Environmental Scanning and Industry Analysis Continuation
Environmental Scanning and Industry Analysis Continuation
Environmental Scanning and Industry Analysis Continuation
Environmental Scanning
Environmental Scanning
Monitoring and interpreting sweep of social, political, economic, ecological, and technological events to spot budding trends that could eventually impact industry
Definition
Environmental Scanning
Raise consciousness of managers about potential developments that could Have important impact on industry conditions Pose new opportunities and threats
Purpose
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Environmental Scanning:
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monitoring, evaluating, and disseminating of information from the external environment to key people within the organization to avoid strategic surprise and ensure the long-term health of the firm. to assess Macro (PESTE), Industry Specific (5 Forces) and Competitor (Group Map) issues of an external environmental scan is to identify Opportunities and Threats
} Need
} Objective
variables
analysis } Porter 5 forces analysis, macro view } Issues Matrix } Strategic Group Map
are continually acquiring info on external events & then interpreting trends } first define your target market, the product and industry } pick which major environ categories affects your business } secondly write facts. then explain the relevant business ripple impact in detail!!
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Environmental Uncertainty
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of complexity plus degree of change existing in an organizations external environment. both a THREAT and an OPPORTUNITY
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Reducing Uncertainty
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You need to assess this in order to develop strategies to respond to issues Many of these external factors are outside your control! The more you anticipate them, the less you need to react to them, the more you can plan for them You want to REDUCE UNANTICIPATED SURPRISES!
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Societal Environment
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General forces that do not directly touch on the short-run activities of the organization but can, and often do, influence its long run decisions.
} Political
Legal
power, provide laws and regulations
} Allocate
} Economic
} Regulate
} Sociocultural
} Regulate
} Technological
} Generate
problem-solving inventions
} Environment
} Regulate
environmental sustainability
Economic
GDP trends Interest rates Money supply Inflation rates Unemployment levels Wage/price controls Devaluation/ revaluation Energy availability and cost Disposable and discretionary income
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
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
Environmental
Trend on green companies Increasing environmental awareness Environmental sustainability programs Availability/ Sustainability of natural resources
Task Environment
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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. Need to focus on issues and challenges specific to your industry (Macro faces all) Conduct detailed industry analysis using
High Priority
High Priority
Medium Priority
M edium
High Priority
Medium Priority
Low Priority
Low Priority
Low Priority
2.
3.
Identify the number of likely trends (strategic environmental issues) emerging in the societal and task environments. Assess the probability of these trends actually occurring from low to high. Attempt to ascertain the likely impact (from low to high) of each of these trends on the corporation being examined.
Managers can use it to decide which environmental trends should be merely scanned (low priority) and which should be monitored as strategic factors (high priority). probability that will occur and likely impact if it does
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} Determine
Focus time and resources on high impact events likely to occur Do not waste time on low impact events unlikely to occur
A corporations external strategic factors are those key environmental trends that are judged to have both a medium to high probability of occurrence and a medium to high probability of impact on the corporation. Those environmental trends judged to be a corporations strategic factors are then categorized as opportunities and threats and are included in strategy formulation.
Industry Analysis:
Analyzing the Task Environment
Industry Analysis
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Industry
A group of firms producing a similar product or service, such as soft drinks or financial services. Need to assess: 1. Suppliers 2. Buyers 3. Substitutes 4. Potential Entrants 5. Other Stakeholders
Goal: to describe the level of rivalry (amount of and characteristics of direct competition) which exists within your industry which should govern strategy choices.
Industry Analysis
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assess
balance of industry power level of competition identify real competitors & potential entrants
gl
Industry Analysis
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entrants to an industry typically bring to it new capacity, a desire to gain market share and substantial resources.
continuation
an important tool for assessing the potential for profitability in an industry. With a little adaptation, it is also useful as a way of assessing the balance of power in more general situations
} Supplier
Power: The power of suppliers to drive up the prices of your inputs. } Buyer Power: The power of your customers to drive down your prices. } Competitive Rivalry: The strength of competition in the industry. } The Threat of Substitution: The extent to which different products and services can be used in place of your own. } The Threat of New Entry: The ease with which new competitors can enter the market if they see that you are making good profits (and then drive your prices down).
competition in an industry will be the higher, the easier it is for other companies to enter this industry. In such a situation, new entrants could change major determinants of the market environment (e.g. market shares, prices, customer loyalty) at any time. There is always a latent pressure for reaction and adjustment for existing players in this industry.
Barriers to Entry
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threat of new entries will depend on the extent to which there are barriers to entry. These are typically
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Economies of scale (minimum size requirements for profitable operations), High initial investments and fixed costs, Cost advantages of existing players due to experience curve effects of operation with fully depreciated assets, Brand loyalty of customers Protected intellectual property like patents, licenses etc, Scarcity of important resources, e.g. qualified expert staff Access to raw materials is controlled by existing players, Distribution channels are controlled by existing players, Existing players have close customer relations, e.g. from long-term service contracts, High switching costs for customers Legislation and government action
force describes the intensity of competition between existing players (companies) in an industry. High competitive pressure results in pressure on prices, margins, and hence, on profitability for every single company in the industry.
There are many players of about the same size, Players have similar strategies There is not much differentiation between players and their products, hence, there is much price competition Low market growth rates (growth of a particular company is possible only at the expense of a competitor), Barriers for exit are high (e.g. expensive and highly specialized equipment).
Threat of Substitutes
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Substitute Products are those products that appear to be different but can satisfy the same need as another product. A threat from substitutes exists if there are alternative products with lower prices of better performance parameters for the same purpose. They could potentially attract a significant proportion of market volume and hence reduce the potential sales volume for existing players. This category also relates to complementary products.
Similarly to the threat of new entrants, the threat of substitutes is determined by factors like Brand loyalty of customers, } Close customer relationships, } Switching costs for customers, } The relative price for performance of substitutes, } Current trends.
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the bargaining power of customers determines how much customers can impose pressure on margins and volumes.
They buy large volumes, there is a concentration of buyers, The supplying industry comprises a large number of small operators The supplying industry operates with high fixed costs, The product is undifferentiated and can be replaces by substitutes, Switching to an alternative product is relatively simple and is not related to high costs, Customers have low margins and are price-sensitive, Customers could produce the product themselves, The product is not of strategical importance for the customer, The customer knows about the production costs of the product There is the possibility for the customer integrating backwards.
The market is dominated by a few large suppliers rather than a fragmented source of supply, There are no substitutes for the particular input, The suppliers customers are fragmented, so their bargaining power is low, The switching costs from one supplier to another are high, There is the possibility of the supplier integrating forwards in order to obtain higher prices and margins. This threat is especially high when The buying industry has a higher profitability than the supplying industry, Forward integration provides economies of scale for the supplier, The buying industry hinders the supplying industry in their development (e.g. reluctance to accept new releases of products), The buying industry has low barriers to entry.
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such situations, the buying industry often faces a high pressure on margins from their suppliers. The relationship to powerful suppliers can potentially reduce strategic options for the organization.
A sixth force should be added to Porters list to include a variety of stakeholder groups from the task environment. Includes governments, local communities, creditors, trade associations, special interest groups, unions, shareholders, and complementors (a company or an industry whose porduct works well with another industrys or a firms product and without which the product would lose much of its value e.g. tire and autombile industry; microsoft and intel)
References
Management and Business Policy by Wheelen and Hunger } www.fox.temple.edu/iei/documents/envir onmentvariablesME.. } External Scanning by Fall, 2006 } http://wiki.answers.com/Q/What_is_issues _priority_matrix#ixzz1emwKX7Pl } http://www.themanager.org/Models/p5f. htm
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