2156.environment analysis

8/6/2019 2156.Environment Analysis

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Environmental Scanning & MonitoringTechniques


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Environmental Scanning &

MonitoringEnvironmental scanning is a concept from businessmanagement by which businesses gather information from the

environment, to better achieve a sustainable competitiveadvantage.

To sustain competitive advantage the company must also

respond to the information gathered from environmental scanning by altering its strategies andplans when the needarises.


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Environmental Scanning & Monitoring-

Techniques

SWOT

Industry Analysis

Techniques

Competitor Analysis

PEST QUEST


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SWOT(Strength-Weakness-Opportunity-Threat)

Identification of threats and Opportunities inthe environment (External) andstrengths and

Weaknesses of the firm (Internal) is thecornerstone of business policy formulation; itis these factors which determine the course of

action to ensure the survival and growth of thefirm.


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SWOT Analysis


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The SWOT analysis is an extremely useful tool for understanding and decision-making for all sorts of situationsin business and organizations. SWOT is an acronym for Strengths, Weaknesses, Opportunities, Threats.

SWOT analysis came from the research conducted at Stanford Research Institute from 1960-1970. The backgroundto SWOT stemmed from the need to find out why corporate

planning failed. The research was funded by the fortune 500companies to find out what could be done about this failure.The Research Team were Marion Dosher, Dr Otis Benepe,Albert Humphrey, Robert Stewart, Birger Lie.


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SWOT: Studying Internal & External

Environment

The aim of any SWOT analysis is to identify the key

internal and external factors that are important to

achieving the objective. SWOT analysis groups key

pieces of information into two main categories:

Internal factors The strengths and

weaknesses internal to the organization.External factors The opportunities and

threats presented by the external environment.


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Examples of SWOTs

Strengths and Weaknesses Resources: financial, intellectual, location

Cost advantages from proprietary know-how

Creativity / ability to develop new products

Valuable intangible assets: intellectual capital

Competitive capabilities

Big campus selection


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Opportunities and Threats

Takeovers Market Trends

Economic condition

Mergers

Joint ventures

Strategic alliances

Expectations of stakeholders

Technology

Public expectations

Competitors and competitive actions Poor Public Relations Development

Criticism (Editorial)

Global Markets

Environmental conditions


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Uses of SWOT Analysis

Corporate planning

Set objectives defining what the organisation is intending todo

Environmental scanning Internal appraisals of the organisations SWOT, this needs to include

an assessment of the present situation as well as a portfolio ofproducts/services and an analysis of the product/service life cycle


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Analysis of existing strategies, this should determine

relevance from the results of an internal/externalappraisal. This may include gap analysis (compare itsactual performance with its potential performance whichwill look at environmental factors)

Strategic Issues defined key factors in the developmentof a corporate plan which needs to be addressed by theorganisation

Develop new/revised strategies revised analysis ofstrategic issues may mean the objectives need to change


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Establish critical success factors the achievement ofobjectives and strategy implementation

Preparation of operational, resource, projects plans for

strategy implementation

Monitoring results mapping against plans, taking

corrective action which may mean amending

objectives/strategies.


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Also;

Use SWOT analysis for business planning,

strategic planning, competitor evaluation,

marketing, business and productdevelopment and research reports.


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PEST Analysis

A scan of the external macro-environment in which the firm

operates can be expressed in terms of the following factors:

Political

Economic

Social

Technological


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The acronym PEST (or sometimes rearranged as "STEP") is used to

describe a framework for the analysis of these macroenvironmental

factors. A PEST analysis fits into an overall environmental scan asshown in the following diagram:

Environmental Scan

/ \

External Analysis Internal Analysis

/ \

Macroenvironment

Microenvironment

|

P.E.S.T.


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Political Factors

Political factors include government regulationsand legal issues and define both formal and

informal rules under which the firm must operate.

Some examples include:tax policy

employment laws

environmental regulations

trade restrictions and tariffs

political stability


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Economic Factors

Economic factors affect the purchasing power of potential

customers and the firm's cost of capital. The following are

examples of factors in the macroeconomy:

economic growth

interest rates

exchange rates

inflation rate


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Social Factors

Social factors include the demographic and cultural

aspects of the external macroenvironment. These

factors affect customer needs and the size of potential

markets. Some social factors include:health consciousness

population growth rate

age distribution

career attitudesemphasis on safety


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Technological FactorsTechnological factors can lower barriers to entry, reduce

minimum efficient production levels, and influence

outsourcing decisions. Some technological factors include:

R&D activity

automation

technology incentives

rate of technological change


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Industry Analysis

An industry is a group of firms producing a

similar product or service

An examination of the important stakeholdersgroup in a particular corporations task

environment is a part of industry analysis


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Porters approach to Industry Analysis

A corporation is most concerned with the

intensity of competition within its industry

The level of this intensity is determined by basiccompetitive forces

In scanning its industry, the corporation must

assess the importance to its success of each of

the six forces


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Forces Driving Industry Competition

Threatof NewEntrants

BargainingPower

of Suppliers

BargainingPower

of Buyers

RelativePower

of Unions,Governments,

etc.

PotentialEntrants

Threat ofSubstituteProductsor Services

IndustryCompetitors

Rivalry AmongExisting Firms

OtherStakeholders

Buyers

Substitutes

Suppliers


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Threat of New Entrants:

Some Barriers to Entry

Economies of Scale

Product Differentiation

Capital Requirements Switching Costs

Access to Distribution Channels

Cost Disadvantages Independent of Size Government Policy

Expected Retaliation


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Properties of Entry Barriers

Entry barriers can and do change as the

conditions change

Entry barriers can change for reasons inside thefirm : impact of the firms strategic decisions

Some firms may possess resources or skills

which allow them to overcome entry barriers

into an industry more cheaply than most other

firms


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Rivalry Among Existing Firms

Intense Rivalry is Related To:

Number of Competitors: numerous or equally

balanced competitors

Rate of Industry Growth: slow industry growth

Product or Service Characteristics: Lack of

differentiation or switching costs

Amount of Fixed Costs : high fixed or storage

costs


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High fixed or storage costs

Lack of differentiation or switching costs

Capacity augmented in large increments

(leading to overcapacity and price cuttings)Diverse competitors

High strategic stakes

High exit barriers (specialized assets, fixedcosts of exit, strategic interrelationships,emotional barriers, government and socialrestrictions)


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Shifting Rivalry

The factors that determine the intensity of

competitive rivalry can and do change

As an industry matures, its growth rate declines,resulting in intensified rivalry, declining profits

An acquisition can introduce a different

personality to an industry

Focusing selling efforts on the fastest growing

segments can reduce the impact of industry

rivalry


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Entry Barriers and Exit Barriers

When entry barriers are high and exit barriersare low, entry will be deterred, and unsuccessfulcompetitors will leave the industry

When both entry and exit barriers are high,profit potential is high, but is usuallyaccompanied by more risks, and unsuccessfulfirms will fight to stay

The worst case is when entry barriers are lowand exit barriers are high (overcapacity, poor

profitability)


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Pressure from Substitute Products

Substitutes limit the potential return of an

industry by placing a ceiling on the prices firms

in the industry can profitably charge

Identifying substitute is searching for other

products that can perform the same function

as the product of the industry

The impact of substitutes can be summarized as

the industrys overall elasticity of demand


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Bargaining Power of Buyers

Buyers compete by forcing down prices,

bargaining for higher quality or more services,

and playing competitors against each other

A buyers group is powerful if:

1. It purchases large volumes relative to seller

sales

2. The products it purchases from the industry

represent a significant fraction of the buyers

cost of purchase (shop for good price)


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3

. The products it purchases from the industry arestandard or undifferentiated

4. It faces few switching costs

5. It earns low profits (thus sensitive to costs)

6. Buyers pose a credible threat of backwardintegration

7. The industrys product is unimportant to the

quality of the buyers products or services8. The buyer has full information


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Bargaining Power of Suppliers

Suppliers can exert bargaining power over participants in

an industry by threatening to raise prices or reduce the

quality of purchased goods and services

A supplier group is powerful if:1. It is dominated by a few companies

2. It is not obliged to contend with other substitute products

for sale to the industry

3. The industry is not an important customer

4. The suppliers product is an important input to the buyers

business


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5. The suppliers group products are differentiated

or it has built up switching costs

6. The supplier group poses a credible threat offorward integration

7. Labor must be considered as a supplier that

exerts great power in many industries


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Government as a force in industry

competition

Government role as supplier and buyer can be

influenced by political factors

Government regulations can set limits on thebehavior of firms as suppliers or buyers

Government can affect the position of an

industry with substitutes through regulations,

subsidies, or other means

Government can affect rivalry among

competitors by influencing industry growth


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10 questions to monitor competitors for

strategic planning

1. Why do your competitors exist? to make profits or tosupport another unit?

2. Where do they add customer value? Higher quality,

lower price, credit terms, better service?3. Which of your customers are the competition most

interested in? best customers or the ones you dontwant?

4. What is their cost base and liquidity?5. Are they less exposed with their suppliers than your

firm?


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6. What do they intend to do in the future? Target yourmarket segments? Growing?

7. How will their activities affect your strategies? Should

you adjust your plans and operations?8. How much better than your competitor do you need to

be in order to win customers?

9. Will new competitors appear over the next few years?

10.If you were a customer, would you choose yourproduct over those offered by your competitors?

2156.environment analysis

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