ENVIRONMENTAL SCANNING
and INDUSTRY ANALYSIS
1 ENVIRONMENTAL SCANNING
the monitoring, evaluation and dissemination of
information relevant to the organizational development of
strategy
Identifying External Environmental
1.1
Variables
Identifying External Environmental Variables
Natural Environment
includes physical resources, wildlife and
climate that are an inherent part of
existence on Earth
form an ecological system of interrelated life
Identifying External Environmental Variables
Societal Environment
mankind’s social system that includes
general forces that do not directly touch on
the short-run activities of the organization,
but that can influence its long-term
decisions
FORCES: economic, technological, political-
legal and sociocultural
Identifying External Environmental Variables
Societal Environment
Economic forces that regulate the exchange of
materials, money, energy, and information.
Technological forces that generate problem-
solving inventories.
Political-legal that allocate power and provide
constraining and protecting laws and regulations
Sociocultural that regulate the values, mores, and
customs of society
Identifying External Environmental Variables
Task Environment
those elements or groups that directly affect
a corporation and, in turn, are affected by it
government, local communities, suppliers,
competitors, customers, creditors, unions,
special interest groups/trade associations
Identifying External Environmental Variables
Industry Analysis
an in-depth examination of key factors
within a corporation’s task environment
1.2 Scanning the Environment
Scanning the Environment
Scanning the Societal Environment
STEEP Analysis
- monitoring trends in the societal
and natural environments
- Sociocultural, Technological,
Economic, Ecological and
Political-legal forces
STEEP ANALYSIS
STEEP ANALYSIS
Sociocultural
Increasing environmental awareness
Growing health consciousness
Expanding seniors market
Impact of Millennials
Declining mass market
Changing pace and location of life
Changing household composition
Increasing diversity of workforce and markets
STEEP ANALYSIS
Technological
Portable information devices and electronic
networking
Alternative energy sources
Precision farming
Virtual personal assistants
Genetically altered organisms
Smart, mobile robots
STEEP ANALYSIS
Economic
Increase in interest rates
Changes in price
STEEP ANALYSIS
Ecological
The effects of climate change on companies
can be grouped into six categories of risks:
regulatory, supply chain, product and
technology, litigation, reputational and
physical.
STEEP ANALYSIS
Political-legal
Trends in this part of the societal environment
have a significant impact not only on the level
of competition within an industry but also on
which strategies might be successful.
STEEP ANALYSIS
Scanning the Environment
Scanning the Task Environment
A corporation’s scanning of the
environment includes analyses of all the
relevant elements in the task
environment
SCANNING EXTERNAL ENVIRONMENT
Identifying External Strategic Factors
The origin of competitive advantage lies in
the ability to identify and respond to environmental
change well in advance of competiton. Some
companies are better able to adapt than others
because of the differences in the ability of the
managers to recognize and understand external
strategic issues and factors. These factors are the
key environmental trends that are judge to have
both a medium to high probability of occurrence
and a medium to high probability of impact on the
corporation.
Identifying External Strategic Factors
Issues Priority Matrix
Identifying External Strategic Factors
The Issues Priority Matrix can be used to
help managers decide which environmental
trends should be merely scanned (low priority)
and which should be monitored as strategic
factors (high priority). Those trends judged to
be a corporation’s strategic factors are then
categorized as opportunities and threats and
are included in strategy formulation.
2 INDUSTRY ANALYSIS
Industry is a group of the firms that produces a similar
product or service, such as soft drinks or financial services.
Porter’s Approach to Industry
2.1
Analysis
Industry Analysis
Forces Driving Industry Competition
Threat of New Entrants
Rivalry among Existing Firms
Threat of Substitute Products or Services
Bargaining Power of Buyers
Bargaining Power of Suppliers
Relative Power of Other Stakeholders
Porter’s Approach to Industry Analysis
Porter’s Approach to Industry Analysis
Threat of New Entrants
New entrants to an industry bring new
capacity, a desire to gain market share and
substantial resources
Porter’s Approach to Industry Analysis
Threat of New Entrants
Entry Barrier - an obstruction that makes it difficult
for a company to enter an industry
- Economies of scale
- Product differentiation
- Capital Requirements
- Switching cost
- Access to distribution channels
- Cost disadvantages due to size
- Government policy
Porter’s Approach to Industry Analysis
Rivalry among Existing Firms
In most industries, corporations are mutually
dependent.
A competitive move by one firm can be
expected to have a noticeable effect on its
competitors and thus may cause retaliation.
Porter’s Approach to Industry Analysis
Rivalry among Existing Firms
Intense rivalry is related to the presence of
several factors, including:
- Number of competitors
- Rate of industry growth
- Product or service characteristics
- Amount of fixed costs
- Capacity
- Height of exit barriers
- Diversity of rivals
Porter’s Approach to Industry Analysis
Threat of Substitute Products or Services
Substitute product
a product that appears to be different but
can satisfy the same need as another product
The identification of possible substitute
products means searching for products that can
perform the same function, even though they
have a different appearance.
Porter’s Approach to Industry Analysis
Bargaining Power of Buyers
ability of buyers to force prices down,
bargain for higher quality and play
competitors against each other
Porter’s Approach to Industry Analysis
Bargaining Power of Buyers
A buyer or a group of buyers is powerful if some of
the following factors hold true:
- Large purchases
- backward integration
- alternative suppliers
- low cost to change suppliers
- product represents a high percentage
of buyer’s cost
- buyer earns low profits, product is unimportant
to buyer
Porter’s Approach to Industry Analysis
Bargaining Power of Suppliers
ability of suppliers to raise prices or
reduce the quality of purchased good and
services
Porter’s Approach to Industry Analysis
Bargaining Power of Buyers
A supplier or a group of suppliers is powerful if
some of the following factors hold true:
- Industry is dominated by a few companies
- Unique product or service
- Substitutes are not readily available
- Ability to forward integrate
- Unimportance of product or service to the
industry
Porter’s Approach to Industry Analysis
Relative Power of Other Stakeholders
Government
Local communities
Creditors
Trade associations
Special interest groups
Unions
Shareholders
2.2 Industry Evolution
Industry Evolution
Fragmented Industry
no firm has a large market share and each
firm only serves a small piece of the total
market in competition with other firms
Consolidated industry
domination by a few large firms, each
struggles to differentiate products from its
competition
Categorizing International
2.3
Industries
Categorizing International Industries
Multi-domestic industries
specific to each country or group of countries
Global industries
operate worldwide with multinational companies
making only small adjustments for country-specific
circumstances
Regional industries
multinational companies primarily coordinate their
activities within regions
Categorizing International Industries
Continuum of international Industries
2.4 Strategic Groups
a set of business units or firms that pursue similar
strategies with similar resources
2.5 Strategic Types
a set of business units or firms that pursue similar
strategies with similar resources
Strategic Types
General types have the following characteristics:
Defenders - focus on improving efficiency
Prospectors - focus on product innovation and
market opportunities
Analyzers - focus on at least two different product
market areas
Reactors - lack a consistent strategy-structure-
culture relationship
2.6 Hypercompetition
Hypercompetition
Market stability is threatened by short
product life cycles, short product design cycles,
new technologies, frequent entry by
unexpected outsiders, repositioning by
incumbents and tactical redefinitions of market
boundaries as diverse industries merge.
2.7 Using Key Success Factors to
Create an Industry Matrix
Using Key Success Factors to Create an Industry Matrix
Key success factors
variables that can significantly affect the
overall competitive positions of companies
within any particular industry
Using Key Success Factors to Create an Industry Matrix
Industry matrix
summarizes the key success factors within a
particular industry
3 COMPETITIVE INTELLIGENCE
a formal program of gathering information on a
company’s competitors, and often called Business
Intelligence
Competitive Intelligence
Sources of competitive intelligence
Information brokers
Internet
Industrial espionage
Investigatory services
4 Forecasting
Useful Forecadting Techniques
Extrapolation
The extension of present trends into the future
Brainstorming
A non-quantitative approach that requires simply the
presence of people with some knowledge of the
situation to be predicted
Expert Opinion
A non-quantitative technique in which experts in a
particular area attempt to forecast likely
developments
Useful Forecadting Techniques
Delphi technique
separated experts independently assess the
likelihoods of specified events
Statistical Modeling
A quantitative technique that attempts to discover
causal or at least explanatory factors that link two or
more time series together
Prediction Markets
Small-scale electronic markets, frequently open to any
employee, that tie payoffs to measurable future events,
such as sales data for a computer workstation, the number
of bugs in an application, or a product usage patterns
Useful Forecasting Techniques
Scenario Writing
- The most widely used forecasting technique
- Scenarios are focused description of different likely
futures presented in a narative form, or merely a
written descrition of some future state, in terms of
key variables and issues
Industry Scenario is a forecasted desciption of a
particular industry’s likely future.
SYNTHESIS OF EXTERNAL
5
FACTORS
Synthesis of External Factors
External Factor Analysis Summary (EFAS)
Used to organize the external factors into generally accepted
categories of opportunities and threats as well as to analyze how
well a particular company’s management (rating) is responding
to these specific factors in light of the perceived importance
(weight) of these factors to the company.
Synthesis of External Factors
Thanks!
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