1. ENVIRONMENTAL ASSESSMENT
CHAPTER SIX
ENVIRONMENTAL ASSESSMENT
By Kutay Kalkan for Dr. DeMicco

2. OBJECTIVES
Develop an improved understanding of the relationships between the remote
and task environments.
Be capable of establishing the appropriate domain definition for the firm.
Achieve a greater understanding of the structure of the industry, including customers, competitors, suppliers, regulators, and potential competitors.

3. Objectives
Develop an improved understanding of the relationships between the remote
and task environments
Remote Environment : Ecological, political, social, and technological factors or forces that affect a form's decision making abilities and freedom, but are beyond its control or influence.
Task Environment : is a theoretical construct which is supposed to supply the goal relevant
consequences of allowable moves in performing the task.
The forces in the remote environment have a causal effect on firms through the task environment, which consists of the following subcategories:
Customers
Competitors
Regulators
Suppliers

4. strategic direction of the firm!
Objectives
It is important to recognize that forces in the remote environment are likely to affect the elements of the
task domain differently.
Ex1: Effect of terrorism on the airline industry and the attitude of the regulators against this predicament.
Ex2: Effect of the increasing oil prices on the airline industry and how low-cost and how-cost airline
companies react to it.
Please read page 163 in the textbook for the details of these examples.
These examples point out how different players in an industry sector can be impacted in different ways and with different timing to the same forces emerging from the remote environment. Yet understanding
the impact of these causal relationships is important in determining the strategic direction for the firm.
In the following slide, please pay attention to how environmental scanning has a direct effect on the
strategic direction of the firm!

5. Strategic Management Model!
Environmental Scanning
Strategic Direction
Strategic Plans
Organizational Assessment
Performance Evaluation
Implementation

6. Objectives
Be capable of establishing the appropriate domain definition for the firm.
The Domain : is the context in which the organization or firm competes.
Critical Success Factor(CSF) : is a business term for an element which is necessary for an
organization or project to achieve its mission.
Money : positive cash flow, revenue growth, and profit margins.
Your future : Acquiring new customers and/or distributors.
Customer satisfaction : How happy are they?
Quality : How good is your product and service?
Product or service development : What's new that will increase business with existing customers and attract
new ones?
Intellectual capital : Increasing what you know that's profitable.
Strategic relationships : New sources of business, products and outside revenue.
Employee attraction and retention : Your ability to do extend your reach.
Sustainability : Your personal ability to keep it all going.

7. The Customer/Demand Curve
In defining the domain, the manager must begin with the customer analysis.
Who is my customer?
Do the broad forces driving change in the remote environment affect my customer?
Demand Curve : Sum of total of all customers who will purchase the products
and services offered by the firm.
Please read pages 163 through 166 in the text book.
The exhibit in the next slide illustrates how the analysis of the demand curve may
be approached in terms of identifying key target market descriptors or
variables(value drivers) used to estimate demand.
The exhibit after the next slide presents a conceptual map of the probable variables that
must be considered when seeking to prepare a forecast
of the future cash flows of the firm.

8. Example of Target Market Descriptors for Harrah’s Casinos
Primary criteria
used to describe target market
Describe in detail the specifics for each criterion at left
Preference for
gaming and travel
Since the late 1980s, gambling has grown considerably in the U.S., a large portion of it occurring while Americans
are traveling. Seven percent of all U.S. domestic person-trips included gambling as trip activity in 1999, accounting for 72.8 million person-trips in total. Since 1994, the number of gambling trips by Americans has increased 20
percent. According to the Harrah’s Survey 2002, it is evident that support of casino gambling among U.S. house-
holds is growing. Casino gambling industry attracted more than 52.3 million people (27% of adult population)
making a total of 303 million visits to casinos in 2001, on par with visits to amusement and theme parks. Gambling
is expected to gain in popularity this decade as casino properties expand and enhance their facilities and new
casinos are opened.
Travel Purpose
According to the Travel Industry Association of America’s Profile of Travelers Who Participate in Gambling, 2000
Edition, like most travelers in the U.S., a majority of gambling is for leisure purposes (83%). Thirteen percent of
gambling travelers cite business as the main purpose of the trip. Gambling travelers are also more likely than U.S.
travelers overall to travel by air (24% vs. 18%), include a stay at a hotel, motel, or bed and breakfast establishment (76% vs. 52%), and have higher trip spending levels.
Age
Americans ages 51 to 65 with more discretionary time and income than others are more likely to have gambled at a casino in the last 12 months (year 2001) than seniors and those in younger age groups. Compared to the whole
U.S. population, the median household income for casino gamblers is 20% higher than the national average – U.S. population ($41,343), U.S. casino gamblers ($49,753).
Income
It is likely that Americans with higher incomes visit casinos more often than those with low-income levels.
Thirty-five percent of Americans with annual household income levels above $95,000 gamble in casinos, while only 22% of adults in homes earning less than $35,000 are casino players.
Occupation/
Education
According to the Harrah’s Survey 2002, casino players are more likely to hold white-collar jobs. Also, casino
gamblers are slightly better educated.
Gender
More women are involved in gambling now than ever before. Women more than men like to try their luck at slot
machines and other electronic games (80% vs. 66%) according to the Harrah’s Survey 2002.

9. Variables Influencing the Demand Curve
Price
Quantity

10. Objectives
Achieve a greater understanding of the structure of the industry, including
customers, competitors, suppliers, regulators, and potential competitors.
Ex1: The impact of the growing online travel arrangements --via the internet-- by the customers on
travel agents and hospitality products and services.
Result : Decrease in bookings through travel agents.
Ex2: The effects of mad cow disease, Asian bird flu, or SARS on health and safety concerns of
customers.
Result : Decline in customer demand in those parts of the world most directly affected by these events.
Ex3: The effects of 9/11 event on the airline industry.
Result : Frightening many people away from air travel permanently.
Please read page 167 in the textbook for the details of these examples.

11. The Competitor-Industry Analysis
The domain definition continues with the analysis of the competitors, which can be thought of as the major firms that are leading the industry within the domain of analysis.
A firm’s competitive set, or strategic group, sets the competitive pace and must be monitored in any task environment analysis.
CSFs play a big role on a company’s competitive power against the leading
firms.
The exhibit in the next slide shows the lodging industry critical success factors between 1985 and 1999.
The exhibit after the next slide provides an example of comparing the situation of a firm --with the
help of CSFs-- with respect to the industry leaders.

12. Lodging Industry Critical Success Factors
Customer Products and Services
Frequent guest programs
Special service for frequent guests
Amenities
In-room sales and entertainment
Business services
Technology Development
Technology innovation
Database management
Computer reservation systems
Marketing Efforts
Branding
Niche marketing and advertising
Pricing tactics
Direct to consumer marketing
Market Expansion
International Expansion
Strategic alliances
Franchising and management fee
Operation Management
Cost containment
Core business management
Service quality management
Travel agency valuation
Employees as assets
Conservation/ecology programs
Rapid information technology development
International expansion and market cooperation
Relationship management
Customer-oriented products and services development
Structure reengineering
New marketing initiatives and campaigns
Quality control
Social awareness and environmental protection

13. Industry strategic group comparison on lodging industry CSFs
Loyalty Program
Industry leader
Improving
Trouble putting a good one
together
Does not feel
the need for
one OK
Location
Feels it is the
leader
No where near
the market
presence
Growing but
a long way
to go
Leading the
luxury segment
Strong market
Reservation system
Once a leader
now keeping
pace only
Investing
heavily to be-
come the leader
Seeking to gain strength
OK, but not a
market leader
Revenue Management
System
Technology utilization
In-room amenities
Brand strength
Market presence
Brand portfolio
Operating management
system

14. Industry Value Drivers
Value Driver : an important factor that determines or causes an increase in value of a business, as viewed by investors.
Ex1 : For a brand new startup (i.e., a business still in the Shaping stage of the Venture Value
Chain), key value drivers can include the assembly of a strong management team, a seasoned
and influential board of directors and advisory board, the development of a compelling business
plan, and the ability to produce a demonstrable prototype of product.
Ex2 : Key value drivers for early-stage ventures (in the Launch stage) can include the completion
of a first commercial version of the product and attracting the first paying customers.
Ex3 : Important value drivers in the Scale stage usually include a strengthened management team, expanded infrastructure for sales, distribution and customer support, and predictably ramping
revenue.
Value drivers are likely to affect all firms the same way within the sector.
To have a better understanding, please read pages 171 through 174 in the
textbook.
The exhibit in the next slide refers to a recent study in which key value drivers
affecting the casual theme restaurant industry were investigated.

15. Unanticipated Effects Operating Cash Flow per Unit
Key Value Drivers Affecting Operational Cash Flow Variance in the Casual Theme Restaurant Sector
Economic Environment
R2=67%
Sensitivity
Unanticipated Effects
on Industry Operating
Performance
Commodity
CPISEA t-1
PPI t-3
– 8.893
3.557
Index of
Operating Cash Flow per Unit
(IOCFPU)
EMPPP t-2
6.712
Labor Market
Inflation
PPILEFE t-3 –

16. Competitive Methods
Competitive Method : A unique bundling of goods and services by the firm that cannot
be easily duplicated.
Ex1 : WestIn’s Heavenly Bed.
Click here to go to the website.
Ex2 : Wyndham ByRequest.
Please read pages 174 through 183 in the text book for detailed information.

17. Please read pages 183 through 193 for detailed information
Competitive Forces
Buying Groups
Ex : Tour operators, travel clubs, professional associations, corporate clients.
Suppliers
Capital Supply
Labor Supply
Raw Materials
Ex: Energy costs, occupancy costs, insurance premiums.
Regulators
Potential Competitors and substitute products
The exhibit on the next slide explains the competitive forces model. You can also
refer to section 1 for detailed information on competitive forces model.
Please read pages 183 through 193 for detailed information

18. Porters Competitive Forces Model
Potential
New Entrants
Bargaining
Power
of Suppliers
Intra-Industry
Rivalry
Strategic Business Unit
Bargaining
Power
of Buyers
Substitute
Products
and Services

19. Readings and Videos
Article 1 – Darden Carves into a New Market with Longhorn
Article 2 – GE’s Results Pull Plug on WallStreet
Article 3 – The Leader of Casual Dining: Darden Restaurant(textbook)
Article 4 – The Value Adding Manager(textbook website)
Video 1– Ideas In Action (Ross Mackay)– Click here to watch the video please.

20. Chapter Questions 1. Which statement is not true?
The Internet makes it easy for customers to purchase products and services.
The Internet gives the providers of products and services more control over the buyers.
The Internet makes the purchases of hospitality products and services more
transparent in terms of pricing.
The Internet makes it easy for customers to get information about their travel
needs.
2. To obtain a competitor's information, a manager can go to:
industry related news.
suppliers.
shows and conferences.
consultants.
all of the above.

21. 3. Which is not a common competitive feature of low-cost air carriers? 
Use of primary airport
Use of a single type of aircraft
Lowest fare pricing
Direct city-to-city route
Web-based booking
4. Which is not a competitive feature of Outback?
Open only for dinner
Uses secondary real estate locations
Limits number of customers per server
Limited customer seating space

22. 5. The forces developed in the remote environment will have an impact on each
general category of the task environment equally.
True
False
6. It is important to know that the boundaries of industry domain can be changed; it becomes a part of environmental scanning to assess the change.
7. When you compare the critical success factors between the lodging and restaurant industries, you find that they are completely different.

23. 8. What are critical success factors?
9. What is a demand curve?
10. Discuss the relationship between the customer and forces in the remote
environment.
11. Define competitive method.
12. What are some of the key performance indicators in the hospitality industry?

24. Student Learning Objectives
On completion of this chapter, you will be able to;
Identify and define the remote and task environment.
Identify and define the domain.
Identify and define the variables influencing the demand curve.
Identify the critical success factors for the lodging and restaurant industry.
Apply Porter’s competitive forces model into hospitality.
Have a better understanding of the importance of Porter’s competitive forces model for
environmental assessment.

25. Case Study Answers
1) Tougher economic times, busier lifestyles, an aging population with more discretionary
income (despite higher oil prices), rising interest rates, and the continued growth of women in the
workforce are value drivers within the remote environment that influence the entire foodservice
industry. Under the influence of these value drivers, America has moved upscale from midscale and increased the expectations for convenience and value. As a result, despite the nation’s economic
downturn, casual-dining operators are surviving and even prospering. Nowadays, although some
overextended multi-concept casual-dining operators are shrinking their portfolios, a number of top number casual-dining operators nonetheless are ambitious about expanding the emerging brands
that they own.
2) In the remote environment, the growing consumer concern over safety and health expects
restaurants to stress the importance of safety and sanitation in food preparation and services. In the
task environment, the growing sophistication of dinners and heavy competition because of an
increasing number of chefs and professionally trained culinarians, are forcing restaurants to focus
on ingredient quality and culinary authenticity and keep the concept fresh. Specifically, Darden has adopted a series of actions such as introducing higher-priced menu items, expanding on the wine
lists, and launching curbside takeout. Consequently, in 2006, Darden was the nation’s largest
casual-dining company, and is the only one company in the industry with two popular brands,
generating more than $2 billion each in annual sales.

26. Case Study Answers
3) The first advantage of mergers and acquisitions is the reduced risk because company can
get the knowledge about the profitability and popularity of this brand based on its prior
performance. Additionally, to acquire a developed brand can save the marketing expense because
this brand is already identified by the customers. On the other hand, mergers and acquisitions are
not as independent as internal development, in which situation the company owns and operates
100% of its restaurants. What’s more, internal developed brand can be integrated better with other
brands in the same family than the acquired brands. Finally, most of brands developed internally
are uncommon in the industry and are more likely to reflect the new customer demand.
4) The key determinants of the demand curve for Darden’s concepts are product, price, income level, age, gender and occupation/education. In my opinion, every concept within Darden has its
own appeal and particular market. Specifically, Red Lobster is aiming to be a “significantly better
seafood restaurant”; Oliver Garden is Italian-themed restaurant; Bahama Breeze is Caribbean taste; Season 52 is health-conscious concept; Smokey Bones is barbecue-oriented. The similarities among these concepts are high quality, up-scale and high value. The combination of these concepts
diversifies the operation of Darden, increasing its competency in different markets.

27. Case Study Answers
5) The key competitors of Red Lobster are Lee Roy Selmon's within OSI Restaurant, Shell’s
Seafood, Landry’s Restaurant, Joe’s Crab Shack, and the Crab House. Carrabba's Italian Grill and
Carrols Italian Restaurant are the main competitors for Oliver Garden. For Bahama Breeze, there
are few competitors such as Pusser's Caribbean Grilles. Carrabba's Italian Grill and Bonefish Grill within OSI Restaurant is main competitor for Smokey Bones. Season 52 has few competitors in
their markets.
6) Among the competitors above, OSI Restaurant, which possess a series of concepts and is
one of the largest casual dining restaurant companies in the world, is competing Darden Restaurant in developing new products and services.

28. Case Study Answers
7) For Red Lobster, the key elements of the supplier include the capital, electronic energy,
human resources, and raw materials such as dairy products, seafood and other protein items.
Regulators mainly refer to ISO (International Organization for Standardization), World Trade
Organization, Restaurant Association, national and local government and so on. Cooking at home, home meal replacements, personal chefs, and other seafood restaurants are substitutes of Red
Lobster. Potential competitors include some small seafood restaurants that are popular in public and are growing rapidly, or new seafood concepts developed by large restaurant chains.
8) One conclusion I have from the case is that fresh concept and high quality are the key for
casual dining industry sector. In my opinion, the safety and health concern will continue to increase in the next five years, so restaurants have to stress the investment in improving food safety and
developing new concepts of healthful and tasty food.