Define the strategic environment

- By understanding how strategy is applied in different situations, you'll be better able to apply strategy tools and frameworks to your organization. Let's look at a consumer package goods company, Widgets Deluxe, and understand how they compete in the market. You have to assess the market, its participants, and how the external environment affects the organization's strategy. Understanding the forces affecting you will help you shape a strategy that deals with risks and positions you to compete effectively. To do this assessment, use Porter's Five Forces to conduct it. My Strategic Planning Foundations course covers the method I'll use. What makes the method come alive is seeing it applied to different contexts. In terms of competitive rivalry, Widgets Deluxe is one of two big players in the market, with many smaller companies. They enjoy a market leading position, their products are premium quality, and they're priced accordingly. Their other major competitor focuses more on low-cost products and making private-label widgets for other retailers. Industry growth is very slow and there are high exit barriers to shut down plans and deal with environmental remediation of getting out of the market. In terms of threats of new entrants, there's a low threat of new entrants entering this market. It takes significant capital to build factories, conduct R&D, and build brands. Widgets Deluxe also has many patents protecting its products and keeping new entrants out. In terms of the treat of substitution, widgets are a luxury for people. Consumers could do without them or use alternative products. Those products though are less effective. Widgets are sufficiently differentiated and consumers have few alternatives, so there's little threat of substitution. From a buyer-power perspective, Widgets Deluxe sells 70% of its products through five major retail chains. Those chains could try to demand lower prices, but they have few alternatives to Widgets Deluxe. There's no way any of those retailers could do without having these products on their shelves. The Widgets Deluxe brand is extremely strong with consumers and it drives a lot of traffic to these retailers. From a supplier-power perspective, the supplier market is highly fragmented and Widgets Deluxe has huge profit margins, because of the brand strength. The power in this relationship is clearly with Widgets Deluxe. Taking a look at strengths, weaknesses, opportunities, and threats, Widgets Deluxe has strengths in the form of its brands, its product quality, and its premium position in the market. Its weaknesses are legacy manufacturing infrastructure that requires significant investment to keep it running well. Their opportunities include creating competitive tension between the retailers to gain market share and improve their pricing power. Last, the threats they face are in the form of retailers exerting their power or its big competitor moving up-market. Overall, in looking at the market, Widgets Deluxe has a great position here, and they can leverage the strength of their brands and their position in the market to compete effectively.