COURSE TITLE : COMPETITIVE STRATEGY Ashesi University COURSE TITLE : COMPETITIVE STRATEGY SEMESTER : 1ST 2011/2012 MODULE 3: Strategic Analysis: Remote or External Environment Lecturer : Ebow Spio

Learning Objectives Appreciate the importance of developing forecasts of the business environment. Understand why environmental scanning, environmental monitoring, and collecting competitive intelligence are critical inputs to forecasting. Why scenario planning is a useful technique for firms competing in industries characterized by unpredictability and change. 4. Explain the impact of the general environment on a firm’s strategies and performance

From Thinking Strategically about the Company’s Situation to Choosing a Strategy

The Components of a Company’s Macro-environment

Analyzing the external environment The general or remote environment is composed of trends in broader society that influence an industry or the firms in it. It is a set of conditions outside the firm that affects the firm’s performance. These trends can a dramatic effect on an industry and the firm. Analyzing the external environment is about detecting trends and events that create opportunities and serve as a threat. Once these trends are detected it is important to make a forecast and design scenarios to minimize future threats as well as exploit opportunities Firms must pay attention to six trends in the general environment : demographic, economic, political/legal, sociocultural, technological and global

Creating the Environmentally Aware Organization 2-6

Environmental Scanning & Monitoring External Scanning Surveillance of a firm’s external environment: Predict environmental changes to come Detect changes already under way Proactive mode Alerts the firm to critical trends before changes have developed a discernible pattern and before competitors recognize them 2-7

Environmental Scanning & Monitoring External Monitoring Track evolution of environmental trends, sequence of events or streams of activities Sources of information: Business Press: Financial Times, Economist, Business and Financial Times, The Wall Street Journal, Online or Internet sites such as www.trendhunter.com Investment Bankers such as Databank, EDC etc. Trade Publications Read trade publications related to your industry Add websites like trendhunter.com to your regular surfing Ask your customers what they think 2-8

Competitive Intelligence A firms activities of collecting and interpreting data on competitors Define and understand a firm’s industry Identify rivals’ strengths and weaknesses, objectives, strategies Intelligence gathering (data) Interpretation of intelligence data Helps a firm avoid surprises 2-9

Environmental Forecasting Plausible projections about direction, scope, speed and intensity of environmental change 2-10

Environmental Forecasting Scenario analysis involves experts’ detailed assessments of societal trends, economics, politics, technology, or other dimensions of the external environment 2-11

The General Environment Factors external to an industry, usually beyond a firm’s control Demographic Sociocultural Legal/Political Technological Economic Global General environmental trends and events: Little ability to predict them Even less ability to control them Can vary across industries 2-12 12

Demographic Trends Demographic trends are changes in population size, age, structure, geographic distribution, ethnic mix and income distribution Aging population Rising or declining affluence Changes in ethnic composition Geographic distribution of population Greater disparities in income levels 2-13

Sociocultural Trends Sociocultural trends deal with changes in society’s attitude, cultural values, beliefs and lifestyle. More women in the workforce Dual-income families Increase in temporary workers Greater concern for healthy diets and physical fitness Greater interest in the environment Postponement of having children Sociocultural forces influence the values, beliefs, and lifestyles of a society 2-14 14

Political/Legal Trends Political/Legal trends pertain to changes in organizations and interest groups that compete for a voice in developing and overseeing the body of laws and regulations that guide interactions among firms and nations. Deregulation of utility and other industries Increases in government mandated minimum wages Taxation at local, national levels Legislation on corporate governance reforms (Sarbanes-Oxley Act) 2-15

Technological Trends Technological trends concern changes in the activities involved with creating new knowledge and translating that knowledge into new products, processes and materials. Genetic engineering Emergence of Internet technology Computer-aided design/computer-aided manufacturing systems (CAD/CAM) Wireless communication Genetic engineering Emergence of Internet technology Computer-aided design/computer-aided manufacturing systems (CAD/CAM) Research in synthetic and exotic materials Pollution/global warming Miniaturization of computing technologies Wireless communication Nanotechnology 2-16 16

Economic Trends Economic trends concern the direction of the economy in which a firm competes or may choose compete. Interest rates Unemployment Consumer Price index Trends in GDP Income growth or decline Currency exchange rates. Changes in stock market valuations NB: Income trends affect customers/consumers purchasing power. 2-17

Global Trends Global Trends concern the changes in relevant emerging and developed country markets, important international political events, and critical changes in cultural and institutional characteristics of global markets Increasing global trade Currency exchange rates Emergence of the Indian and Chinese economies Trade agreements (NAFTA, EU, ASEAN) Creation of WTO (decreasing tariffs/free trade in services) 2-18

Capturing Environmental Trends for Strategy Development by the firm Factor Trends Opportunity/ Threat Strategic Implications Demographic ++ Global Trends -- Economic Trends +/- Technological Trends Sociocultural Trends Political/Legal Trends + Significant Opportunity = ++, Opportunity=+, Neutral =0, Threat= -, Critical Threat =--