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Environmental Scanning &Industrial analysis
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Environmental scanning is a concept from businessmanagement by which businesses gather information from theenvironment, to better achieve a sustainable competitiveadvantage.
To sustain competitive advantage the company must alsorespond to the information gathered from environmentalscanning by altering its strategies and plans when the needarises.
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Environmental Scanning & Monitoring-
Techniques
SWOT
Industry Analysis
Techniques
Competitor Analysis
PEST QUEST
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SWOT(Strength-Weakness-Opportunity-Threat)
Identification of threats and Opportunities inthe environment (External) and strengths and
Weaknesses of the firm (Internal) is thecornerstone of business policy formulation; itis these factors which determine the course of
action to ensure the survival and growth of thefirm.
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SWOT Analysis
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The SWOT analysis is an extremely useful tool for understanding and decision-making for all sorts of situationsin business and organizations. SWOT is an acronym forStrengths, Weaknesses, Opportunities, Threats.
SWOT analysis came from the research conducted atStanford Research Institute from 1960-1970. The backgroundto SWOT stemmed from the need to find out why corporate
planning failed. The research was funded by the fortune 500companies 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.
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Examples of SWOTs
Strengths and Weaknesses
y Resources: financial, intellectual, location
y Cost advantages from proprietary know-how
y Creativity / ability to develop new products
y Valuable intangible assets: intellectual capital
y Competitive capabilities
y Big campus selection
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Opportunities and Threats
y Takeoversy Market Trends
y Economic condition
y Mergers
y Joint ventures
y Strategic alliances
y Expectations of stakeholders
y Technology
y Public expectations
y Competitors and competitive actionsy Poor Public Relations Development
y Criticism (Editorial)
y Global Markets
y Environmental conditions
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Also;
Use SWOT analysis for business
planning, strategic planning,
competitor evaluation, marketing,business and product development
and research reports.
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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
corporations task environment is a part of
industry analysis
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Porters 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
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Forces Driving Industry Competition
Threatof NewEntrants
BargainingPower
of Suppliers
BargainingPower
of Buyers
RelativePower
of Unions,Governments,
etc.
PotentialEntrants
Threat ofSubstituteProductsor Services
IndustryCompetitors
Rivalry AmongExisting Firms
OtherStakeholders
Buyers
Substitutes
Suppliers
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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
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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 firms strategic
decisions
Some firms may possess resources or skills
which allow them to overcome entry barriersinto an industry more cheaply than most
other firms
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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 ofdifferentiation or switching costs
Amount ofFixed Costs : high fixed or storage
costs
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Rivalry Among Existing Firms
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, fixedcosts of exit, strategic interrelationships,emotional barriers, government and socialrestrictions)
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Entry Barriers and Exit Barriers
When entry barriers are high and exit barriersare low, entry will be deterred, andunsuccessful competitors will leave the
industry When both entry and exit barriers are high,
profit potential is high, but is usuallyaccompanied 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, poorprofitability)
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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 summarizedas the industrys overall elasticity of demand
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Bargaining Power of Buyers
Buyers compete by forcing down prices,
bargaining for higher quality or more
services, and playing competitors against
each other
A buyers 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 buyers
cost of purchase (shop for good price)
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3. The products it purchases from the industry arestandard or undifferentiated
4. It faces few switching costs
5. It earns low profits (thus sensitive to costs)
6. Buyers pose a credible threat of backwardintegration
7. The industrys product is unimportant to thequality of the buyers products or services
8. The buyer has full information
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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 companies
2. It is not obliged to contend with other substitute
products for sale to the industry
3. The industry is not an important customer
4. The suppliers product is an important input to the
buyers business
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5. The suppliers 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
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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