Hitt7eCh02.ppt

CHAPTER 2The External Environment:Opportunities, Threats,Industry Competition,and Competitor Analysis KNOWLEDGE OBJECTIVES Explain the importance of analyzing and understanding the firm’s external environment. Define and describe the general environment and the industry environment. Discuss the four activities of the external environmental analysis process. Name and describe the general environment’s six segments. Identify the five competitive forces and explain how they determine an industry’s profit potential. KNOWLEDGE OBJECTIVES (cont’d) Define strategic groups and describe their influence on the firm. Describe what firms need to know about their competitors and different methods (including ethical standards) used to collect intelligence about them. FIGURE 2.1 The External Environment General Environment Dimensions in the broader society that influence an industry and the firms within it: Demographic Economic Political/legal Sociocultural Technological Global TABLE 2.1 The General Environment: Segments and Elements Industry Environment The set of factors directly influencing a firm and its competitive actions and competitive responses Threat of new entrants Power of suppliers Power of buyers Threat of product substitutes Intensity of rivalry among competitors Competitor Analysis Gathering and interpreting information about all of the companies that the firm competes against. Understanding the firm’s competitor environment complements the insights provided by studying the general and industry environments. Analysis of the External Environments General environment Focused on the future Industry environment Focused on factors and conditions influencing a firm’s profitability within an industry Competitor environment Focused on predicting the dynamics of competitors’ actions, responses and intentions TABLE 2.2 Components of the External Environmental Analysis Opportunities and Threats Opportunity A condition in the general environment that, if exploited, helps a