Analysis is the critical starting point of strategic thinking. Kenichi Ohmae Awareness of the environment is not a special project to be undertaken only when warning of change becomes deafening ... Kenneth R. Andrews
Crafting strategy is an analysis-driven exercise, not an activity where managers can succeed by sheer effort and creativity. Judgments about what strategy to pursue should ideally be grounded in a probing assessment of a company's external environment and internal situation. Unless a company's strategy is well-matched to the full range of external and internal situational considerations, its suitability is suspect.
THE ROLE OF SITUATION ANALYSIS IN STRATEGY-MAKING
While the phrase situation analysis tends to conjure up images of collecting reams of data and developing all sorts of facts and figures, such impressions don't apply here. From a strategy-making standpoint, the purpose of situation analysis is to determine the features in a company's internal/external environment that will most directly affect its strategic options and opportunities. The effort concentrates on generating solid answers to a well-defined set of strategic questions, then using these answers first to form an understandable picture of the company's strategic situation and second to identify what its realistic strategic options are. In studying the methods of strategic situation analysis, it is customary to begin with single-business companies instead of diversified enterprises. This is because strategic analysis of diversified companies draws on many of the
3 I Industry and Competitive Analysis
concepts and techniques used in evaluating the strategic situations of singlebusiness companies. In single-business strategic analysis, the two biggest situational considerations are (1) industry and competitive conditions (the heart of a single-business company's "external environment") and (2) the company's own internal situation and competitive position. This chapter examines the techniques of industry and competitive analysis, the terms used to refer to external situation analysis of a single-business company. Chapter 4 covers the tools of company situation analysis. Industry and competitive analysis looks broadly at a company's macroenvironment; company situation analysis examines the narrower field of its microenvironment. Figure 3-1 presents the external-internal framework of strategic situation analysis for a single-business company. It indicates both the analytical steps involved and the connection to developing business strategy. Note the logical flow from analysis of the company's external and internal situation to evaluation of alternatives to choice of strategy. Also note that situation analysis is the starting point in the process. Indeed, as we shall see in the rest of this chapter ·and in Chapter 4, managers must understand a company's macro- and microenvironments to do agood job of establishing a mission, setting objectives, and crafting business strategy. The three criteria for deciding whether a strategy is "good" are whether it fits the situation, whether it helps build competitive advantage, and whether it is likely to boost company performance.
Analysis of industry and competitive conditions is the starting point in evaluating a company's strategic situation and market position.
THE METHODS OF INDUSTRY AND COMPETITIVE ANALYSIS
Industries differ widely in their economic characteristics, competitive situations, and future outlooks. The pace of technological change can range from fast to slow. Capital requirements can be big or small. The market can be worldwide or local. Sellers' products can be standardized or highly differentiated. Competitive forces can be strong or weak and can center on price, quality, service, or other variables. Buyer demand can be rising briskly or declining. Industry conditions differ so much that leading companies in unattractive industries...