Strategic Management

Session 4
Chapter 4 : Environmental Scanning & Industry Analysis
 Poll
• What is the role of business in society?
– PRIMARILY to contribute to national
development
– PRIMARILY to make profits for the
shareholder
 The World We live in
• Volatile
• Uncertain
• Complex
• Ambiguous
Every organization faces Environmental
uncertainty(EU)
EU = U◦ x C◦
Where U = Uncertainty
C = Complexity
Pace of Change
US Generations & Population
 India Age Structure
• Age structure:
Chart Title
• 0-14 years: 26.31% (male
185,017,089/female
163,844,572)
• 15-24 years: 17.51% (male
123,423,531/female
108,739,780)
• 25-54 years: 41.56% (male
285,275,667/female
265,842,319)
• 55-64 years: 7.91% (male
52,444,817/female 52,447,038)
• 65 years and over: 6.72% 0-14 15-24 25-54 55-64 65+

(male 42,054,459/female
47,003,975) (2020 est.)
 Environmental Analysis
• Scanning – Identifying early signals of
environmental changes and trends
• Monitoring – Detecting meaning through
ongoing observations of environmental changes
and trends
• Forecasting – Developing projections of
anticipated outcomes based on monitored
changes and trends
• Assessing – Determining the timing and
importance of environmental changes and
trends for firms’ strategies and their
management
External Environmental Variables
Scanning the External Environment
 Why?
Why is External Scanning important?
• Competitive advantage lies in the ability to
identify and respond to environmental changes
in advance of the competition
• Companies that are most successful at avoiding
surprises had a well-defined system that
integrated planning, budgeting, and business
reviews – Booz Allen
• Avoid Strategic Myopia - willingness to reject
unfamiliar as well as negative information
Industry Analysis
 Threat of New Entrants
Entry Barriers
• Economies of Scale
• Product Differentiation
• Capital Requirements
• Switching costs
• Access to Distribution channels
• Cost disadvantages independent of size
• Government policy
 Rivalry amongst Existing Firms
• Number of Competitors
• Rate of growth of industry
• Product or Service characteristics
• Fixed Costs
• Capacity
• Exit barriers
• Diversity of Rivals
 Bargaining Power of Buyers
• Small number of buyers
• Potential to integrate backward
• Plenty alternative buyers
• Low switching costs
• Low margin sensitivity
• Volume of purchase
Bargaining Power of Suppliers
• Few suppliers
• Unique product/service
• Lack of substitutes
• Integrate forward
• Volume is small
 Threat of Substitutes
• Satisfies need though different
• Switching costs low
 Question for Discussion!
• Do other stakeholders – Governments,
Local communities, NGOs, impact profit
potential?
• What must business leaders do to
mitigate this risk?
• The Power of Complementors!
 Competitor Analysis
How are we currently Do we assume the
competing? future will be
Does their strategy Current volatile?
support changes in Assumptions
competitive
strategy Is there a status quo?
What assumption do
structure? our competitors hold?

Future
Capabilities
Objectives
Response
How do our goals compare? What are our strengths and
Where is the future emphasis Weaknesses?
What is the attitude towards risk?

What will our competitors do in the future?

Where do we hold an advantage over our competitors?
How will this change our relationship with our competitors?
Strategic Groups
 Forecasting Techniques
• Brainstorming
• Expert opinion
• Statistical modelling
• Prediction markets
• Scenario Writing