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Chapter 2

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COMM 315
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Chapter 2 The External Environment Opportunities Threats Industry Competition and Competitor AnalysisViewed in their totality the conditions that affect firms today indicate that for most organizations their external environment is filled with uncertainty To successfully deal with this uncertainty and to achieve strategic competitiveness and thrive firms must be aware of and fully understand the different segments of the external environmentOn the basis of the new information firms take actions such as building new capabilities and core competencies in hopes of buffering themselves from any negative environmental effects and to pursue opportunities as the basis for better serving their stakeholders needs A firms strategic actions are influenced by the conditions in the three parts the general industry and competitor of its external environment see figure 21 page 37The General Industry and Competitor EnvironmentsThe general environment is composed of dimensions in the broader society that influence an industry and the firms within it We group these dimensions into 7 environmental segments demographic economic politicallegal sociocultural technological global and physical See figure 21 for examples page 38The industry environment is the set of factors that directly influences a firm and its competitive actions and responses the threat of new entrants the power of suppliers the power of buyers the threat of product substitutes and the intensity of rivalry among competitors How companies gather and interpret information about their competitors is called competitor analysis Understanding the firms competitor environment complements the insights provided by studying the general and industry environments Analysis of the general environment is focused on environmental trends while analysis of the industry environment is focused on the factors and conditions influencing and industrys profitability potential and an analysis of competitors is focused on predicting competitors actions responses and intentions In combination the results of these three analyses influence the firms vision mission and strategic actionsExternal Environmental AnalysisTo cope with often ambiguous and incomplete environmental data and to increase understanding of the general environment firms engage in external analysis This analysis has four parts scanning monitoring forecasting and assessing An opportunity is a condition in the general environment that if exploited effectively helps a company achieve strategic competitivenessA threat is a condition in the general environment that may hinder a companys efforts to achieve strategic competitivenessFirms use several sources to analyze the general environment People in boundaryspanning positions can obtain a great deal of this type of information salespersons customer service representatives people interacting with external constituents are examples of boundaryspanning positions Components of the External Environmental AnalysisScanningThe study of all segments in the general environmentIdentifying early signals of environmental changes and trends in the general environment and detecting changes that are already underway Scanning activities must be aligned with the organizational context scanning system for a volatile environment vs stable environment
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