Environmental Scanning & Monitoring Techniques

Environmental scanning is a concept from business management by which businesses gather information from the environment, to better achieve a sustainable competitive advantage. To sustain competitive advantage the company must also respond to the information gathered from environmental scanning by altering its strategies and plans when the need arises.

Environmental Scanning & MonitoringTechniques SWOT
PEST Techniques QUEST

Industry Analysis

Competitor Analysis

.SWOT (Strength-Weakness-Opportunity-Threat) Identification of threats and Opportunities in the environment (External) and strengths and Weaknesses of the firm (Internal) is the cornerstone of business policy formulation. it is these factors which determine the course of action to ensure the survival and growth of the firm.

SWOT Analysis .

The research was funded by the fortune 500 companies to find out what could be done about this failure. The SWOT analysis is an extremely useful tool for understanding and decision-making for all sorts of situations in business and organizations. Opportunities. Dr Otis Benepe. Birger Lie. The Research Team were Marion Dosher. SWOT analysis came from the research conducted at Stanford Research Institute from 1960-1970. The background to SWOT stemmed from the need to find out why corporate planning failed. Robert Stewart. Weaknesses. Albert Humphrey. SWOT is an acronym for Strengths. Threats.  .

.  External factors – The opportunities and threats presented by the external environment. SWOT analysis groups key pieces of information into two main categories:  Internal factors – The strengths and weaknesses internal to the organization.SWOT: Studying Internal & External Environment The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective.

location  Cost advantages from proprietary know-how  Creativity / ability to develop new products  Valuable intangible assets: intellectual capital  Competitive capabilities  Big campus selection .Examples of SWOTs  Strengths and Weaknesses  Resources: financial. intellectual.

 Opportunities and Threats  Takeovers  Market Trends  Economic condition  Mergers  Joint ventures  Strategic alliances  Expectations of stakeholders  Technology  Public expectations  Competitors and competitive actions  Poor Public Relations Development  Criticism (Editorial)  Global Markets  Environmental conditions .

this needs to include an assessment of the present situation as well as a portfolio of products/services and an analysis of the product/service life cycle .Uses of SWOT Analysis   Corporate planning Set objectives – defining what the organisation is intending to do  Environmental scanning  Internal appraisals of the organisations SWOT.

This may include gap analysis (compare its actual performance with its potential performance which will look at environmental factors) Strategic Issues defined – key factors in the development of a corporate plan which needs to be addressed by the organisation Develop new/revised strategies – revised analysis of strategic issues may mean the objectives need to change .Analysis of existing strategies. this should determine relevance from the results of an internal/external appraisal.

resource. taking corrective action which may mean amending objectives/strategies. projects plans for strategy implementation Monitoring results – mapping against plans.   . Establish critical success factors – the achievement of objectives and strategy implementation Preparation of operational.

strategic planning. Use SWOT analysis for business planning. business and product development and research reports. marketing. competitor evaluation.Also. .

PEST Analysis A scan of the external macro-environment in which the firm operates can be expressed in terms of the following factors: •Political •Economic •Social •Technological .

A PEST analysis fits into an overall environmental scan as shown in the following diagram: Environmental Scan / External Analysis / Macroenvironment \ Microenvironment \ Internal Analysis | P.E.The acronym PEST (or sometimes rearranged as "STEP") is used to describe a framework for the analysis of these macroenvironmental factors.T.S. .

Political Factors Political factors include government regulations and legal issues and define both formal and informal rules under which the firm must operate. Some examples include: •tax policy •employment laws •environmental regulations •trade restrictions and tariffs •political stability .

The following are examples of factors in the macroeconomy: •economic growth •interest rates •exchange rates •inflation rate .Economic Factors Economic factors affect the purchasing power of potential customers and the firm's cost of capital.

Social Factors Social factors include the demographic and cultural aspects of the external macroenvironment. These factors affect customer needs and the size of potential markets. Some social factors include: •health consciousness •population growth rate •age distribution •career attitudes •emphasis on safety .

Technological Factors Technological factors can lower barriers to entry. and influence outsourcing decisions. reduce minimum efficient production levels. Some technological factors include: •R&D activity •automation •technology incentives •rate of technological change .

Industry Analysis An industry is a group of firms producing a similar product or service  An examination of the important stakeholders’ group in a particular corporation’s task environment is a part of industry analysis  .

the corporation must assess the importance to its success of each of the six forces  .Porter’s approach to Industry Analysis A corporation is most concerned with the intensity of competition within its industry  The level of this intensity is determined by basic competitive forces  In scanning its industry.

Forces Driving Industry Competition Potential Entrants Threat of New Entrants Relative Power of Unions. Other Stakeholders Suppliers Industry Competitors Bargaining Power of Buyers Buyers Bargaining Power of Suppliers Rivalry Among Existing Firms Threat of Substitute Products or Services Substitutes . Governments. etc.

Threat of New Entrants: Some Barriers to Entry Economies of Scale  Product Differentiation  Capital Requirements  Switching Costs  Access to Distribution Channels  Cost Disadvantages Independent of Size  Government Policy  Expected Retaliation  .

Properties of Entry Barriers Entry barriers can and do change as the conditions change  Entry barriers can change for reasons inside the firm : impact of the firm’s strategic decisions  Some firms may possess resources or skills which allow them to overcome entry barriers into an industry more cheaply than most other firms  .

Rivalry Among Existing Firms Intense Rivalry is Related To: Number of Competitors: numerous or equally balanced competitors  Rate of Industry Growth: slow industry growth  Product or Service Characteristics: Lack of differentiation or switching costs  Amount of Fixed Costs : high fixed or storage costs  .

emotional barriers. government and social restrictions)  . fixed costs of exit.High fixed or storage costs  Lack of differentiation or switching costs  Capacity augmented in large increments (leading to overcapacity and price cuttings)  Diverse competitors  High strategic stakes  High exit barriers (specialized assets. strategic interrelationships.

its growth rate declines.Shifting Rivalry The factors that determine the intensity of competitive rivalry can and do change  As an industry matures. declining profits  An acquisition can introduce a different personality to an industry  Focusing selling efforts on the fastest growing segments can reduce the impact of industry rivalry  . resulting in intensified rivalry.

poor profitability)  . but is usually accompanied by more risks. profit potential is high. and unsuccessful competitors will leave the industry  When both entry and exit barriers are high. and unsuccessful firms will fight to stay  The worst case is when entry barriers are low and exit barriers are high (overcapacity.Entry Barriers and Exit Barriers When entry barriers are high and exit barriers are low. entry will be deterred.

Pressure from Substitute Products Substitutes limit the potential return of an industry by placing a ceiling on the prices firms in the industry can profitably charge  Identifying substitute is searching for other products that can perform the same function as the product of the industry  The impact of substitutes can be summarized as the industry’s overall elasticity of demand  .

Bargaining Power of Buyers Buyers compete by forcing down prices. bargaining for higher quality or more services. It purchases large volumes relative to seller sales 2. The products it purchases from the industry represent a significant fraction of the buyer’s cost of purchase (shop for good price)  . and playing competitors against each other  A buyer’s group is powerful if: 1.

The industry’s product is unimportant to the quality of the buyer’s products or services 8.The products it purchases from the industry are standard or undifferentiated 4. It faces few switching costs 5. The buyer has full information 3. . Buyers pose a credible threat of backward integration 7. It earns low profits (thus sensitive to costs) 6.

Bargaining Power of Suppliers   1. 3. 2. 4. Suppliers can exert bargaining power over participants in an industry by threatening to raise prices or reduce the quality of purchased goods and services A supplier group is powerful if: It is dominated by a few companies It is not obliged to contend with other substitute products for sale to the industry The industry is not an important customer The supplier’s product is an important input to the buyer’s business .

The supplier’s group products are differentiated or it has built up switching costs 6. Labor must be considered as a supplier that exerts great power in many industries 5. The supplier group poses a credible threat of forward integration 7. .

subsidies. or other means  Government can affect rivalry among competitors by influencing industry growth  .Government as a force in industry competition Government role as supplier and buyer can be influenced by political factors  Government regulations can set limits on the behavior of firms as suppliers or buyers  Government can affect the position of an industry with substitutes through regulations.

5.10 questions to monitor competitors for strategic planning 1. better service? Which of your customers are the competition most interested in? best customers or the ones you don’t want? What is their cost base and liquidity? Are they less exposed with their suppliers than your firm? . lower price. credit terms. 3. 2. 4. Why do your competitors exist? to make profits or to support another unit? Where do they add customer value? Higher quality.

How much better than your competitor do you need to be in order to win customers? 9.What do they intend to do in the future? Target your market segments? Growing? 7. Will new competitors appear over the next few years? 10. How will their activities affect your strategies? Should you adjust your plans and operations? 8. If you were a customer. . would you choose your product over those offered by your competitors? 6.

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