External Analysis: The

Identification of Opportunities
and Threats
Chapter 2
 Overview
•  Industry
•  Sector
•  Market Segments
Competitive forces model
 Competitive forces model
•  Porters original model (5 forces)
1. Threat of new entrants
•  Entry Barriers
–  Economies of scale
–  Brand loyalty
–  Absolute cost advantage
–  Customer switching costs
–  Regulation
 Competitive forces model
•  Porters original model (5 forces)
2. Degree of rivalry
•  Industry competitive structure (fragmented industry,
consolidated industry, monopoly, etc)
•  Industry demand (stage in life cycle)
•  Cost structure (fixed cost
•  Exit barriers (Initial investment, emotional attachment,
bankruptcy regulation)
 Competitive forces model
•  Porters original model (5 forces)
3. Threat of substitutes
4. Bargaining Powering of Buyers
5. Bargaining power of suppliers

•  Porters original model extended to form
competitive forces model
6. Power of complementors
Strategic groups within industries
 Strategic groups within industries
•  Similarities in business model and other
factors such as:
–  Risk of new entrants
–  Degree of new rivalry within group
–  Bargaining power of supplier and buyers
 Industry Life Cycle
•  Embryonic
•  Growth
•  Shakeout stage
–  Industry often experience excess capacity
•  Mature Stage
•  Declining stage

Stages in Industry Life Cycle
Growth in Demand and Capacity
 Limitations of Models for Industry Analysis

•  Life-Cycle Issues
–  The model is a generalization, reality often is diff.
–  Time span of the stages can also vary.
•  Innovation and Change
–  Punctuated Equilibrium and Competitive Structure
–  Oligopoly (consolidated) to Fragmented
•  Company Differences
–  Industry structure explains 10%-20% of the variance in
profit rates across companies.
–  Strategic group have some impacts.
–  Much depend on the company itself.
Punctuated Equilibrium and Competitive Structure
 The Macro-Environment
•  Macro-economic forces
–  Growth rate of economy
–  Interest rates
–  Currency exchange rates
–  Inflation (deflation) rates
•  Global forces
•  Political and legal forces
•  Technological forces
•  Demographic forces (age, gender, ethnic origin, race,
social class)
•  Social forces (social mores and values)
The Role of the Macro-Environment
 Sustainability and Durability of
Competitive Advantage
•  External environment is constantly evolving that impacts
strategies and competitive advantage.

•  Competitive advantage cannot be sustained unless we are

willing and prepared to
–  Accept that change, uncertainty, and variability are inevitable
–  Recognize changes
–  Recognize the opportunities and the threats of these changes
–  Take advantage of the opportunities and address the threats

•  A continuous process that emphasizes monitoring,

feedback, and corrective actions.

Last Slide