Chapter 4 - Exploring the External Environment: Macro and Industry Dynamics potx

Chapter 4Exploring the External Environment: Macro and Industry Dynamics... BLURRING OF INDUSTRY BOUNDARIESWith fewer companies providing these services, the power of buyers will be

Chapter 4

Exploring the External Environment: Macro and Industry Dynamics

OBJECTIVES

Explain the importance of the external context for strategy and firm performance

THE COLA WARS (TIMELINE)

Coca-Cola

Coca-Cola invented

“Kick Pepsi's can”

Diet CokeNew Coke

1886

1950196019701980

EXTERNAL CONTEXT OF STRATEGY

• An internal analysis is just half of what is needed to build strategy

• The SWOT and more complicated

frameworks help us understand the full picture

BLURRING OF INDUSTRY BOUNDARIES

With fewer

companies providing

these services, the

power of buyers will

be impacted.

As services are bundled, the cost to switch to another service provider will

be greater.

Cable Companies

Long Distance Telephone Companies

Internet Provider Companies



THE BALANCE OF POWER

Wal-Mart Rubbermaid

THE EXTERNAL ENVIRONMENT OF THE ORGANIZATION

KEY QUESTION TO ASK

What macro environmental conditions will have a material effect on our ability to implement our strategy successfully?

How stable are these characteristics?

What is our firm’s industry?

What are the characteristics of the industry?

PRESSURES FAVORING INDUSTRY GLOBALIZATION

• Interdependent countries

• Homogeneous

customer needs

• Favorable trade policies

• Large scale and scope economies

• Global competitors

• Global customer

needs

• Common technological standards

• Learning and experience

manufacturing and marketing regulations

• Sourcing efficiencies

Competition

• Favorable logistics

• Transferable

marketing

KEY SUCCESS FACTORS AS BARRIERS TO ENTRY

Key asset or requisite skill that all firms in an industry must possess in order to be

a viable competitor

Key success factor (KSF)

 Ability to meet competitive pricing

 Extensive distribution

 Ability to raise consumer awareness

 Broad product mix

 Global presence

KSFs:

SOFT DRINK EXAMPLE

INDUSTRY FRAGMENTATION AND CONCENTRATION

ENVIRONMENTAL TRENDS

Silent Generation

Silent Generation

– Born between 1932 and 1945

ANALYZING INDUSTRY STRUCTURE USING FIVE – FORCES

Buyer Power (Channel and End consumer)

• Impact of inputs on cost or differentiation

• Switching costs of firms in the industry

• Presence of substitute inputs

• Threat of forward integration

• Cost relative to total purchases in industry

Threat of New Entrants (and Entry Barriers)

• Absolute cost advantages

• Proprietary learning curve

to end consumer

Complementors

Number of complements Relative value added Barriers to complement entry

Difficulty of engaging complements

Buyer perception of complements Complement exclusivity

• History of price wars

• Level of fixed costs

• Industry concentration

• Market growth

50

Industry A

Suppliers Buyers

Industry B

Profits

IMPACT OF COMPLEMENTOR

Any factor that makes it more attractive

for suppliers to supply an industry on

favorable terms or that makes it more

attractive for buyers to purchase

products or services from an industry

at prices higher than it would pay

absent the complementor

Complementor:

Hot dogs +

Buns

More sales

Three Examples

Music +MPS player

More attractive offering

Delta plane orders

INDUSTRY LIFE CYCLE

Growing

Market expands beyond niche

More competitors enter

Mature

Proliferation of products and markets served Market volatility and beginnings of

In Decline

Product/market contraction Further consolidation and industry

In disk-drive industry, virtually every new generation of technology led to demise of market leader

Example

SCENARIO PLANNING

Assess the strategic implications of each scenario 6

Specify indicators that can signal which scenario is unfolding

“Market stability is threatened by short product life cycles, short product design cycles, new technologies, frequent entry by unexpected outsiders,

repositioning by incumbents, and tactical redefinitions of market boundaries as diverse industries emerge.”