Prentice Hall, Inc. © STRATEGIC MANAGEMENT & BUSINESS POLICY 11 TH EDITION THOMAS L. WHEELEN J. DAVID HUNGER CHAPTER 4 Environmental Scanning and Industry Analysis

Prentice Hall, Inc. © International-global –Economic –Political/Regulatory –Technical –Socio-cultural Domestic-national –Economic –Political/Regulatory –Technical –Socio-cultural Industrial size and change Industrial(Five-forces) –Current competitive conditions –Competitive forces stemming from Buyers –Competitive forces stemming from Suppliers –Threat of Potential Entrants –Threat of Substitutes Environmental Scanning ASSESSMENT OF EXTERNAL FACTORS

Prentice Hall, Inc. © International Societal Environments

Prentice Hall, Inc. © Political, Governmental, and Legal Forces Worldwide trend toward similar consumption patterns Global buyers and sellers E-commerce Technology for instant currency transfers Globalization of Industry

Prentice Hall, Inc. © Key Political, Governmental, and Legal Variables Special tariffs Tax law changes PAC’s(political action committees) Voter participation rates Regulation/deregulation

Prentice Hall, Inc. © Key Political, Governmental, and Legal Variables (cont’d) Environmental protection laws Changes in patent laws Equal employment legislation Government subsidies Number of patents

Prentice Hall, Inc. © Key Political, Governmental, and Legal Variables (cont’d) Import/export regulations Global relationships Political conditions Location and severity of terrorist activity Anti-trust enforcement

Prentice Hall, Inc. © Environmental Scanning National environment -- –Economic forces –Technological forces –Political-legal forces –Sociocultural forces

Prentice Hall, Inc. © Societal Environment Economic Forces -- –Regulate exchange of materials, money, energy and information Technological Forces -- –Generate problem-solving inventions Political-legal Forces -- –Allocate power; provide laws and regulations Sociocultural Forces -- –Regulate values, mores, and customs of society

Prentice Hall, Inc. © Variables in Societal Environment

Prentice Hall, Inc. © Actuarial Rates Monitor Key Variables Per Capita Income Attitudes Toward Business Avg. Disposable Income Social, Cultural, Demographic, and Environmental Forces

Prentice Hall, Inc. © Consumer Behavior Monitor Key Variables Ethical Concerns Attitudes Toward Saving Racial Equality Social, Cultural, Demographic, and Environmental Forces

Prentice Hall, Inc. © Avg. Educational Level Monitor Key Variables Governmental Regulation Attitudes Toward Customer Service Attitudes Toward Quality Social, Cultural, Demographic, and Environmental Forces

Prentice Hall, Inc. © Energy Conservation Monitor Key Variables Social Responsibility Leisure-Time Values Recycling Social, Cultural, Demographic, and Environmental Forces

Prentice Hall, Inc. © Waste Management Monitor Key Variables Air & Water Pollution Ozone Depletion Endangered Species Social, Cultural, Demographic, and Environmental Forces

Prentice Hall, Inc. © Transformational Sociocultural Trends 8 Current Trends –US –Increasing environmental awareness –Growing health consciousness –Expanding seniors market –Impact of the Generation Y boomlet –Declining mass market –Changing pace and location of life –Changing household composition –Increasing diversity of workforce & market

Prentice Hall, Inc. © External Audit – Sources of Information Internet Libraries Suppliers Distributors Salespersons Customers Competition

Prentice Hall, Inc. © Task Environment Task environment -- –Elements or groups that directly affect a corporation and are affected by it

Prentice Hall, Inc. © Scanning the Task Environment

Prentice Hall, Inc. © Task Environment Industry Analysis -- –In-depth examination of key factors within a corporation’s task environment

Prentice Hall, Inc. © Industrial Organization (I/O) View – Industry factors more important than internal factors Performance determined by industry forces

Prentice Hall, Inc. © Economies of Scale Industry Properties Barriers to Market Entry Product Differentiation Level of Competitiveness I/O Perspective Firm Performance

Prentice Hall, Inc. © Research Findings “Approximately 20% of a firm’s profitability can be explained by the industry, whereas 36% of the variance in profitability is attributed to the firm’s internal factors”

Prentice Hall, Inc. © Analyzing Industries Industry Analysis -- –First and foremost, how big is the industry in terms of revenues and units? –What is the forecasted rate of change? –What will be the future size according to the key drivers of change?

Prentice Hall, Inc. © Analyzing Industries

Prentice Hall, Inc. © Analyzing the Task Environment

Prentice Hall, Inc. © Porter’s Five Forces: Factors Affecting the Strength of Rivalry

Prentice Hall, Inc. © Porter’s Five Forces: Factors Affecting the Threat of Entry

Prentice Hall, Inc. © Porter’s Five Forces: Factors Affecting the Competition from Substitute Products

Prentice Hall, Inc. © Porter’s Five Forces: Factors Affecting the Bargaining Power of Suppliers

Prentice Hall, Inc. © Porter’s Five Forces: Factors Affecting the Bargaining Power of Buyers

Prentice Hall, Inc. © Industry Evolution Fragmented Industry – –No dominant industry

Prentice Hall, Inc. © Industry Evolution Consolidated Industry – –Dominated by a few large firms

Prentice Hall, Inc. © International Risk Assessment Continuum of International Industries

Prentice Hall, Inc. © Strategic Groups

Prentice Hall, Inc. © Competitive Intelligence Called business intelligence Gathering information on a company’s competitors

Prentice Hall, Inc. © Forecasting Forecasting Techniques -- –Extrapolation –Brainstorming –Expert opinion –Delphi technique –Statistical modeling –Scenario writing

Prentice Hall, Inc. © Grade each external factor by –ITS PROBABILTY OF OCCURRANCE (give scores such as 0-20% probability of occurrance is 1; % probability of occurrance is 2; 41-60% probability of occurrance is 3; 61-80% probability of occurrance is 4; % probability of occurrance is 5) MULTIPLIED BY –ITS IMPACT ON THE BUSINESS (give scores such as very low impact on business is 1; low impact on business is 2; medium impact on business is 3; high impact on business is 4; very high impact on business is 5) (NOTE THAT IMPACTS CAN EITHER BE POSITIVE OR NEGATIVE, THAT IS, EITHER 1 TO 5 OR -1 TO -5) Assessment of External Factors

Prentice Hall, Inc. © Issues Priority Matrix

Prentice Hall, Inc. © Synthesis of External Factors -- EFAS