1. Makerere University
Business School
Strategic Management Course
ENVIROMENTAL ANALYSIS - COMPLETION

2. INDUSTRY ANALYSIS
• A firm operates in an industry
• Need to compare a company’s operations with
others
– Especially “the best-in-class” rivals
• Current level of competition
– Technologies
– Competitors’ Key Success Factors, among other key
issues.

3. Industry components
• Customers
• Suppliers
• Competitors
• Industrial trends
– In line with your industry’s life cycle
– In line your goals and objectives, your strategy

4. Customers:
• Who are they in terms of characteristics and
behaviours?
• How manageable are their needs, wants,
expectations, tastes and preferences?
• Why do they buy/what they value most?
• When/how do they buy?
 Where do they buy?, etc
Do all these trends/factors/developments
favor/benefit us (opportunities) or really
scare/are against us (threats)?

5. Suppliers;
• Do we have alternative sources of
suppliers?
• Can we rely on these suppliers to
provide our needed inputs in the
right quantities ,quality, at the right
time and place?
• If the answer is yes , those are
opportunities. While no shows a
threat (s)

6. • What are their costs?
• What are their terms of delivery and/or
payment?
• How powerful are they?
• What is their rate of entry and exit?
• Which supplier is the best?
Which supplier (s) will give us competitive
advantages (opportunities) or not/scare
us( threat)?

7. Competitors;
• How many competitors of our size
and competence are we facing? Few-
opportunity, many-threat
• What market share do they
hold/how strong are they?
Smaller/weaker-opportunity,
Big/strong- threat
• Cost of the available substitutes?
Find out

8. • What are their competitive behavior?
Friendly/cooperative- Opportunity, Un
friendly-Threat
• What are the entry and exit barriers for
these competitors? Easy for new rivals to
join but difficult for the current ones to leave
the industry-threat, Difficult to enter but
easy to exit-favorable/opportunity

9. • Before joining an industry, a firm
should consider;
Industry size, structure,
profitability, long term
attractiveness, life cycle
Competitive situation analysis

10. Level of technology in the
industry
Competitive position of the
firm
Ease of entry in the industry

11. Michael Porter’s model
• Michael E. Porter of the Harvard
Business School
• Suggested five competitive forces
model;
– Rivalry within the industry
– Threat of new entrants
– Threat of substitute products
– Power of buyers
– Power of suppliers

13. Rivalry determinants
• Mutual dependence
• Concentration of competitors
• Number of competitors
• Industry growth rate
• Cost structure
• Diversification by competitors
• Differentiation and switching costs
• Exit barriers
• Capacity utilisation

14. Entry barriers
• Economies of scale
• Product differentiation
• Capital requirements
• Switching costs
• Distribution channels access
• Government policies
• Expected retaliation

15. Substitution determinants
• Price relativity
• Switching costs
• Buyer propensity to substitute

16. Customer power determinants
• Intrinsic strength
• Buyer volume
• Switching costs
• Buyer information
• Backward integration ability
• Substitute products
• Price sensitivity
• Impact on quality
• Brand identity

17. Supplier power
• Importance to supplier
• Knowledge of product value to buyer
– Brand
– Quality
• Standardisation and differentiation
• Switching costs
• Threat of forward integration

18. Model Basics
• Helps managers to identify the
opportunities and threats
confronting their company (ies).
• The stronger the 5 competitive
forces, the more serious the threat
and vise versa.
• Through strategic change you can
alter the strengths of such forces

19. Porter’s Model – Cont.
• Need to understand the forces in the
industry, their impact/seriousness, how
and when they benefit or be against
you, and their sources.
• Confirm which forces favour your
business success (opportunities) or
scare your business success (threats)

20. Limitations
• Limited availability of the required
information i.e high level of secrecy in
government bodies and some business
associations
• The available information may not be
up-to-date, or be irrelevant or even
inaccurate
• The model ignores other trends like
changes in demand, technology used in
production, and the market
growth/attractiveness