Strategic Management

1. OPPORTUNITIES AND
THREATS OF
EXTERNAL
ENVIRONMENT
Ram & Som

2. AIM & OBJECTIVE
To discuss the organization as an open system and
assess the impact of a number of environmental forces
To understand the opportunity-driven strategy
depends upon an ability to manage, and to manage in,
the business environment
To examine the threat of the business and implement
process to the strategic plan of the organization

3. TABLE OF CONTENTS
External environment
General environment
Industry environment
Competitor environment
SWOT analysis
Potential opportunities and threats in the external environment
Company Analysis
Conclusion
References

4. EXTERNAL ENVIRONMENT
T he exter nal environment
comprises of all the entities that
exist outside its boundary, but have
significant influence on its growth
and survival. An organization has
little or no control over its
environment but needs to
constantly monitor and adapt to
these external changes, a proactive
or reactive response leads to
significantly different outcome
Gupta, 2009

5. TYPES OF
EXTERNAL ENVIRONMENT
Direct interactive this
environment has an immediate
and firsthand impact upon the
organization.
Indirect interactive this
environment has a secondary
and more distant effect upon
the organization

6. EXTERNAL ENVIRONMENT
ANALYSIS
Scanning Identifying early signals of environmental
changes and trends
Monitoring Detecting meaning through ongoing
observations of environmental changes and trends
Forecasting Developing projections of anticipated
outcomes based on monitored changes and trends
Assessing Determining the timing and importance of
environmental changes and trends for firm’s strategies
and their management

7. EXTERNAL ENVIRONMENT
ANALYSIS
Analysis of general environment
Analysis of industry environment
Analysis of competitor environment
The External
Environment
Strategic Intent
Strategic mission

8. ANALYSIS OF THE
EXTERNAL ENVIRONMENT
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

9. GENERAL ENVIRONMENT
Dimension in the broader society that influence an industry
and the firms within it
Demographic
Economic
Political/Legal
Sociocultural
Technological
Global
Thomson/South-Western, 2007

10. GENERAL ENVIRONMENT
Demographic Segment
Population size
Age structure
Geographic distribution
Ethnic mix
Income allocation

11. GENERAL ENVIRONMENT
Economic Segment
Inflation rates
Interest rates
Trade deficits or surplusses
Budget deficits or surplusses
Personal saving rate
Business saving rates
Gross Domestic Product

12. GENERAL ENVIRONMENT
Political/Legal Segment
Government stability
Taxation policy
Foreign trade regulations
Social welfare policies
Employment law
Health and safety

13. GENERAL ENVIRONMENT
Sociocultural Segment
Workforce diversity
Attitudes to work and leisure
Consumerism
Level of education
Concerns about environment
Social mobility

14. GENERAL ENVIRONMENT
Technological Segment
Product innovation
Applications knowledge
New communication
technologies
Government and industry focus
on technological effort
Government spending on R&D
expenditures

15. GENERAL ENVIRONMENT
Global Segment
Importance political
events
Critical global markets
Newly industrialize
country
Different cultural and
institutional attributes

16. Economic Global
IMAGINE YOU HAVE A COMPANY
WHICH FACTORS WOULD YOU
CONSIDER FIRST AND LAST
WHY?
Political Sociocultural
Technological

17. INDUSTRY ENVIRONMENT
The set of factors directly influencing a firm and its
competitive actions and competitive responses
Threat of new entrants
Bargaining power of suppliers
Bargaining power of customers/ buyers
Threat of product substitutes
Intensity of rivalry among competitors

18. PORTER’S FIVE FORCES

19. THE PURPOSE OF
FIVE FORCES ANALYSIS
T h e F i v e Fo r c e s a r e
environmental forces that
impact on a company’s
ability to compare in a given
market
The purpose of five-forces
analysis is to diagnose the
principle competitive
pressures in a market and
assess how strong and
important each one is

20. THREAT OF NEW ENTRANTS
Barriers to entry
Economies of scale
High differentiate products or well-known brand names
Capital requirements
High consumer switching costs
Assess the distribution channels
Cost advantages independent of scale
Government policy
Expected retaliation

21. THREAT OF NEW ENTRANTS

22. BARGAINING POWER
OF THE SUPPLIER
Supplier power increase when
Suppliers are large and few in number
Suitable substitute products are not available
Individual buyers are not large customer of suppliers and there
are many of them
Suppliers’ goods are critical to the buyers’ marketplace success
Suppliers’ products create high switching costs
Suppliers pose a threat to integrate forward into buyers’ industry

23. BARGAINING POWER
OF THE SUPPLIER

24. BARGAINING POWER OF
BUYERS/CUSTOMERS
Buyer power increase when
Buyers are large and few in number
Buyers purchase a large portion of an industry’s total output
Buyer purchase are significant portion of a supplier’s annual
revenues
Buyer’s switching costs are low
Buyer can pose threat to integrate backward into the seller’s
industry
Buyer has full information

25. BARGAINING POWER OF
BUYERS/CUSTOMERS
eBay & Walmart Defense contractors

26. THREAT OF PRODUCT
SUBSTITUTES
The threats of substitute products increase when
Buyers face few switching costs
The substitute product’s price is lower
Substitute product’s quality and performance are
equal to or greater than the existing product
Differentiated industry products that are valued
by customer reduce this threat

27. THREAT OF PRODUCT
SUBSTITUTES

28. INTENSITY OF RIVALRY
AMONG COMPETITORS
Industry rivalry increase when
There are numerous or equally balanced competitors
Industry growth slows or declines
There are high fixed costs or high storage costs
There is a lack of differentiation opportunities or low switching
costs
When the strategic stakes are high
When high exit barriers prevent competitors from leaving the
industry

29. INTENSITY OF RIVALRY
AMONG COMPETITORS

30. INTERPRETING
INDUSTRY ANALYSIS
Low entry barriers
Suppliers and buyers
have strong position
Unattractive
Industry
Strong threats from
substitute products
Low profit potential
Intense rivalry among competitors

31. INTERPRETING
INDUSTRY ANALYSIS
High entry barriers
Suppliers and buyers
have weak position
Attractive
Industry
Few threats from
substitute products
High profit potential
Moderate rivalry among competitors

32. INDUSTRY ANALYSIS
Supermarkets

33. SUPERMARKETS SUMMARY
Threats of new entry High
Power of suppliers Medium
Power of buyers Medium/ High
Threat of substitutes Medium
Existing rivalries Intense

34. COMPETITOR ENVIRONMENT
Competitor intelligence
The ethical gathering of needed information and
data that provides insight into
A competitor’s direction (future objective)
A competitor’s capabilities and intentions (current
strategy)
A competitor’s beliefs about the industry (its
assumption)
A competitor’s capabilities

36. COMPETITIVE ANALYSIS
Who are your competitor?
Do you know about your close competitors’ strengths
and weaknesses?
How detail should we analyse the competition?
Use a systematic approach
Analysis competition at various levels

37. SWOT ANALYSIS
Strengths
Weaknesses
Opportunities
Threats
Albert S.Humphrey, 1960s

38. THE PURPOSE OF
SWOT ANALYSIS
It is easy-to-use tool for
developing an overview
of a company’s strategic
situation
It forms a basis of
matching your
company’s strategy to
its situation

39. OPPORTUNITIES & THREATS
Opportunity
A condition in the general environment that, if exploits,
helps a company achieve strategic competitiveness
Threat
A condition in the general environment that may hinder
a company’s efforts to achieve strategic competitiveness

40. WHY IS IT IMPORTANT TO
KNOW THE COMPANY
OPPORTUNITIES AND
THREATS?

41. OPPORTUNITY & THREATS
Opportunities and threats form a basis for external analysis
By examining opportunities, you can discover
untapped markets, and new products or technologies,
or identify potential avenues for diversification
By examining threats, you can identify unfavorable
market shifts or changes in technology, and create a
defensive posture aimed at preserving your competitive
position

42. EXAMPLE OF THREAT
AND OPPORTUNITIES
The strength of economy effects
The economy
the level of demand
This includes shareholders, and
Capital markets their satisfaction with company
success
Changes in structure
Labour market Availability of skills
Influence of trade unions

43. EXAMPLE OF THREAT
AND OPPORTUNITIES
Robotics in manufacturing
Technology Computers
Information technology
Changing population - by age
Sociocultural environment Changing tastes and values
Regional movements
Special industry initiatives
Government
The legal environment

44. EXAMPLE OF THREAT
AND OPPORTUNITIES
Suppliers Availability and cost of suppliers
Changes in preferences and
Customers
purchasing power
Changes in competitive strategies
Competitors
Innovation
Effects of good and bad publicity,
The media drawing attention to companies,
products and services

45. IDENTIFY INDUSTRY
KEY SUCCESS FACTORS
1. Identify
2. Draw conclusion
3. Translate into strategic action

46. CAN YOU THINK OF ANY
COMPANY THAT ADAPT ITS
STRATEGY WELL WITH
EXTERNAL ENVIRONMENT?

47. CASE STUDY
SAMSUNG
MOBILE & TABLET

48. SAMSUNG GALAXY S
10 millions sold globally
30 millions sold Samsung
Galaxy S & S II
Approx $500

49. SAMSUNG GALAXY MINI
In trend
Preferences (white/black)
Functional
Cheap (only $175)

50. SAMSUNG GALAXY NOTE
Mix of phone & tablet
Come with a stylus
$799.99

51. SAMSUNG GALAXY TAB
Tablet market
Smaller than iPad
$600

52. 3 YEARS AGO

53. THIS YEAR

54. DISCUSSION
Analyse Samsung’s strategy? What do you think
about their strategy?
List Samsung opportunities and threats
What do you think will challenge Samsung in the
future?

55. SAMSUNG OPPORTUNITY
Offer product variation, grab all different type of
markets - opportunity to grow
Demand for cellphones driven by the service providers
or carriers
Lowering the price of a phone by just $20 in many
countries could increase its affordability by 43%

56. SAMSUNG THREATS
Aggressive competitors such as iPhone, HTC, Nokia
and Windows phone etc.
Keeping track of the new trends in the market but the
price is much more cheaper than competitors
Not an accessory in the fashion statement

57. CONCLUSION
It is important for company to pay attention to
external environment
The research in external environment is essential for
the business
The company that adapt its strategy to the changes of
external environment is likely to be more competitive
in the business

58. REFERENCES
Marketing Institute Singapore. External Environment in the Asia Pacific Region. [ppt.]
My Strategic Plan (2010). Internal and External Analysis. Available at http://mystrategicplan.com/
resources/internal-and-external-analysis/ [Accessed on October 15, 2011].
Cliffsnotes, (2000-2011). The External Environment, Principles of Management. Available at http://
www.cliffsnotes.com/study_guide/The-External-Environment.topicArticleId-8944,articleId-8859.html
[Accessed on October 13, 2011].
Gupta, A., (2009). Organization External Environment, Practical Management. Available at http://
www.practical-management.com/Organization-Development/Organization-s-External-Environment.html
[Accessed on October 13, 2011].
Samsung, (2010). Samsung. Available at http://gsg.samsung.com/ [Accessed on October 15,2011].
Strategic CFO, (2009). Porter’s Five Forces of Competition. Available at http://www.wikicfo.com/Wiki/Porters
%20Five%20Forces%20of%20Competition.ashx [Accessed on October 15, 2011].
Thompson, J. & Martin, F., (2010). Strategic Management: Awareness and Change. UK: South-Western
CENGAGE Learning.

59. THANK YOU
FOR YOUR ATTENTION