External Environment Analysis

• 4 components of Environmental Analysis

– Scanning

– Monitoring

– Forecasting

– Assessing
 External Environment Analysis
• Scanning:
• Scanning entails the study of all segments in the general environment.
Through scanning firms identify early signals of potential changes in
the general environment and detect changes that are already under
way

• Monitoring :

• When monitoring, analysts observe environmental changes to see if

an important trend is emerging from among those spotted through
scanning.
• Critical to successful monitoring is the firm’s ability to detect meaning
in different environmental events and trends

• Forecasting :

• Scanning and monitoring are concerned with events and trends in the
general environment at a point in time.

• When forecasting, analysts develop feasible projections of what

might happen, and how quickly, as a result of the changes and trends
detected through scanning and monitoring
 External Environment Analysis
• Assessing :

• The objective of assessing is to determine the timing and significance

of the effects of environmental changes and trends that have been
identified.

• Through scanning, monitoring, and forecasting, analysts are able to

understand the general environment.

• Going a step further, the intent of assessment is to specify the

implications of that understanding.

• Without assessment, the firm is left with data that may be interesting
but are of unknown competitive relevance
 Competitive Strategy- 5 Ps

Mintzberg (1987):

1. Plan:

2. Ploy:

3. Pattern:

4. Position:

5. Perspective:
 What is Strategy?- 5 Ps

Mintzberg (1987):
1. Plan: Strategy as plan is some sort of consciously intended course
of action or a set of guidelines to deal with a situation and shows
the firm how to reach its intended position from its current state.
2. Ploy: Strategy as ploy could be a specific manoeuvre intended to
outwit an opponent or competitor so that competitive scenario turns
in its favour.
3. Pattern: Strategy as pattern refers to patterns in a stream of actions
and by this definition strategy is consistency in behaviour, whether
or not intended.
4. Position: It is a means of locating an organisation in an environment
and by this definition strategy becomes a mediating force between
organisation and environment.
5. Perspective: Strategy as perspective refers to the way a firm
perceives the world and suggests that strategy is a concept.
 Strategic Plan
• Mission and Vision

• Market Analysis

• Current state vs Future state

• Key drivers and objectives

• Changes : how things look today vs tomorrow

• Roadmap ( on 3 to 5 years –when things are going to happen?)

• Key initiatives owners : who owns which key initiatives?

• Guiding Principles

• Critical Success Factors

• Strategic Plan should tell a story…Kirk Mahlen

 Core Competency
• Competencies are easy to acquire if they come from explicit
knowledge:

• Since readily articulated and communicated, this knowledge is easily

acquired by commercial intelligence;

• Core Competencies come from tacit knowledge (or ‘knowing’):

• Not easily communicated or imitable since they come from ‘shared

knowledge’ i.e. deeply rooted in experiences and corporation’s
culture;

• Often they are not very formalized or are derived from a complex
web of elements which cannot be distinctly defined by the
management;

• Top management are very reluctant to intervene!

 Core Competency
Strong core competencies:

1. are well-organized special skills, technologies, processes,

knowledge, expertise, or abilities.

2. are typically achieved by long-term development processes

and experiences.

3. create customer value because they are considered by your

customers to be unique and distinguishable, and they are not
equally accessible to all competitors.

4. are extremely difficult for other companies to imitate, if they

can at all.
 Core Competency

• A core competency is a specific factor that a business sees as

being central to the way it, or its employees work. It fulfils three
key criteria:

1. It provides consumer benefits

2. It is not easy for competitors to imitate

3. It can be leveraged widely to many products and markets.

Prahalad & Hamel introduced this term in their paper “The Core
Competence of the Corporation” (HBR, 1990) :
 Blue Ocean Strategy

Blue Ocean Strategy: Basic premises

 “Red Oceans”
 Represents all the industries in existence today: this is the known
market space; boundaries are defined and competitive rules of
are known;

 Companies try to outperform their rivals in this space: cut-throat

competition turns ‘ocean’ Red.

 “Blue Oceans.”
 Are defined by the untapped market space, demand creation and
highly profitable growth

 Created beyond existing industry boundaries as well as from

within the Red Oceans by expanding the existing boundary.
 Red Oceans
• Growth attracts new players

• Supply overtakes demand

• Commoditization of products/ services

• Price wars

• Shrunk profitability
 Corporate Strategy: Blue Ocean Strategy
 Promoted by W. Chan Kim & Renee Mauborgne

1. The approach suggests that ‘Competition be made redundant’ by side-

stepping it!

2. Present a compelling case for pursuing strategy with a creative, not

combative, approach.

3. There are no permanently excellent companies just as there are no

permanently excellent industries. …. Kim & Mauborgne
 Blue Oceans
• Understand the rules of the industry and then break/ re-invent/modify
them

• Look for other industries to make modifications in the rules

• Concentrate on “Value Innovation”

Red and Blue Ocean Strategy
 Reference Books

1. Blue Ocean Strategy- How to create uncontested market space

and make the competition irrelevant by W. Chan Kim and Renee
Mauborgne
 Learning organizations

Defined:
An organization skilled at creating, acquiring, and transferring
knowledge and at modifying its behavior to reflect new
knowledge and insights.

Four Main Activities:

1.Solving problems systematically

2.Experimenting with new approaches
3.Learning from their own experiences and that of others
4.Transferring knowledge quickly and efficiently throughout the
organization
Benchmarking
 Comparative Analysis
• BENCHMARKING
• “The practice of being humble enough to admit that someone
else is better at something and being wise enough to learn
how to match and even surpass them at it”

1. Competitive Benchmarking: direct comparison of one’s own

performance against the best competitors.

2. Generic Benchmarking: comparison of one’s own processes

against the best practices anywhere in any type of
organization.

Eg:
 15 minutes TAT
 SQ
 Corporate Culture
• Definition : “ is the collection of beliefs, expectations and values learned
and shared with its members, transmitted from one generation of
employees to another”

• “This is who we are, what we do and what we stand for”

• Has two attributes, shaping behaviours and influencing strategy

1. Intensity: degree of acceptance of norms, manifest in acceptance of sub-
cultures within each unit – the ‘depth’ of culture: leading to ‘shared value’

2. Integration: commonality across the lines of business/units, manifest in an

all-pervasive culture – the ‘breadth’ of culture: leading to consistent
behaviours
 Corporate Culture
• Corporate Culture fulfills several important functions in an
organization
1. Conveys a sense of identity for employees
2. Helps generate employee commitment to something greater than
themselves
3. Adds to the stability of the organization as a ‘social’ system
4. Serves as a frame of reference for employees to use to make
sense out of organizational activities
5. As a guide to appropriate behaviour

• Culture strongly influences behaviour and can significantly affect

a firm’s ability to shift its strategic direction
 Corporate Culture
• Corporate Culture fulfills several important functions in an
organization
1. Conveys a sense of identity for employees
2. Helps generate employee commitment to something greater than
themselves
3. Adds to the stability of the organization as a ‘social’ system
4. Serves as a frame of reference for employees to use to make
sense out of organizational activities
5. As a guide to appropriate behaviour

• Culture strongly influences behaviour and can significantly affect

a firm’s ability to shift its strategic direction