Understanding the

External
Environment
The external environment encompasses all the factors outside an
organization that can impact its operations and performance. Analyzing
this environment is crucial for developing effective strategies to navigate
challenges and capitalize on opportunities.

by Bercy Edwin
Porter's Five Forces Model

Competitive RivalryAQW Supplier Power Buyer Power

The intensity of competition among The bargaining power of suppliers to The bargaining power of customers
existing firms in the industry. influence prices and terms. to demand lower prices and better
quality.
Strategic Groups
Differentiation
Firms that compete based on unique products or services.

Cost Leadership
Firms that compete on the basis of low-cost operations.

Focused Strategies
Firms that target a specific market segment or niche.
Competitive Changes during Industry Evolution
Emergence Maturity
New technologies or market needs create opportunities for Industry consolidates, and competition shifts towards cost-
new entrants. cutting and efficiency.

1 2 3

Growth
Successful firms expand, and competition intensifies as
more players enter.
Globalization and Industry Structure
1 Global Integration 2 Standardization 3 Competition Intensity
Increased interconnectedness Homogenization of products, Intensified rivalry as firms
of markets, supply chains, and services, and business practices compete globally for market
operations worldwide. across borders. share and resources.
National Context and Competitive Advantage
Resources
Factor Conditions Demand Conditions Related and Supporting
Industries
The availability of skilled labor, The sophistication and size of the
infrastructure, and natural resources. domestic market. The presence of efficient supplier
and complementary industries.
Capabilities and Competencies-Core
Competencies

Specialized Skills
Unique capabilities that allow a firm to perform tasks better than competitors.

Technological Expertise
Mastery of specific technologies that enable a firm to create value.

Customer Intimacy
Deep understanding of customer needs and the ability to deliver tailored solutions.
Competitive Advantage
Building Blocks
Low Cost Differentiation

Achieve the lowest possible Offer unique products or

costs in production, services that customers
distribution, and operations. perceive as superior.
Distinctive Competencies,
Resources, and Capability
Durability
Rare
Resources and capabilities that are unique and difficult for competitors to
replicate.

Valuable
Resources and capabilities that enable a firm to create superior value for
customers.

Inimitable
Resources and capabilities that are protected from imitation by competitors.
Strategic Analysis Strategic Formulation Strategic Implementation
Understand the external environment, Develop competitive strategies to Effectively execute the chosen strategy
industry dynamics, and internal create and sustain a competitive through efficient operations and
capabilities. advantage. resource allocation.