identification of
Opportunities
and Threats
External Analysis
The purpose of external analysis is to identify
the strategic opportunities and threats in the
organizations operating environment that
will affect how it pursues its mission.
Legal
International
Technological
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External Analysis:
Opportunities and Threats
Analyzing the dynamics of the industry in which
an organization competes to help identify:
Opportunities
Threats
Conditions in the
environment that a
company can take
advantage of to
become more
profitable
Conditions in the
environment that
endanger the integrity
and profitability of
the companys
business
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Industry Analysis:
Defining an Industry
Industry
A group of companies offering products or services that are
close substitutes for each other and that satisfy the same
basic customer needs
Industry boundaries may change as customer needs evolve
and technology changes
Sector
A group of closely related industries
Market Segments
Distinct groups of customers within an industry
Can be differentiated from each other with distinct attributes
and specific demands
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Source: Adapted and reprinted by permission of Harvard Business Review. From How Competitive Forces Shape Strategy, by
Michael E. Porter, Harvard Business Review, March/April 1979 by the President and Fellows of Harvard College. All rights reserved.
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2. Brand Loyalty
Achieved by creating well-established customer preferences
Difficult for new entrants to take market share from established brands
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2. Demand Conditions
Growing demand tends to moderate competition and reduce rivalry
Declining demand encourages rivalry for market share and revenue
3. Cost Conditions
High fixed costs profitability leveraged by sales volume
Slow demand and growth can result in intense rivalry and lower profits
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Substitute Products
Substitute Products are the products from
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Strategic Groups
Within Industries
Strategic Groups are groups of companies that
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1.
2.
3.
5.
4.
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Figure 2.4
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Figure 2.5
Industry Shakeout:
Rivalry Intensifies
with growth in
excess capacity
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Limitations of Models
for Industry Analysis
Company Differences
There can be significant variances in the profit rates of individual
companies within an industry.
In addition to industry attractiveness, company resources and
capabilities are also important determinants of its profitability.
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Punctuated Equilibrium
and Competitive Structure
Figure 2.6
Industry
Structure
revolutionized
by innovation
Periods of long
term stability
Periods of long
term stability
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Changes in the
forces in the macroenvironment can
directly impact:
The Five Forces
Relative Strengths
Industry
Attractiveness
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