CHAPTER 3 : EVALUATING A COMPANY’S EXTERNAL EVALUATION

    The macro-environment encompasses the broad environmental context in which a company’s industry is situated

•         There are some strategically relevant factor in the micro-environment. To understanding how a company situated in its external environment we must first doing this first step which is  identifying which of the factors is strategically relevant.
•     PESTEL analysis is one of the tool that provides a framework for approaching this issue systemically. PESTEL analysis focused on the six principal components of strategic significancein the macro-environment. There are political, Economic,Social,Technological,Environmental and Legal forces.

    How strong are the industry’s competitive forces ?

•        There are 5 competitive forces that we must know which is :

                                                        i.            Competition from rival sellers

                                                      ii.            Competition from potential new entries

                                                    iii.            Competiton from producers of substitute products

                                                   iv.            Supplier bargaining power

                                                     v.            Customer bargaining power

•    The nature and the strength of the competitive pressure have to be examined forces 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 5 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 profitiablity.

    Factos that driving changes in industry :

                                i.            Changes in the longterm industry growth rate

                              ii.            Increasing globalization

                            iii.            Internet –related developments

                           iv.            Changing buyer behavior

                             v.            Technological changing

                           vi.            Manufacturing process innovation, product and marketing innovation

                         vii.            Entry or exit of major firms

                       viii.            Diffusion of know-how

                            ix.            Efficiency improvements in adjacent markets

                              x.            Reductions in uncertainty and business risk

                            xi.            Regulatory and government policy changes

                          xii.            Changing societal factors.

    The key factors for competitive success :

                                i.            Particular strategy elements

                              ii.            Product attributes

                            iii.            Operational approaches

                           iv.            Resources

                             v.            Competitive capabilities that all members must have

•         For any industries , however they can be deduced by answering three basic questions :

Ø  On what basis do buyers of the industry’s product choose between the competing brands of seller

Ø  What resources must a company have to be competitively successful

Ø  What shortcomings are almost certain to put a company at a significant competitive advantages

    In conclusion, diagnosis of a company’s external situation is an essential first step in crafting strategies that are well matched to industry and competitive conditions. Managers should know what questions need to pose and what analytical tool to use in answering these questions.