Professional Documents
Culture Documents
CONTENTS
The Background
Business decisions are influenced by two sets of factors, i.e. internal factors (the internal environment) and external factors (external environment). However, the business environment is referred to External environment which has an impact on the Strength and Weakness of the Company. The external factors, on the other hand are, by and large, beyond the control of a Company.
Environmental diagnosis consists of managerial decisions made by analyzing the significance of the data (opportunities and threats) of the environmental analysis.
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In a global scenario, factors like political & economic environment, regional economic co-operation, trade agreements, Govt. support,
To assess the scope of various opportunities and shortlist ones which have the potential of becoming promising business. To draw up the probability-attraction position of these opportunities. To draw up the opportunity-threat profile. To highlight those opportunities, the pursuit of which will fill the
Environmental Scanning
The systematic collection and analysis of information about relevant macro-environmental trends. It helps in increased general awareness of environmental changes, better strategic planning and decision-making, greater effectiveness in governmental matters and proper diversification and resource allocation decisions. Environmental Scanning also forecasts future trends and changes.
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Time Series Analysis an empirical forecasting procedure in which certain historical trends are used to predict such variables as a
Delphi Technique a forecasting procedure whereby experts are independently and repeatedly questioned about the probability of some events occurrence until consensus is reached regarding the particular forecasted events.
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Judgmental Forecasting - A procedure whereby employees, consumers, suppliers and /or trade associations serve as sources of qualitative information regarding future trends.
Multiple Scenarios - a forecasting procedure in which management formulates several hypothetical descriptions of the sequence of future events and trends.
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PEST is an acronym referring to the analysis of the four macro environmental forces. These are: 1. Political-Legal
Other factors to be considered are : - Natural - Demographic - Environmental
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2. Economic
3. Socio-Cultural 4.Technology.
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The need for understanding and appreciating cultural differences across countries is essential as business units go international.
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Socio-cultural factors also include the family structure and changes, attitude towards the family, the post-married life, role of women in the family, in employment/earning and in society, religious beliefs, status symbols, social institutions, motivations, etc. The strategies should take into consideration the trend towards
small families and thereby demand for housing and durable goods,
changing culture of eating outside and, thereby, demand for hotel industry.
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and requirements.
Why is the definition of industrys boundaries important? - It helps a firm determine the arena in which it is competing.
1. Concentration:
The extent to which industry sales are dominated only by a few firms. In a highly concentrated industry, where sales are dominated by a few firms, the intensity of competition decreases over time. High concentration acts as a barrier to entry into an industry as it enables the forms that hold large market shares to achieve economies of scale and, thus, lower their prices.
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- How similar are the benefits that customers derive from the
products and services offered by other firms? (The more similar these benefits, the higher the substitutability between them; high substitutability forces firms to compete fiercely for competitors.) - How committed are other firms to the industry? (This gives information on the LT intentions and goals; however, reliable intelligence data are needed.)
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- Assuming that all firms in the industry are subject to the same
constraints or are open to the same opportunities. - Misreading signals that may indicate a shift in the focus of competitors or a refinement of their strategies. - Believing that the purpose of strategy is to outsmart the competition, rather than to satisfy customer needs and expectations.
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Threat of Substitutes
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Threat of Substitutes
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Threat of Substitutes
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Bargaining Power of Buyers Determinants of Buyer Power Bargaining Leverage Buyer Concentration vs Firm Concentration Buyer Volume Buyer Switching Costs Relative to Firm Switching Costs Buyer Information Ability to Backward Integrate Substitute Products Pull-through
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Threat of Substitutes
Threat of Substitutes
Threat of Substitutes
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All industries are characterized by trends and new developments that gradually or speedily produce changes important enough to require a strategic response from the firms.
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Besides understanding the industry life cycle, it is also necessary to identify the specific factors that cause fundamental industry and competitive changes or adjustments.
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These forces are called Driving Forces. These are major underlying causes or reasons of changing industrys structure and competitive environment. Some driving forces originate in the macro-environment while some originate from within the companys immediate industry and competitive environment. Driving Forces Analysis is a two-step process, i.e., identifying what the driving forces are, and assessing the impact they can have on the industry.
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Some driving forces are unique and specific to a certain industry or a particular situation, but most drivers can be categorized into one of the following: - Growing use of the internet
- Manufacturing process innovation - Marketing innovation - Entry/Exit of major firms - Diffusion of technology know-how across more companies - Diffusion of technology know-how across more countries - Changes in cost and efficiency - Reduction in uncertainty and business risk - Regulatory influences and government policy changes - Changing social concerns, attitudes, and lifestyles - Growing buyer preferences for differentiated products
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Each force is to analyzed separately since they may all not tend to push change in the same direction.
Whether the net effect on industry demand is up or down depends upon which DFs are more powerful.
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Link between Driving Forces and Strategy Proper analysis if the DFs is required to devise a sound strategy. Without understanding the forces driving industry change and the impacts these forces can have on the character of the industry environment and on the firms business over the next few years, managers not be able to come out with strategies that match these emerging conditions. Thus, DF analysis is fundamental to the task of thinking Strategically about where the industry is headed and how to prepare for these changes.
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KSFs are those competitive factors that most affect the ability of
industry members to prosper (succeed) in the market place product attributes, particular strategy elements, resources,
How well a company matches its industrys KSFs determine how financially and competitively successful it will be.
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KSFs vary from industry to industry and from time to time within the
same industry as the driving forces and competitive conditions change. Only rarely are there more than 5 or 6 key factors for future competitive success. Of these, only 2 or 3 usually outrank the others in importance.
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- Technology-related KSFs
- Manufacturing-related KSFs - Marketing-related KSFs - Distribution-related KSFs - Skills and Capability-related KSFs - Other Types of KSFs (service, location, patents, etc.)
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