lec 2 jl environmental analysis

8/7/2019 Lec 2 JL Environmental Analysis

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Environment Scanning

&

Industry Analysis

Dr. John W. Lang

Ch 3 -1



T he External Assessment

Ch 3 -2



O utline

The Nature of the External Audit & Forces

Competitive Forces

Porter ¶ s Five-Forces ModelSources of External Information

Global Challeng

e

Ch 3 -3



Purpose of External Audit

T o develop finite (key) list of O pportunities ,that could benefit a firmT hreats , that should be avoided

T o formulate strategies that take advantageof external opportunities or that minimize theimpact of potential threats

T he Nature of an External Audit

Ch 3 -5



K ey External Forces

Economic forces

Social, cultural, demographic and

environmental forcesPolitical, governmental and legal forces

Technological forcesCompetitive forces

Ch 3 -6



CompetitorsSuppliers

DistributorsCreditors

Customers

EmployeesCommunities

ManagersStockholdersLabor UnionsGovernment

T rade AssociationsSpecial Interest Groups

ProductsServicesMarkets

Natural Environment

K ey

ExternalForcesP,E,S, T and C

An

O rganization¶

sO pportunities&

T hreats

Relationships between K ey External Forces andan O rganization

Ch 3 -7



First : to g ather Competitive Intelligence andInformation about

SocialCulturalDemographicEnvironmentalEconomicPolitical, legal ,governmentalT echnological trends

Assimilate , Evaluate and Prioritize

T he Process of Performing an External

Audit

Ch 3 -8



Sources of Information

K ey Magazines

T rade journals

Newspaper

Internet

Libraries

Suppliers

Distributors

Customers

CompetitorsCh 3 -9



S ocial,Cultural,Demographic andEnvironmental (Key Variables)Childbearing rateNumber of MarriagesNumber of DivorcesNumber of Deaths

Immigration ratesSocial security programsPer capital incomeLocation of retailing,manufacturing and service

businessesAttitudes toward businessLifestylesT raffic congestionT rust in government

Value placed on leisure time

Buying habitsEthical concernsAttitudes toward savingSex roles

Attitudes towardinvestingUse of birth controlAverage level of education

Government regulationAttitudes towardretirementPollution controlEnergy conservation

Waste managementCh 3 -11



P olitical,Governmental,and Legal Forces

S ome P olitical,Governmental,and Legal Variables :

Government regulations

Changes inT

ax LawsSpecial T ariffsNumber of PatentsChange in Patents lawEnvironment Protection lawNation by nation relationship

Import export regulationsGovernment fiscal andmonetary policy changes

Political conditions inforeign countries

Lobbying activitiesSize of government budgetsWorld oil,currency,and labor marketLocal,state,and national

electionsCh 3 -12



Technological Forces

Internet / e- commerce

Life styles,

speed of distribution,

creating new product and service,

economies of scale,

changing entry barriers,

redefining the relationship betweenindustries and suppliers, creditors,customers and competitor

Ch 3 -13



Competitive Forces

Collection & evaluation of data oncompetitors is essential for successfulstrategy formulation

Ch 3 -14



T he Five-Forces Model of Competition

Potential developmentof substitute products

Rivalry amongcompeting firms

Bargaining powerof suppliers

Potential entry of newcompetitors

Bargaining powerof consumers

Ch 3 -17



Most powerful of the five forcesFocus on competitive advantage of strategies

Effects from the Strategies Change byone firm

Lowering the priceEnhancing qualityAdding featuresProviding serviceExtending warranties

Increasing advertising

1. Rivalry Among Competing Firms

Ch 3 -18



Barriers to entry are importantEconomies of scaleNeed to gain technology and specialized know-howLack of experienceStrong customer loyalty

Strong brand preferencesLarge capital requirementLack of adequate distribution channelsGovernment regulation policiesLack of access to raw materials

Possession of patentsUndesirable locationsPotential saturation of the market

Higher-quality,lower prices, and substantial

marketing resources can overcome barriers

2. Potential Entry of New Competitors

Ch 3 -19



L arge number of suppliers & fewsubstitutes affects intensity of competition

Backward integration can gain control or ownership of suppliers when suppliers areunreliable,too costly,not capable of meetingfirm ¶ s needs

4 . Bargaining Power of Suppliers

Ch 3 -21



Customers are concentrated or buy involume affects intensity of competition

Consumer power is higher where productsare standard or undifferentiated

Selling priceWarranty coverageAccessory packages

5.Bargaining Power of Consumers

Ch 3 -22



T he Global Challenge

Corporations are taking advantage of opportunity toshare in the benefit of world wide economic development

Markets are shifting rapidly in tastes,trends and prices

Innovative transport systems accelerating transfer of technology

More countries are welcome foreign investment

Market leaders(East Asian Countries) in labor intensiveindustries

Cost of energy,availability of resources,inflationrates,existing taxes rate,and nature of trade regulation

Ch 3 -23



Internal strengths/weaknessesExternal opportunities/threats

- Intention of capitalizing upon internalstrengths and overcoming weaknesses

Nature of an Internal Audit

Basis for establishing Objectives & Strategies

Ch 3 -24



T he process of Performing an Internal Audit

Parallels process of external audit

Managers and employees need to be involved

Gathering ,assimilating and evaluating

informationManagement

Marketing

Finance/accounting

Production/operationsResearch & Development

Management information Systems

Ch 3 -25



T he process of Performing an Internal Audit

Being an excellent vehicle for improving the

process of understanding nature and effect of decision makings and communication in theorganization

Ch 3 -26



Resource Based

Internal resources can be grouped into 3 categories

1. Physical resources: plants and equipment,location,technology,raw materials, machines

2. Human resources: training,experience,intelligence,knowledge, skills, abilities

3. Organizational resources : firm structure,planning

processes,information systems ,patents,trademarks,copyrights,data bases

Ch 3 -27



Management

Functions of Management

1. Planning

2. Organizing

3. Motivating

4. Staffing5. Controlling

Ch 3 -28



Finance/Accounting

D etermining financial strengths &

weaknesses key to strategyformation

Ch 3 -30



Finance/Accounting

Finance/Accounting Functions

1.Investment decision (Capital budgeting)

2. Financing decision

3. Dividend decision

Ch 3 -31



Production/ O perations

Production/Operations Functions

Process

Capacity

Inventory

Workforce

Quality

Ch 3 -32



Financing as manyprojects as possible

use percent-of-sales

method

Budgeting relative tocompetitors

How many successfulnew products are

needed

Research & Development

R&D Budgets

Ch 3 -34



Management Information Systems

Purpose

Improve performance of an enterprise by improvingthe quality of managerial decisions

Effective information system :collect,codes,stores,synthesizes,and presentinformation

Logical flow of material from input to output

:printouts,writtenreports,table,graphs,charts,purchaseorder,invoice,inventory records,payroll

Ch 3 -35



SW OT Matrix ( TO WS matrix)

Strengths-Opportunities (SO)Weaknesses-Opportunities (WO)

Strengths-Threats (ST)

Weaknesses-Threats (WT)

Four Types of Strategies

Ch 3 -37



SW OT Matrix( TO WS matrix)

Leave Blank

Strengths ± S

List S tren g ths

Weaknesses ± W

List W eaknesses

O pportunities±

O

List Opp ortunities

SO StrategiesU se stren g ths to take

advanta g e of o pp ortunities

WO StrategiesO vercomin g weaknesses

by takin g advanta g e of o pp ortunities

T hreats ± T

List T hreats

S T Strategies

U se stren g ths to avoid threats

W T Strategies

Minimize weaknesses and avoid threats

Ch 3 -38

lec 2 jl environmental analysis

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