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External Analysis – Strategic Industry Assessment - Coggle Diagram
External Analysis – Strategic Industry Assessment
Purpose of External Analysis
Understand where the company is and how the environment affects it.
Must align with mission, vision, values before recommending actions.
Analyze industry context, not individual companies at first.
Two Business Environments
A) Microenvironment (Industry-Specific)
Includes: suppliers, clients, competitors, substitutes, new entrants.
Shared by companies within the same industry.
B) Macroenvironment (Economy-Wide)
Affects all industries.
Evaluated using PESTEL:
Political: Stability, corruption, regulation.
Economic: Inflation, exchange rates, interest rates.
Social: Demographics, health, culture.
Technological: Innovation, R&D, automation.
Environmental: Climate, natural resources.
Legal: Labor laws, safety, IP, consumer protection.
Always cite references when conducting macro analysis.
Porter’s Five Forces Framework
Developed by Michael Porter to analyze industry structure and profit potential.
Common Analysis Steps:
Identify characteristics and dynamics.
Measure threat or power level.
Recommend actions based on assessment.
Force 1: Threat of New Entrants
Can others easily enter the industry?
Influenced by:
Capital requirements
Legal or regulatory barriers
Economies of scale
High threat → low barriers
Low threat → high barriers
Force 2: Threat of Substitutes
Other products/services that fulfill the same need differently.
Examples:
Buses vs. low-cost flights
Steel vs. aluminum or plastic
More substitutes → higher threat
Force 3: Bargaining Power of Buyers
Depends on how many alternatives buyers have.
Many options = high power.
Example: fast food industry → many choices → buyers can easily switch.
Force 4: Bargaining Power of Suppliers
Few suppliers = high power
Many suppliers = low power (easy to switch)
Affects pricing, availability, terms.
Force 5: Industry Rivalry
Number and strength of competitors already in the industry.
Few competitors → high rivalry
Many competitors → low rivalry
Example: Pepsi vs. Coca-Cola = high rivalry
Extension: The Sixth Force – Complementors
Not originally in Porter’s model, but added by later scholars.
Complementors: Firms from other industries that add value together.
Example:
Convenience store + bill payment services
Intel + Microsoft
Increases customer value with win-win alliances.
Porter’s Strategy Insights
Strategy ≠ operational effectiveness
Best practices & efficiency are essential but not strategy
Strategy = being different
Creating unique value for customers
Avoiding pure price competition
5 Forces = fundamental, timeless framework
Still relevant despite changing industries
Helps understand profitability drivers
Also introduced:
Value Chain: Analyze internal activities that deliver value.