ENVIRONMENTAL SCANNING Part 1

ENVIRONMENTAL SCANNING
2ND SEM 2013-2014 FINSTRA/ MARKSTR/BUSPOLI

ENVIRONMENTAL SCANNING Part 1

Learning Objectives:
Recognize aspects of an organizations

environment that can influence its long term decisions. Identify the aspects of an organizations environment that are most strategically important. Understand different models of scanning the environment.

BASIC CONCEPTS OF STRATEGIC MANAGEMENT

STRATEGIC MANAGEMENT MODEL

ENVIRONMENTAL SCANNING Part 1

ENVIRONMENTAL SCANNING
Is the (A) monitoring, (B) evaluating, and

(C) disseminating of information from the external and internal environments to key people within the organization.
Purpose is to identify strategic factors that will

determine the future of the organization.

ENVIRONMENTAL SCANNING Part 1

TOOLS IN ANALYZING ENVIRONMENTS

SWOT Analysis
TOWS Analysis

STEEP (PESTEL, PEST) Analysis

PORTERS FIVE FORCES MODEL +

1 ( Hunger and Wheelen)

ENVIRONMENTAL SCANNING Part 1 External Invironment

SWOT ANALYSIS

ENVIRONMENTAL SCANNING Part 1

T O W S
A N A L Y S I S

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T O W S

Opportunities

Threats ST "Maxi-Mini" Strategy Strategies that use strengths to minimize threats.

Strengths

SO "Maxi-Maxi" Strategy Strategies that use strengths to maximize opportunities.

A N WO A Weaknesses "Mini-Maxi" Strategy L Strategies that minimize Y weaknesses by taking S advantage of I opportunities. S

WT "Mini-Mini" Strategy
Strategies that minimize weaknesses and avoid threats.

ENVIRONMENTAL SCANNING Part 1

TOWS ANALYSIS - DLSL

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STEEP ANALYSIS
It may be also be called PESTEL ( Political, Economic,

Sociocultural, Technological, Ecological and Legal Forces) analysis or PEST analysis

Important variables in the societal environment are:

a) S socio cultural b) T technological c) E economic d) E ecological d) P political -legal

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Socio cultural
Lifestyle changes Career expectations Consumer activism Rate of family formation Growth rate of population Age distribution of

Life expectancies Birth rates

Pension plans
Health care Level of education Living wage Unionization

population Regional shifts in population

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Economic
GNP trends Interest rates Energy alternatives Energy availability and

cost Disposable and Inflation rates discretionary income Unemployment levels Currency markets Wage/price controls Global financial system Devaluation/revaluations
Money supply

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Technological
Total government spending

Productivity

for R & D Total industry spending for R&D Focus on technological efforts Patent protections New products New developments in technology transfer from lab to marketplace

improvements through automation Internet availability Telecommunication infrastructure Computer hacking activity

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Political - Legal
Anti trust regulations Environmental Attitudes toward

protection laws Global warming legislation Immigration laws Tax laws Special incentives Foreign trade regulations

foreign companies Laws on hiring and promotion Stability of government Outsourcing regulations Foreign sweat shops

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PORTERS five FORCES MODEL + 1

Michael Porter contends that a corporation is most

concerned with the intensity of competition within the industry. Level of intensity is determined by the following competitive forces: ( Forces driving industry competition) 1) Threat of New entrants 2) Rivalry among existing firms 3) Threat of substitute products or services 4) Bargaining power of suppliers 5) Bargaining power of buyers 6) Relative power of other stakeholders

ENVIRONMENTAL SCANNING Part 1 External Invironment

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Porters Five Forces Model of Industry Competition + 1

Threat from New Entrants

Suppliers Power

Rivalry of Firms

Buyers Power

Threat from Substitutes

Power of other Stakeholders

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Threat of new entrants

Entry barrier is an obstruction that makes it

difficult for a company to enter an industry. Some possible barriers to entry are: a) Economies of scale b) Capital requirements c) Switching costs d) Access to distribution channels e) Cost disadvantages independent of size f) Government policies

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Rivalry among existing firms

According to Porter, intense rivalry is related to

the presence of several factors, including: a) Number of competitors b) Rate of industry growth c) Product or service characteristics d) Amount of fixed costs e) Height of exit barriers f) Diversity of rivals

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Threat of substitute products or services

SUBSTITUTE products is product that appears to be

different but can satisfy the same need as another product. For example : email is substitute for the fax nutra sweet for sugar internet for video stores bottled water for cola According to Porter, substitutes limit the potential returns of an industry by placing a ceiling on the prices firms in the industry c an profitably charge.

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Bargaining Power of Buyers

Buyers affect an industry through their ability to fore down

prices, bargain for higher quality or more services, and play competitors against each other. A buyer or group of buyers is powerful if some of the following factors hold true: a) A buyer purchases a large portion of the sellers product or service ( ex. Oil filters purchased by a major auto maker) b) A buyer has the potential to integrate backward by producing the product itself ( ex: a newspaper chain could make its own paper) c) Alternative suppliers are plentiful because product is standard or undifferentiated ( ex: motorists can choose among many gas stations)

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Bargaining Power of Buyers

d) Changing suppliers cost very little ( ex: office supplies are easy to find) e) The purchased product represents a high percentage of a buyers cost, thus providing an incentive to shop around for a lower price ( ex; gasoline purchased for resale by convenience stores makes up half their total cost) f) A buyer earns low profits and is thus very sensitive to costs and service differences (ex. Grocery stores have a very small margins) g) The purchased product is unimportant to the final quality or price of a buyers products or services and thus can be easily substituted w/o affecting the final product adversely ( ex. Electric wire bought for use in lamps)

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Bargaining power of suppliers

Suppliers can affect an industry through their ability to raised prices

or reduce the quality of purchased goods and services. a) The supplier industry is dominated by a few companies, but it sells to many ( ex. The petroleum industry) b) Its product or service is unique and/or it has built up switching costs (ex. Word processing software) c) Substitutes are not readily available ( ex. Electricity) d) Suppliers are able to integrate forward and compete directly with their present customers ( ex. A microprocessor producer such as Intel can make PCs) e) A purchasing industry buys only a small portion of the supplier groups goods and services and is thus unimportant to the supplier ( ex. Sale of lawn mower tires are less important to the tire industry than are sales of auto tires.)

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Relative Power of Other Stakeholders

Variety of stakeholder groups from the task environment are: Governments Local communities Creditors Trade associations Special interest groups Unions Shareholders Complementor

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REFERENCES
Strategic Management & Business Policy: Achieving Sustainability by Thomas L. Wheelen and David Hunger 12th Edition The TOWS Matrix --- A Tool for Situational Analysis Heinz Weihrich*, Professor of Management, University of San Francisco Strategic Management Concepts and Cases Global Edition by Fred David Fox School of Business Manage. Industry Competitor Analysis [online]