Enviromental Scanning and Industry Analysis

8/3/2019 Enviromental Scanning and Industry Analysis

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Environmental Scanning andEnvironmental Scanning and

Industry AnalysisIndustry Analysis

Prof. Rushen ChahalProf. Rushen Chahal


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is the monitoring, evaluating and

disseminating of information from the

external and internal environments to

key people within corporation.

Environmental Scanning


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The Components of a CompanysThe Components of a Companys

MacroMacro--EnvironmentEnvironment

MACROENVIRONMENT

The Economy

at Large

COMPANY

Suppliers Substitutes

Buyer

s

New

Entrants

Rival

Firms

IMMEDIATE INDUSTRY

AND COMPETITIVE

ENVIRONMENT


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Competitors

Suppliers

Distributors

CreditorsCustomers

Employees

Communities

Managers

Stockholders

Labor UnionsSpecial Interest Groups

Products

Services

Key

External

Forces

Opportunities

&

Threats

Key External Forces & the

Organization


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PEST analysis

What environmental

factors are effecting

organization?

Which of these are

the most important at

the present time?

Whish of these canbecome important in

the next few years?


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Political /

Legal

Economic Social Technological

Environmental

regulation andprotection

Economic growth

(overall; byindustry)

Income distribution

(change indistribution of

disposable income)

Government

spending onresearch

Taxation

(corporate,

consumer)

Monetary policy

(interest rates)

Demographics (age

structure of the

population; gender;

family size andcomposition;

changing nature of

occupations)

Government and

industry focus on

technological

effort

International

trade regulation

Government

spending (overall

level; specificspending priorities)

Labor / social mobility New discoveries

and development

Consumer

protection

Policy towards

unemployment

(minimum wage,

unemployment

benefits, grants)

Lifestyle changes

(e.g. Home working,

single households)

Speed of

technology

transfer


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PEST analysis: some principles andconclusions:

y Things that make activity more difficult for people ororganizations raise the cost of doing business.

y The higher the cost of doing business in a region, the

more project profitability is squeezed or eliminated.

y And the lower the amount of economic activity, the

poorer and less capable societies tend to be.

y Wherever there is rapid or major change in an area,

there are likely to be new opportunities and threats

that arise.

y Few situations are perfect: it is up to us to make

the most of the situation in which we find

ourselves.


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The Issues Priority Matrix

Probable Impact on Corporation

High Medium Low

High

priority

High

priority

Medium

priority

High

priority

Medium

priority

Low

priority

Medium

priority

Low

priority

Low

priority

Probability

ofOccurren

ce

High

Medium

Low


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The FiveThe Five--Forces Model of Competition (PortersForces Model of Competition (Porters

approach)approach)

Potential developmentof substitute products

Rivalry amongcompeting firms

Bargaining powerof suppliers

Potential entry of newcompetitors

Bargaining powerof consumers


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The stronger that each of these fiveforces is, the more limited is the

ability of established companies toraise prices and earn greater profitswithin their industry.

Strength of forces may change

How the Five-Forces shape

Competition within an Industry


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Threats of new competitors entering the market.The

threat of entry depends on the presence of entry

barriers and the reaction that can be expected from

existing competitors.

The possible barriers to entry:

y economies of scale

y

product differentiationy capital requirements

y switching costs

y access to distribution channels

y cost disadvantages independent of size

y governmental policy

Potential entry of new

competitors


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Intensity of rivalry among firms in the industry.

Corporations are mutually dependent.

Intense rivalry is related to the presence of several

factors:

y number of competitors

y rate of industry growth

y product or service characteristics

y

amount of fixed costsy capacity

y height of exit barriers

y diversity of rivals

Rivalry among competing firms


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Substitute products or services are those

products/services that appear to be different

but can satisfy the same need as anotherproduct/service.

Substitutes limit the potential returns ofan industry by placing a ceiling on the

prices firms in the industry can profitably

charge. (M. Porter)

Potential development of

substitute products


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Is Pepsi Cola a substitute for aCoca-Cola?


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A buyer or a group of buyers is powerful if:

y a buyer purchases a large proportion of the sellersproduct or service (oil filters purchased by a majorauto maker)

y

alternative suppliers are plentiful because theproduct is standard or undifferentiated (gasstations)

y changing suppliers costs very little

y a buyer earns low profits and thus sensitive to costs

and service differences (grocery stores)y the purchased product is unimportant to the final

quality or price of buyer products or services(electric wire bought for use in lamp).

Bargaining power of consumers


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Suppliers can affect an industry through their ability

to raise prices or reduce the quality of purchased

goods and services:

the supplier industry is dominated by a few companies,

but it sells to many (petroleum industry)

its product or service is unique and/or has built up

switching costs (Word software)

substitutes are not readily available (electricity)

suppliers are able to integrate forward and compete

directly with the present customers (Intel can make PCs)

a purchasing industry buys only a small portion of the

supplier groups goods and services and its unimportant

for supplier

Bargaining power of suppliers


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The Five-Forces Model ofCompetition

y An unattractive industry is one in which intenserivalry already exists among competitors, there are

substantial threats in terms of new competitors

and substitute products, and suppliers and buyers

are very powerful in bargaining over prices and

quality.

y An attractive industry is one with less intense

competition, few threats from new entrants or

substitutes, and low bargaining power amongsuppliers and buyers.


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Things to Consider inThings to Consider in

Assessing Industry AttractivenessAssessing Industry Attractiveness

y Industrys market size and growth potential

y Whether competitive conditions are conducive torising/falling industry profitability

y Will competitive forces become stronger or weakery Whether industry will be favorably or unfavorably

impacted by driving forces

y Potential for entry/exit of major firms

y Stability/dependability of demandy Severity of problems facing industry

y Degree of risk and uncertainty in industrys future


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Strategic Group MappingStrategic Group Mapping

y Firms in same strategic group have two ormore competitive characteristics in common

Sell in same price/quality range

Cover same geographic areas

Be vertically integrated to same degree

Have comparable product line breadth

Emphasize same types of distribution channels

Offer buyers similar services

Use identical technological approaches


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Identifying IndustryIdentifying Industry

Key Success FactorsKey Success Factors

y Answers to three questions pinpoint KSFs On what basis do customers choose between

competing brands of sellers?

What resources and competitive capabilities does

a seller need to have to be competitivelysuccessful?

What does it take for sellers to achieve asustainable competitive advantage?

y KSFs consist of the 3 - 5 really majordeterminants of financial andcompetitive success in an industry


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Common Types ofCommon Types of

Key Success FactorsKey Success Factors

Distribution-related

Marketing-related

Skills-related

Organizational

capability

Other types

Technology-related

Manufacturing-related

Scientific research expertise; Product innovation capability;Expertise in a given technology; Capability to use Internet toconduct various business activities

Low-cost production efficiency; Quality of manufacture; High useof fixed assets; Low-cost plant locations; High labor productivity;Low-cost product design; Flexibility to make a range of products

Strong network of wholesale distributors/dealers; Gaining ample

space on retailer shelves; Having company-owned retail outlets;Low distribution costs; Fast delivery

Fast, accurate technical assistance; Courteous customer service;Accurate filling of orders; Breadth of product line; Merchandisingskills; Attractive styling; Customer guarantees; Clever advertising

Superior workforce talent; Quality control know-how; Designexpertise; Expertise in a particular technology;Ability to develop

innovative products; Ability to get new products to market quicklySuperior information systems; Ability to respond quickly to shiftingmarket conditions; Superior ability to employ Internet to conductbusiness;More experience & managerial know-how

Favorable image/reputation with buyers; Overall low-cost;Convenient locations; Pleasant, courteous employees; Access tofinancial capital; Patent protection


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Strategic Management PrincipleStrategic Management Principle

A sound strategy incorporates efforts

to be competent on all industry key

success factors and to excel on an leastone factor!


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Forecasting

Environmental scanning provides reasonably

hard data on the present situation and current

trends , but intuition and luck are needed to

predict accurately if these trends willcontinue.

Faulty underlying assumptions are the mostfrequent cause of forecasting errors.


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Forecasting

Various techniques are used to forecast future:

y Extrapolation is extension of present trends into the future.y Brainstorming is no quantitative approach requiring simply the

presence of people with some knowledge if the situation to be

predicted.

y Expert opinion is no quantitative technique in which experts in a

particular area attempt to forecast likely developments.y Delphi technique in which separated experts independently

assess the likehoods of special events.These assessments are

combines and send back to each expert for fine tuning until an

agreement is reached.

y

Statistical modeling is a quantitative technique that attempts todiscover casual or ay least explanatory factors that link two or

more time series together.

y Scenario writing is focused descriptions of different likely future

presented in a narrative fashion (Royal Dutch Shell).

y

Industry scenario is a forecasted description of particularindustr s likel future.


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Industry Analysis: The External Factor

Analysis Summary (EFAS) Matrix

CompetitivePoliticalCultural

TechnologicalEnvironmentalSocial

GovernmentalDemographicEconomic

Summarize & Evaluate


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EFAS Maytag (1995)

Key External Factors Weight RatingWtd

Score

Opportunities

1. Economic integration ofEuropean

Community0.20 4.1 0.82

2. Demographic favor quality

appliances0.10 5.0 0.50

3. Economic development of Asia 0.05 1.0 0.05

4. Opening ofEastern Europe 0.10 2.0 0.10

5. Trend to Super Stores 0.1 1.8 0.18


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EFAS Maytag (1995) (contd)

Key External Factors Weight RatingWtd

Score

Threats

1. Increasing government regulations 0.10 4.3 0.43

2. Strong U.S. competition 0.10 4.0 0.40

3. Whirlpool and Electrolux strong

globally0.15 3.0 0.45

4. New product advances 0.05 1.2 0.06

5. Japanese appliance companies 0.10 1.6 0.16

Total Scores 1.0 3.15


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Total weighted score of 5.0x Organization response is outstanding to threats and

weaknesses

Total weighted score of 1.0x Firms strategies not capitalizing on opportunities or

avoiding threats

Industry Analysis EFAS

TheMaytags total weight is 3.15 means that the

corporation was slightly above average in the

major home appliance industry in 1995.


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Wayne Gretzky:

The key to winning is skating not where the puck is but towhere it is going to be.

People talk about skating, puck handling and shooting, butthe whole sport is angels and caroms, forgetting the straightdirection the puck is going, calculating where it will bediverted, factoring in all the interruptions.

Conclusion

The key to winning is not to assume that your industrywill continue as it is now but to assume that theindustry will change and to make sure that yourcompany will be in position to take advantage of thatchange.

Enviromental Scanning and Industry Analysis

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