Environmental analysis and strategic uncertainty

ENVIRONMENTAL ANALYSIS AND

STRATEGIC UNCERTAINTY

CHAPTER 6

Hernandez, BabylynChrejine Mandingiado

Mechille Matining

Dimension of environmental analysisTechnologyGovernmentEconomicsCultureDemographics

Dealing with strategic uncertainties Impact analysis—assessing the impact

of strategic uncertaintiesImpact of a Strategic UncertaintiesImmediacy of Strategic UncertaintiesManaging Strategic Uncertainties

Scenario analysisIdentify ScenarioRelate Scenarios to strategiesEstimate Scenario Probabilities

Out

line

DIMENSIONS OF ENVIRONMENTAL ANALYSIS

One dimension of environmental analysis is technological trends or technological events occurring outside the market of industry that have the potential to impact strategies.

Technologies


The addition and removal of legislative or regulatory constrains can pose major strategic threats and opportunities.

Government


The evaluation of some strategies will be affected by judgement made about the economy, particularly about inflation and general economic health as measured by unemployed and economic growth.

Economics


Cultural trends can present both threats and opportunities for a wide variety of firms

Culture


CocooningFantasy AdventureSmall Indulgencies

Down-agingBeing alive

99 lives

Culture


Demographic trends can be a powerful underlying force in a market and it can be predictable.

Demographics

Strategic uncertainty - uncertainty that has strategic implications, is a key construct in external analysis.

Scenario analysis basically accepts the uncertainty as given and uses it to drive a description of two or more future scenarios.

DEALING WITH THE STRATEGIC UNCERTAINTY

Information gathering and additional analysis will not be able to reduce the uncertainty.

Scenario analysis basically accepts the uncertainty as given and uses it to drive a description of two or more future scenarios.


Scenario Analysis

IdentifyScenarios

IdentifyScenarios

Relate Scenarios to Existing or

Proposed Strategies

Relate Scenarios to Existing or

Proposed Strategies

EstimateScenario

Probabilities

EstimateScenario

Probabilities


»An important objective of external analysis is to rank the strategic uncertainties and decide how they are to be managed over time.

»The problem is the dozens of strategic uncertainties and many second-level strategic uncertainties are often generated.

IMPACT ANALYSIS—ASSESSING THE IMPACT OF STRATEGIC UNCERTAINTIES

»These strategic uncertainties can lead to an endless process of information gathering and analysis that can absorb resources indefinitely.

»distinct priorities are established, external analysis can become descriptive, ill-focused and inefficient.


1. The impact of strategic uncertainty is related to:

The extent to which it involves trends or events

The importance of the involved businesses

The number of involved businesses

The extent to which a strategic uncertainty should be monitored and analyzed depends on its impact and

immediacy.


2. The immediacy of a strategic uncertainties is related to:

The probability that the involved trends or events will occur

The time frame of the trends or events

The reaction time


Each strategy uncertainty involves potential trends or events that could have an impact on present, proposed, and even potential businesses.

The impact of strategic uncertainty will depend on the importance of the impacted businesses to a firm.

IMPACT OF STRATEGIC UNCERTAINT


Some business is more important than others.

Such measures might need to be supplemented for proposed or growth businesses for which present sales, profits or costs may not reflect the true value to a firm.

IMPACT OF STRATEGIC UNCERTAINT


Events or trends associated with strategic uncertainties may have a high impact but such a low probability of occurrence that it is not worth actively expending resources to gather or analyze information.

The harnessing of tide energy may be unlikely or may occur so far in the future that it is of no concern to the utility.

IMMEDIACY OF STRATEGIC UNCERTAINTY


There is the reaction time available to a firm

After a trend or event crystallizes

If the available reaction time is inadequate, it becomes important to anticipate emerging trends and events better.

IMMEDIACY OF STRATEGIC UNCERTAINTY


Suggests a categorization of strategic uncertainties for a given business. If both the immediacy and impact are lowIf the impact is thought to be low but the immediacy is high.If the immediacy is low and the impact is high

MANAGING STRATEGIC UNCERTANTIES


And contingent strategies may be consider but not necessarily developed and implemented.When both the immediacy and potential impact underlying trends and events are highAn active task force may provide initiative.

MANAGING STRATEGIC UNCERTANTIES


ImmediacyImmediacy

Imp

act

Imp

act

Lo

wL

ow

Hig

hH

igh

LowLow HighHigh

It is a vehicle to explore different assumptions about the future, involves the creation of two to three plansible scenarios, the development of strategies appropriate to each, the assessment of scenario probabilities, and the evaluation of the resulting strategies across the scenarios.

SCENARIO ANALYSIS

ImmediacyImmediacy

Imp

act

Imp

act

Lo

wL

ow

Hig

hH

igh

LowLow HighHigh

Strategy- Developing Scenarios- is to provide insights into future competitive context then use these insights to evaluate existing business strategies and stimulated the creation of new ones.

Two Types Of Scenario Analysis

SCENARIO ANALYSIS

Decision-Driven Scenarios- is proposed and tested against several scenarios that are developed. The goal is to challenge the strategies, thereby helping to make the go/no-go decision and suggesting ways to make the strategy more robust in withstanding competitive forces.

SCENARIO ANALYSIS

IDENTIFY SCENARIOS

RELATE SCENARIOS TO EXISTING OR PROPOSED

STRATEGIES

ESTIMATE SCENARIO

PROBABILITIES

The impact analysis will identify the strategic uncertainty with the highest priority for a firm. A competitor scenario analysis can be driven by the uncertainty surrounding a competitor’s strategy. An inflation stimulated recession scenario would be expected to generate a host of conditions for the appliance industry, such as price increases and retail failures.

Identifying Scenarios

SCENARIO ANALYSIS

The next step is to relate them to strategy and to know what new options or strategies will be applicable to the scenarios. Even if the scenario analysis is not motivated by a desire to generate new strategy options, it is always useful to consider what strategies would be optimal for each scenario.

Relate Scenarios to Strategies

SCENARIO ANALYSIS

To evaluate alternatives strategies it is useful to determine the scenario probabilities. The task is actually one of environmental forecasting, except that the total scenario may be a rich combination of several variables.

Estimate Scenario Probabilities

SCENARIO ANALYSIS

Environmental analysis and strategic uncertainty

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