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3aEnvironmScanning.ppt
1. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
1
Chapter 3
Environmental Scanning and
Industry Analysis
Read Sections: 3.1, 3.2, 3.5
2. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
2
Environments
Environmental uncertainty:
The degree of complexity plus
the degree of change existing in
an organization’s external
environment.
3. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
3
Environments
Environmental scanning:
The monitoring, evaluating, and
disseminating of information from the
external and internal environments to key
people within the corporation to avoid
strategic surprise and ensure the long-
term health of the firm.
4. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
4
External Environment
External Environmental Variables:
Societal environment:
General forces that do not
directly touch on the short-run
activities but often influence its
long-run decisions.
5. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
5
External Environment
External Environmental Variables:
Task environment:
Those elements or groups that
directly affect the corporation and,
in turn, are affected by it. The task
environment is the industry within
which that firm operates.
6. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
6
External Environment
External Environmental Variables:
Industry analysis:
An in-depth examination of key
factors within a corporation’s task
environment.
10. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
10
Societal Environment
Important Variables
Economic
GDP trends
Interest rates
Money supply
Inflation rates
Unemployment levels
Wage/price controls
Devaluation/revaluation
Energy availability and
cost
Disposable and
discretionary income
Technological
Total government
spending for R&D
Total industry spending
for R&D
Focus of technological
efforts
Patent protection
New products
New developments in
technology transfer from
lab to marketplace
Productivity
improvements through
automation
Political-Legal
Antitrust regulations
Environmental protection
laws
Tax laws
Special incentives
Foreign trade regulations
Attitudes toward foreign
companies
Laws on hiring and
promotion
Stability of government
Sociocultural
Lifestyle changes
Career expectations
Consumer activism
Rate of family formation
Growth rate of population
Age distribution of
population
Regional shifts in
population
Life expectancies
Birth rates
11. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
11
External Environment
Sociocultural Trends
• Increasing environmental awareness
• Growth of the seniors market
• Impact of Generation Y boomlet
• Decline of the mass market
• Changing pace and location of life
• Changing household composition
• Increasing diversity of workforce and markets
12. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
12
External Environment
External Strategic Factors
Factors influencing the choice:
– Personal values of managers
– Functional experience of managers
– Success of current strategies
– Strategic myopia
• Willingness to reject unfamiliar as well as
negative information
13. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
13
External Environment
Issues Priority Matrix
• Identify likely trends:
– Societal and task environments
• Strategic environmental issues
• Assess probability of trends occurring
– Low to High
• Ascertain likely impact of trends on the
corporation
– Low to High
14. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
14
Issues Priority Matrix
High
Priority
High
Priority
High
Priority
Medium
Priority
Medium
Priority
Medium
Priority
Probable Impact on Corporation
Low
Priority
Low
Priority
Low
Priority
Low
Medium
High
Probability
of
Occurrence
15. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
15
External Environment
External Strategic Factors
Defined:
Key environmental trends that are
judged to have both a medium to high
probability of occurrence and a
medium to high probability of impact
on the corporation.
16. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
16
Industry Analysis
Industry
A group of firms producing a similar
product or service, such as soft drinks
or financial services.
18. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
18
Industry Analysis
Porter’s approach:
Assess the six forces --
• Threat of new entrants
• Rivalry among existing firms
• Threat of substitute products
• Bargaining power of buyers
• Bargaining power of suppliers
• Relative power of other stakeholders
19. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
19
Industry Analysis
Threat of New Entrants --
Barriers to entry:
• Economies of Scale
• Product Differentiation
• Capital Requirements
• Switching Costs
• Access to Distribution Channels
• Cost Disadvantages Independent of Size
• Government Policy
20. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
20
Industry Analysis
Rivalry Among Existing Firms --
Intense rivalry related to:
• Number of competitors
• Rate of Industry Growth
• Produce or Service Characteristics
• Amount of Fixed Costs
• Capacity
• Height of Exit Barriers
• Diversity of Rivals
21. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
21
Industry Analysis
Threat of Substitute Products/Services
Substitute Products:
Those products that appear to be
different but can satisfy the same need as
another product. To the extent that
switching costs are low, substitutes can
have a strong effect on an industry.
22. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
22
Industry Analysis
Bargaining Power of Buyers --
Buyer is powerful when:
• Buyer purchases large proportion of seller’s products
• Buyer has the potential to integrate backward
• Alternative suppliers are plentiful
• Changing suppliers costs very little
• Purchased product represents a high percentage of a
buyer’s costs
• Buyer earns low profits
• Purchased product is unimportant to the final quality or
price of a buyer’s products
23. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
23
Industry Analysis
Bargaining Power of Suppliers --
Supplier is powerful when:
• Supplier industry is dominated by a few companies but
sells to many
• Its product is unique and/or has high switching costs
• Substitutes are not readily available
• Suppliers are able to integrate forward and compete
directly with present customers
• Purchasing industry buys only a small portion of the
supplier’s goods.
24. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
24
Industry Analysis
Industry Evolution
Fragmented Industry –
No firm has large market share and each firm
serves only a small piece of the total market in
competition with others.
Consolidated Industry –
Dominated by a few large firms, each of which
struggles to differentiate its products from the
competition.
25. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
25
Continuum of International Industries
Multidomestic
Industry in which companies tailor
their products to the specific
needs of consumers in a
particular country.
• Retailing
• Insurance
• Banking
Global
Industry in which companies
manufacture and sell the
same products, with only
minor adjustments made for
individual countries around
the world.
Automobiles
• Tires
• Television sets
26. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
26
Industry Analysis
Global Industries
Industry primarily multidomestic
or primarily global based on:
–Pressure for coordination
– Within the multinationals in that industry
–Pressure for local responsiveness
– Individual country markets
27. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
27
Industry Analysis
Strategic Groups
Defined:
A set of business units or firms that
pursue similar strategies with
similar resources.
28. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
28
Industry Analysis
Strategic Types
Defined:
Category of firms based on a common
strategic orientation and a combination of
structure, culture, and processes
consistent with that strategy.
29. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
29
Industry Analysis
Strategic Types –
Categorized by one of four general strategic
orientations:
• Defenders
– Companies with a limited product line;
focus on improving efficiency of current
operations
30. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
30
Industry Analysis
Strategic Types (continued)–
• Prospectors:
–Companies with fairly broad product
lines; focus on product innovation
and market opportunities.
31. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
31
Industry Analysis
Strategic Types (continued)–
• Analyzers:
–Corporations that operate in at least
two different product-market areas –
one stable and one variable.
32. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
32
Industry Analysis
Strategic Types (concluded)–
• Reactors:
–Corporations that lack a consistent
strategy-structure-culture
relationship.
34. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
34
EFAS
Organize external factors into
opportunities and threats
How well a particular company´s
management (rating) is
responding to specific external
factors in light of the perceived
importance (weight) of these
factors to the company
36. Prentice Hall, 2004 Chapter 3
Wheelen/Hunger
36
External Factor Analysis Summary (EFAS)
Maytag Example
External Factors Weight Rating
Weighted
Score Comments
1.00
Opportunities
• Economic integration of
European Community
• Demographics favor quality
appliances
• Economic development of Asia
• Opening of Eastern Europe
• Trend to “Super Stores”
Threats
• Increasing government regulations
• Strong U.S. competition
• Whirlpool and Electrolux strong
globally
• New product advances
• Japanese appliance companies
Total Scores
.20
.10
.05
.05
.10
.10
.10
.15
.05
.10
4
5
1
2
2
4
4
3
1
2
.80
.50
.05
.10
.20
.40
.40
.45
.05
.20
Acquisition of
Hoover
Maytag quality
Low Maytag presence
Will take time
Maytag weak in this
channel
Well positioned
Well positioned
Hoover weak globally
Questionable
Only Asian presence is
Australia
3.15
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