2
Analyzing the External
Environment of the Firm
Strategic Management
Dr. Bill Todorovic
Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.
2- 2
Understanding the Environment
• External Scanning
• External Monitoring
• Competitive Intelligence
2- 3
Creating the Environmentally
Aware Organization
2- 6
What Competitive Intelligence
Is and Is Not
Competitive Intelligence Is
Not …
Competitive Intelligence
Is …
1. Spying. Spying implies illegal
or unethical activities. It is a
rare activity.
2. A crystal ball. Competitive
Intelligence is good
approximation of reality; it does
not predict the future.
3. Database search. Data by itself
is not good intelligence.
4. A job for one smart person.
1. Information that has been
analyzed to the point where
you can make a decision.
2. A tool to alert management
to early recognition of both
threats and opportunities.
3. A means to deliver
reasonable assessments.
4. A way of life, a process.
Adapted from Exhibit 2.2 What Competitive Intelligence Is and Is Not!
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Environmental Analysis
• SWOT Analysis
• Segments of the general environment
• General environmental trends and events
2- 9
Example
• Harley Davidson SWOT
- Strengths
- Weaknesses
- Opportunities
- Threats
Source: Developed from www.harley-davidson.com
2- 10
The General Environment
• Segments of the general environment
include:
-
Demographic
Sociocultural
Legal/Political
Technological
Economic
Global
• General environmental trends and events:
- Little ability to predict them
- Even less ability to control them
- Can vary across industries
General
Environmen
t
2- 11
Environmental Analysis
• SWOT Analysis
• Segments of the general environment
• General environmental trends and events
• Competitive Environment
2- 13
Porter’s Five Forces Model
of Industry Competition
2- 14
Porter’s Five Forces Model of Industry
Competition
- Threat of new entrants
- Threat of substitutes
- Power of suppliers
- Power of buyers
- Rivalry among existing firms
2- 25
Example
• Porter’s Five Forces Model: BMW
- Threat of new entrants
• Very low
- Threat of substitutes
• Medium
- Power of suppliers
• Medium
- Power of buyers
• Medium
- Rivalry among existing firms
• Very High
Source: Developed from www.bmw.com