STRAMA 5

Environmental scanning

refers to an in-depth examination of key factors that influence the business operations of a firm.

Natural environment

 It includes physical resources, wildlife, and climate that are an inherent part of existence on Earth. 

Natural environment

Example: Chevron, a multinational energy corporation, could measure and reduce its carbon footprint or the amount of greenhouse gases it emits into the air, considering the rising concerns about climate change.

Societal environment

 It is mankind’s social system that includes general forces that do not directly affect the short-run activities of the firm but can influence its long-term decisions.

Economic forces

These regulate the exchange of materials, money, energy, and information.

Technological forces.

These generate problem-solving inventions.

Political-legal forces

These allocate power and constrain and protect laws and regulations.

Sociocultural forces

These regulate the values, morals, and customs of society.

Task environment

It includes elements or groups that directly affect a firm and, in turn, are affected by it.

Customers

They have the power to create or reduce the demand for a product or service

Suppliers

 They provide a product or service to another business.

Competitors

They provide a better or similar product to the same target segment.

Employees

They directly participate in activities that help fulfill the firm’s goals.

Government Regulations

Any change in tax law will impact the business operation.

Special Interest Groups

They bring attention to the firm and could affect the operation in either a positive or negative way.

SWOT Matrix

 It is a framework used to evaluate a firm’s competitive position by listing the conditions inside and surrounding it. 

SWOT 

 assesses internal, external, current, and future potential factors that may affect the market position of a particular organization.

Strengths

These are the internal areas where an organization excels and factors that separate an organization from its competitors.

Strengths

These include a strong brand image, loyal customer base, a strong balance sheet, and unique technology.

Strengths

Example: McDonald’s has the following _______: strong brand name and image, stable income, tasty foods, technological innovations, real estate ventures, global expansion strategies, effective and efficient marketing strategies, and health and quality control protocol.

Weaknesses.

These are the internal areas that hinder an organization from performing at its optimum level. 

Weaknesses.

The business needs to make improvements to remain competitive in these areas.

Weaknesses.

These include a weak brand, higher-than-average turnover, high levels of debt, an inadequate supply chain, or lack of capital.

Weaknesses.

Example: McDonald's has the following ________: limited food options, unhealthy food image, aggressive competition, easily imitated menu, and low process flexibility due to standardization.

Opportunities

These are favorable external factors that could give an organization a competitive advantage.

Opportunities

 For instance, if a country cuts tariffs, a car manufacturer can export its cars into a new market, increasing sales and a larger market share.

Opportunities

Example: McDonald's has the following __________: developing an innovative and healthier menu, partnering with other brands, and expanding in emerging markets.

Threats

These are the factors that may pose potential harm to an organization.

Threats

For instance, a drought threatens a wheat-producing company as it may destroy or reduce the crop yield. 

Threats

include rising costs for materials, increasing competition, tight labor supply, and disruption through emerging technologies that may drive products or services obsolete.

Threats

Example: McDonald's faces the following______: changing customer preferences regarding healthy food consumption, economic downturn, and intense competition.

PESTEL Analysis

It is a tool to identify the external forces that may affect an organization positively and negatively.

Political

These factors determine the impact of government and government policy on a particular organization or a specific industry. It includes trade, fiscal, and taxation policies, among others.

Political

Example: McDonald's may capitalize on the opportunity for increased international trade agreements because it enables easier business expansion to foreign countries. The company also needs to consider governmental guidelines for diet and health and evolving public health policies as an opportunity to innovate their products or as a threat if they fail to innovate.

Economic

These factors determine the impact of the economy and its performance on an organization and its profitability.

Economic

These include interest rates, employment or unemployment rates, raw material costs, and foreign exchange rates.

Economic

Example: McDonald's may capitalize on the opportunity for slow but stable growth in developed countries and rapid growth in developing countries.

Social

These factors determine the impact of the social environment and emerging trends on the business profitability of an organization.

Social

· These include changing family demographics, education levels, cultural trends, attitude changes, and changes in lifestyles, among others.

Social

 These also help marketers to understand the changing preferences of the customers further.

Social

Example: McDonald's may capitalize on the opportunity for rising disposable incomes and busy lifestyles in urban communities since it will increase their sales growth. On the other hand, the company needs to consider increasing cultural diversity and healthy lifestyle trends as both an opportunity and a threat.

Technological

These factors determine the impact of technological innovation and development on a particular market or industry.

Technological

Moreover, these also include technological influence on distribution, manufacturing, and logistics methods.

Technological

These include digital or mobile technology changes, automation, research, and development. 

Technological

Example: McDonald's may capitalize on the opportunity to increase business automation and customer preferences on ordering food using their mobile devices.

Environmental

These factors determine the influence of the surrounding environment and ecological aspects' impact on a market or industry.

Environmental

These include climate, recycling procedures, carbon footprint, waste disposal, and sustainability.

Environmental

Example: McDonald's may capitalize on the opportunity for increasing emphasis on sustainable business strategies while considering the threat of changes in climate conditions in some regions where their business operates.

Legal

These factors determine the importance of understanding legal laws and procedures in a given territory where a business operates

Legal

These include employment legislation, consumer law, health and safety, and international and trade regulations and restrictions.

Legal

Example: McDonald's needs to review the threat brought by increasing health regulations in workplaces and schools and rising legal minimum wages imposed by some countries where their business operates.

Porter's Five (5) Forces

It is developed by Michael E. Porter as a framework for assessing and evaluating the competitive strength and position of a business organization.

Supplier power

This force analyzes how suppliers can easily influence price increases.

Supplier power

This is driven by the following factors: number of suppliers of each essential input; uniqueness of their product or service; relative size and strength of the supplier; and cost of switching from one supplier to another.

Supplier power

Example: The bargaining power of suppliers in the case of McDonald's is weak based on a large number of suppliers and the high overall supply of raw materials.

Buyer power

 This force analyzes how buyers can easily influence price decreases.

Buyer power

 This is driven by the number of buyers in the market, the importance of each buyer to the organization, and the cost to the buyer of switching from one supplier to another.

Buyer power

 For instance, a few powerful business buyers can often dictate terms.

Buyer power

Example: McDonald’s must address the power of their customers on business performance since they have a strong bargaining power based on low switching costs, a large number of providers, and the high availability of substitutes.

Competitive rivalry

 This force examines the intensity of competition in the marketplace.

Competitive rivalry

This is driven by the number and capability of competitors in the market.

Competitive rivalry

Rivalry competition is high when there are few businesses equally selling a product or service, when the industry is growing, and when consumers can easily switch to a competitor's product for a cheaper cost. When rivalry among competitors is intense, advertising and price wars can ensue, negatively impacting the business in the long run.

Competitive rivalry

Example: McDonald’s faces tough competition because the fast food restaurant market is saturated. The strong force of competitive rivalry is influenced by the high number of firms, high aggressiveness of firms, and low switching costs.

Threat of substitution

 This force is threatening when buyers can easily find substitute products with attractive prices or better quality and when buyers can switch from one product or service to another with little cost.

Threat of substitution

 For example, switching from coffee to tea does not cost anything, unlike switching from car to bicycle.

Threat of substitution

Example: The high substitute availability and the low switching costs make the threat of substitution a strong force in the case of McDonald’s.

Threat of new entrants

This force determines how easy or difficult it is to enter a particular industry.

Threat of new entrants

If an industry is profitable and there are few barriers to enter, rivalry soon intensifies.

Threat of new entrants

When more organizations compete for the same market share, profits start to fall.

Threat of new entrants

It is essential for existing organizations to create high barriers to enter to deter new entrants.

Threat of new entrants

Example: The moderate threat of new entrants in the case of McDonald's is based on the low switching costs (strong force), highly variable capital cost (moderate force), and high cost of brand development (weak force)

Ecosystem Assessment Tool

The business ecosystem is demonstrated by a network composing four (4) types of players in the industry: customers, suppliers, competitors, and complementors.

Ecosystem Assessment Tool

The term "ecosystem" is derived from the concept of the biological system in the environment.

According to Hayes (2018)

the connection of these players demonstrates a constantly evolving relationship in which each entity must be flexible and adaptable to survive, similar to the biological system. Moreover, each player in the business ecosystem offers opportunities for cooperation with a particular company, including the competitors

Customers

These are the people or parties that buy the products and services of an organization.

Customers

Additional ________ mean more revenue, leading to a larger market share. 

Customers

can be end-consumers or other companies that will eventually take the products to the consumer market.

Suppliers

 These parties provide the resources to produce or sell finished products or services.

Suppliers

They are classified as external factors which may affect an organization since suppliers have the potential to raise prices and/or reduce the quality of the purchased inputs or raw materials.

Suppliers

It is therefore vital to keep a good and meaningful relationship with the suppliers or spread risk by having multiple options.

Competitors

These parties fight over an organization's market share by offering similar products or services and targeting similar customers.

Competitors

However, companies often view competition as too narrow, failing to foresee upcoming threats.

Competitors

·  are often seen as parties to fight over market share, it is also possible to collaborate with them.

Complementors

These organizations offer complementary or harmonizing products or services that could work well with a company’s products to make the result more attractive to consumers.