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Thompson−Strickland−Gamble: Crafting and Executing Strategy: Concepts and Cases, 17th Edition

I. Concepts and Techniques for Crafting and Executing Strategy

3. Evaluating a Company’s External Environment

© The McGraw−Hill Companies, 2010

CHAPTER

3

Evaluating a Company’s External Environment

LEARNING OBJECTIVES
1. To gain command of the basic concepts and analytical tools widely used to diagnose a company’s industry and competitive conditions. 2. To become adept at recognizing the factors that cause competition in an industry to be fierce, more or less normal, or relatively weak. 3. To learn how to determine whether an industry’s outlook presents a company with sufficiently attractive opportunities for growth and profitability. 4. To understand why in-depth evaluation of specific industry and competitive conditions is a prerequisite to crafting a strategy well matched to a company’s situation.

Thompson−Strickland−Gamble: Crafting and Executing Strategy: Concepts and Cases, 17th Edition

I. Concepts and Techniques for Crafting and Executing Strategy

3. Evaluating a Company’s External Environment

© The McGraw−Hill Companies, 2010

Analysis is the critical starting point of strategic thinking. — Kenichi Ohmae Consultant and Author

Things are always different—the art is figuring out which differences matter. — Laszlo Birinyi Investments Manager

Competitive battles should be seen not as one-shot skirmishes but as a dynamic multiround game of moves and countermoves. — Anil K. Gupta Professor

I

n the opening paragraph of Chapter 1, we said that one of the three central questions that managers must address in evaluating their company’s business prospects is “What’s the company’s present situation?” Two facets of a company’s situation are especially pertinent: (1) the industry and competitive environment in which the company operates and (2) the company’s collection of resources and capabilities, its strengths and weaknesses vis-à-vis rivals, and its windows of opportunity. Insightful analysis of a company’s external and internal environment is a prerequisite for crafting a strategy that is an excellent fit with the company’s situation, is capable of building competitive advantage, and holds good prospect for boosting company performance—the three criteria of a winning strategy.

As depicted in Figure 3.1, the task of crafting a company’s strategy should always begin with appraisals of the company’s external environment and internal environment (as a basis for deciding on a long-term strategic direction and developing a strategic vision), then proceed to an evaluation of the most promising alternative strategic options and business models, and culminate in choosing a specific strategy. This chapter presents the concepts and analytical tools for zeroing in on a single-business company’s external environment. Attention centers on the competitive arena in which a company operates, the drivers of market change, and rival companies’ actions. In Chapter 4 we explore the methods of evaluating a company’s internal circumstances and competitiveness.

Thompson−Strickland−Gamble: Crafting and Executing Strategy: Concepts and Cases, 17th Edition

I. Concepts and Techniques for Crafting and Executing Strategy

3. Evaluating a Company’s External Environment

© The McGraw−Hill Companies, 2010

56

Part 1

Concepts and Techniques for Crafting and Executing Strategy

Figure 3.1

From Thinking Strategically about the Company’s Situation to Choosing a Strategy

Thinking strategically about a company’s external environment

Thinking strategically about a company’s internal environment

Form a strategic vision of where the company needs to head

Identify promising strategic options for the company

Select the best strategy and business model for the company

THE STRATEGICALLY RELEVANT COMPONENTS OF A COMPANY’S EXTERNAL ENVIRONMENT All companies operate in a macroenvironment...
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