External Analysis: the Identification of Opportunities and Threats
CHAPTER 2
External Analysis: The Identification of Opportunities and Threats
I. Overview
A. For a company to succeed, its strategy must either fit the industry environment in which it operates, or the company must be able to reshape the industry environment in which it operates to its advantage through its choice of strategy. Companies typically fail when their strategy no longer fits the environment in which they operate.
B. To achieve a good fit, managers must understand the forces that shape competition in their external environment. This understanding enables them to identify strategic opportunities and threats. Opportunities arise when a company can take advantage of conditions in its environment to formulate and implement strategies that enable it to become more profitable. Threats arise when conditions in the external environment endanger the integrity and profitability of the company’s business.
II. Defining an Industry
A. An industry can be defined as a group of companies offering products or services that are close substitutes for each other. Close substitutes are products or services that satisfy the same basic consumer need. Firms within the same industry are rivals, also called competitors.
1. A correct industry definition can be the difference between success and failure.
2. Managers must define industries based on the customer need (the demand side of the market) and not the products the industry offers (the supply side of the market).
B. Several industries combine to create a sector. For example, the PC industry, the handheld industry, and the mainframe industry together create the computer sector.
Figure 2.1: The Computer Sector: Industries and Segments
C. Within industries, customers with a common need group together to form a market segment. For example, the soft drink industry contains regular, diet, and caffeine-free market segments.
D. Industry boundaries are not fixed, but can change over time. Industries may fragment into a set
External Analysis: The Identification of Opportunities and Threats
I. Overview
A. For a company to succeed, its strategy must either fit the industry environment in which it operates, or the company must be able to reshape the industry environment in which it operates to its advantage through its choice of strategy. Companies typically fail when their strategy no longer fits the environment in which they operate.
B. To achieve a good fit, managers must understand the forces that shape competition in their external environment. This understanding enables them to identify strategic opportunities and threats. Opportunities arise when a company can take advantage of conditions in its environment to formulate and implement strategies that enable it to become more profitable. Threats arise when conditions in the external environment endanger the integrity and profitability of the company’s business.
II. Defining an Industry
A. An industry can be defined as a group of companies offering products or services that are close substitutes for each other. Close substitutes are products or services that satisfy the same basic consumer need. Firms within the same industry are rivals, also called competitors.
1. A correct industry definition can be the difference between success and failure.
2. Managers must define industries based on the customer need (the demand side of the market) and not the products the industry offers (the supply side of the market).
B. Several industries combine to create a sector. For example, the PC industry, the handheld industry, and the mainframe industry together create the computer sector.
Figure 2.1: The Computer Sector: Industries and Segments
C. Within industries, customers with a common need group together to form a market segment. For example, the soft drink industry contains regular, diet, and caffeine-free market segments.
D. Industry boundaries are not fixed, but can change over time. Industries may fragment into a set