Evaluating a Company’s External Environment
LEARNING OBJECTIVES
LO1 Identify factors in a company’s broad macro-environment that may have strategic significance. Recognize the factors that cause competition in an industry to be fierce, more or less normal, or relatively weak. Become adept at mapping the market positions of key groups of industry rivals. Learn how to determine whether an industry’s outlook presents a company with sufficiently attractive opportunities for growth and profitability.

chapter

3

LO2

LO3

LO4

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Part 1

Section B: Core Concepts and Analytical Tools

In Chapter 2, we learned that the strategy formulation, strategy execution process begins with an appraisal of the company’s present situation. The company’s situation includes two facets: (1) the competitive conditions in the industry in which the company operates—its external environment; and (2) its resources and organizational capabilities—its internal environment. Charting a company’s long-term direction, conceiving its customer value proposition, setting objectives, or crafting a strategy without first gaining an understanding of the company’s external and internal environments hamstrings attempts to build competitive advantage and boost company performance. Indeed, the first test of a winning strategy inquires, “How well does the strategy fit the company’s situation?” This chapter presents the concepts and analytical tools for zeroing in on a single-business company’s external environment. Attention centers on the competitive arena in which the company operates, the drivers of market change, the market positions of rival companies, and the factors that determine competitive success. Chapter 4 explores the methods of evaluating a company’s internal circumstances and competitiveness.

Evaluating the Strategically Relevant Components of a Company’s