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Transcript of General environment
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Module:II
General Environment
By: D.Goutam
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Environmental Scanning:
Environmental Scanning is monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the corporation uses this tool to avoid strategic surprises and ensure its long-term health.
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Identifying External Environmental Variable:
In understanding environmental scanning, strategic managers must first be aware of the many variables within in a corporation's social and task environments. The social environment includes general forces that do not directly touch on the short-run activities of the organization but that can, often do, influence its long-run decisions
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Socio Environment:
Economic Factors: EF That regulate the exchange of materials, money, energy, and information
Social Factors: SF that regulate the values, morels, and customs of society
Political Factors: PF that allocate power & provide constraining & protecting laws and regulations
Technological Factors: TF that generate problem –solving inventions
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Sources of information include:
◦Internet◦Libraries (corporate, university, public)◦Suppliers◦Distributors◦Customers◦Competition
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Economic Variables:
GDP Trends Inflation rates Interest Rates Money Supply Unemployment Levels Wage/ price control Devaluation/Revaluation Energy Availability and cost Disposable Income Discretionary Income
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Major impact on:
◦Products◦Services◦Markets◦customers
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Social Factors
Present in the external environment:◦ Beliefs & Values, Attitudes & Opinions, Lifestyles changes◦ Career expectations, Consumer Activision, Rte of family
formation, Growth rate of population, Age distribution of population, Regional Shifts in population
◦ Life expectation Birth rates
Developed from:◦ Cultural conditioning◦ Demographic ◦ Religion◦ Education◦ Ethnic conditioning.
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Political Variables
Political constraints on firms:
• Antitrust regulations• Environmental protection laws• Tax Laws• Special Incentives • Foreign Trade Regulation• Attitude towards foreign companies• Laws on hiring and promotion • Stability of Goveronment
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Technological Variables:
Changes in the technological part of the social environment can also have a great impact on multiple industries.
Ex: Improvements in computer microprocessor have not only led to the widespread use of home computers, but also to better automobile engine performance in terms of power & fuel economy through the use of microprocessor
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Variables : Total Govt. spending for R&D Total Industry spending for R&D Focus of technological efforts Patent protection New Products Productivity improvements through
automation Internet availability Telecommunication infrastructure
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Internet changes the nature of opportunities and threats –
Alters life cycle of products Increases speed of distribution Creates new products and services Eases limitations of geographic markets Alters economies of scale Changes entry barriers
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Example of the Impact of Wireless Technology
Airline-Many airlines now offer wireless technology in flight
Banking- VISA sends text msg. alerts after unusual transactions.
Health Care- Patients use mobile devices to monitor their own health, such as calories consumed.
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Some Important Variables in International Societal Environment:
EconomicEconomic DevelopmentPer capita income Climate GDP trends Monitory and fiscal policiesUnemployment levelCurrency convertibilityWage levelsNature of competitionMembership in regional economic association
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Technological:
Regulation on technology transfer Energy availability/cost Natural resource availabilityTransportation networkSkill level of workforcePatent trade mark protectionInternet availabilityTelecommunication infrastructure
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Political-Legal:
Form of Govt.Political IdeologyTax lawsStability of Govt.Govt. attitude towards foreign companiesRegulations on foreign ownership of assetsStrength of opposition groupTrade regulationsProtectionist sentimentForeign policiesTerrorist activityLegal system
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Socio-Culture:
Customs, Norms, ValuesLanguagesDemographicLife expectationsSocial institutionsStatus symbolLifestyleReligious believes Attitude towards foreignerLiteracy levelHuman rightsEnvironmentalism
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Task environment
A corporation's scanning of the environment will include analysis of all the relevant elements in the task environment
These analysis take the firm of individual reports written by various people in different parts of the firm.
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Ex; Procter & Gamble People from each of the brand management teams
work with key people from the sales and market research departments to research & write a “competitive Activity Report” each quarter on each of the product categories in which P&G competes.
People in purchase also writes reports and send it to P&G---Summarize---Top Level Mgnt---Decision Making process
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Scanning the external Environment
Analysis of societal Environment (PEST)
Interest Group
Analysis
Supplier Analysis
Competitor Analysis
Market Analysis
Community Analysis
Govt. Analysis
Selection of Strategic
FactorOpportunities Treats
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Identifying External Strategic Factor:
This willingness to reject unfamiliar as well as negative information is called myopia (changing the direction) . If a firm needs to change its strategy, it might not be gathering the appropriate external information to change strategies successfully.
One way to identify and analyze developments in external environment is to use the issues Priority Matrix
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Issues Priority MatrixProbable impact on Corporation
High Medium Low
High
Medium
Low
Medium Priority
Low Priority
Low Priority
High PriorityHigh Priority
Low PriorityMedium Priority
High PriorityMedium Priority
Probability
of Occurance
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Competitive Forces
Collection and evaluation of information on competitors is essential for successful strategy formulation
Competition in virtually all industries can be described as intense.
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Competitive Forces
Identifying rival firms• Strengths• Weaknesses• Capabilities• Opportunities• Threats• Objectives• Strategies
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Competitive Forces
Key Questions About Competitors:• Their strengths• Their weaknesses• Their objectives and strategies• Their responses to all external variables (e.g.
social, political, demographic, etc.)• Their vulnerability to our alternative strategies
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Conti….
• Our vulnerability to successful strategic counterattack
• Our product and service positioning relative to competitors
• Entry and exit of firms in the industry• Key factors for our current position in
industry
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Conti..
• Sales and profit rankings of competitors over time
• Nature of supplier and distributor relationships
• The threat of substitute products or services
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Competitive Intelligence Programs:
Systematic and ethical process for gathering and analyzing information about the competition’s activities and general business trends to further a business’ own goals.
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Industry Environment Harvard professor Michael E. Porter propelled the
concept of industry environment into the foreground of strategic thought and business planning.
The cornerstone of Porter’s work first appeared in the Harvard Business Review, in which he explains the five forces that shape competition in an industry.
Porter’s well-defined analytic framework helps strategic managers to link remote factors to their effects on a firm’s operating environment.
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Competitive Forces Shape Strategy
The essence of strategy formulation is coping with competition.
Intense competition in an industry is neither coincidence nor bad luck.
Competition in an industry is rooted in its underlying economics, and competitive forces exist that go well beyond the established combatants in a particular industry.
The corporate strategists’ goal is to find a position in the industry where his or her company can best defend itself against these forces or can influence them in its favor.
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Forces Driving Industry Competition
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Contending ForcesThreat of Entry Economies of Scale Product Differentiation Capital Requirements Cost Disadvantages Independent of Size Access to Distribution Channels Government Policy
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Powerful Suppliers
A supplier group is powerful if: It is dominated by a few companies and
is more concentrated than the industry it sells to
Its product is unique or at least differentiated, or if it has built-up switching costs
It is not obliged to contend with other products for sale to the industry
It poses a credible threat of integrating forward into the industry’s business
The industry is not an important customer of the supplier group
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Powerful Buyers
A buyer group is powerful if: It is concentrated or purchases in large volumes The products it purchases from the industry are standard The products it purchases from the industry form a
component of its product and represent a significant fraction of its cost
It earns low profits The industry’s product is unimportant to the quality of the
buyers’ products or services The industry’s product does not save the buyer money The buyers pose a credible threat of integrating backward
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Substitute Products By placing a ceiling on the prices it can charge,
substitute products or services limit the potential of an industry
Substitutes not only limit profits in normal times but also reduce the bonanza an industry can reap in boom times
Substitute products that deserve the most attention strategically are those that are
◦ subject to trends improving their price-performance trade-off with the industry’s product or
◦ produced by industries earning high profits
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Competing for Position
Intense rivalry occurs when: Competitors are numerous or are roughly equal Industry growth is slow, precipitating fights for market share
that involve expansion The product or service lacks differentiation or switching
costs Fixed costs are high or the product is perishable, creating
strong temptation to cut prices Capacity normally is augmented in large increments Exit barriers are high Rivals are diverse in strategy, origin, and personality
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Industry Analysis & Competitive Analysis
An industry is a collection of firms that offer similar products or services.
Structural attributes are the enduring characteristics that give an industry its distinctive character.
Concentration refers to the extent to which industry sales are dominated by only a few firms.
Barriers to entry are the obstacles that a firm must overcome to enter an industry.
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Competitive Analysis
1. How do other firms define the scope of their market?
2. How similar are the benefits the customers derive from the products and services that other firms offer? The more similar the benefits of products or services, the higher the level of substitutability between them.
3. How committed are other firms to the industry?
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Industry Matrix:
Key success factors: KSF are those variables that can affect significantly the overall competitive positions of all companies within any particular industry. They typically very from industry to industry and are crucial to determining a company’s ability to succeed within that industry (Usually determined by economic and technological characteristics of the industry)
Ex: Wal-Mart- Strong Distribution Channel Key Success factor- Industry Strategic factor - Company
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Industry Matrix:Key Success Factors Weight Co. A Rating Co. A Weighted Score Co. B Rating Co. B Weighted Score
1 2 3 4 5 6
Total 1
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1.Column List the 8-10 factors that appear to determine current
and expected success in the industry
2. ColumnFrom 1 most important to 0.0 Not important
3. ColumnExamine the particular company within the industry Ex: 5- Outstanding, 4-above avg., 3-evg, 2- Below
evrg., 1- poor
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4. Column(Multiple of column 2and 3)
5. Column(as like column 3)
6. Column(column 2nad 5)
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Thank You
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