Reference no: EM131302421

Thinking strategically about a company's external situation involves probing for answers to the following seven questions: Choose four of the seven questions and submit. 

1. What are the strategically relevant factors in the macro-environment? Industries differ significantly as to how they are affected by conditions in the broadmacro environment. Identifying which of these factors is strategically relevant is the first step to understanding how a company is situated in its external environment. PESTEL analysis of the political, economic, sociocultural, technological, environmental/ ecological, and legal/regulatory factors provides a framework for approaching this issue systematically. Identifying the strategically relevant features of the macro environment sets the stage for the analysis to come, since they play an important role in determining an industry's potential for attractive profits.
2. What kinds of competitive forces are industry members facing, and how strong is each force? The strength of competition is a composite of five forces: (1) competitive pressures stemming from the competitive jockeying among industry rivals, (2) competitive pressures associated with the market inroads being made by the sellers of substitutes, (3) competitive pressures associated with the threat of new entrants into the market, (4) competitive pressures stemming from supplier bargaining power, and (5) competitive pressures stemming from buyer bargaining. The nature and strength of the competitive pressures have to be examined force by force, and their collective strength must be evaluated. One strong force, however, can be sufficient to keep average industry profitability low. Working through the five forces model aids strategy makers in assessing how to insulate the company from the strongest forces, identify attractive arenas for expansion, or alter the competitive conditions so that they offer more favorable prospects for profitability.
3. What factors are driving changes in the industry, and what impact will they have on competitive intensity and industry profitability? Industry and competitive conditions change because certain forces are acting to create incentives or pressures for change. The most common driving forces include changes in the long-term industry growth rate, increasingglobalization, Internet-related developments, changing buyer behavior, technological change and manufacturing process innovation, product and marketing innovation, the entry or exit of major firms, the diffusion of know-how, efficiency improvements in adjacent markets, reductions in uncertainty and business risk, regulatory and government policy changes, and changing societal factors. Once an industry's change drivers have been identified, the analytical task becomes one of determining whether they are acting, individually and collectively, to make the industry environment more or less attractive.
4. What market positions do industry rivalsoccupy-whois strongly positioned and who is not? Strategic group mapping is a valuable tool for understanding the similarities, differences, strengths, and weaknesses inherent in the market positions of rival companies. Rivals in the same or nearby strategic groups are close competitors, whereas companies in distant strategic groups usually pose little or no immediate threat. The lesson of strategic group mapping is that some positions on the map are more favorable than others. The profit potential of different strategic groups may not be the same because industry driving forces and competitive forces likely have varying effects on the industry's distinct strategic groups.
5. What strategic moves are rivals likely to make next? Scouting competitors well enough to anticipate their actions can help a company prepare effective counter moves (perhaps even beating a rival to the punch) and allows managers to take rivals' probable actions into account in designing their own company's best course of action. Managers who fail to study competitors risk being caught unprepared by the strategic moves of rivals.
6. What are the key factors for competitive success? An industry's key success factors (KSFs) are the particular strategy elements, product attributes, operational approaches, resources, and competitive capabilities that all industry members must have in order to survive and prosper in the industry.KSFsby their very nature are so important to competitive success that all firms in the industry must pay close attention to them or risk being driven out of the industry. For any industry, however, they can be deduced by answering three basic questions: (1) On what basis do buyers of the industry's product choose between the competing brands of sellers, (2) what resources and competitive capabilities must a company have to be competitively successful, and (3) what shortcomings are almost certain to put a company at a significant competitive disadvantage? Correctly diagnosing an industry'sKSFsraises a company's chances of crafting a sound strategy.
7. Is the industry outlook conducive to good profitability? The last step in industry analysis is summing up the results from applying each of the frameworks employed in answering questions 1 to 6: PESTEL, five forces analysis, driving forces, strategic group mapping, competitor analysis, and key success factors. Applying multiple lenses to the question of what the industry outlook looks like offers a more robust and nuanced answer. If the answers from each framework, seen as a whole, reveal that a company's profit prospects in that industry are above average, then the industry environment is basically attractive for that company; if industry profit prospects are below average, conditions are unattractive for them. What may look like an attractive environment for one company may appear to be unattractive from the perspective of a different company.

Clear, insightful diagnosis of a company's external situation is an essential first step in crafting strategies that are well matched to industry and competitive conditions. To do cutting-edge strategic thinking about the external environment, managers must know what questions to pose and what analytical tools to use in answering these questions. This is why this chapter has concentrated on suggesting the right questions to ask, explaining concepts and analytical approaches, and indicating the kinds of things to look for.