environmental scanning & monitoring techniques

Environmental Scanning & MonitoringTechniques

ENVIRONMENTAL SCANNING & MONITORING

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.

Environmental Scanning & Monitoring- Techniques

SWOT

Industry Analysis

Techniques

Competitor Analysis

PEST QUEST

SWOT(Strength-Weakness-Opportunity-Threat)

Identification of threats and Opportunities in the environment (External) and strengths and Weaknesses of the firm (Internal) is the cornerstone of business policy formulation; it is these factors which determine the course of action to ensure the survival and growth of the firm.

SWOT Analysis

The SWOT analysis is an extremely useful tool for understanding and decision-making for all sorts of situations in business and organizations. SWOT is an acronym for Strengths, Weaknesses, Opportunities, Threats.

SWOT analysis came from the research conducted at Stanford Research Institute from 1960-1970. The background to SWOT stemmed from the need to find out why corporate planning failed. The research was funded by the fortune 500 companies to find out what could be done about this failure. The Research Team were Marion Dosher, Dr Otis Benepe, Albert Humphrey, Robert Stewart, Birger Lie.

SWOT: Studying Internal & External Environment

The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective. SWOT analysis groups key pieces of information into two main categories:

Internal factors – The strengths and weaknesses internal to the organization.

External factors – The opportunities and threats presented by the external environment.

Examples of SWOTs Strengths and Weaknesses

Resources: financial, intellectual, location Cost advantages from proprietary know-how Creativity / ability to develop new products Valuable intangible assets: intellectual capital Competitive capabilities Big campus selection

Opportunities and ThreatsTakeovers Market Trends Economic condition Mergers Joint ventures Strategic alliances Expectations of stakeholders Technology Public expectations Competitors and competitive actions Poor Public Relations Development Criticism (Editorial) Global Markets Environmental conditions

Uses of SWOT Analysis

Corporate planning

Set objectives – defining what the organisation is intending to do

Environmental scanning Internal appraisals of the organisations SWOT, this needs to include an

assessment of the present situation as well as a portfolio of products/services and an analysis of the product/service life cycle

Analysis of existing strategies, this should determine relevance from the results of an internal/external appraisal. This may include gap analysis (compare its actual performance with its potential performance which will look at environmental factors)

Strategic Issues defined – key factors in the development of a corporate plan which needs to be addressed by the organisation

Develop new/revised strategies – revised analysis of strategic issues may mean the objectives need to change

Establish critical success factors – the achievement of objectives and strategy implementation

Preparation of operational, resource, projects plans for strategy implementation

Monitoring results – mapping against plans, taking corrective action which may mean amending objectives/strategies.

Also;

Use SWOT analysis for business planning, strategic planning, competitor evaluation, marketing, business and product development and research reports.

PEST Analysis

A scan of the external macro-environment in which the firm operates can be expressed in terms of the following factors:

•Political•Economic•Social•Technological

The acronym PEST (or sometimes rearranged as "STEP") is used to describe a framework for the analysis of these macroenvironmental factors. A PEST analysis fits into an overall environmental scan as shown in the following diagram:

Environmental Scan

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External Analysis Internal Analysis

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Macroenvironment

Microenvironment

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P.E.S.T.

Political Factors

Political factors include government regulations and legal issues and define both formal and informal rules under which the firm must operate. Some examples include:•tax policy•employment laws•environmental regulations•trade restrictions and tariffs•political stability

Economic Factors

Economic factors affect the purchasing power of potential customers and the firm's cost of capital. The following are examples of factors in the macroeconomy:

•economic growth•interest rates•exchange rates•inflation rate

Social Factors

Social factors include the demographic and cultural aspects of the external macroenvironment. These factors affect customer needs and the size of potential markets. Some social factors include:•health consciousness•population growth rate•age distribution•career attitudes•emphasis on safety

Technological Factors

Technological factors can lower barriers to entry, reduce minimum efficient production levels, and influence outsourcing decisions. Some technological factors include:•R&D activity•automation•technology incentives•rate of technological change

Industry Analysis

An industry is a group of firms producing a similar product or service

An examination of the important stakeholders’ group in a particular corporation’s task environment is a part of industry analysis

Porter’s approach to Industry Analysis

A corporation is most concerned with the intensity of competition within its industry

The level of this intensity is determined by basic competitive forces

In scanning its industry, the corporation must assess the importance to its success of each of the six forces

Forces Driving Industry Competition

Threat of New Entrants

Bargaining Power

of Suppliers

Bargaining Power

of Buyers

Relative Power

of Unions, Governments,

etc.

Potential Entrants

Threat of Substitute Products or Services

Industry Competitors

Rivalry Among Existing Firms

Other Stakeholders

Buyers

Substitutes

Suppliers

Threat of New Entrants:Some Barriers to Entry Economies of Scale Product Differentiation Capital Requirements Switching Costs Access to Distribution Channels Cost Disadvantages Independent of Size Government Policy Expected Retaliation

Properties of Entry Barriers

Entry barriers can and do change as the conditions change

Entry barriers can change for reasons inside the firm : impact of the firm’s strategic decisions

Some firms may possess resources or skills which allow them to overcome entry barriers into an industry more cheaply than most other firms

Rivalry Among Existing Firms

Intense Rivalry is Related To: Number of Competitors: numerous or equally

balanced competitors Rate of Industry Growth: slow industry growth Product or Service Characteristics: Lack of

differentiation or switching costs Amount of Fixed Costs : high fixed or storage

costs

High fixed or storage costs Lack of differentiation or switching costs Capacity augmented in large increments (leading

to overcapacity and price cuttings) Diverse competitors High strategic stakes High exit barriers (specialized assets, fixed costs

of exit, strategic interrelationships, emotional barriers, government and social restrictions)

Shifting Rivalry The factors that determine the intensity of

competitive rivalry can and do change As an industry matures, its growth rate declines,

resulting in intensified rivalry, declining profits An acquisition can introduce a different

personality to an industry Focusing selling efforts on the fastest growing

segments can reduce the impact of industry rivalry

Entry Barriers and Exit Barriers When entry barriers are high and exit barriers are

low, entry will be deterred, and unsuccessful competitors will leave the industry

When both entry and exit barriers are high, profit potential is high, but is usually accompanied by more risks, and unsuccessful firms will fight to stay

The worst case is when entry barriers are low and exit barriers are high (overcapacity, poor profitability)

Pressure from Substitute Products

Substitutes limit the potential return of an industry by placing a ceiling on the prices firms in the industry can profitably charge

Identifying substitute is searching for other products that can perform the same function as the product of the industry

The impact of substitutes can be summarized as the industry’s overall elasticity of demand

Bargaining Power of Buyers

Buyers compete by forcing down prices, bargaining for higher quality or more services, and playing competitors against each other

A buyer’s group is powerful if:1. It purchases large volumes relative to seller sales2. The products it purchases from the industry

represent a significant fraction of the buyer’s cost of purchase (shop for good price)

3. The products it purchases from the industry are standard or undifferentiated

4. It faces few switching costs5. It earns low profits (thus sensitive to costs)6. Buyers pose a credible threat of backward integration7. The industry’s product is unimportant to the quality of

the buyer’s products or services8. The buyer has full information

Bargaining Power of Suppliers

Suppliers can exert bargaining power over participants in an industry by threatening to raise prices or reduce the quality of purchased goods and services

A supplier group is powerful if:1. It is dominated by a few companies2. It is not obliged to contend with other substitute

products for sale to the industry3. The industry is not an important customer4. The supplier’s product is an important input to the

buyer’s business

5. The supplier’s group products are differentiated or it has built up switching costs

6. The supplier group poses a credible threat of forward integration

7. Labor must be considered as a supplier that exerts great power in many industries

Government as a force in industry competition Government role as supplier and buyer can be

influenced by political factors Government regulations can set limits on the

behavior of firms as suppliers or buyers Government can affect the position of an industry

with substitutes through regulations, subsidies, or other means

Government can affect rivalry among competitors by influencing industry growth

10 questions to monitor competitors for strategic planning1. Why do your competitors exist? to make profits or to

support another unit?2. Where do they add customer value? Higher quality,

lower price, credit terms, better service?3. Which of your customers are the competition most

interested in? best customers or the ones you don’t want?

4. What is their cost base and liquidity?5. Are they less exposed with their suppliers than your

firm?

6. What do they intend to do in the future? Target your market segments? Growing?

7. How will their activities affect your strategies? Should you adjust your plans and operations?

8. How much better than your competitor do you need to be in order to win customers?

9. Will new competitors appear over the next few years?

10. If you were a customer, would you choose your product over those offered by your competitors?