CHAPTER 4

Environmental
Scanning and
Industry Analysis

STRATEGIC MANAGEMENT & BUSINESS POLICY

11TH EDITION
THOMAS L. WHEELEN J. DAVID HUNGER

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 Environmental Scanning
ASSESSMENT OF EXTERNAL FACTORS
• International-global
– Economic
– Political/Regulatory
– Technical
– Socio-cultural
• Domestic-national
– Economic
– Political/Regulatory
– Technical
– Socio-cultural
• Industrial size and change
• Industrial(Five-forces)
– Current competitive conditions
– Competitive forces stemming from Buyers
– Competitive forces stemming from Suppliers
– Threat of Potential Entrants
– Threat of Substitutes
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 International Societal Environments

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Political, Governmental, and
Legal Forces

Globalization of Industry
• Worldwide trend toward similar
consumption patterns
• Global buyers and sellers
• E-commerce
• Technology for instant currency transfers

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Key Political, Governmental, and Legal
Variables

Regulation/deregulation

Tax law changes

Special tariffs

PAC’s(political action committees)

Voter participation rates

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Key Political, Governmental, and Legal
Variables (cont’d)

Number of patents

Changes in patent laws

Environmental protection laws

Equal employment legislation

Government subsidies

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Key Political, Governmental, and Legal
Variables (cont’d)

Anti-trust enforcement

Global relationships

Import/export regulations

Political conditions

Location and severity of terrorist activity

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 Environmental Scanning

National environment --

–Economic forces
–Technological forces
–Political-legal forces
–Sociocultural forces

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 Societal Environment

Economic Forces --

–Regulate exchange of materials, money, energy and

information
Technological Forces --

–Generate problem-solving inventions

Political-legal Forces --

–Allocate power; provide laws and regulations

Sociocultural Forces --

–Regulate values, mores, and customs of society

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 Variables in Societal Environment

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Social, Cultural, Demographic,
and Environmental Forces

Actuarial Rates

Monitor Key Per Capita Income

Variables Attitudes Toward Business

Avg. Disposable Income

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Social, Cultural, Demographic,
and Environmental Forces

Consumer Behavior

Monitor Key Ethical Concerns

Variables Attitudes Toward Saving

Racial Equality

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Social, Cultural, Demographic,
and Environmental Forces

Avg. Educational Level

Monitor Key Governmental Regulation

Variables Attitudes Toward Customer Service

Attitudes Toward Quality

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Social, Cultural, Demographic,
and Environmental Forces

Energy Conservation

Monitor Key Social Responsibility

Variables Leisure-Time Values

Recycling

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Social, Cultural, Demographic,
and Environmental Forces

Waste Management

Monitor Key Air & Water Pollution

Variables Ozone Depletion

Endangered Species

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 Transformational Sociocultural Trends

8 Current Trends –US

–Increasing environmental awareness

–Growing health consciousness
–Expanding seniors market
–Impact of the Generation Y boomlet
–Declining mass market
–Changing pace and location of life
–Changing household composition
–Increasing diversity of workforce & market

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External Audit – Sources of
Information
•Internet
•Libraries
•Suppliers
•Distributors
•Salespersons
•Customers
•Competition
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 Task Environment

Task environment --

–Elements or groups that directly affect a

corporation and are affected by it

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 Scanning the Task Environment

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 Task Environment

Industry Analysis --

–In-depth examination of key factors within a

corporation’s task environment

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Industrial Organization (I/O)
View

– Industry factors more important than

internal factors

• Performance determined by industry forces

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I/O Perspective Firm Performance

Industry Properties

Economies of Scale

Barriers to Market Entry

Product Differentiation

Level of Competitiveness

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 Research Findings

“Approximately 20% of a firm’s profitability

can be explained by the industry, whereas
36% of the variance in profitability is
attributed to the firm’s internal factors”

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 Analyzing Industries

Industry Analysis --

–First and foremost, how big is the industry in

terms of revenues and units?
–What is the forecasted rate of change?
–What will be the future size according to the
key drivers of change?

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 Analyzing Industries

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 Analyzing the Task Environment

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 Porter’s Five Forces: Factors Affecting the Strength of Rivalry

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 Porter’s Five Forces: Factors Affecting the Threat of Entry

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Porter’s Five Forces: Factors Affecting the Competition from Substitute Products

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 Porter’s Five Forces: Factors Affecting the Bargaining Power of Suppliers

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 Porter’s Five Forces: Factors Affecting the Bargaining Power of Buyers

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 Industry Evolution

Fragmented Industry –

–No dominant industry

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 Industry Evolution

Consolidated Industry –

–Dominated by a few large firms

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 International Risk Assessment

Continuum of International Industries

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 Strategic Groups

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 Competitive Intelligence

Called business intelligence

Gathering information on a company’s

competitors

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 Forecasting

Forecasting Techniques --

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

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 Assessment of External Factors
• Grade each external factor by
– ITS PROBABILTY OF OCCURRANCE
(give scores such as 0-20% probability of occurrance is 1; 21-
40% probability of occurrance is 2; 41-60% probability of
occurrance is 3; 61-80% probability of occurrance is 4; 81-
100% probability of occurrance is 5)

MULTIPLIED BY

– ITS IMPACT ON THE BUSINESS

(give scores such as very low impact on business is 1; low
impact on business is 2; medium impact on business is 3; high
impact on business is 4; very high impact on business is 5)
(NOTE THAT IMPACTS CAN EITHER BE POSITIVE OR
NEGATIVE, THAT IS, EITHER 1 TO 5 OR -1 TO -5)

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 Issues Priority Matrix

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 Synthesis of External Factors -- EFAS

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