EVALUATING A COMPANY’S EXTERNAL ENVIRONMENT
THE STRATEGICALLY RELEVANT COMPONENTS OF A COMPANY’S MACRO-ENVIRONMENT
The performance of all companies is affected by such external characteristics as general economic conditions and global factors; population demographics; societal values and life styles; political, regulatory, and legal factors; the natural environment; and technological factors. Strictly speaking, a company’s “macro-environment” includes all relevant factors and influences outside the company’s boundaries; by relevant, we mean these factors are important enough that they should shape management’s decisions regarding the company’s long-term direction, objectives, strategy, and business model. Figure 3.1 presents a depiction of macro-environmental factors with a high potential to affect a company’s choice of strategy can range from big to small. But even if the factors in the outer ring of the macro-environment change slowly or are likely to have a low impact on the company’s business situation, they still merit a watchful eye. However, the factors and forces in a company’s macro-environment that have the biggest strategy-shaping impact typically pertain to the company’s immediate industry and competitive environment—competitive pressures, the actions of rival firms, buyer behavior, supplier-related considerations, and so on.
ASSESSING THE COMPANY’S INDUSTRY AND COMPETITIVE ENVIRONMENT
Thinking strategically about a company’s industry and competitive environment entails using some well-validated concepts and analytcal tools to get clear answer to seven questions:
1. Do the dominant economic characteristics of the industry offer sellers opportunities for growth and attractive profits?
2. What kinds of competitive forces are industry members facing, and how strong is each force?
3. What forces are driving industry change, and what impact will these changes have on competitive intensity and industry profitability?
4. What market positions do...