Environmental Scanning (Chapter2)

ENVIRONMENTAL SCANNING
CHAPTER 2
LEARNING OBJECTIVES
After you have studied this chapter, you should be able to:
 Enumerate and discuss the market structure.
 Discuss the five forces model of Michael Porter.
 Explain the five main P strategies.
 Define and discuss competitive intelligence.
 Know the meaning of SWOT analysis.
Environmental Scanning
 Is the process of conducting research through surveys, observation and other

methods, and gathering and analyzing information for the organization.
 The external environment has two parts: task and social environment.
 The task environment consists of those aspects of the organization that affect the
company itself. These factors are the stakeholders.
 The social environment includes the political, legal, economic, sociocultural, and
technological aspects.
 A
 A
Market Structure
 The role of the market structure is that managers would be able to predict market
outcomes through the extent of competition in the market.
 There are three important structural features of the market which should be
considered by any organization.
 Market Concentration
 Entry Barriers
 Product Differentiation
Market Concentration
 It is a degree by which a small number of companies dominate a particular

market.
 It explains a number of companies which are competing in the market.
 It predicts for new entries on how to enter the market.
 It also provides decisions on what to expect and whether it is possible to enter the
market at this time or in a particular period or season
Entry Barriers
 It refers to the difficulties and challenges by potential new entrants which are
entering the market.
 New companies should be ready to face the barriers that existing firms would
pose in the chosen industry.
 It is crucial to anticipate these challenges because existing players would not take
it sitting down and make any moves to avoid any company that would rival and
challenge their existence.
Product Differentiation
 It refers to the degree by which a company is able to distinguish its products or

service to other players in the market as valued by consumers.
 It is the uniqueness of the features in a particular brand or service.
 It is the ability to innovate and develop a certain position, totally distinct from
other brands.
SELLERS IN THE MARKET
ACCORDING TO BAIN and QUALLS
 Atomistic
 Oligopolistic
 Monopoly
Atomistic
 These are many small sellers with a low level of interactions to one another.
 There is an absence of economies of scale because firms are so numerous and they
cannot set their own price.
 Equal to perfect competition
 There is Low profit for suppliers
 Low prices for consumers.
Oligopolistic
 Few large sellers have a high level of interaction with one another
 They can set their own prices.
 Competition is somewhat fierce.
 Most industries in the Philippines aside from the oil industry are under
oligopolistic competition.
 A new player will have hard time entering a chosen industry.
Monopoly
 There is one seller who dominates the market.

 The company can dictate its own price
 Companies sell products that are differentiated from one another.
 No one producer has the monopoly over the price.
Two categories of product diffentiation
 Homogeneous product
 Differentiated products
Homogeneous Products
 The products are highly identical

 The products are not differentiated from one supplier to another.
 Example is the wet market.
Differentiated Products
 Products are differentiated by design, quality, branding, among others.

 They have certain features which differentiate them from one another.
 Their unique characteristics connote a certain price.
Market Entry
 Ease of Entry
 Moderately Difficult Entry
 Blockade Entry
Ease of Entry
 There are no difficulties entering the market

 New entrants will not have difficulty in entering the market.
 There are minimal barriers to entry and if there are, they are manageable.
Moderately Difficult Entry
 There are barriers but not too difficult for sellers to monopolize the market.
 It may be difficult to enter the market.
Blockade Entry
 There are barriers that are too high which potential players cannot enter.
 The present companies monopolize the price.
 It is very difficult to enter the market.
The Five Forces Model
 Power of Buyers
 Rivalry of Competitors
 Power of Suppliers
 Threat of Substitutes
 Threat of New Entrants
Power of Buyers
 Number of customers
 Size of each order
 Differences between competitors
 Price sensitivity
 Ability to substitute
 Cost of changing
Rivalry of Competitors
 Number of Competitors
 Quality differences
 Other Differences
 Switching Costs
 Customer Loyalty
 cost of leaving the market
Power of Suppliers
 Number of Suppliers
 Size of Suppliers
 Uniqueness of service
 Ability to substitute
 Cost of changing
Threat of Substitute
 Substitute Performance
 Cost of Change
Threat of New Entrants
 Time and Cost of Entry

 Specialist knowledge
 Economies of Scale
 Cost Advantages
 Technology protection
 Barriers to entry
Competitive Intelligence
 Is the act of gathering, analyzing, and distributing vast information, coined as

intelligence about anything that would help competing in the market.
 It is more concerned with doing the right thing than doing thing right.
 It identifies the company’s possible risks before the company makes an important
decision.
 It works on the performance of the following areas: assessment of strategy,
perception of competitor strategies, effectiveness of current operations,
capabilities of competitors, and long-term market prospects.
Competitive Intelligence operates in three
areas:
 Strategic Intelligence- being able to understand the competitors’ future prospects
and goals.
 Tactical Intelligence – a small-scale intelligence and operational in the short run.
 Counter Intelligence – knowing how to defend company secrets.
SWOT ANALYSIS
 Is a basic straightforward model in environmental scanning which helps the

company in identifying four key elements: Strengths, weaknesses, opportunities
and threats.
 Strength – the company evaluates its own strength in terms of its own capabilities.
 Weaknesses – the company evaluates its weaknesses to minimize and eventually
avoid loss of customers.
 Opportunities – the company must look at possible opportunities that may further
gain a strong foothold in the market.
 Threats – the company is keen in looking at possible threats and arresting them
before they become obvious.
 THE END

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ENVIRONMENTAL SCANNING

 Is the process of conducting research through surveys, observation and other

 It is a degree by which a small number of companies dominate a particular

 It refers to the degree by which a company is able to distinguish its products or

 There is one seller who dominates the market.

 The products are highly identical

 Products are differentiated by design, quality, branding, among others.

 There are no difficulties entering the market

 Time and Cost of Entry

 Is the act of gathering, analyzing, and distributing vast information, coined as

 Is a basic straightforward model in environmental scanning which helps the

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