What is the set of factors that directly influences a firm and its competitive actions and responses?

•Theindustry environmentis a set of factors that directly influences a firmand its competitive actions and responses:•The threat of new entrants•The power of suppliers•The power of buyers•The threat of product substitutes•The intensity of rivalry among competing firms•How companies gather and interpret information about their competitorsindividually is calledcompetitor analysis.•Understanding the firm’s competitor environment complements the insightsprovided by studying the general and industry environments.

2-1The General, Industry, and CompetitorEnvironments(slide 3 of 3)•An analysis of the general environment focuses on environmental trendsand their implications.•An analysis of the industry environment focuses on the factors andconditions influencing an industry’s profitability potential.•An analysis of competitors is focused on predicting competitors’ actions,responses, and intentions.•In combination, the results of these three analyses influence the firm’s:•Vision•Mission•Choice of strategies•Competitive actions and responses it will take to implement those strategies

2-2External Environmental Analysis(slide 1 of 2)•To cope with often ambiguous and incompleteenvironmental data and to increase understanding ofthe ever changing general environment, firmscomplete anexternal environmental analysis.•The four parts of an external environmental analysis are:1. Scanning2. Monitoring3. Forecasting4. Assessing

Table 2.2Parts of the External Environmental AnalysisScanning•Identifying early signals of environmental changes and trendsMonitoring•Detecting meaning through ongoing observations ofenvironmental changes and trendsForecasting•Developing projections of anticipated outcomes based onmonitored changes and trendsAssessing•Determining the timing and importance of environmentalchanges and trends for firms’ strategies and their management

2-2External Environmental Analysis(slide 2 of 2)•Identifying opportunities and threats (two parts of SWOTanalysis) is an important objective of studying the generalenvironment.•Anopportunityis a condition in the general environment that, ifexploited effectively, helps a company reach strategic competitiveness.•Athreatis a condition in the general environment that may hinder acompany’s efforts to achieve strategic competitiveness.•Effective scanning, monitoring, forecasting, and assessing arevital to the firm’s efforts to recognize and evaluateopportunities and threats.

2-2aScanning•Scanning entails the study of all segments in the generalenvironment.•Through scanning, firms:•Identify early signals of potential changes in the generalenvironment•Detect changes that are already under way•The Internet provides a wealth of opportunities forscanning.

2-2bMonitoring•When monitoring, analysts observe environmentalchanges to see if an important trend is emerging fromamong those spotted through scanning.

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