Evaluating a company’s a macro-environment begins with understanding the external factors affecting your company’s industry and competitive landscape. In this 2nd post of our 4-part strategy series, we’ll dig into understanding your company’s competitive environment.
External Analysis of your Industry’s Macroenvironment
Doing so requires addressing 7 critical questions:
- What are the industry’s dominant economic features?
- What kinds of competitive forces are industry members facing, and how strong is each force?
- What forces are driving change in the industry, and what impact will these changes have on competitive intensity and industry profitability?
- What market positions do industry rivals occupy – who is strongly positioned and who is not?
- What strategic moves are rivals likely to make next?
- What are the key factors for competitive success?
- Does the outlook for the industry present the company with sufficiently attractive prospects for profitability?
A lot to think about, so let’s get started…
1. Industry Economics
Understand the reality of the industry.
|Industry and Market||
|Buyers and Rivals||
|Products and Technology||
2. Competitive Forces
Assess the forces shaping your competition.
Use Michael Porter’s Five Forces Model to determine the degree of each competitive force to influence and shape the competitive landscape:
- Buyers: Ability to switch between sellers, integrating backwards and demanding lower prices and concessions.
- Suppliers: Ability to create high switching cost, control supplies, and create differentiated offerings.
- Substitutes: Ability to deliver comparable or better performance features at a reasonable switching cost.
- New Entrants: Ability to capitalize on a growing buyer demand and offer disruptive and radically innovative product offerings.
- Rivalry (Incumbents/Sellers): Ability of existing sellers to leverage economies of scale, brand loyalty, regulatory policies and resource constraints to consolidate their market position.
3. Driving Forces
Identify the forces that drive change in your industry’s outlook.
4. Market Positioning
Understand the size and market position of your competitors.
Use strategic group maps to cluster industry rivals based on similar competitive approaches. The process is the following:
- Identify the competitive characteristics that build competitive advantage
- Plot firms on an x-y axis based on their strategic approaches
- Cluster firms into strategic groups
- Make the size of a firm proportional to its market share
5. Strategic Rivalry
Leverage your Customer Intelligence to try to predict your competitors’ next moves. Consider:
- Each rival’s current market and financial situation
- Each rival’s past behaviours, preferences and actions
- Each rival’s management and leadership styles
- Each rival’s product development and launch trends
- Each rival’s competitive landscape for market expansion
6. Key Success Factors
Key success factors are defined as: “the strategy elements, product attributes, competitive capabilities, or intangible assets with the greatest impact on future success in the marketplace.”
In order to identify your industry’s KSFs, ask yourself the following:
- What product attributes drive buyer preferences and lead them to choose a specific brand over other competing offerings?
- What resources and capabilities are necessary to compete in the marketplace?
- What mistakes and shortcomings lead to competitive disadvantages?
7. Profitability Outlook
Determine if the industry provides a significant opportunity for your company to capture market share and generate profits. Holistically consider the:
- Industry’s growth potential
- Forces driving competition
- Forces shaping the industry’s future reality
- Your company’s ability to differentiate and outperform its competition against the industry’s key success factors
Defining a winning strategy begins with understanding the reality of the competitive environment in which your company competes. It’s about taking a holistic view of the macro-environment and synthesizing these into a series of assumptions on the market opportunity.
That’s it for now! In my next post, I’ll dig into the assessment of your company’s internal environment.
Cheers ’till next time!