Env. Scanning 38

8/3/2019 Env. Scanning 38

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Composition of

Strategic Management

Strategic Management is Composed

of1. Environmental scanning

2. Strategy formulation

3. Strategy implementation

4. Evaluation and control


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Environmental Variables

Societal Environment

EconomicForces

Technological

Forces

Political-Legal

Forces

SocioculturalForces

InternalEnvironment

StructureCulture

Resources

Shareholders

Governments

Customers

Creditors

Communities

Competitors

Employees/

Labor Unions

Suppliers

SpecialInterestGroups

Trade Associations

TaskEnvironment

(Industry)


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Composed of general forces inenvironment


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Task Environment

Composed of

Groups in environment that directly

affect or are affected by theorganizations operations

(Often called industry)


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Internal Analysis

An asset, competency, process,skill, or knowledge controlled by thecorporation


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Environmental Uncertainty

Degree of complexity

Degree of change


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Industry environment consists ofsuppliers, competitors and customers.

Industry environment lies at the core ofthe macro environment. [Political,Economic, Social & Technological]

Macro-environment impacts the firmthrough its effect on the IndustryEnvironment.

From Environmental Analysisto Industry Analysis


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Some Important Variables in the


Economic

GDP trends

Interest rates

Money supply

Inflation rates

Unemployment levels

Wage/price controls

Devaluation/revaluation

Energy availability andcost

Disposable anddiscretionary income

Technological

Total government spending

for R&D

Total industry spending forR&D

Focus of technologicalefforts

Patent protection

New products

New developments intechnology transfer fromlab to marketplace

Productivity improvementsthrough automation

Political-Legal

Antitrust regulations

Environmental protectionlaws

Tax laws

Special incentives

Foreign trade regulations

Attitudes toward foreign

companiesLaws on hiring and

promotion

Stability of government

Sociocultural

Lifestyle changes

Career expectations

Consumer activism

Rate of family formation

Growth rate of population

Age distribution ofpopulation

Regional shifts inpopulation

Life expectancies

Birth rates


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Scanning the External Environment

Analysis of Societal Environment

Economic, Sociocultural, Technological, Political-Legal Factors

Selection ofStrategic Factors

Opportunities Threats

Market

Analysis

CompetitorAnalysis

Supplier

Analysis

GovernmentalAnalysis

Interest GroupAnalysis

CommunityAnalysis


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Strategic Issues and

Strategic Factors

Strategic Issues Trends likely to affect future

environment

Strategic Factors

Those strategic issues with highprobability of occurrence and highprobable impact on corporation


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Issues Priority Matrix

HighPriority

HighPriority

HighPriority

MediumPriority

MediumPriority

MediumPriority

Probable Impact on Corporation

LowPriority

LowPriority

LowPriority

LowMediumHigh

Probab

ilityofOccurrence


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The value of the product to customers.

The intensity of competition

Relative bargaining power at different

levels within the value chain.

The Determinants of Industry Profitability


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Industry Structure: Perfect Competition

Concentration: Many Firms

Entry/Exit Barriers No barriers

Product Differentiation Homogenous

Products

Information Prefect Information

Flow


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Industry Structure: Oligopoly

Concentration: A few Firms

Entry/Exit Barriers Significantbarriers

Product Differentiation Potential for

Differentiation

Information Imperfect Information

Flow


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Industry Structure: Duopoly

Concentration: Two Firms

Entry/Exit Barriers Significant

barriers

Product Differentiation Moderate

Potential for

Differentiation

Information Imperfect Information

Flow


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Industry Structure: Monopoly

Concentration: One Firms

Entry/Exit Barriers High barriers

Product Differentiation No Potential for

Differentiation

Information Imperfect Information Flow


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Environment Analysis/ Porter

Porters model is one of the better ways in defining

industry environment

five forces are

bargaining power buyers

bargaining power of suppliers

threat of substitutes

threat of potential entrants industry rivalry


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More on Porter

What makes Porter different

He was the first to assert that industryprofitability is not a function of technology or

product attributes but of industry structure Strategies emanate from imbalances

Ability to influence industry structuredetermines competitive strength

How can I restore industry balance in my favor


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Profit potential of an industry

Race is won both by the horse and thejockey, Horse = industry, Jockey=Firms positioning

Profitability breakup : industry 19%,Positioning 32%

Economic Profit = (price-costs)*sales

volume-(cost of capital* capital invested) Or profit =f (price, costs, volume, interest

rates, capital stock)


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Forces Driving Industry Competition

Threatof NewEntrants

BargainingPower

of Suppliers

BargainingPower

of Buyers

RelativePower

of Unions,

Governments,etc.

Potential

Entrants

Threat ofSubstituteProductsor Services

IndustryCompetitors

Rivalry AmongExisting Firms

OtherStakeholders

Buyers

Substitutes

Suppliers


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Force 1 : threat of entry

Barriers to entry

affects price, actual entry affects volume

Determinants

Capital Requirements

Economies of scale

Product differentiation

Access to distribution channels

Access to raw materials Preferential accesses [govt subsidy etc]

Expected retaliation


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Force 2: inter firm competition

Firms will jockey for position

Affects price, costs and volumes

Can take the place of

Price competition, Advertising battles, Productdevelopment/ introductions, Increased service

Balance is effected when

Growth is slow

High fixed/ storage costs Lack of differentiation

Capacity augmented in large increments

Exit barriers are high etc


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Force 3 : threat from substitutes

Buyers propensity to substitute[Availability & willingness]

Price Performance Characteristics ofsubstitute


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Force 4: barg. power of buyers

Bargaining power of buyers

Affects price

Will get affected when

Large volume buyer

Commodity vs. product

Low switching costs

Product earns low profits

Credible threat of backward integration Purchases are significant part of cost of

production


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Force 5: barg. power of suppliers

Bargaining power of suppliers

Affects costs

Will get affected when Low elasticity of substitution

Differentiated product and highswitching costs

Credible threat of forward integration


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The Role of Forecasting

EnvironmentalScanning

PresentTrends andFashions

ForecastingFuture Trendsand Fashions

Assumptionsfor StrategicPlanning and

Decision Making


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Popular Forecasting Techniques

Extrapolation

Brain storming

Expert opinion Statistical modeling

Scenario writing


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Methodology: Scenario Planning

Explore the local environment

Extrapolate Change Drivers

Decide on Level of Uncertainty andImportance

Generate Impacts

Outline Skeletal Scenarios

Find Leverage Points for change Create Preferred Vision


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Exploring the Local Environment

Understanding the CriticalIndicators

STEEP: Social, Technological,Economic, Environmental, Political

Finding local factors of change What new technologies are we using at work

and home? What new businesses are moving into the

town? And which are leaving?


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Extrapolating Change Drivers

Determining sources of change

Not all negative

Local Factors

Change Drivers

System Structure


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Deciding Uncertainty and Importance

What Change Drivers are mostcritical to the focus of inquiry?

Which are most uncertain topredict?

Which are most probable?


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Importance-Uncertainty Matrix

Uncertainty

Importance

Management

Traditional

Strategic

Planning

Scenario

Planning

Daily Decision

Making


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Generating Impacts

First Order Impacts: 2005-2010

Second Order Impacts: 2010 -2020

Diverse

Significant Not all negative


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Outline Skeletal Scenarios

Bulletpoint the baseline scenario

Baseline means before

intervention Tells the story of the system


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Telling Stories About the Future

Stories have always been used tostore community learning

Stories convey the experience ofthe workshop to others

Using ancient tools of storytelling


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Creating Preferred Visions

Is one scenario more desirable?

Is one area of the range of futures

more desirable? Are there similar leverage points

across scenarios?


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Industry Analysis

1. Examine possible shifts in societal variable globally.

2. Identify uncertainties in each of the six forces of the taskenvironment.

3. Make a range of plausible assumptions about future

trends.4. Combine assumptions into internally consistent scenarios.

5. Analyze the industry situation under each scenario.

6. Determine sources of competitive advantage under eachscenario.

7. Predict competitors behavior under each scenario.

8. Select most likely scenario to use in strategy formulation.

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Env. Scanning 38