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STRATEGIC MANAGEMENT & BUSINESS POLICY10TH EDITION

THOMAS L. WHEELEN J. DAVID HUNGER

CHAPTER 4 Environmental Scanning and Industry Analysis

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Environmental Scanning

The lesson is simple:

To be successful over time, an organization needs to be in tune with its external environment.

-- There must be a strategic fit between what the environment wants and what the corporation has to offer,

as well as;

-- between what the corporation needs and what the environment can provide…

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Environmental Scanning

ENVIRONMENTAL UNCERTAINITY

The degree of complexity + the degree of change

Both ;– a threat and (it hampers their ability to develop long range plans and to make strategic decisions to keep the corporation in equilibrium with its external environment)

– an opportunity(it creates a new playing field in which creativity and innovation can play a major part in strategic decisions)

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Environmental Scanning

-- Societal environment

-- Task environment

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Task Environment

Level of Dynamism --

–In dynamic environments, successful CEOs pay more attention to the task environment.

–In stable environments, CEOs focus on forces in the societal environment

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Societal Environment

Societal environment --

–Economic forcesRegulate exchange of materials, money, energy and information …

–Technological forcesGenerate problem-solving inventions …

–Political-legal forcesAllocate power; provide laws and regulations …

–Sociocultural forces Regulate values, mores, and customs of society …

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Task Environment

Task environment --…is typically the industry within which the firm operates;

Elements or groups that directly affect a corporation and are affected by it

- Governments- Local Communities- Suppliers- Competitors- Customers- Creditors- Unions- Trade Associations

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Variables in Societal Environment

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Demographic Trends

Woofies – well-off old folksPeople over 50 with money to spend

–Companies with an eye on future can find more opportunities to offer products and services to the growing number of woofies.

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Demographic Trends

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Transformational Sociocultural Trends

8 Current Trends –

–Increasing environmental awareness–Growing health consciousness–Expanding seniors market–Impact of the Generation Y boomlet–Declining mass market

People want products and services that are adapted more to their personal needs. (mass customization)

–Changing pace and location of lifeTelecommuting

–Changing household compositionSingle-person households

–Increasing diversity of workforce & marketHispanics and blacks are increasing

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International Societal Environments

Are US trying to impose human rights requirements on Asian companies to make them less competitive by raising their costs ???

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Ethical Behavior

Biggest Marked: TRIAD

But can one miss other markets ??? …

Trigger PointThe key is to be able to identify the “trigger point” when demand for a particular product or service is ready to boom.

Scanning Systems

Web Fountain (IBM)

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Scanning the Task Environment

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Ethical Behavior

The origin of competitive advantage lay in the ability to identify and respond to environmental change well in advance of competition

Although this seems obvious, why are some companies better able to adapt than others ?

DIFFERENCES IN THE ABILITY OF MANAGERS TO RECOGNIZE AND UNDERSTAND EXTERNAL STRATEGIC ISSUES AND FACTORS

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External Strategic Factors

Strategic myopia --

–Willingness to reject unfamiliar as well as negative information

PERSONAL VALUES AND EXPERIENCES OF MANAGERS AS WELL AS THE SUCCESS OF CURRENT STRATEGIES ARE LIKELY TO BIAS BOTH

-THEIR PERCEPTION OF WHAT IS IMPORTANT TO MONITOR IN THE EXTERNAL ENVIRONMENT -AND THEIR INTERPRETATIONS OF WHAT THEY PERCIEVE (gnçkrl)

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Issues Priority Matrix

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Task Environment

Industry Analysis --

–In-depth examination of key factors within a corporation’s task environment

(popularized by Michael Porter)

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Analyzing the Task Environment

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Porter’s Approach to Industry Analysis

Threat of New Entrants –

–Economies of scale–Product differentiation–Capital requirements–Switching costs–Access to distribution channels–Cost disadvantages–Government policy

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Porter’s Approach to Industry Analysis

Rivalry Among Existing Firms –

–Number of competitors–Rate of industry growth–Product or service characteristics (unique or commodity)

–Amount of fixed costs–Capacity–Height of exit barriers–Diversity of rivals

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Porter’s Approach to Industry Analysis

•Threat of Substitute Products or Services

•Bargaining Power of Buyers

•Bargaining Power of Suppliers

•Relative Power of Other Stakeholders(such as complementors)

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Athletic Shoe Industry

Porter’s Approach to Industry Analysis

Rivalry HighNike, Reebok, New Balance, Adidas are strong competitors worldwide

Threat of potential entrants Low

Industry has reached maturity, growth rate slowed

Threat of substitutes LowOther shoes don't provide support for sports activities

Bargaining power of supplies Medium (rising) Suppliers in Asia are getting stronger

Bargaining power of buyers Medium (rising)

Prices are falling, sales and discounts are preferred

Threat of other stakeholders Medium to high

Government regulations and human rights concerns are rising

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IEU

Porter’s Approach to Industry Analysis

Rivalry

Threat of potential entrants

Threat of substitutes

Bargaining power of supplies

Bargaining power of buyers

Threat of other stakeholders

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Industry Evolution

Fragmented Industry –

–No dominant industry

Consolidated Industry –

–Dominated by a few large firms

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International Risk Assessment

Continuum of International Industries

Determining factors:–Pressure for coordination–Pressure for local responsiveness

THINK GLOBALLY – ACT LOCALLY

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Strategic Groups

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Strategic Types

•Defenders (Inactive)

•Prospectors (Interactive)

•Analyzers (Proactive)

•Reactors (Reactive)

General Types –Miles and Snow argued that companies develop their adaptive strategies based on their perception of their environments. Hence, as seen above, the different organization types view their environments in different ways, causing them to adopt different strategies.

What Miles and Snow argue determines the success of a company ultimately; is not a particular strategic orientation, but simply establishing and maintaining a systematic strategy that takes into account a company's environment, technology, and structure.

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Competitive Intelligence

Competitive Intelligence Called business intelligence

Gathering information on a company’s competitors

According to a recent survey ;Business intelligence software topped the list of corporate software spending plans in 2003

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Forecasting

Forecasting Techniques --

–Extrapolation–Brainstorming–Expert opinion–Delphi technique–Statistical modeling–Scenario writing

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Synthesis of External Factors -- EFAS