CHAPTER 4 Environmental Scanning and Industry Analysis STRATEGIC MANAGEMENT & BUSINESS POLICY 10TH EDITION THOMAS L. WHEELEN J. DAVID HUNGER Prentice Hall, Inc. © 2006 Prentice Hall 2006

Societal environment -- Environmental Scanning Societal environment -- Economic forces Technological forces Political-legal forces Sociocultural forces Prentice Hall, Inc. © 2006 Prentice Hall 2006

Societal Environment Economic Forces -- Regulate exchange of materials, money, energy and information Prentice Hall, Inc. © 2006 Prentice Hall 2006

Technological Forces -- Societal Environment Technological Forces -- Generate problem-solving inventions Prentice Hall, Inc. © 2006 Prentice Hall 2006

Political-legal Forces -- Societal Environment Political-legal Forces -- Allocate power; provide laws and regulations Prentice Hall, Inc. © 2006 Prentice Hall 2006

Sociocultural Forces -- Societal Environment Sociocultural Forces -- Regulate values, mores, and customs of society Prentice Hall, Inc. © 2006 Prentice Hall 2006

Task Environment Task environment -- Elements or groups that directly affect a corporation and are affected by it Prentice Hall, Inc. © 2006 Prentice Hall 2006

Task Environment Industry Analysis -- In-depth examination of key factors within a corporation’s task environment Prentice Hall, Inc. © 2006 Prentice Hall 2006

Variables in Societal Environment Prentice Hall, Inc. © 2006 Prentice Hall 2006

Demographic Trends Prentice Hall, Inc. © 2006 Prentice Hall 2006

8 Current Trends – Increasing environmental awareness Transformational Sociocultural Trends 8 Current Trends – Increasing environmental awareness Growing health consciousness Expanding seniors market Impact of the Generation Y boomlet Declining mass market Changing pace and location of life Changing household composition Increasing diversity of workforce & market Prentice Hall, Inc. © 2006 Prentice Hall 2006

International Societal Environments Prentice Hall, Inc. © 2006 Prentice Hall 2006

Scanning the Task Environment Prentice Hall, Inc. © 2006 Prentice Hall 2006

Ethical Behavior “business ethics” Argument that there is no such thing … it is an oxymoron Prentice Hall, Inc. © 2006 Prentice Hall 2006

Corporate practices -- Ethical Decision Making Corporate practices -- Massive write-downs and restatements of profit Misclassification of expenses as capital expenditures Pirating corporate assets for personal gain Prentice Hall, Inc. © 2006 Prentice Hall 2006

External Strategic Factors Strategic myopia -- Willingness to reject unfamiliar as well as negative information Prentice Hall, Inc. © 2006 Prentice Hall 2006

Issues Priority Matrix Prentice Hall, Inc. © 2006 Prentice Hall 2006

Analyzing the Task Environment Prentice Hall, Inc. © 2006 Prentice Hall 2006

Threat of New Entrants – Economies of scale Product differentiation 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 Prentice Hall 2006

Rivalry Among Existing Firms – Number of competitors Porter’s Approach to Industry Analysis Rivalry Among Existing Firms – Number of competitors Rate of industry growth Product or service characteristics Amount of fixed costs Capacity Height of exit barriers Diversity of rivals Prentice Hall, Inc. © 2006 Prentice Hall 2006

Threat of Substitute Products or Services Bargaining Power of Buyers 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 Prentice Hall, Inc. © 2006 Prentice Hall 2006

Fragmented Industry – No dominant industry Industry Evolution Prentice Hall, Inc. © 2006 Prentice Hall 2006

Consolidated Industry – Dominated by a few large firms Industry Evolution Consolidated Industry – Dominated by a few large firms Prentice Hall, Inc. © 2006 Prentice Hall 2006

Continuum of International Industries International Risk Assessment Continuum of International Industries Prentice Hall, Inc. © 2006 Prentice Hall 2006

Strategic Groups Prentice Hall, Inc. © 2006 Prentice Hall 2006

General Types – Defenders Prospectors Analyzers Reactors Strategic Types Defenders Prospectors Analyzers Reactors General Types – Prentice Hall, Inc. © 2006 Prentice Hall 2006

Gathering information on a company’s competitors Competitive Intelligence Called business intelligence Gathering information on a company’s competitors Prentice Hall, Inc. © 2006 Prentice Hall 2006

Forecasting Techniques -- Extrapolation Brainstorming Expert opinion Delphi technique Statistical modeling Scenario writing Prentice Hall, Inc. © 2006 Prentice Hall 2006

Synthesis of External Factors -- EFAS Prentice Hall, Inc. © 2006 Prentice Hall 2006