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ChapterTwoExternal Analysis: The Identification of Opportunities and Threats“To assure victory, always carefully survey the field before battle.” - Sun Tzu? RoyaltyFree/ Stockdisc/ Getty ImagesExternal AnalysisThe purpose of external analysis is to identify the strategic opportunities and threats in the organization’s operating environment that will affect how it pursues its mission.External Analysis requires an assessment of:Industry environment in which company operatesCompetitive structure of industryCompetitive position of the companyCompetitiveness and position of major rivalsThe country or national environments in which company competesThe wider socioeconomic or macroenvironment that may affect the company and its industrySocialGovernment Technological Legal InternationalExternal Analysis: Opportunities and ThreatsAnalyzing the dynamics of the industry in which an organization competes to help identify:Opportunities Conditions in the environment that a company can take advantage of to become more profitableThreats Conditions in the environment that endanger the integrity and profitability of the company’s businessIndustry Analysis: Defining an Industry IndustryA group of companies offering products or services that are close substitutes for each other and that satisfy the same basic customer needsIndustry boundaries may change as customer needs evolve and technology changes SectorA group of closely related industries Market SegmentsDistinct groups of customers within an industryCan be differentiated from each other with distinct attributes and specific demandsIndustry analysis begins by focusing on the overall industry –before considering market segment or sector-level issues The Computer Sector: Industries and Market SegmentsFigure 2.1Porter’s Five Forces ModelFigure 2.2Source: Adapted and reprinted by permission of Harvard Business Review. From “How Competitive Forces
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