Prentice Hall, Inc. © STRATEGIC MANAGEMENT & BUSINESS POLICY 10 TH EDITION THOMAS L. WHEELEN J. DAVID HUNGER CHAPTER 4 Environmental Scanning and Industry Analysis

Prentice Hall, Inc. © 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. © 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. © Environmental Scanning -- Societal environment -- Task environment

Prentice Hall, Inc. © 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. © Societal Environment Societal environment -- –Economic forces Regulate exchange of materials, money, energy and information … –Technological forces Generate problem-solving inventions … –Political-legal forces Allocate power; provide laws and regulations … –Sociocultural forces Regulate values, mores, and customs of society …

Prentice Hall, Inc. © 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. © Variables in Societal Environment

Prentice Hall, Inc. © Demographic Trends Woofies – well-off old folks People 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. © Demographic Trends

Prentice Hall, Inc. © 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 life Telecommuting –Changing household composition Single-person households –Increasing diversity of workforce & market Hispanics and blacks are increasing

Prentice Hall, Inc. © 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. © Ethical Behavior Biggest Marked: TRIAD But can one miss other markets ??? … Trigger Point The 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. © Scanning the Task Environment

Prentice Hall, Inc. © 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. © 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. © Issues Priority Matrix

Prentice Hall, Inc. © Task Environment Industry Analysis -- –In-depth examination of key factors within a corporation’s task environment (popularized by Michael Porter)

Prentice Hall, Inc. © Analyzing the Task Environment

Prentice Hall, Inc. © 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. © 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. © 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. © Athletic Shoe Industry Porter’s Approach to Industry Analysis RivalryHigh Nike, Reebok, New Balance, Adidas are strong competitors worldwide Threat of potential entrantsLow Industry has reached maturity, growth rate slowed Threat of substitutesLow Other shoes don't provide support for sports activities Bargaining power of suppliesMedium (rising)Suppliers in Asia are getting stronger Bargaining power of buyersMedium (rising) Prices are falling, sales and discounts are preferred Threat of other stakeholdersMedium to high Government regulations and human rights concerns are rising

Prentice Hall, Inc. © 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. © Industry Evolution Fragmented Industry – –No dominant industry Consolidated Industry – –Dominated by a few large firms

Prentice Hall, Inc. © International Risk Assessment Continuum of International Industries Determining factors: –Pressure for coordination –Pressure for local responsiveness THINK GLOBALLY – ACT LOCALLY

Prentice Hall, Inc. © Strategic Groups

Prentice Hall, Inc. © 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. © 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. © Forecasting Forecasting Techniques -- –Extrapolation –Brainstorming –Expert opinion –Delphi technique –Statistical modeling –Scenario writing

Prentice Hall, Inc. © Synthesis of External Factors -- EFAS