Reference no: EM132411237

EXTERNAL ANALYSIS TEMPLATE

In this stage of our analysis, our objective is to understand the major trends and forces that characterize the product-market in which our focal firms competes. This stage is all about the external environment - the context - and has NOTHING to do with our firm or any specific firm. Don't let your thinking/focus fall back to the firm here...stay at the INDUSTRY level.

One aspect of assessing the quality of a firm's strategy is to test if it aligns, or fits, with the nature of their market. To assess this, we need to know the most critical things that firms operating in this industry (who we call "producers" since the produce the good or service that defines the industry) must have or do to be successful (i.e. achieve a superior level of performance). We also need to know what factors are or may change the nature of what it takes to succeed in this industry.

FIRST we must get clear on what industry we are analyzing. Defining the industry is critical. Consider the primary products or services your focal firm and its main competitors offer. That often gets you to a good industry definition. If needed, look up the firm's NAICS classification. Once you are clear on the industry, be sure you are clear on the basic characteristics of Producers, Buyers, and Suppliers.

Producers - the firms that offer the primary industry good/service. Don't name them but describe their common characteristics (a few large ones? Many small mom-and-pops? Local firms vs international? Manufacturers or just resellers? etc.)

Buyers - describe in broad terms the people (or organizations) that are the primary purchasers of the goods/services the producers offer.

Suppliers - describe in broad terms the major suppliers the producers need for the raw inputs they need to produce their goods/services.

Example: For the Movie Theatre industry: Movie Theatre firms (mostly large national chains, but some local specialty operators) are the producers; Film studios (major and independent) and their distributors are the suppliers as are concession product distributors; Individuals or all types are the buyers.

Don't confuse these actors or your analysis will go off track.

What are some important characteristics of this industry? Is it large or small? Growing or declining? Concentrated among only a few firms or fragmented across many?

With our industry defined and generally characterized, we need to develop conclusions about competitive forces, drivers of change, and key success factors.

Competitive Forces

The objective here is understand the competitive forces that make it difficult for producers to earn higher profits. The five forces framework is very useful here as it helps identify the forces competing over ‘value' and how they shape overall industry profitability levels. Specifically, the five forces framework helps us identify the factors determining producer profitability...and since our focal firm is one of the producers, this analysis is going to tell us about the challenges our firm faces in the quest to achieve superior performance.