Chapter 3 - Evaluating a company’s external environment. After studying this chapter you will be able to: To gain command of the basic concepts and analytical tools widely used to diagnose a company’s industry and competitive conditions; To become adept in recognizing the factors that cause competition in an industry to be fierce, more or less normal, or relatively weak; To learn how to determine whether an industry’s outlook presents a company with sufficiently attractive opportunities for growth and profitability. | CHAPTER 3 EVALUATING A COMPANY’S EXTERNAL ENVIRONMENT Student Version McGraw-Hill/Irwin Copyright ®2012 The McGraw-Hill Companies, Inc. From Thinking Strategically about the Company’s Situation to Choosing a Strategy Thinking strategically about a firm’s external environment Thinking strategically about a firm’s internal environment Forming a strategic vision of where the firm needs to head Identifying promising strategic options for the firm Selecting the best strategy and business model for the firm Chapter 3 Chapter 4 The External Environment The Macro-Environment Is the broad environmental context in which a firm’s industry is situated. Includes strategically relevant components over which the firm has no direct control. General economic conditions Immediate industry and competitive environment QUESTION 1: DOES THE INDUSTRY OFFER ATTRACTIVE OPPORTUNITIES FOR GROWTH? Defining Growth: What is the current market size in units or sales? What is the past, current and expected rate of growth for the market\industry? Considerations: Different sectors\regions of a market grow at different rates. Growth varies with the industry’s life cycle stage—emergence, rapid growth, maturity, and decline. Growth does not guarantee profitability. QUESTION 2: WHAT KINDS OF COMPETITIVE FORCES ARE INDUSTRY MEMBERS FACING, AND HOW STRONG ARE THEY? The Five Competitive Forces: Competition from rival sellers Competition from potential new entrants Competition from substitute products producers Supplier bargaining power Customer bargaining power Competitive Pressures That Act to Increase the Rivalry among Competing Sellers Buyer demand is growing slowly or declining. It is becoming less costly for buyers to switch brands. Industry products are becoming more alike. There is unused production capacity, and\or products have high fixed costs or high storage costs. The number of competitors is increasing and\or they are becoming more equal in size and competitive strength. The diversity | CHAPTER 3 EVALUATING A COMPANY’S EXTERNAL ENVIRONMENT Student Version McGraw-Hill/Irwin Copyright ®2012 The McGraw-Hill Companies, Inc. From Thinking Strategically about the Company’s Situation to Choosing a Strategy Thinking strategically about a firm’s external environment Thinking strategically about a firm’s internal environment Forming a strategic vision of where the firm needs to head Identifying promising strategic options for the firm Selecting the best strategy and business model for the firm Chapter 3 Chapter 4 The External Environment The Macro-Environment Is the broad environmental context in which a firm’s industry is situated. Includes strategically relevant components over which the firm has no direct control. General economic conditions Immediate industry and competitive environment QUESTION 1: DOES THE INDUSTRY OFFER ATTRACTIVE OPPORTUNITIES FOR GROWTH? Defining Growth: What is the current market size in units or sales? What is the past, current and expected .
