(3)environmental scanning and industry analysis
TRANSCRIPT
ENVIRONMENTAL SCANNING ENVIRONMENTAL SCANNING AND INDUSTRY ANALYSISAND INDUSTRY ANALYSIS
Environmental ScanningEnvironmental Scanning
Is the monitoring, evaluating, and Is the monitoring, evaluating, and disseminating of information from the disseminating of information from the external and internal environment to key external and internal environment to key people within the corporationpeople within the corporation
The corporation uses this tool to avoid The corporation uses this tool to avoid strategic surprise and to ensure its long strategic surprise and to ensure its long term healthterm health
There is a positive relationship between There is a positive relationship between environmental scanning and profitsenvironmental scanning and profits
Environmental UncertaintyEnvironmental Uncertainty
Degree of complexityDegree of complexity Degree of changeDegree of change
Environmental Uncertainty can Environmental Uncertainty can hamper the ability of managers to hamper the ability of managers to develop long range plans (threat)develop long range plans (threat)
Environmental uncertainty allows Environmental uncertainty allows creativity and innovation to shape creativity and innovation to shape strategic decisionsstrategic decisions
Identifying External Identifying External Environmental VariablesEnvironmental Variables
The Societal Environment : includes general forces The Societal Environment : includes general forces that do not directly influence the short run that do not directly influence the short run activities of the organization, but influence the long activities of the organization, but influence the long term decisionsterm decisions
The task Environment : includes elements or The task Environment : includes elements or groups that directly affect the corporation and are groups that directly affect the corporation and are affected by it (industry analysis)affected by it (industry analysis)
Both the societal and task environments must be Both the societal and task environments must be monitored to detect the strategic factors that are monitored to detect the strategic factors that are likely to have a strong impact on corporate success likely to have a strong impact on corporate success or failureor failure
Monitoring Societal TrendsMonitoring Societal Trends
Economic forces : regulate the exchange of Economic forces : regulate the exchange of materials, money, energy, and informationmaterials, money, energy, and information
Technological forces : generate problem Technological forces : generate problem solving inventionssolving inventions
Political-Legal forces : allocate power and Political-Legal forces : allocate power and provide constraining and protecting laws provide constraining and protecting laws and regulationsand regulations
Socio-cultural : regulate the values, mores, Socio-cultural : regulate the values, mores, and customs of societyand customs of society
Some Important Variables in Some Important Variables in the Societal Environmentthe Societal Environment
(PEST analysis)(PEST analysis)
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
Development Trends in Development Trends in TechnologyTechnology
Fuel Cells and alternative energy sources Fuel Cells and alternative energy sources (wind, geothermal, hydroelectric, solar (wind, geothermal, hydroelectric, solar energy sources)energy sources)
Portable information devices and electronic Portable information devices and electronic networkingnetworking
Precision farming, computerized management Precision farming, computerized management of crops, reducing costs, increasing yieldsof crops, reducing costs, increasing yields
Genetically altered organisms in plants, Genetically altered organisms in plants, animals and peopleanimals and people
Smart, mobile robots Smart, mobile robots
Trends in Political Legal Trends in Political Legal EnvironmentsEnvironments
DemocracyDemocracy Free market economyFree market economy Anti-trust lawsAnti-trust laws
Trends in Socio-Cultural Trends in Socio-Cultural Environments (US as Example)Environments (US as Example)
Increasing environmental awareness (recycling, Increasing environmental awareness (recycling, conservation)conservation)
Growing health consciousnessGrowing health consciousness Growth of the senior market (woofies, well-off old Growth of the senior market (woofies, well-off old
folks)folks) Decline of the mass market and importance of niche Decline of the mass market and importance of niche
marketsmarkets Changing pace and location of life : instant Changing pace and location of life : instant
communication, telecommuting in businesscommunication, telecommuting in business Changing household composition (single person Changing household composition (single person
households)households) Increasing diversity of workforce and marketsIncreasing diversity of workforce and markets
International Societal International Societal ConsiderationsConsiderations
Differences in societal environments strongly Differences in societal environments strongly affect the way in which a multinational affect the way in which a multinational corporation (MNC) conducts its marketing, corporation (MNC) conducts its marketing, financial, manufacturing, and other financial, manufacturing, and other functional activitiesfunctional activities
Before planning its strategy for a particular Before planning its strategy for a particular international location, a company must scan international location, a company must scan the particular country environments in the particular country environments in question for opportunities and threats, and question for opportunities and threats, and compare these with its own strengths and compare these with its own strengths and weaknesses weaknesses
International Societal Environments
Scanning the Task Scanning the Task EnvironmentEnvironment
Analysis of the relevant elements of Analysis of the relevant elements of the task environmentthe task environment
Individual reports written by people Individual reports written by people in various parts of the firmin various parts of the firm
These reports are then summarized These reports are then summarized and transmitted up to corporate and transmitted up to corporate hierarchy for top management to use hierarchy for top management to use in strategic decision makingin strategic decision making
Scanning the External Scanning the External EnvironmentEnvironment
Analysis of Societal Environment
Economic, Sociocultural, Technological, Political-Legal Factors
Selection of Strategic Factors
• Opportunities • Threats
Market Analysis
Competitor Analysis
Supplier Analysis
Governmental Analysis
Interest Group Analysis
Community Analysis
Strategic Issues and Strategic Issues and Strategic FactorsStrategic Factors
Strategic IssuesStrategic Issues Trends likely to affect future Trends likely to affect future
environmentenvironment
Strategic FactorsStrategic Factors Those strategic issues with high Those strategic issues with high
probability of occurrence and high probability of occurrence and high probable impact on corporationprobable impact on corporation
Issues Priority MatrixIssues Priority Matrix
Identify a number of likely trends emerging Identify a number of likely trends emerging in the societal and task environments, in the societal and task environments, determining what the industry or the world determining what the industry or the world will look like in the near futurewill look like in the near future
Assess the probability of these trends Assess the probability of these trends actually occurring from low to highactually occurring from low to high
Attempt to ascertain the likely impact Attempt to ascertain the likely impact (from high to low) of each of these trends (from high to low) of each of these trends on the corporation being examinedon the corporation being examined
Issues Priority MatrixIssues Priority Matrix
High Priority
HighPriority
High Priority
Medium Priority
Medium Priority
Medium Priority
Probable Impact on Corporation
Low Priority
Low Priority
Low Priority
LowMediumHigh
Med
ium
Hig
hL
ow
Pro
bab
ilit
y o
f O
ccu
rren
ce
Source: Adapted from L. L. Lederman, “Foresight Activities in the U.S.A.: Time for a Reassessment?” Long Range Planning (June 1984), p. 46. Copyright © 1984 by Pergamon Press, Ltd. Reprinted with permission.
Corporation’s External Corporation’s External Strategic FactorsStrategic Factors
Are those key environmental trends Are those key environmental trends that are judged to have both a that are judged to have both a medium to high probability of medium to high probability of occurrence and a high probability of occurrence and a high probability of impact on the corporationimpact on the corporation
Those factors are categorized as Those factors are categorized as opportunities and threats and are opportunities and threats and are included in strategy formulationincluded in strategy formulation
Industry AnalysisIndustry Analysis
An industry is a group of firms An industry is a group of firms producing a similar product or producing a similar product or serviceservice
An examination of the important An examination of the important stakeholders’ group in a particular stakeholders’ group in a particular corporation’s task environment is a corporation’s task environment is a part of industry analysispart of industry analysis
Porter’s approach to Industry Porter’s approach to Industry AnalysisAnalysis
A corporation is most concerned with the A corporation is most concerned with the intensity of competition within its industryintensity of competition within its industry
The level of this intensity is determined by The level of this intensity is determined by basic competitive forcesbasic competitive forces
In scanning its industry, the corporation In scanning its industry, the corporation must assess the importance to its success must assess the importance to its success of each of the six forcesof each of the six forces
Forces Driving Industry Forces Driving Industry CompetitionCompetition
Threat of New Entrants
Bargaining Power
of Suppliers
Bargaining Power
of Buyers
Relative Power
of Unions, Governments,
etc.
Potential Entrants
Threat of Substitute Products or Services
Industry Competitors
Rivalry Among Existing Firms
Other Stakeholders
Buyers
Substitutes
Suppliers
Source: Adapted/reprinted with permission of The Free Press, an imprint of Simon & Schuster, from Competitive Strategy: Techniques for Analyzing Industries and Competitors by Michael E. Porter. Copyright © 1980 by The Free Press.
Threat of New Entrants:Threat of New Entrants:Some Barriers to EntrySome Barriers to Entry
Economies of ScaleEconomies of Scale Product DifferentiationProduct Differentiation Capital RequirementsCapital Requirements Switching CostsSwitching Costs Access to Distribution ChannelsAccess to Distribution Channels Cost Disadvantages Independent of SizeCost Disadvantages Independent of Size Government PolicyGovernment Policy Expected RetaliationExpected Retaliation
Properties of Entry BarriersProperties of Entry Barriers
Entry barriers can and do change as the Entry barriers can and do change as the conditions changeconditions change
Entry barriers can change for reasons Entry barriers can change for reasons inside the firm : impact of the firm’s inside the firm : impact of the firm’s strategic decisionsstrategic decisions
Some firms may possess resources or Some firms may possess resources or skills which allow them to overcome entry skills which allow them to overcome entry barriers into an industry more cheaply barriers into an industry more cheaply than most other firmsthan most other firms
Rivalry Among Existing FirmsRivalry Among Existing Firms
Intense Rivalry is Related To:Intense Rivalry is Related To: Number of Competitors: numerous or Number of Competitors: numerous or
equally balanced competitorsequally balanced competitors Rate of Industry Growth: slow industry Rate of Industry Growth: slow industry
growthgrowth Product or Service Characteristics: Lack of Product or Service Characteristics: Lack of
differentiation or switching costsdifferentiation or switching costs Amount of Fixed Costs : high fixed or Amount of Fixed Costs : high fixed or
storage costsstorage costs
High fixed or storage costsHigh fixed or storage costs Lack of differentiation or switching costsLack of differentiation or switching costs Capacity augmented in large increments Capacity augmented in large increments
(leading to overcapacity and price cuttings)(leading to overcapacity and price cuttings) Diverse competitorsDiverse competitors High strategic stakesHigh strategic stakes High exit barriers (specialized assets, fixed High exit barriers (specialized assets, fixed
costs of exit, strategic interrelationships, costs of exit, strategic interrelationships, emotional barriers, government and social emotional barriers, government and social restrictions)restrictions)
Shifting RivalryShifting Rivalry
The factors that determine the intensity of The factors that determine the intensity of competitive rivalry can and do changecompetitive rivalry can and do change
As an industry matures, its growth rate As an industry matures, its growth rate declines, resulting in intensified rivalry, declines, resulting in intensified rivalry, declining profitsdeclining profits
An acquisition can introduce a different An acquisition can introduce a different personality to an industrypersonality to an industry
Focusing selling efforts on the fastest growing Focusing selling efforts on the fastest growing segments can reduce the impact of industry segments can reduce the impact of industry rivalryrivalry
Entry Barriers and Exit Entry Barriers and Exit BarriersBarriers
When entry barriers are high and exit When entry barriers are high and exit barriers are low, entry will be deterred, and barriers are low, entry will be deterred, and unsuccessful competitors will leave the unsuccessful competitors will leave the industryindustry
When both entry and exit barriers are high, When both entry and exit barriers are high, profit potential is high, but is usually profit potential is high, but is usually accompanied by more risks, and accompanied by more risks, and unsuccessful firms will fight to stayunsuccessful firms will fight to stay
The worst case is when entry barriers are low The worst case is when entry barriers are low and exit barriers are high (overcapacity, poor and exit barriers are high (overcapacity, poor profitability)profitability)
Pressure from Substitute Pressure from Substitute ProductsProducts
Substitutes limit the potential return of an Substitutes limit the potential return of an industry by placing a ceiling on the prices industry by placing a ceiling on the prices firms in the industry can profitably chargefirms in the industry can profitably charge
Identifying substitute is searching for other Identifying substitute is searching for other products that can perform the same products that can perform the same function function as the product of the industry as the product of the industry
The impact of substitutes can be The impact of substitutes can be summarized as the industry’s overall summarized as the industry’s overall elasticity of demandelasticity of demand
Bargaining Power of BuyersBargaining Power of Buyers
Buyers compete by forcing down prices, Buyers compete by forcing down prices, bargaining for higher quality or more services, bargaining for higher quality or more services, and playing competitors against each otherand playing competitors against each other
A buyer’s group is powerful if:A buyer’s group is powerful if:
1.1. It purchases large volumes relative to seller It purchases large volumes relative to seller salessales
2.2. The products it purchases from the industry The products it purchases from the industry represent a significant fraction of the buyer’s represent a significant fraction of the buyer’s cost of purchase (shop for good price)cost of purchase (shop for good price)
3.3. The products it purchases from the industry The products it purchases from the industry are standard or undifferentiatedare standard or undifferentiated
4.4. It faces few switching costsIt faces few switching costs5.5. It earns low profits (thus sensitive to costs)It earns low profits (thus sensitive to costs)6.6. Buyers pose a credible threat of backward Buyers pose a credible threat of backward
integrationintegration7.7. The industry’s product is unimportant to the The industry’s product is unimportant to the
quality of the buyer’s products or servicesquality of the buyer’s products or services8.8. The buyer has full informationThe buyer has full information
Bargaining Power of Bargaining Power of SuppliersSuppliers
Suppliers can exert bargaining power over Suppliers can exert bargaining power over participants in an industry by threatening to raise participants in an industry by threatening to raise prices or reduce the quality of purchased goods and prices or reduce the quality of purchased goods and servicesservices
A supplier group is powerful if:A supplier group is powerful if:
1.1. It is dominated by a few companiesIt is dominated by a few companies
2.2. It is not obliged to contend with other substitute It is not obliged to contend with other substitute products for sale to the industryproducts for sale to the industry
3.3. The industry is not an important customerThe industry is not an important customer
4.4. The supplier’s product is an important input to the The supplier’s product is an important input to the buyer’s businessbuyer’s business
5.5. The supplier’s group products are The supplier’s group products are differentiated or it has built up differentiated or it has built up switching costsswitching costs
6.6. The supplier group poses a credible The supplier group poses a credible threat of forward integrationthreat of forward integration
7.7. LaborLabor must be considered as a must be considered as a supplier that exerts great power in supplier that exerts great power in many industriesmany industries
Government as a force in Government as a force in industry competitionindustry competition
Government role as supplier and buyer can Government role as supplier and buyer can be influenced by political factorsbe influenced by political factors
Government regulations can set limits on Government regulations can set limits on the behavior of firms as suppliers or buyersthe behavior of firms as suppliers or buyers
Government can affect the position of an Government can affect the position of an industry with substitutes through industry with substitutes through regulations, subsidies, or other meansregulations, subsidies, or other means
Government can affect rivalry among Government can affect rivalry among competitors by influencing industry growthcompetitors by influencing industry growth
Industry EvolutionIndustry Evolution
Over time industries evolve through a series of Over time industries evolve through a series of stages from growth through maturity to eventual stages from growth through maturity to eventual declinedecline
The strength of each force of the six forces varies The strength of each force of the six forces varies according to the stage of industry evolutionaccording to the stage of industry evolution
Fragmented industry : no firm has large market Fragmented industry : no firm has large market share and each firm serves only a small piece of the share and each firm serves only a small piece of the total market in competition with otherstotal market in competition with others
Consolidated industry : dominated by a few large Consolidated industry : dominated by a few large firms, each of which struggle s to differentiate its firms, each of which struggle s to differentiate its products from the competitionproducts from the competition
Categorizing International Categorizing International IndustriesIndustries
Multi-domestic industries are specific Multi-domestic industries are specific to each country or group of countries to each country or group of countries (retailing, insurance)(retailing, insurance)
Global industries : operate Global industries : operate worldwide, with MNCs making only worldwide, with MNCs making only small adjustments for country small adjustments for country specific circumstances. specific circumstances.
Factors that determine whether an Factors that determine whether an industry is will be primarily multi-industry is will be primarily multi-domestic or primarily global:domestic or primarily global:
1.1. Pressure for coordination within the Pressure for coordination within the multinational corporation operating in multinational corporation operating in that industrythat industry
2.2. Pressure for local responsiveness on Pressure for local responsiveness on the part of individual country marketsthe part of individual country markets
Between these two extremes lie a Between these two extremes lie a number of industries with varying number of industries with varying characteristics of both multi-characteristics of both multi-domestic and global industriesdomestic and global industries
The dynamic tension between those The dynamic tension between those 2 factors is :2 factors is :
THINK GLOBALLY, ACT LOCALLYTHINK GLOBALLY, ACT LOCALLY
Continuum of International Continuum of International IndustriesIndustries
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 companiesmanufacture and sell the same products, with only minor adjustments made for individual countries around the world.
Automobiles
• Tires
• Television sets
International Risk International Risk Assessment Assessment
Some firms develop elaborate information Some firms develop elaborate information networks and computerized systems to networks and computerized systems to evaluate and rank investments risksevaluate and rank investments risks
Political System Stability IndexPolitical System Stability Index Business Environment Risk IndexBusiness Environment Risk Index Business International ‘s Country Business International ‘s Country
Assessment ServiceAssessment Service Regardless of the source of data, the firm Regardless of the source of data, the firm
must develop its own method of assessing must develop its own method of assessing riskrisk
Strategic GroupsStrategic Groups
Is a set of business units or firms that pursue Is a set of business units or firms that pursue similar strategies with similar resourcessimilar strategies with similar resources
To understand the competitive environment To understand the competitive environment in an industry, firms can be categorized into in an industry, firms can be categorized into a set of strategic groupsa set of strategic groups
Strategic groups of an industry can be Strategic groups of an industry can be plotted on a two dimensional graph (price, plotted on a two dimensional graph (price, product line breadth, quality, service, product line breadth, quality, service, location)location)
Mapping Strategic Groups in the Mapping Strategic Groups in the U.S. Restaurant Chain IndustryU.S. Restaurant Chain Industry
Product-Line Breadth
High
LowLimited Menu Full Menu
Arby's Wendy's Domino's Dairy Queen
Hardee's Taco Bell Burger King McDonald's
Shoney's Denny's
Country Kitchen
Kentucky Fried Chicken Pizza Hut
Long John Silver's
Ponderosa Bonanza
Perkins International House
of Pancakes
Red Lobster Olive Garden
ChiChi's
Pri
ce
Strategic TypesStrategic Types
DefendersDefenders ProspectorsProspectors AnalyzersAnalyzers ReactorsReactors
Strategic TypesStrategic Types
Defenders : companies with a limited product line that Defenders : companies with a limited product line that focus on improving the efficiency of their existing focus on improving the efficiency of their existing operationsoperations
Prospectors : companies with fairly broad product lines Prospectors : companies with fairly broad product lines that focus on product innovation and market that focus on product innovation and market opportunitiesopportunities
Analyzers : corporations that operate at least in 2 Analyzers : corporations that operate at least in 2 different product-market areas. Emphasis on efficiency in different product-market areas. Emphasis on efficiency in stable areas. Emphasis on innovation in variable areas stable areas. Emphasis on innovation in variable areas
Reactors : corporations that lack a consistent strategy- Reactors : corporations that lack a consistent strategy- structure- culture relationship. Ineffective responses to structure- culture relationship. Ineffective responses to environmental pressuresenvironmental pressures
Hyper-competitionHyper-competition
In hyper-competition the frequency, boldness, and In hyper-competition the frequency, boldness, and agressiveness of dynamic movement by the players agressiveness of dynamic movement by the players accelerates to create a condition of constant accelerates to create a condition of constant disequilibrium and changedisequilibrium and change
Market stability is threatened by short product life Market stability is threatened by short product life cycles, short product design cycles, new technologies, cycles, short product design cycles, new technologies, frequent entry by unexpected outsiders, redefinition of frequent entry by unexpected outsiders, redefinition of market boundaries as diverse industries mergemarket boundaries as diverse industries merge
Environments escalate towards higher levels of Environments escalate towards higher levels of uncertainty, dynamism, heterogeneity of the players uncertainty, dynamism, heterogeneity of the players and hostilityand hostility
Companies must be willing to Companies must be willing to cannibalize their own products cannibalize their own products (replacing popular products before (replacing popular products before competitors do so) in order to sustain competitors do so) in order to sustain their competitive advantagetheir competitive advantage
As a result, it is important to study As a result, it is important to study industry or competitive intelligenceindustry or competitive intelligence
Using Key Success Factors to Using Key Success Factors to Create an Industry MatrixCreate an Industry Matrix
KSFs are those variables that can affect KSFs are those variables that can affect significantly the overall competitive positions significantly the overall competitive positions of all companies within any particular of all companies within any particular industryindustry
They vary from industry to industry and are They vary from industry to industry and are crucial to determine a company’s ability to crucial to determine a company’s ability to succeed within the industrysucceed within the industry
Key success factors are different from Key success factors are different from strategic factors : Key Success factors deal strategic factors : Key Success factors deal with an entire industry. Strategic factor deal with an entire industry. Strategic factor deal with a particular companywith a particular company
Common Types of Key Success Common Types of Key Success FactorsFactors
TECHNOLOGY RELATED KSFsTECHNOLOGY RELATED KSFs Scientific research expertiseScientific research expertise technical capability to make technical capability to make
improvements in production processesimprovements in production processes Product innovation capabilityProduct innovation capability Expertise in a given technologyExpertise in a given technology Capability to use internet to disseminate Capability to use internet to disseminate
information, take orders, deliver products information, take orders, deliver products or servicesor services
MANUFACTURING RELATED KSFs:MANUFACTURING RELATED KSFs: Low-cost production efficiency (achieve scale Low-cost production efficiency (achieve scale
economies, capture experience curve effects)economies, capture experience curve effects) Quality of manufacture (fewer defects, less need of Quality of manufacture (fewer defects, less need of
repairs)repairs) High utilization of fixed assetsHigh utilization of fixed assets Low-cost plant locationsLow-cost plant locations Access to adequate supplies of skilled laborAccess to adequate supplies of skilled labor High labor productivityHigh labor productivity Low-cost product design and engineeringLow-cost product design and engineering Flexibility to manufacture a range of models and Flexibility to manufacture a range of models and
sizes/take care of customer orderssizes/take care of customer orders
DISTRIBUTION RELATED KSFs :DISTRIBUTION RELATED KSFs : A strong network of wholesale A strong network of wholesale
distributorsdistributors Gaining ample space on retailers’ Gaining ample space on retailers’
shelvesshelves Having company-owned retail outletsHaving company-owned retail outlets Low distribution costsLow distribution costs Fast deliveryFast delivery
MARKETING RELATED KSFS:MARKETING RELATED KSFS: Fast, accurate technical assistanceFast, accurate technical assistance Courteous customer serviceCourteous customer service Accurate filling of buyers’ ordersAccurate filling of buyers’ orders Breadth of product line and product selectionBreadth of product line and product selection Merchandising skillsMerchandising skills Attractive styling packagingAttractive styling packaging Customers guarantees in mail order retailing new Customers guarantees in mail order retailing new
products introductionproducts introduction Clever advertisingClever advertising
SKILLS RELATED KSFs:SKILLS RELATED KSFs: Superior workforce talentSuperior workforce talent Quality control know howQuality control know how Design expertiseDesign expertise Expertise in a particular technologyExpertise in a particular technology An ability to develop innovative products An ability to develop innovative products
and production improvementsand production improvements An ability to get newly conceived products An ability to get newly conceived products
past the R&D phase and out into the marketpast the R&D phase and out into the market
ORGANIZATIONAL CAPABILITY:ORGANIZATIONAL CAPABILITY: Superior information systemsSuperior information systems Ability to respond quickly to changing Ability to respond quickly to changing
market conditionsmarket conditions Superior ability to employ the internetSuperior ability to employ the internet More experience and managerial know More experience and managerial know
howhow
OTHER TYPES OF KSFs:OTHER TYPES OF KSFs: Favorable reputation with buyersFavorable reputation with buyers Overall low costOverall low cost Pleasant , courteous employeesPleasant , courteous employees Access to financial capitalAccess to financial capital Patent protectionPatent protection
Industry MatrixIndustry Matrix
Strategic Factors WeightCompany ARating
Company AWeighted Score
Company BRating
Company BWeighted Score
1 2 3 4 5 6
Total 1.00
Source: T. L. Wheelen and J. D. Hunger, “Industry Matrix.” Copyright © 1997 by Wheelen and Hunger Associates. Reprinted by permission.
Gateway Apple Dell
CSF’s Wt Rating
Wt’d Score
Rating
Wt’d Score
Rating Wt’d Score
Market share 0.15 3 0.45 2 0.30 4 0.60
Inventory sys 0.08 2 0.16 2 0.16 4 0.32
Fin position 0.10 2 0.20 3 0.30 3 0.30
Prod. Quality 0.08 3 0.24 4 0.32 3 0.24
Cons. Loyalty 0.02 3 0.06 3 0.06 4 0.08
Sales Distr 0.10 3 0.30 2 0.20 3 0.30
Global Exp. 0.15 3 0.45 2 0.30 4 0.60
Org. Structure 0.05 3 0.15 3 0.15 3 0.15
Gateway Apple Dell
CSF’s (cont’d) Wt Rating
Wt’d Score
Rating
Wt’d Score
Rating Wt’d Score
Prod. Capacity 0.04 3 0.12 3 0.12 3 0.12
E-commerce 0.10 3 0.30 3 0.30 3 0.30
Customer Serv 0.10 3 0.30 2 0.20 4 0.40
Price competitive
0.02 4 0.08 1 0.02 3 0.06
Mgt. experience
0.01 2 0.02 4 0.04 2 0.02
Total 1.00 2.83 2.47 3.49
Competitive IntelligenceCompetitive Intelligence
Is a formal program of gathering Is a formal program of gathering information on a company’s competitorsinformation on a company’s competitors
Most corporations rely on outside Most corporations rely on outside organizations to provide them with organizations to provide them with environmental data.environmental data.
Information on market conditions, Information on market conditions, government regulations, competitors and government regulations, competitors and new products can be bought from new products can be bought from information brokersinformation brokers
Industrial espionage is considered Industrial espionage is considered illegalillegal
Unethical tactics; bribery, Unethical tactics; bribery, wiretapping, computer break-ins wiretapping, computer break-ins should never be used to get should never be used to get informationinformation
10 questions to monitor 10 questions to monitor competitors for strategic competitors for strategic
planningplanning1.1. Why do your competitors exist? to make profits Why do your competitors exist? to make profits
or to support another unit?or to support another unit?
2.2. Where do they add customer value? Higher Where do they add customer value? Higher quality, lower price, credit terms, better service?quality, lower price, credit terms, better service?
3.3. Which of your customers are the competition Which of your customers are the competition most interested in? best customers or the ones most interested in? best customers or the ones you don’t want?you don’t want?
4.4. What is their cost base and liquidity?What is their cost base and liquidity?
5.5. Are they less exposed with their suppliers than Are they less exposed with their suppliers than your firm?your firm?
6.6. What do they intend to do in the future? Target What do they intend to do in the future? Target your market segments? Growing?your market segments? Growing?
7.7. How will their activities affect your strategies? How will their activities affect your strategies? Should you adjust your plans and operations?Should you adjust your plans and operations?
8.8. How much better than your competitor do you How much better than your competitor do you need to be in order to win customers?need to be in order to win customers?
9.9. Will new competitors appear over the next few Will new competitors appear over the next few years?years?
10.10.If you were a customer, would you choose your If you were a customer, would you choose your product over those offered by your competitors?product over those offered by your competitors?
ForecastingForecasting
Intuition and luck are needed to Intuition and luck are needed to predict trends in the future, These predict trends in the future, These trends are relying on assumptionstrends are relying on assumptions
Faulty assumptions are cause of Faulty assumptions are cause of forecasting errorsforecasting errors
Many long-range plans are based on Many long-range plans are based on projections of the current situationprojections of the current situation
The Role of ForecastingThe Role of Forecasting
EnvironmentalScanning
EnvironmentalScanning
PresentTrends andFashions
PresentTrends andFashions
ForecastingFuture Trendsand Fashions
Assumptionsfor StrategicPlanning and
Decision Making
Assumptionsfor StrategicPlanning and
Decision Making
Popular Forecasting Popular Forecasting TechniquesTechniques
Extrapolation : extension of present trends into the Extrapolation : extension of present trends into the futurefuture
Brain stormingBrain storming Expert opinion : attempts to forecast likely Expert opinion : attempts to forecast likely
developmentsdevelopments Delphi techniques: different opinions are sent back to Delphi techniques: different opinions are sent back to
fine tune until agreement is reachedfine tune until agreement is reached Statistical modeling : discover causal or explanatory Statistical modeling : discover causal or explanatory
factors that link trends togetherfactors that link trends together Scenario writing: focused description of different likely Scenario writing: focused description of different likely
futures presented in a narrative fashionfutures presented in a narrative fashion
Industry ScenariosIndustry Scenarios
1.1.Examine possible shifts in societal variable globally.Examine possible shifts in societal variable globally.
2.2.Identify uncertainties in each of the six forces of the task Identify uncertainties in each of the six forces of the task environment.environment.
3.3.Make a range of plausible assumptions about future trends.Make a range of plausible assumptions about future trends.
4.4.Combine assumptions into internally consistent scenarios.Combine assumptions into internally consistent scenarios.
5.5.Analyze the industry situation under each scenario.Analyze the industry situation under each scenario.
6.6.Determine sources of competitive advantage under each Determine sources of competitive advantage under each scenario.scenario.
7.7.Predict competitors’ behavior under each scenario.Predict competitors’ behavior under each scenario.
8.8.Select most likely scenario to use in strategy formulation.Select most likely scenario to use in strategy formulation.
Synthesis of External Synthesis of External FactorsFactors
Using EFAS to refine the analysis of Using EFAS to refine the analysis of the societal and task environmentsthe societal and task environments
External Factor Analysis External Factor Analysis Summary (EFAS)Summary (EFAS)
ExternalStrategic Factors Weight Rating
Weighted Score Comments
1 2 3 4 5
1.00
Opportunities
Threats
Total Weighted Score
Notes: 1. List opportunities and threats (5–10 each) in column 1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not Important) in Column 2 based on that factor’s probable impact on the company’s strategic position. The total weights must sum to 1.00. 3. Rate each factor from 5 (Outstanding) to 1 (Poor) in Column 3 based on the company’s response to that factor. 4. Multiply each factor’s weight times its rating to obtain each factor’s weighted score in Column 4. 5. Use Column 5 (comments) for rationale used for each factor. 6. Add the weighted scores to obtain the total weighted score for the company in Column 4. This tells how well the company is responding to the strategic factors in its external environment.Source: T. L. Wheelen and J. D. Hunger, “External Strategic Factors Analysis Summary (EFAS).” Copyright © 1991 by Wheelen and Hunger Associates. Reprinted by permission.
EFE – Gateway Computers (2003)
Key External Factors Weight RatingWtd
Score
Opportunities
1. Global PC market expected to grow 20% in 2004
0.10 3 0.30
2. Cost of PC component parts expected to decrease 10% - 2004
0.10 3 0.30
3. Internet use growing rapidly 0.05 2 0.10
4. China entered WTO; lowered taxes for importing PC’s
0.10 1 0.10
5. The average income for PC worker has declined from $40K/yr to $30k/yr
0.05 3 0.15
EFE – Gateway Computers (2003) (cont’d)
Key External Factors Weight RatingWtd
Score
Opportunities (cont’d)
6. Modernization of business firms and government agencies
0.05 2 0.10
7. U.S. (& world) economies recovering 0.05 3 0.15
8. 30% of Chinese population can afford a PC; only 10% of homes have a PC
0.05 1 0.05
Threats 0.10 1 0.10
1. Intense rivalry in industry 0.10 1 0.05
EFE – Gateway Computers (2003) (cont’d)
Key External Factors Weight RatingWtd
Score
Threats (cont’d)
2. Severe price cutting in PC industry 0.10 2 0.20
3. Different countries have different reg’s and infrastructure for PC’s
0.05 1 0.05
4. Palm & PDA becoming substitutes 0.05 3 0.15
5. Demand exceeds supply of experienced PC workers
0.05 4 0.20
6. Birth rate in U.S. declining annually 0.05 3 0.15
EFE – Gateway Computers (2003) (cont’d)
Key External Factors Weight RatingWtd
Score
Threats (cont’d)
7. U.s. consumers and businesses delaying purchase of PC’s
0.05 2 0.10
8. PC firms diversifying into consumer electronics
0.05 3 0.15
Total 1.00 2.40
External Factor Analysis Summary External Factor Analysis Summary (EFAS): Maytag as Example(EFAS): Maytag as Example
ExternalStrategic 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
1 2 3 4 5