Copyright © 2005 Pearson Education Canada Inc. Concepts in ﴀ Strategic Management, Canadian Edition Wheelen, Hunger, Wicks 3-1 Chapter 3 Environmental Scanning and Industry Analysis

Concepts in ﴀ Strategic Management, Canadian Edition Wheelen, Hunger, Wicks 3-2 Copyright © 2005 Pearson Education Canada Inc. Learning Objectives From the techniques presented in this chapter you should be able to: 1. Recognize aspects of an organization’s environment that can influence its long-run decisions 2. Identify the aspects of an organization’s environment that are most strategically important

Concepts in ﴀ Strategic Management, Canadian Edition Wheelen, Hunger, Wicks 3-3 Copyright © 2005 Pearson Education Canada Inc. Learning Objectives cont. 3.Conduct an industry analysis to understand the competitive forces that influence the intensity of rivalry within an industry 4. Identify the range of stakeholders that can affect an organization’s activities and/or be affected by them 5.Categorize international industries based on their pressures for co-ordination and localization

Concepts in ﴀ Strategic Management, Canadian Edition Wheelen, Hunger, Wicks 3-4 Copyright © 2005 Pearson Education Canada Inc. Learning Objectives cont. 6. Construct strategic group maps to assess the competitive positions of firms in an industry 7. Identify key success factors for industries and/or strategic groups. Use publicly available information to conduct competitive intelligence 8. Understand the most significant environmental forces to which an organization must respond in order to enhance its long-term prospects of profitability and survival

Concepts in ﴀ Strategic Management, Canadian Edition Wheelen, Hunger, Wicks 3-5 Copyright © 2005 Pearson Education Canada Inc. Environments Environmental scanning:  The monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the organization to avoid strategic surprise and ensure the long-term health of the firm.

Concepts in ﴀ Strategic Management, Canadian Edition Wheelen, Hunger, Wicks 3-6 Copyright © 2005 Pearson Education Canada Inc. External Environment

Concepts in ﴀ Strategic Management, Canadian Edition Wheelen, Hunger, Wicks 3-7 Copyright © 2005 Pearson Education Canada Inc. Societal Environment — Important Variables 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

Concepts in ﴀ Strategic Management, Canadian Edition Wheelen, Hunger, Wicks 3-8 Copyright © 2005 Pearson Education Canada Inc.

Concepts in ﴀ Strategic Management, Canadian Edition Wheelen, Hunger, Wicks 3-9 Copyright © 2005 Pearson Education Canada Inc. Threat of New Entrants Barriers to entry:  Economies of Scale  Product Differentiation  Capital Requirements  Switching Costs  Access to Distribution Channels  Cost Disadvantages Independent of Size  Government Policy

Concepts in ﴀ Strategic Management, Canadian Edition Wheelen, Hunger, Wicks 3-10 Copyright © 2005 Pearson Education Canada Inc. Rivalry Among Existing Firms Intense rivalry related to:  Number of competitors  Rate of Industry Growth  Produce or Service Characteristics  Amount of Fixed Costs  Capacity  Height of Exit Barriers  Diversity of Rivals

Concepts in ﴀ Strategic Management, Canadian Edition Wheelen, Hunger, Wicks 3-11 Copyright © 2005 Pearson Education Canada Inc. Threat of Substitute Products or Services Substitute Products:  Those products that appear to be different but can satisfy the same need as another product. To the extent that switching costs are low, substitutes can have a strong effect on an industry.

Concepts in ﴀ Strategic Management, Canadian Edition Wheelen, Hunger, Wicks 3-12 Copyright © 2005 Pearson Education Canada Inc. Bargaining Power of Buyers Buyer is powerful when:  Buyer purchases large proportion of seller’s products  Buyer has the potential to integrate backward  Alternative suppliers are plentiful  Changing suppliers costs very little  Purchased product represents a high percentage of a buyer’s costs  Buyer earns low profits  Purchased product is unimportant to the final quality or price of a buyer’s products

Concepts in ﴀ Strategic Management, Canadian Edition Wheelen, Hunger, Wicks 3-13 Copyright © 2005 Pearson Education Canada Inc. Bargaining Power of Suppliers Supplier is powerful when:  Supplier industry is dominated by a few companies but sells to many  Its product is unique and/or has high switching costs  Substitutes are not readily available  Suppliers are able to integrate forward and compete directly with present customers  Purchasing industry buys only a small portion of the supplier’s goods.

Concepts in ﴀ Strategic Management, Canadian Edition Wheelen, Hunger, Wicks 3-14 Copyright © 2005 Pearson Education Canada Inc. Power of other Stakeholders A constituent who can affect an organization’s activities and/or be affected by them  Governments  Local communities  Creditors  Unions  Special interest groups

Concepts in ﴀ Strategic Management, Canadian Edition Wheelen, Hunger, Wicks 3-15 Copyright © 2005 Pearson Education Canada Inc.

Concepts in ﴀ Strategic Management, Canadian Edition Wheelen, Hunger, Wicks 3-16 Copyright © 2005 Pearson Education Canada Inc. Industry Evolution Fragmented Industry  No firm has large market share and each firm serves only a small piece of the total market in competition with others. Consolidated Industry  Dominated by a few large firms, each of which struggles to differentiate its products from the competition.

Concepts in ﴀ Strategic Management, Canadian Edition Wheelen, Hunger, Wicks 3-17 Copyright © 2005 Pearson Education Canada Inc.