Environmental scanning
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Environmental Scanning and Opportunity Analysis
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Transcript of Environmental scanning
Environmental Scanning and Opportunity Analysis
Environmental scanning
The monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the corporation to avoid strategic surprise and ensure the long-term health of the firm.
Environmental scanning
Environmental scanning is a concept from business management by which businesses gather information from the environment, to better achieve a sustainable competitive advantage.
To sustain competitive advantage the company must also respond to the information gathered from environmental scanning by altering its strategies and plans when the need arises.
External Environmental Variables:
Societal / community environmentSocietal / community environment:
General forces that do not directly touch on the short-run activities but often influence its long-run decisions.
External Environmental Variables
Task environmentTask environment:
Those elements or groups that directly affect the corporation and, in turn, are affected by it. The task environment is the industry within which that firm operates.
3–6
The External EnvironmentThe External Environment
External Environmental Variables
Industry analysisIndustry analysis:
An in-depth examination of key factors within a corporation’s task environment.
External Environmental Variables
Societal environment forcesSocietal environment forces:
Economic forces Regulate the exchange of materials,
money, energy, and information
Technological forces Generate problem-solving inventions
Political-legal forces Allocate power, provide laws and
regulations
Socio-cultural forces Regulate values,
mores\traditions, and customs
Societal environment forcesSocietal environment forces:
Societal EnvironmentImportant Variables
Economic
GDP trends
Interest rates
Money supply
Inflation rates
Unemployment levels
Wage/price controls
Devaluation/revaluation
Energy availability and cost
Disposable and discretionary income
Technological
Total government spending for R&D
Total industry spending for R&D
Focus of technological efforts
Patent protection
New products
New developments in technology transfer from lab to marketplace
Productivity improvements through automation
Political-Legal
Antitrust regulations
Environmental protection laws
Tax laws
Special incentives
Foreign trade regulations
Attitudes toward foreign companies
Laws on hiring and promotion
Stability of government
Sociocultural
Lifestyle changes
Career expectations
Consumer activism
Rate of family formation
Growth rate of population
Age distribution of population
Regional shifts in population
Life expectancies
Birth rates
Prentice Hall, 2000 Chapter 3 11
Scanning the External Environment
Analysis of Societal Environment
Economic, Sociocultural, Technological, Political-Legal Factors
Selection of Strategic Factors
• Opportunities • Threats
Market Analysis
Competitor Analysis
Supplier Analysis
Governmental Analysis
Interest Group Analysis
Community Analysis
Environmental Scanning & Monitoring Techniques
SWOT
Industry Analysis
Techniques
Competitor Analysis
PEST
Industry Analysis
IndustryA group of firms producing a similar product or service, such as soft drinks, health services or financial services.
Industry Analysis – Porter’s Model
Threat of New Entry
Rivalry Among Existing Competitors
Bargaining Powerof Customers
Threat of Substitutes
Bargaining Powerof Suppliers
• Economies of scale• Product differences• Brand identity• Switching costs
• Capital requirements• Access to distribution• Absolute cost advantages• Government policy
• Relative price, performance of substitutes• Switching costs• Buyer propensity to substitute
• Industry growth• Fixed costs / value
added• Over capacity• Product differences• Brand identity
• Switching costs• Concentration and
balance• Informational complexity• Diversity of competitors• Corporate stakes• Exit barriers
• Differentiation of inputs• Switching costs• Presence of substitute
inputs• Supplier
concentration• Importance of volume
to supplier• Cost relative to total
purchases• Impact of inputs on
cost or differentiation• Threat of forward
integration
• Buyer concentration• Buyer volume• Buyer switching costs• Buyer information• Ability to integrate
backward• Price / total purchases• Product differences• Brand identity• Impact of quality /
performance• Buyer profits
Porter’s Five Forces Analysis
Industry Analysis
Porter’s approach:Porter’s approach:
Assess the five forces -- Threat of new entrants Rivalry among existing firms Threat of substitute products Bargaining power of buyers Bargaining power of suppliers
Barriers to entry: Previous experience with retaliation to new entry. Economies of Scale Product Differentiation Capital Requirements Switching Costs to another suppler Access to Distribution Channels Cost Disadvantages Independent of Size:
established firms may have, proprietary product technology, favorable access to raw material, learning curve.
Government Policy
Threat of New Entrants Threat of New Entrants
The threat of new entry (competitors).
New entries expand industry’s productive capacity.
“Unless the market grows, new entries intensifies the fight for market share”.
The result is prices go down which, lowering industry profitability.
Rivalry Among Existing FirmsRivalry Among Existing Firms
Signs of strong rivalry
Rivalry is intense when:
The industry is growing slowly and/or has excess capacity
The industry has a high fixed-costs structure (economies of scale are necessary and market share an absolute must)
The products or services are undifferentiated
Rivalry Among Existing FirmsRivalry Among Existing Firms
More intense when:
There is a large number of competitors (note: fragmented and consolidated industries)
The barriers to exit the industry are high (e.g. assets that do not have other uses)
Threat of Substitute Products/ServicesThreat of Substitute Products/Services
Substitute Products:
Those products that appear to be different but can satisfy the same need as another product.
To the extent that switching costs are low, substitutes can have a strong effect on an industry.
Threat of Substitute Products/ServicesThreat of Substitute Products/Services
Substitutes are Powerful when: price of substitute product is competitive /
comparable performance of substitute product is
similar there are availability/delivery problems
among firms in the industry the substitute is more technologically
advanced
Bargaining Power of BuyersBargaining Power of Buyers
Buyer is powerful when: Buyer purchases large proportion of seller’s
products Buyer has the potential to integrate backward Alternative suppliers are plentiful Changing suppliers costs very little Purchased product represents a high
percentage of a buyer’s costs Buyer earns low profits Purchased product is unimportant to the final
quality or price of a buyer’s products
Bargaining Power of Suppliers Bargaining Power of Suppliers
Supplier is powerful when:
Supplier industry is dominated by a few companies but sells to many
Its product is unique and/or has high switching costs
Substitutes are not readily available
Suppliers are able to integrate forward and compete directly with present customer
The buyer purchases in small quantities
Level of attraction of competitive environment
The competitive environment is relatively unattractive when: Rivalry is strong Entry barriers are low and entry is likely Competition from substitutes is strong Suppliers and customers have
considerable bargaining power
Industry Analysis of Indian Telephone Industry.
Telecommunication in India. Indian Telecommunication industry, with
about 565.82 million phone connections (June 2010).
In 2008 it was about 325.2 millions.
The growth is expected to continue and the total projected subscribers in 2010 will cross 650 million.
The breakup of wireless subscriber base in India as of May 2010 is given below.]
OperatorSubscriber
base
Bharti Airtel 99,549,208
Vodafone Essar 74,080,707
BSNL 53,598,591
Idea Cellular 41,243,253
Aircel 20,685,711
MTNL 4,568,269
BPL 2,256,862
Spice Telecom 4,235,023
Reliance Communications
77,223,264
HFCL Infotel 382,602
Sistema Shyam 936,189
Tata Teleservices 36,486,763
Threat of entrants
High cost for setting up infrastructure.
Brand name of existing players.
Spectrum license cost.
Minimum requirement of number of towers demanded by the govt. of India.
Bargaining power of Buyers.
Price sensitive customers. High competition. Low switching costs (MNP Services).
Bargaining Power of the suppliers.
Large number of suppliers. Shared infrastructure. Low govt. influence on the
industry.
Rivalry among Competitors
High Fixed cost. Exit barriers. Price wars. Less time to get advantages of
innovation.
Availability of substitutes
A lot of substitutes are available;like postage, internet etc. But they are
not the perfect substitutes.
SWOT Analysis
SWOT Analysis
StrengthsWeaknessesOpportunitiesThreats
MissionAn organization’s fundamental purpose
Best Strategies
SWOT AnalysisTo formulate strategies that support the mission
Those that support the mission and• exploit opportunities and strengths• neutralize threats• avoid (or correct) weaknesses
Internal AnalysisStrengths(distinctivecompetencies)
Weaknesses Threats
External AnalysisOpportunities
SWOT analysis of strengths, weaknesses, opportunities,and threats.
SWOT Analysis
Internal Factors
External Factors
Internal Strengths (S) Internal Weaknesses (W)
External Opportunities (o)
External Threats (T)
SO Strategy : Maxi- Maxi Strategy
Utilizing strengths to take the advantage of opportunities
ST Strategy: Maxi- Mini Strategy
Use the existing strengths to avoid external threats.
WT Strategy: Mini- Mini Strategy
Strategy for minimizing threats as well as Weaknesses.
WO Strategy: Mini-Maxi Strategy
Develop strategies for overcoming weaknesses in order to take opportunities.
PEST analysis
Political factors Economic factors Socio-cultural factors Technological factors
Political/legal
Monopolies Environmental protection laws Taxation policy Employment laws Government policy Legislation
Economic Factors
Inflation Employment Disposable income Business cycles Energy availability and cost
Socio cultural factors
Demographics Distribution of income Social mobility Lifestyle changes Consumerism Levels of education
Technological
New discoveries and innovations
Speed of technology transfer
Rates of obsolescence
Internet
Information technology
Industry Analysis
Strategic GroupsStrategic Groups
Defined:
A set of business units or firms that pursue similar strategies with similar resources.
Strategic group analysis
“Aims to identify organizations with similar strategic characteristics, following similar strategies or competing on similar bases”.
Why strategic group analysis is important?
Identify most direct competitor. On what basis the competitors are
competing on. It raises the question of how possible
to move from one group to another.
Strategic TypesStrategic Types
It is used to analyze the level of competitive intensity within a particular industry.
Defined:Category of firms based on a common strategic orientation and a combination of structure, culture, and processes consistent with that strategy.
Categorized by one of four general strategic orientations
Defenders
Companies with a limited product line; focus on improving efficiency of current operations
Strategic TypesStrategic Types
Strategic TypesStrategic Types
Prospectors:
Companies with fairly broad product lines; focus on product innovation and market opportunities.
Analyzers:
Corporations that operate in at least two different product-market areas – one stable and one variable.
Reactors:
Corporations that lack a consistent strategy-structure-culture relationship.
The Adaptation Model of Business Strategy
