Just for you: FREE 60-day trial to the world’s largest digital library.
The SlideShare family just got bigger. Enjoy access to millions of ebooks, audiobooks, magazines, and more from Scribd.
Read free for 60 days
Cancel anytime.
Just for you: FREE 60-day trial to the world’s largest digital library.
The SlideShare family just got bigger. Enjoy access to millions of ebooks, audiobooks, magazines, and more from Scribd.
Cancel anytime.
Chap. 2: External Environment: Opportunities, Threats, Industry, Competition & Competitor Analysis
The external environment (includes industry in which firm competes as well as those against whom it
competes) affects competitive actions and responses firms take to outperform competitors and earn
above-average returns.
oCharacteristics of today’s external environment differ from historical concerns.
oFirms understand external environment by acquiring info about competitors, customers, and
other stakeholders to build their own base of knowledge and capabilities.
On basis of new info, firms take actions in hope of buffering themselves from any
negative environmental effects and to pursue opportunities as basis for better serving
their stakeholders’ needs.
oFirm’s competitive actions and responses are influenced by conditions in three parts (general,
industry, and competitor) of its external environment and its understanding of those conditions.
2.1 The General, Industry, and Competitor Environments
General environment: composed of dimensions in broader society that influences industry and firms
within it.
oGroup dimensions into seven environmental segments: demographic, economic, political/legal,
sociocultural, technological, global and sustainable physical.
oFirms can’t directly control general environment’s segments.
What company seeks to do is recognize trends in each segment of general environment
and then predict each trend’s effect on it.
No firm can control where growth in potential customers may take place in next decade
or two. Firms must study anticipated trend as foundation for predicting its effects on their
ability to identify strategies to use that will allow them to remain successful as market
conditions change.
Industry environment: set of factors that directly influences a firm and its competitive
actions/responses: threat of new entrants, power of suppliers, power of buyers, and threat of product
substitutes, and intensity of rivalry among competing firms.
oInteractions among these five factors determine industry’s profitability potential; industry’s
profitability potential influences choices each firm makes about its competitive actions/responses
Challenge for firm is to locate position within industry where it can favorably influence
the five factors or where it can successfully defend itself against their influence.
The greater a firm’s capacity to favorably influence its industry environment, the
greater the likelihood it will earn above-average returns.
Competitor analysis: how companies gather and interpret info about their competitors
oUnderstanding firm’s competitor environment complements insights provided by studying
general and industry environments.
Analysis of general environment focuses on environment trends and their implications, an analysis of
industry environment focuses on factors and conditions influencing an industry’s profitability potential,
and an analysis of competitors is focused on predicting competitors’ actions, responses, and intentions.
oResults of the three analyses influences firm’s vision, mission, choice of strategies, and
competitive actions/responses it takes to implement strategies.
Firm can develop and implement a more effective strategy when it effectively integrates
insights provided by analyses of general environment, industry environment, and
competitor environment.
2.3 Segments of General Environment