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the monitoring, evaluation and dissemination of
information relevant to the organizational development of
Identifying External Environmental
Identifying External Environmental Variables

Natural Environment
 includes physical resources, wildlife and
climate that are an inherent part of
existence on Earth
 form an ecological system of interrelated life
Identifying External Environmental Variables

Societal Environment
 mankind’s social system that includes
general forces that do not directly touch on
the short-run activities of the organization,
but that can influence its long-term
 FORCES: economic, technological, political-
legal and sociocultural
Identifying External Environmental Variables

Societal Environment
 Economic forces that regulate the exchange of
materials, money, energy, and information.
 Technological forces that generate problem-
solving inventories.
 Political-legal that allocate power and provide
constraining and protecting laws and regulations
 Sociocultural that regulate the values, mores, and
customs of society
Identifying External Environmental Variables

Task Environment
 those elements or groups that directly affect
a corporation and, in turn, are affected by it
 government, local communities, suppliers,
competitors, customers, creditors, unions,
special interest groups/trade associations
Identifying External Environmental Variables

Industry Analysis
 an in-depth examination of key factors
within a corporation’s task environment
1.2 Scanning the Environment
Scanning the Environment

Scanning the Societal Environment

 STEEP Analysis
- monitoring trends in the societal
and natural environments
- Sociocultural, Technological,
Economic, Ecological and
Political-legal forces

 Increasing environmental awareness
 Growing health consciousness
 Expanding seniors market
 Impact of Millennials
 Declining mass market
 Changing pace and location of life
 Changing household composition
 Increasing diversity of workforce and markets

 Portable information devices and electronic
 Alternative energy sources
 Precision farming
 Virtual personal assistants
 Genetically altered organisms
 Smart, mobile robots

 Increase in interest rates
 Changes in price

 The effects of climate change on companies
can be grouped into six categories of risks:
regulatory, supply chain, product and
technology, litigation, reputational and

 Trends in this part of the societal environment
have a significant impact not only on the level
of competition within an industry but also on
which strategies might be successful.
Scanning the Environment

Scanning the Task Environment

 A corporation’s scanning of the
environment includes analyses of all the
relevant elements in the task
Identifying External Strategic Factors

The origin of competitive advantage lies in

the ability to identify and respond to environmental
change well in advance of competiton. Some
companies are better able to adapt than others
because of the differences in the ability of the
managers to recognize and understand external
strategic issues and factors. These factors are the
key environmental trends that are judge to have
both a medium to high probability of occurrence
and a medium to high probability of impact on the
Identifying External Strategic Factors

Issues Priority Matrix

Identifying External Strategic Factors

The Issues Priority Matrix can be used to

help managers decide which environmental
trends should be merely scanned (low priority)
and which should be monitored as strategic
factors (high priority). Those trends judged to
be a corporation’s strategic factors are then
categorized as opportunities and threats and
are included in strategy formulation.
Industry is a group of the firms that produces a similar
product or service, such as soft drinks or financial services.
Porter’s Approach to Industry
Industry Analysis

Forces Driving Industry Competition

 Threat of New Entrants
 Rivalry among Existing Firms
 Threat of Substitute Products or Services
 Bargaining Power of Buyers
 Bargaining Power of Suppliers
 Relative Power of Other Stakeholders
Porter’s Approach to Industry Analysis
Porter’s Approach to Industry Analysis

Threat of New Entrants

 New entrants to an industry bring new
capacity, a desire to gain market share and
substantial resources
Porter’s Approach to Industry Analysis

Threat of New Entrants

 Entry Barrier - an obstruction that makes it difficult
for a company to enter an industry
- Economies of scale
- Product differentiation
- Capital Requirements
- Switching cost
- Access to distribution channels
- Cost disadvantages due to size
- Government policy
Porter’s Approach to Industry Analysis

Rivalry among Existing Firms

 In most industries, corporations are mutually
 A competitive move by one firm can be
expected to have a noticeable effect on its
competitors and thus may cause retaliation.
Porter’s Approach to Industry Analysis

Rivalry among Existing Firms

 Intense rivalry is related to the presence of
several factors, including:

- Number of competitors
- Rate of industry growth
- Product or service characteristics
- Amount of fixed costs
- Capacity
- Height of exit barriers
- Diversity of rivals
Porter’s Approach to Industry Analysis

Threat of Substitute Products or Services

 Substitute product
a product that appears to be different but
can satisfy the same need as another product

 The identification of possible substitute

products means searching for products that can
perform the same function, even though they
have a different appearance.
Porter’s Approach to Industry Analysis

Bargaining Power of Buyers

 ability of buyers to force prices down,
bargain for higher quality and play
competitors against each other
Porter’s Approach to Industry Analysis

Bargaining Power of Buyers

 A buyer or a group of buyers is powerful if some of
the following factors hold true:

- Large purchases
- backward integration
- alternative suppliers
- low cost to change suppliers
- product represents a high percentage
of buyer’s cost
- buyer earns low profits, product is unimportant
to buyer
Porter’s Approach to Industry Analysis

Bargaining Power of Suppliers

 ability of suppliers to raise prices or
reduce the quality of purchased good and
Porter’s Approach to Industry Analysis

Bargaining Power of Buyers

 A supplier or a group of suppliers is powerful if
some of the following factors hold true:

- Industry is dominated by a few companies

- Unique product or service
- Substitutes are not readily available
- Ability to forward integrate
- Unimportance of product or service to the
Porter’s Approach to Industry Analysis

Relative Power of Other Stakeholders

 Government
 Local communities
 Creditors
 Trade associations
 Special interest groups
 Unions
 Shareholders
2.2 Industry Evolution
Industry Evolution

Fragmented Industry
 no firm has a large market share and each
firm only serves a small piece of the total
market in competition with other firms

Consolidated industry
 domination by a few large firms, each
struggles to differentiate products from its
Categorizing International
Categorizing International Industries

Multi-domestic industries
 specific to each country or group of countries

Global industries
 operate worldwide with multinational companies
making only small adjustments for country-specific

Regional industries
 multinational companies primarily coordinate their
activities within regions
Categorizing International Industries

Continuum of international Industries

2.4 Strategic Groups
a set of business units or firms that pursue similar
strategies with similar resources
2.5 Strategic Types
a set of business units or firms that pursue similar
strategies with similar resources
Strategic Types

General types have the following characteristics:

 Defenders - focus on improving efficiency

 Prospectors - focus on product innovation and
market opportunities
 Analyzers - focus on at least two different product
market areas
 Reactors - lack a consistent strategy-structure-
culture relationship
2.6 Hypercompetition

Market stability is threatened by short

product life cycles, short product design cycles,
new technologies, frequent entry by
unexpected outsiders, repositioning by
incumbents and tactical redefinitions of market
boundaries as diverse industries merge.
2.7 Using Key Success Factors to
Create an Industry Matrix
Using Key Success Factors to Create an Industry Matrix

Key success factors

 variables that can significantly affect the
overall competitive positions of companies
within any particular industry
Using Key Success Factors to Create an Industry Matrix

Industry matrix
 summarizes the key success factors within a
particular industry
a formal program of gathering information on a
company’s competitors, and often called Business
Competitive Intelligence

Sources of competitive intelligence

 Information brokers
 Internet
 Industrial espionage
 Investigatory services
4 Forecasting
Useful Forecadting Techniques

The extension of present trends into the future

A non-quantitative approach that requires simply the
presence of people with some knowledge of the
situation to be predicted

Expert Opinion
A non-quantitative technique in which experts in a
particular area attempt to forecast likely
Useful Forecadting Techniques

Delphi technique
separated experts independently assess the
likelihoods of specified events

Statistical Modeling
A quantitative technique that attempts to discover
causal or at least explanatory factors that link two or
more time series together

Prediction Markets
Small-scale electronic markets, frequently open to any
employee, that tie payoffs to measurable future events,
such as sales data for a computer workstation, the number
of bugs in an application, or a product usage patterns
Useful Forecasting Techniques

Scenario Writing
- The most widely used forecasting technique
- Scenarios are focused description of different likely
futures presented in a narative form, or merely a
written descrition of some future state, in terms of
key variables and issues

Industry Scenario is a forecasted desciption of a

particular industry’s likely future.
Synthesis of External Factors

External Factor Analysis Summary (EFAS)

Used to organize the external factors into generally accepted
categories of opportunities and threats as well as to analyze how
well a particular company’s management (rating) is responding
to these specific factors in light of the perceived importance
(weight) of these factors to the company.
Synthesis of External Factors