David PPT Abbrev Ch03-1c

Ch 3 -1
Copyright 2007 Prentice Hall

Competitors
Suppliers
Distributors
Creditors
Customers
Employees
Communities
Managers
Stockholders
Labor Unions
Special Interest Groups
Products
Services
Key
External
Forces
Opportunities
&
Threats
Key External Forces & the Organization
Beyond control of organization!
Ch 3 -2

Copyright Houghton Mifflin
Company. All rights reserved.
2 | 2
External Analysis requires an assessment of:
Industry environment in which company operates
Competitive structure of industry
Competitive position of the company
Competitiveness and position of major rivals
The country or national environments in
which company competes
The wider socioeconomic or macroenvironment that
may affect the company and its industry
Social
Government
Legal
International
Technological

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.
Ch 3 -3

2 | 3
External Analysis:
Opportunities and Threats
Analyzing the dynamics of the industry in which
an organization competes to help identify:
Opportunities
Conditions in the
environment that a
company can take
advantage of to
become more
profitable
Threats
Conditions in the
environment that
endanger the integrity
and profitability of
the companys
business
Ch 3 -4

2 | 4
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
Industry analysis begins by focusing on
the overall industry
before considering market segment or sector-level issues
Ch 3 -5

2 | 5
The Computer Sector: Industries and
Market Segments
Figure 2.1
Ch 3 -6

Performing External Audit
External
Factors
Measurable
Long-term orientation
Applicable to
competing firms
Hierarchical
Ch 3 -8

Ch 6 -8

Potential development
of substitute products
Rivalry among
competing firms
Bargaining power
of suppliers
Potential entry of new
competitors
Bargaining power
of consumers
Porters Five Forces
Ch 3 -10

Industry Analysis: The External Factor
Evaluation (EFE) Matrix
Competitive Political Cultural
Technological Environmental Social
Governmental Demographic Economic
Summarize & Evaluate
Ch 3 -11

Ch 3 -13


Total weighted score of 4.0
Organization response is outstanding to threats
and weaknesses
Industry Analysis EFE

Total weighted score of 1.0
Firms strategies not capitalizing on opportunities
or avoiding threats
Ch 3 -14

2 | 14
Strategic Groups Within
Industries
Strategic Groups are groups of companies that
follow a business model similar to other companies
within their strategic group but are different from
that of other companies in other strategic groups.
Implications of Strategic Groups
1. The closest competitors are within the same Strategic Group
and may be viewed by customers as substitutes for each other.
2. Each Strategic Group can have different competitive forces
and may face a different set of opportunities and threats.
Mobility Barriers factors within an industry that inhibit the
movement of companies between strategic groups
Include barriers to enter another group or exit existing group
The basic differences between business models in
different strategic groups can be captured by a
relatively small number of strategic factors.
Ch 3 -15

2 | 15
Strategic Groups in the Pharmaceutical
Industry
Figure 2.3
Ch 3 -16

2 | 16
Industry Life Cycle Model analyzes the affects of
industry evolution on competitive forces over time
and is characterized by five distinct life cycle stages:
Industry Life Cycle Analysis
1. Embryonic industry just beginning to develop
Rivalry based on perfecting products, educating customers, and opening
up distribution channels.
2. Growth first-time demand takes-off with new customers
Low rivalry as focus is on keeping up with high industry growth.
3. Shakeout demand approaches saturation, replacements
Rivalry intensifies with emergence of excess productive capacity.
4. Mature market totally saturated with low to no growth
Industry consolidation based on market share, driving down price.
5. Decline industry growth becomes negative
Rivalry further intensifies based on rate of decline and exit barriers.
Ch 3 -17

2 | 17
Stages in the Industry Life Cycle

Strength and nature of five forces change as industry evolves Figure 2.4
Ch 3 -18

2 | 18
Growth in Demand and Capacity
Industry Shakeout:
Rivalry Intensifies
with growth in
excess capacity
Anticipate how forces will change and formulate appropriate strategy Figure 2.5
Ch 3 -19

2 | 19
Limitations of Models for Industry
Analysis
Life Cycle Issues
Industry cycles do not always follow the life cycle generalization.
In rapid growth situations embryonic stage is sometimes skipped.
Industry growth revitalized through innovation or social change.
The time span of the stages can vary from industry to industry.
Innovation and Change
Punctuated Equilibrium occurs when an industrys long term stable structure is
punctuated with periods of rapid change by innovation.
Hypercompetitive industries are characterized by permanent and ongoing
innovation and competitive change.
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.
Models provide useful ways of thinking about competition
within an industry but be aware of their limitations.
Ch 3 -20

2 | 20
Punctuated Equilibrium and
Competitive Structure
Periods of long
term stability
Periods of long
term stability
Industry
Structure
revolutionized
by innovation
Figure 2.6
Ch 3 -21

Industry Analysis: Competitive Profile
Matrix (CPM)
Identifies firms major competitors
and their strengths & weaknesses
in relation to a sample firms
strategic positions
Ch 3 -22

Gateway Apple Dell
CSFs
Wt Rating Wtd
Score
Ratin
g
Wtd
Score
Rating Wtd
Score
Market share 0.15 3 0.45 2 0.30 4 0.60
Inventory sys 0.08 2 0.16 2 0.16 4 0.32
Fin. position 0.10 2 0.20 3 0.30 3 0.30
Prod. Quality 0.08 3 0.24 4 0.32 3 0.24
Cons. Loyalty 0.02 3 0.06 3 0.06 4 0.08
Sales Distr 0.10 3 0.30 2 0.20 3 0.30
Global Exp. 0.15 3 0.45 2 0.30 4 0.60
Org. Structure 0.05 3 0.15 3 0.15 3 0.15
Ch 3 -23

Gateway Apple Dell
CSFs (contd)
Wt Rating Wtd
Score
Ratin
g
Wtd
Score
Rating Wtd
Score
Prod. Capacity 0.04 3 0.12 3 0.12 3 0.12
E-commerce 0.10 3 0.30 3 0.30 3 0.30
Customer Serv 0.10 3 0.30 2 0.20 4 0.40
Price
competitive
0.02 4 0.08 1 0.02 3 0.06
Mgt.
experience
0.01 2 0.02 4 0.04 2 0.02
Total 1.00 2.83 2.47 3.49
Ch 3 -24

Mission Statement (proposed)
Our mission is to provide cruise and travel services (2) to travelers
worldwide (1, 3), to develop household name brand awareness, to
respect and protect the earth and seas on which we sail (6), to serve the
communities in which our consumers and employees reside (8,9), and to
stay an innovator by bringing cutting edge technology and research for
our consumers benefit (4). We recognize that we must stay financially
solvent and must make those decisions that will capitalize on
opportunities for growth and longevity (5). We believe we must exceed
every consumers expectations, supplying lasting memories, and
enticing repeat business all at a fair value. We recruit, compensate and
retain the best staff and ship employees in the business (7, 9).
Ch 3 -25

Competitive Profile Matrix Royal Caribbean

RCL CCL POC
Critical Success
Factors
Weight Rating Weighted
Score
Rating Weighted
Score
Rating Weighted
Score
Market Share
Customer Loyalty
Distribution Network
Financial Position
Global Expansion
Advertising
Product Quality
Expansion of
departure ports
0.20
0.15
0.15
0.10
0.05
0.05
0.15
0.15

3
3
4
1
4
3
4
4
0.60
0.45
0.60
0.10
0.20
0.15
0.60
0.60
4
4
3
4
3
4
3
3
0.80
0.60
0.45
0.40
0.15
0.20
0.45
0.45
2
2
2
3
2
2
2
2
0.40
0.30
0.30
0.30
0.10
0.10
0.30
0.30
Total 1.00 3.30 3.50 2.10

Ch 3 -26

EFE Matrix

Key External Factors

Weight

Rating

Weighted Score
Opportunities
Nearly 88% of North Americans have never been on
a cruise.
0.15 4 0.60
Cruise vacations are seen as a choice of older
travelers; leaving minorities and young adult markets
virtually untapped

0.08 3 0.24
Distribution networks at home and abroad may be an
untapped source for generating increased business
0.07 3 0.21
Internet use is increasing; commonly the tool used to
secure reservations for many travelers
0.08 3 0.24
Several markets overseas, such as, France, Italy, have
a market of would be cruisers
0.10 2 0.20
Threats
Increase in regulation by US regarding
environmental issues and economic downturns
0.08 2 0.16
Alaskan legislators are considering a $50 tax per
cruise ship passenger
0.05 2 0.10
Location and severity of terrorist attacks; namely
September 11
th
events
0.10 3 0.30
War and political uprisings 0.10 3 0.30
Drastic changes in the world oil market and currency
exchange
0.02 1 0.02
Existing and potential litigation 0.02 1 0.02
Increased capacity of competitors and pricing wars 0.05 2 0.10
Transfer of information through collective bargaining
agreements
0.03 1 0.03
Competitors: Carnival and P & O 0.07 2 0.14
Total 1.00 2.56

Ch 3 -27

2 | 27
The Role of the Macroenvironment
Changes in the
forces in the macro-
environment can
directly impact:
The Five Forces
Relative Strengths
Industry
Attractiveness
Figure 2.7

David PPT Abbrev Ch03-1c

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Ch 3 -1

Copyright 2007 Prentice Hall

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