environmental scanning & monitoring techniques
DESCRIPTION
Environmental scanning is a concept from business management by which businesses gather information from the environment, to better achieve a sustainable competitive advantage. Environmental Scanning & Monitoring- TechniquesPEST, SWOT, QUESTTRANSCRIPT
Environmental Scanning & MonitoringTechniques
ENVIRONMENTAL SCANNING & MONITORING
Environmental scanning is a concept from business management by which businesses gather information from the environment, to better achieve a sustainable competitive advantage.
To sustain competitive advantage the company must also respond to the information gathered from environmental scanning by altering its strategies and plans when the need arises.
Environmental Scanning & Monitoring- Techniques
SWOT
Industry Analysis
Techniques
Competitor Analysis
PEST QUEST
SWOT(Strength-Weakness-Opportunity-Threat)
Identification of threats and Opportunities in the environment (External) and strengths and Weaknesses of the firm (Internal) is the cornerstone of business policy formulation; it is these factors which determine the course of action to ensure the survival and growth of the firm.
SWOT Analysis
The SWOT analysis is an extremely useful tool for understanding and decision-making for all sorts of situations in business and organizations. SWOT is an acronym for Strengths, Weaknesses, Opportunities, Threats.
SWOT analysis came from the research conducted at Stanford Research Institute from 1960-1970. The background to SWOT stemmed from the need to find out why corporate planning failed. The research was funded by the fortune 500 companies to find out what could be done about this failure. The Research Team were Marion Dosher, Dr Otis Benepe, Albert Humphrey, Robert Stewart, Birger Lie.
SWOT: Studying Internal & External Environment
The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective. SWOT analysis groups key pieces of information into two main categories:
Internal factors – The strengths and weaknesses internal to the organization.
External factors – The opportunities and threats presented by the external environment.
Examples of SWOTs Strengths and Weaknesses
Resources: financial, intellectual, location Cost advantages from proprietary know-how Creativity / ability to develop new products Valuable intangible assets: intellectual capital Competitive capabilities Big campus selection
Opportunities and ThreatsTakeovers Market Trends Economic condition Mergers Joint ventures Strategic alliances Expectations of stakeholders Technology Public expectations Competitors and competitive actions Poor Public Relations Development Criticism (Editorial) Global Markets Environmental conditions
Uses of SWOT Analysis
Corporate planning
Set objectives – defining what the organisation is intending to do
Environmental scanning Internal appraisals of the organisations SWOT, this needs to include an
assessment of the present situation as well as a portfolio of products/services and an analysis of the product/service life cycle
Analysis of existing strategies, this should determine relevance from the results of an internal/external appraisal. This may include gap analysis (compare its actual performance with its potential performance which will look at environmental factors)
Strategic Issues defined – key factors in the development of a corporate plan which needs to be addressed by the organisation
Develop new/revised strategies – revised analysis of strategic issues may mean the objectives need to change
Establish critical success factors – the achievement of objectives and strategy implementation
Preparation of operational, resource, projects plans for strategy implementation
Monitoring results – mapping against plans, taking corrective action which may mean amending objectives/strategies.
Also;
Use SWOT analysis for business planning, strategic planning, competitor evaluation, marketing, business and product development and research reports.
PEST Analysis
A scan of the external macro-environment in which the firm operates can be expressed in terms of the following factors:
•Political•Economic•Social•Technological
The acronym PEST (or sometimes rearranged as "STEP") is used to describe a framework for the analysis of these macroenvironmental factors. A PEST analysis fits into an overall environmental scan as shown in the following diagram:
Environmental Scan
/ \
External Analysis Internal Analysis
/ \
Macroenvironment
Microenvironment
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P.E.S.T.
Political Factors
Political factors include government regulations and legal issues and define both formal and informal rules under which the firm must operate. Some examples include:•tax policy•employment laws•environmental regulations•trade restrictions and tariffs•political stability
Economic Factors
Economic factors affect the purchasing power of potential customers and the firm's cost of capital. The following are examples of factors in the macroeconomy:
•economic growth•interest rates•exchange rates•inflation rate
Social Factors
Social factors include the demographic and cultural aspects of the external macroenvironment. These factors affect customer needs and the size of potential markets. Some social factors include:•health consciousness•population growth rate•age distribution•career attitudes•emphasis on safety
Technological Factors
Technological factors can lower barriers to entry, reduce minimum efficient production levels, and influence outsourcing decisions. Some technological factors include:•R&D activity•automation•technology incentives•rate of technological change
Industry Analysis
An industry is a group of firms producing a similar product or service
An examination of the important stakeholders’ group in a particular corporation’s task environment is a part of industry analysis
Porter’s approach to Industry Analysis
A corporation is most concerned with the intensity of competition within its industry
The level of this intensity is determined by basic competitive forces
In scanning its industry, the corporation must assess the importance to its success of each of the six forces
Forces Driving Industry Competition
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
Threat of New Entrants:Some Barriers to Entry Economies of Scale Product Differentiation Capital Requirements Switching Costs Access to Distribution Channels Cost Disadvantages Independent of Size Government Policy Expected Retaliation
Properties of Entry Barriers
Entry barriers can and do change as the conditions change
Entry barriers can change for reasons inside the firm : impact of the firm’s strategic decisions
Some firms may possess resources or skills which allow them to overcome entry barriers into an industry more cheaply than most other firms
Rivalry Among Existing Firms
Intense Rivalry is Related To: Number of Competitors: numerous or equally
balanced competitors Rate of Industry Growth: slow industry growth Product or Service Characteristics: Lack of
differentiation or switching costs Amount of Fixed Costs : high fixed or storage
costs
High fixed or storage costs Lack of differentiation or switching costs Capacity augmented in large increments (leading
to overcapacity and price cuttings) Diverse competitors High strategic stakes High exit barriers (specialized assets, fixed costs
of exit, strategic interrelationships, emotional barriers, government and social restrictions)
Shifting Rivalry The factors that determine the intensity of
competitive rivalry can and do change As an industry matures, its growth rate declines,
resulting in intensified rivalry, declining profits An acquisition can introduce a different
personality to an industry Focusing selling efforts on the fastest growing
segments can reduce the impact of industry rivalry
Entry Barriers and Exit Barriers When entry barriers are high and exit barriers are
low, entry will be deterred, and unsuccessful competitors will leave the industry
When both entry and exit barriers are high, profit potential is high, but is usually accompanied by more risks, and unsuccessful firms will fight to stay
The worst case is when entry barriers are low and exit barriers are high (overcapacity, poor profitability)
Pressure from Substitute Products
Substitutes limit the potential return of an industry by placing a ceiling on the prices firms in the industry can profitably charge
Identifying substitute is searching for other products that can perform the same function as the product of the industry
The impact of substitutes can be summarized as the industry’s overall elasticity of demand
Bargaining Power of Buyers
Buyers compete by forcing down prices, bargaining for higher quality or more services, and playing competitors against each other
A buyer’s group is powerful if:1. It purchases large volumes relative to seller sales2. The products it purchases from the industry
represent a significant fraction of the buyer’s cost of purchase (shop for good price)
3. The products it purchases from the industry are standard or undifferentiated
4. It faces few switching costs5. It earns low profits (thus sensitive to costs)6. Buyers pose a credible threat of backward integration7. The industry’s product is unimportant to the quality of
the buyer’s products or services8. The buyer has full information
Bargaining Power of Suppliers
Suppliers can exert bargaining power over participants in an industry by threatening to raise prices or reduce the quality of purchased goods and services
A supplier group is powerful if:1. It is dominated by a few companies2. It is not obliged to contend with other substitute
products for sale to the industry3. The industry is not an important customer4. The supplier’s product is an important input to the
buyer’s business
5. The supplier’s group products are differentiated or it has built up switching costs
6. The supplier group poses a credible threat of forward integration
7. Labor must be considered as a supplier that exerts great power in many industries
Government as a force in industry competition Government role as supplier and buyer can be
influenced by political factors Government regulations can set limits on the
behavior of firms as suppliers or buyers Government can affect the position of an industry
with substitutes through regulations, subsidies, or other means
Government can affect rivalry among competitors by influencing industry growth
10 questions to monitor competitors for strategic planning1. Why do your competitors exist? to make profits or to
support another unit?2. Where do they add customer value? Higher quality,
lower price, credit terms, better service?3. Which of your customers are the competition most
interested in? best customers or the ones you don’t want?
4. What is their cost base and liquidity?5. Are they less exposed with their suppliers than your
firm?
6. What do they intend to do in the future? Target your market segments? Growing?
7. How will their activities affect your strategies? Should you adjust your plans and operations?
8. How much better than your competitor do you need to be in order to win customers?
9. Will new competitors appear over the next few years?
10. If you were a customer, would you choose your product over those offered by your competitors?