Understanding and Analyzing the General Environment

HCAD 5390

Major Components of an Organization’s External Environment

Industry (or industries) and competitors Market (or markets) and customers General environmental forces

Strategic Benefits of External Environmental Assessment

Align the organization with its environment Strategies more responsive to the environment Information that informs strategic decisions Early warning of environmental changes Identify useful resources in the environment Plot to effect change in the environment

External Environmental Assessment Process

Identify most influential environmental forces Identify critical industry and market issues Select forces and issues for close monitoring Identify information sources on the forces Conduct initial baseline assessment Project trends and pace of change Estimate impact of trends on the organization What strategic decisions in response to trends What decision makers receive environmental reports

External Environmental Analysis

A continuous process which includes

Scanning: Identifying early signals of environmental changes and trends

Monitoring: Detecting meaning through ongoing observations of environmental changes and trends

Forecasting: Developing projections of anticipated outcomes based on monitored changes and trends

Assessing: Determining the timing and importance of environmental changes and trends for firms’ strategies and their management

Categories of Environmental Factors

Political/Governmental Legal Profession/Industry Economic (global, national, regional) Sociocultural Demographics Technology

Environmental Factors:Political/Governmental

Specific election results Specific politicians voted in or out of office Political ideological mood of country or region Opportunities for lobbying Political/business leaders positions on industry-related issues Government spending focus and levels Government policies on industry-related issues Governmental regulatory vigor Government role in meeting societal needs Media reports

Environmental Factors: Legal

Existing laws (long established, how are they interpreted and enforced)

New laws (recently enacted, how will they be interpreted and enforced)

Proposed legislation (working their way through the legislature, likely impact on industry and organization)

Environmental Factors: Profession/Industry

Professional associations American Medical Association American Nursing Association American Academy of Procedural Coders

Industry trade associations American Hospital Association Medical Group Management Association Pharmaceutical Research and Manufacturers of America

Environmental Factors: Economic

At global, national and regional levels Interest rates Stock market prices Venture capital deals (IPOs, M&As) Government budget deficit or surplus Inflation rates Consumer income, disposable income, and debt Employment and unemployment levels Tax rates Economic cycle stage (boom vs recession) Global economic metrics Specific effects of economic trends

Environmental Factors: Sociocultural

Characteristics – traditions, lifestyles, values, ideals, aspirations, principles, ethics, attitudes, beliefs, biases, opinions, tastes, political views, and behavioral patterns

People – current customers, prospective customers, influencers of customers, ends users, employees, suppliers, shareholders, bondholders, lenders, government regulators, politicians, media, general public

Environmental Factors: Demographics

Gender Age Income levels Ethnicity Race Geographic place of

residence

Family size and composition

Education Employment status Birth rates Life expectancies

Environmental Factors: Technology

New capabilities, equipment, and systems in: Clinical treatment and procedures (drugs,

medical devices, diagnostic tests, surgical procedures, treatment regimens)

Researching and developing clinical technologies Gathering, recording, and communicating clinical

data (EMR, EHR, CPOE systems) Gathering and disseminating nonclinical data

(cost, quality, satisfaction, patient logistics)

Stages of the Industry Life Cycle

Time

De

ma

nd

Embryonic

Competitive Changes During Industry Evolution

Stages of the Industry Life Cycle

Competitive Changes During Industry Evolution (Continued)

Time

Embryonic

Growth

De

ma

nd

Stages of the Industry Life Cycle

Competitive Changes During Industry Evolution (Continued)

Time

Embryonic

Growth Shakeout

De

ma

nd

Growth in Demand and Capacity

Competitive Changes During Industry Evolution (Continued)

Un

its

Timet1t2

CapacityCapacity

DemandDemand

ExcessCapacity

Stages of the Industry Life Cycle

Time

Embryonic

Growth Shakeout Maturity

Competitive Changes During Industry Evolution (Continued)

De

ma

nd

Stages of the Industry Life Cycle

Competitive Changes During Industry Evolution (Continued)

Time

Embryonic

Growth Shakeout Maturity Decline

De

ma

nd

Strategies in Fragmented Industries

Fragmented industry characteristics:– Localized markets with low entry

barriers (e.g., Mom’s Diner).– Few economies of scale

opportunities exist.– High transportation costs

(e.g., sand) for products.– Focus strategies predominate

(e.g., customer group, region).

Strategies in Fragmented Industries

Competing in fragmented industries requires strategic consolidation by:– Chaining (Wal-Mart)– Franchising (Pearl Vision)– Horizontal mergers– Using the Internet (Lens.com)

Information Sources for External Environmental Assessment

Newspaper clipping services General-purpose and narrow-focus websites Charitable research foundations (Robert Wood Johnson

Foundation, Kaiser Foundation) Think tanks (RAND Corporation) Consulting firms (Deloitte Consulting) Government agencies (CMS) Legal research databases (Lexis-Nexis, Westlaw) Journals, magazines, periodicals Trade and professional associations Published survey results

Analyzing the External Environmental Data Gathered

Sorting and classification Trend identification and extrapolation Statistical modeling Brainstorming Alternative future scenario projections Delphi process dialogues Role playing War gaming