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Prentice Hall, Inc. © 2006 4-1
STRATEGIC MANAGEMENT & BUSINESS POLICY10TH EDITION
THOMAS L. WHEELEN J. DAVID HUNGER
CHAPTER 4 Environmental Scanning and Industry Analysis
Prentice Hall, Inc. © 2006 4-2
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…
Prentice Hall, Inc. © 2006 4-3
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)
Prentice Hall, Inc. © 2006 4-4
Environmental Scanning
-- Societal environment
-- Task environment
Prentice Hall, Inc. © 2006 4-5
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
Prentice Hall, Inc. © 2006 4-6
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 …
Prentice Hall, Inc. © 2006 4-7
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
Prentice Hall, Inc. © 2006 4-8
Variables in Societal Environment
Prentice Hall, Inc. © 2006 4-9
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.
Prentice Hall, Inc. © 2006 4-10
Demographic Trends
Prentice Hall, Inc. © 2006 4-11
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
Prentice Hall, Inc. © 2006 4-12
International Societal Environments
Are US trying to impose human rights requirements on Asian companies to make them less competitive by raising their costs ???
Prentice Hall, Inc. © 2006 4-13
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)
Prentice Hall, Inc. © 2006 4-14
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
Prentice Hall, Inc. © 2006 4-16
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)
Prentice Hall, Inc. © 2006 4-17
Issues Priority Matrix
Prentice Hall, Inc. © 2006 4-18
Task Environment
Industry Analysis --
–In-depth examination of key factors within a corporation’s task environment
(popularized by Michael Porter)
Prentice Hall, Inc. © 2006 4-19
Analyzing the Task Environment
Prentice Hall, Inc. © 2006 4-20
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
Prentice Hall, Inc. © 2006 4-21
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
Prentice Hall, Inc. © 2006 4-22
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)
Prentice Hall, Inc. © 2006 4-23
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
Prentice Hall, Inc. © 2006 4-24
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
Prentice Hall, Inc. © 2006 4-25
Industry Evolution
Fragmented Industry –
–No dominant industry
Consolidated Industry –
–Dominated by a few large firms
Prentice Hall, Inc. © 2006 4-26
International Risk Assessment
Continuum of International Industries
Determining factors:–Pressure for coordination–Pressure for local responsiveness
THINK GLOBALLY – ACT LOCALLY
Prentice Hall, Inc. © 2006 4-27
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.
Prentice Hall, Inc. © 2006 4-29
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
Prentice Hall, Inc. © 2006 4-30
Forecasting
Forecasting Techniques --
–Extrapolation–Brainstorming–Expert opinion–Delphi technique–Statistical modeling–Scenario writing
Prentice Hall, Inc. © 2006 4-31
Synthesis of External Factors -- EFAS
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