CHAPTER 4

Environmental
Scanning and
Industry Analysis

STRATEGIC MANAGEMENT & BUSINESS POLICY

10TH EDITION
THOMAS L. WHEELEN J. DAVID HUNGER

Prentice Hall, Inc. © 2006 4-1

Prentice Hall, Inc. © 2006 4-2
Prentice Hall, Inc. © 2006 4-3
 Environmental Scanning
• Environmental scanning is the monitoring, evaluation, and
dissemination of information from the external and internal
environments to key people within the corporation.
1. Natural Environment
2. Societal Environment
3. Task Environment

Prentice Hall, Inc. © 2006 4-4

 Environmental Scanning
1. Natural environment
1. physical resources,
2. wildlife, and
3. climate that are an inherent part of existence on Earth.
4. These factors form an ecological system of interrelated life.
2. Societal environment
1. Economic forces
2. Technological forces
3. Political-legal forces
4. Sociocultural forces
3. Task environment
1. governments,
2. local communities,
3. suppliers,
4. competitors,
5. customers,
6. creditors,
7. employees/labor unions,
8. special-interest groups, and
9. trade associations.
10. Industry --- Industry Analysis

Prentice Hall, Inc. © 2006 4-5

 Societal Environment

STEEP Analysis- the scanning of

1.Sociocultural,
2.Technological,
3.Economic,
4.Ecological, and
5.Political-legal environmental forces.
PESTEL Analysis
6.Political,
7.Economic,
8.Sociocultural,
9.Technological,
10.Ecological, and
11.Legal forces.

Prentice Hall, Inc. © 2006 4-6

 Societal Environment

Economic Forces --Regulate exchange of

materials, money, energy and information
1.GDP trends
2.Interest rates
3.Money supply
4.Inflation rates
5.Unemployment levels
6.Wage/price controls
7.Devaluation/revaluation
8.Energy alternatives
9.Energy availability
10.and cost
11.Disposable and
12.discretionary income
13.Currency markets
14.Global financial system
Prentice Hall, Inc. © 2006 4-7
 Societal Environment

Technological Forces --
–Generate problem-solving inventions
1.Total government spending
2.for R&D
3.Total industry spending
4.for R&D
5.Focus of technological efforts
6.Patent protection
7.New products
8.New developments in
9.technology transfer from lab
10.to marketplace
11.Productivity improvements
12.through automation
13.Internet availability
14.Telecommunication
15.infrastructure
16.Computer hacking activity

Prentice Hall, Inc. © 2006 4-8

 Societal Environment

Political-legal Forces --
–Allocate power; provide laws and regulations
1.Antitrust regulations
2.Environmental protection laws
3.Global warming legislation
4.Immigration laws
5.Tax laws
6.Special incentives
7.Foreign trade regulations
8.Attitudes toward foreign companies
9.Laws on hiring and promotion
10.Stability of government
11.Outsourcing regulation
12.Foreign “sweat shops”

Prentice Hall, Inc. © 2006 4-9

 Societal Environment

Sociocultural Forces --
–Regulate values, mores, and customs of
society
1.Lifestyle changes
2.Career expectations
3.Consumer activism
4.Rate of family formation
5.Growth rate of population
6.Age distribution of population
7.Regional shifts in population
8.Life expectancies
9.Birthrates
10.Pension plans
11.Health care
12.Level of education
13.Living wage
14.Unionization

Prentice Hall, Inc. © 2006 4-10

 Variables in Societal Environment

Prentice Hall, Inc. © 2006 4-11

 Demographic Trends

Prentice Hall, Inc. © 2006 4-12

 Transformational Sociocultural Trends

8 Current Trends –

1. Increasing environmental awareness

2. Growing health consciousness
3. Expanding seniors market
4. Impact of the Generation Y boomlet
5. Declining mass market
6. Changing pace and location of life
7. Changing household composition
8. Increasing diversity of workforce & market

Prentice Hall, Inc. © 2006 4-13

 International Societal Environments

Prentice Hall, Inc. © 2006 4-14

 Task Environment

Task environment -- Elements or groups that

directly affect a corporation and are affected by it
1. governments,
2. local communities,
3. suppliers,
4. competitors,
5. customers,
6. creditors,
7. employees/labor unions,
8. special-interest groups, and
9. trade associations.
10. Industry --- Industry Analysis

Prentice Hall, Inc. © 2006 4-15

 Task Environment

Industry Analysis --

–In-depth examination of key factors within a

corporation’s task environment

Prentice Hall, Inc. © 2006 4-16

 Scanning the Task Environment

Prentice Hall, Inc. © 2006 4-17

 Ethical Behavior

“business ethics”

–Argument that there is no such thing … it is an

oxymoron

Prentice Hall, Inc. © 2006 4-18

 Ethical Decision Making

Corporate practices --

–Massive write-downs and restatements of profit

–Misclassification of expenses as capital
expenditures
–Pirating corporate assets for personal gain

Prentice Hall, Inc. © 2006 4-19

 External Strategic Factors

Strategic myopia --

–Willingness to reject unfamiliar as well as negative

information

Prentice Hall, Inc. © 2006 4-20

 Issues Priority Matrix

Prentice Hall, Inc. © 2006 4-21

 Analyzing the Task Environment

Prentice Hall, Inc. © 2006 4-22

 Porter’s Approach to Industry Analysis

Threat of New Entrants –

–Economies of scale
–Product differentiation
–Capital requirements
–Switching costs
–Access to distribution channels
–Cost disadvantages
–Government policy

Prentice Hall, Inc. © 2006 4-23

 Porter’s Approach to Industry Analysis

Rivalry Among Existing Firms –

–Number of competitors
–Rate of industry growth
–Product or service characteristics
–Amount of fixed costs
–Capacity
–Height of exit barriers
–Diversity of rivals

Prentice Hall, Inc. © 2006 4-24

 Porter’s Approach to Industry Analysis

•Threat of Substitute Products or Services

•Bargaining Power of Buyers

•Bargaining Power of Suppliers

•Relative Power of Other Stakeholders

Prentice Hall, Inc. © 2006 4-25

 Industry Evolution

Fragmented Industry –

–No dominant industry

Prentice Hall, Inc. © 2006 4-26

 Industry Evolution

Consolidated Industry –

–Dominated by a few large firms

Prentice Hall, Inc. © 2006 4-27

 International Risk Assessment

Continuum of International Industries

Prentice Hall, Inc. © 2006 4-28

 Strategic Groups

Prentice Hall, Inc. © 2006 4-29

Strategic Types

1. Defenders - are companies with a limited product line that focus on

improving the efficiency of their existing operations. This cost orientation makes
them unlikely to innovate in new areas. With its emphasis on efficiency, Lincoln
Electric is an example of a defender.
2. Prospectors - are companies with fairly broad product lines that focus on
product innovation and market opportunities. This sales orientation makes them
somewhat inefficient. They tend to emphasize creativity over efficiency. Rubbermaid’s
emphasis on new product development.
3. Analyzers - are corporations that operate in at least two different product-
market areas, one stable and one variable. In the stable areas, efficiency is
emphasized. In the variable areas, innovation is emphasized. Multidivisional firms,
such as IBM and Procter & Gamble, which operate in multiple industries, tend to be
analyzers.
4. Reactors - are corporations that lack a consistent strategy-structure-culture
relationship. Their (often ineffective) responses to environmental pressures tend to
be piecemeal strategic changes. Most major U.S. airlines have recently tended to be
reactors—given the way they have been forced to respond to new entrants such as
Southwest and JetBlue.

Prentice Hall, Inc. © 2006 4-30

 Competitive Intelligence

Called business intelligence

Gathering information on a company’s

competitors

Prentice Hall, Inc. © 2006 4-31

 Forecasting

Forecasting Techniques --

–Extrapolation
–Brainstorming
–Expert opinion
–Delphi technique
–Statistical modeling
–Scenario writing

Prentice Hall, Inc. © 2006 4-32

 Synthesis of External Factors -- EFAS

Prentice Hall, Inc. © 2006 4-33