MANA Chpt 2

Environmental Scanning

• Involves surveillance of a firm’s external environment

  • Predicts environmental changes to come

  • Detects changes already under way.

  • Allows firm to be proactive

Environmental Monitoring

• Tracks evolution of environmental trends:

  • Sequences of measurable facts/events

  • Streams of activities or tends from outside the organization.

Competitive Intelligence

• Helps firms define and understand their industry

• Identifies rivals’ strengths and weaknesses:

  • Collect data on competitors

  • Interpret intelligence data

• Helps firms avoid surprises:

  • Anticipate competitors’ moves.

  • Decrease response time

• Potential for unethical behavior while gathering intelligence

Environmental Forecasting

• Predicts change

  • Plausible projetions about:

    • Direction of environmental change

    • Scope of environmental change

    • Speed of environmental chnage

    • Intensity of environmental change

Scenario Analysis

• An in-depth approach

  • What are some of the ways trends may affect an issue?

  • Can we project alternative futures based on these assessments?

SWOT Analysis

• A basic technique for analyzing firm and industry conditions

  • A firm’s internal conditions = Strengths and Weaknesses:

    • Where the firm excels or where it may be lacking

  • Any environmental or external conditions = Opportunities and Threats:

    • Developments that exist in the general environment

    • Activities among firms competing for the same customers in an industry

  • Must consider both internal and external factors simultaneously

The General Environment

• Composed of factors that are both hard to predict and difficult to control:

  • Demographic

  • Sociocultural

  • Political/Legal

  • Technological

  • Economic

  • Global

Demographics

• Are easily understandable and quantifiable:

  • Aging population

  • Rising affluence

  • Changing ethnic composition

  • Geographic distribution of population

  • Greater disparities income levels

Sociocultural

• Forces influence the values, beliefs, and lifestyles of a society:

  • More women in the workforce

  • Increase in temporary workers

  • Greater concern for health and fitness

  • Greater concern for the environment

Political/Legal

• Processes and legislation influence environmental regulations with which industries must comply:

  • Tort reform

  • Americans with Disabilities Act (ADA)

  • Deregulation of utility and other industries

  • Corporate governance reforms

  • Affordable Care Act (Obamacare)

Technological

• Developments lead to new products and services. Creates new industries and alters existing ones:

  • Genetic Engineering

  • 3D Printing

  • Pollution/global warming

  • AI

  • Nanotechnology

  • Big Data Analytics

• The current movement toward more data privacy presents opportunities for some firms to establish competitive advantage around data privacy.

Economics

• Forces affect all industries and sectors. Key indicators include:

  • Interest rates

  • Unemployment rates

  • Consumer Price Index

  • Trends in GDP

  • Changes in stock market valuations

  • National Debt

Global

• Forces offer both opportunities and risks:

  • Changes in global trade

  • Currency exchange rates

  • Emergence of the Indian and Chinese economies

  • Trade agreements among regional blocs

  • Shifts in the influence of multilateral organizations such as the World Bank

  • Increased risks associated with terrorism

Competitive Environment

• Consists of factors in the task or industry environment that are particularly to a firm’s strategy:

  • Competitors (existing or potential)

    • Including those considering entry into an entirely new industry

  • Customers (or buyers)

  • Suppliers

    • Including those considering forward initegration

Threat of New Entrants

• Possibility that the profits of established firms in the industry may be eroded by new competitiors

• Depends on existing barriers of entry:

  • Economics of Scale

  • Product differentiation

  • Switching costs

Bargaining Powers of Buyers

• Buyers can force down prices, bargain for higher quality or more services, or play competitors against each other.

• Buyer groups are powerful

  • Purchasing standard products in large volumes

  • Profits are low and switching costs are few

  • Backward integration is possible

  • Buyer’s product quality is not affected by industry product

Bargaining Power of Suppliers

• Suppliers can exert bargaining power by threatening to raise prices or reduct the quality of purchased goods and services

• Supplier groups are powerful

  • Only a few firms dominate the industry

  • There is no competition from substitute products

  • Suppliers sell to several industries

  • Buyer quality is affected by industry product

  • Products are differentiated and have switching costs

  • Forward integration is possible

Substitute products and services

• Limit the potential returns of an industry

• Come from another industry

• Can perform the same function as the industry’s offerings

• Place a ceiling on prices that firms in an industry can profitably charge

  • The more attractive the price/performance ratio, the more the substitute erodes industry profits

Rivalry

• Tactics include price competition, advertising battles, new product introductions, increased customer service or warranties

• Interacting factors lead to intense rivalry

  • Numerous or equally balanced competitors

  • Slow industry growth

  • High fixed or shortage costs

  • Lack of differentiation or switching costs

  • Capacity augmented in large increments

  • High exit barriers

Good Industry Analysis

• Looks rigorously at the structural underpinnings and root causes of profitability

  • Must choose the appropriate time frame:

    • Consider the industry business life cycle.

    • Average profitability over three to five years or longer

  • Must consider quantitative factors as well as qualitative:

    • Quantify five forces factors

      • For example, percentages of total cost or sales accounted for by the industry, actual switching costs.

Strategic Groups within Industries

• Clusters of firms that share similar strategies:

  • Breadth of product and geographic scope

  • Price/Quality

  • Degree of Vertical Integration

  • Type of distribution

Strategic Groups as an Analytic Tool

• Help identify barriers to mobility that protect a group from attacks by other groups

• Help identify groups whose competitive position may be marginal or tenuous

• Help chart the future direction of the firms’ strategies

• Help to think through the implications of each industry trend for the strategic group as a whole