Environmental Analysis

Environmental Uncertainty

• The degree of complexity plus the degree of change in an organization's external environment

Environmental Scanning

• Monitoring, evaluating, and disseminating information from external and internal environments to key people within a corporation
• Used to avoid strategic surprises and ensure long-term health

Natural Environment

• Includes physical resources, wildlife, and climate as an inherent part of existence on Earth
• Factors form an ecological system of interrelated life

Societal Environment

• Mankind's social system with general forces that don't directly affect the organization's short-run activities
• It influences long-run decisions and affects multiple industries

Societal Environment Factors

• Economic Forces: Regulate the exchange of materials, money, energy, and information
• Technological Forces: Generate problem-solving inventions
• Political-Legal Forces: Allocate power and provide constraining and protecting laws and regulations
• Sociocultural Forces: Regulate the values, mores, and customs of society

Task Environment

• Part of the business environment with elements or groups that directly affect the corporation and are affected by it
• Includes governments, local communities, suppliers, competitors, customers, creditors, employees/labor unions, special-interest groups, and trade associations
• A corporation's task environment: The industry in which the firm operates

Industry Analysis

• An in-depth examination of key factors within a corporation's task environment

Monitoring

• Monitor the natural, societal, and task environment to detect strategic factors likely to strongly impact corporate success or failure in the future

STEEP Analysis

• Large corporations categorize the societal environment in any geographic region into four areas
• Then focus their scanning in each area on trends with corporate-wide relevance
• Scanning of Sociocultural, Technological, Economic, Ecological, and Political-legal environmental forces
• Also called a PESTEL Analysis: Political, Economic, Sociocultural, Technological, Ecological, and Legal Forces

Multinational Corporation (MNC)

• Tailors products to specific consumer needs in a particular country
• A company with significant assets and activities in multiple countries conducting marketing, financial, manufacturing, and functional activities

Issues Priority Matrix

• A chart that ranks the probability of occurrence versus the probable impact on the corporation of developments in the external environment

Industry

• A group of firms that produces a similar product or service, such as soft drinks or financial services
• Examining important stakeholder groups, such as suppliers and customers, is part of industry analysis

New Entrants

• Bring new capacity, market share desire, and substantial resources
• Considered threats to established corporations
• Threat of entry depends on entry barriers and the reaction from existing competitors

Entry Barrier

• Obstruction that makes it difficult for a company to enter an industry
• Includes economies of scale, product differentiation, capital requirements, switching costs and access to distribution channels
• Also cost disadvantages independent of size and government policy

Substitute Product

• A product that appears different but satisfies the same need as another product

Complementor

• A company or industry that works well with another industry or firm’s product which would lose much of its value

Fragmented Industry

• An industry where no firm has a large market share, with each serving a small piece of the market

Consolidated Industry

• An industry with a few large dominating companies
• Dominated by a few large firms that differentiate their products

Global Industry

• Industry in which a company manufactures and sells the same products with only minor adjustments around the world
• Operate worldwide, with MNCs making small adjustments for country-specific circumstances

Regional Industries

• Multinational corporations coordinate their activities primarily within specific geographic areas
• MNCs primarily coordinate their activities within regions

Strategic Group

• Businesses or firms that pursue similar strategies with similar resources

Strategic Type

• A category of firms with a common strategic orientation

Defenders

• Companies with a limited product line that focus on improving the efficiency of their existing operations
• Cost orientation makes them unlikely to innovate

Prospectors

• Companies with fairly broad product lines that focus on product innovation and market opportunities
• Sales orientation makes them somewhat inefficient and focuses on creativity over efficiency

Analyzers

• Corporations that operate in at least two product-market areas, one stable and one variable
• Efficiency is emphasized in stable areas, innovation is emphasized in variable areas

Reactors

• Corporations that lack a consistent strategy-structure-culture relationship
• Ineffective responses to environmental pressures are piecemeal strategic changes

Hypercompetition

• An industry situation in which the frequency, boldness, and aggressiveness of dynamic movement accelerates, creating constant disequilibrium and change.

Key Success Factor

• Variables that significantly affect the competitive position of companies within any particular industry
• Vary from industry to industry and are crucial to determining a company's ability to succeed

Industry Matrix

• Summarizes the key success factors within a particular industry

Competitive Intelligence

• A formal program of gathering information on a company's competitors
• Also called business intelligence

Competitors

• Companies offering the same products or services as the subject company
• Organizations with similar, or substitutable products or services in the same business area as the company

EFAS (External Factors Analysis Summary) Table

• A table of external factors into opportunities and threats and how management responds

Entry Barrier

• Obstruction that makes it difficult to enter an industry

Exit Barrier

• Obstruction that keeps a company from leaving an industry

Forecasting Techniques

• Extrapolation: Extending present trends into the future
• Brainstorming: A non-quantitative approach requiring people with knowledge of the situation
• Expert Opinion: Non-quantitative technique using experts to forecast likely developments
• Delphi Technique: Separated experts independently assess likelihoods of specified events
• Statistical Modeling: Quantitative technique attempting to discover causal or least explanatory factors linking time series

Prediction Markets

• A recent forecasting technique enabled by easy access to the internet

Scenario Writing

• The most widely used forecasting technique after trend extrapolation

Industry Scenario

• A forecasted description of a particular industry's likely future
• Developed by analyzing the impact of future societal forces

Multi-Domestic Industry

• Industries that are specific to each country or group of countries
• Collection of essentially domestic industries, such as retailing and insurance

Organizational Analysis

• Internal scanning identifying an organization's strengths and weaknesses

Resources

• An organization's assets and basic building blocks
• Includes tangible assets (plant, equipment, finances, location)
• Includes human assets (employees, skills, motivation)
• Includes intangible assets (technology, culture, reputation)

Capabilities

• A corporation's ability to exploit its resources
• Consist of business processes and routines that manage interaction among resources to turn inputs into outputs

Competency

• A cross-functional integration and coordination of capabilities

Core Competencies

• A collection of competencies crossing divisional boundaries, widespread in the corporation, that the corporation can do exceedingly well

Distinctive Competencies

• Firm competencies superior to those of competitors

VRIO Framework

• Barney's analysis to evaluate a firm's key resources in terms of value, rareness, imitability, and organization

VRIO Questions

• Value: Does it provide customer value and competitive advantage?
• Rareness: Do no other competitors possess it?
• Imitability: Is it costly for others to imitate?
• Organization: Is the firm organized to exploit the resource?

Durability

• The rate at which a firm's resources, capabilities, or core competencies depreciate or become obsolete

Imitability

• The rate at which a firm's underlying resources, capabilities, or core competencies can be duplicated by others
• Transferability: Competitors can gather resources and capabilities for a competitive challenge
• Transparency: The speed with which other firms can understand the relationship of resources and capabilities that supports a firm’s strategy
• Replicability: Competitors can use duplicated resources and capabilities to imitate the success of a firm

Explicit Knowledge

• Easily articulated and communicated knowledge
• Competitive intelligence activities can quickly identify and communicate

Tacit Knowledge

• Knowledge not easily communicated due to being deeply rooted in employee experience or culture
• Considered to be more valuable, lead to a sustainable advantage over explicit knowledge

Continuum of Sustainability

• Indicates how durable and imitable an organization's resources and capabilities are

Business Model

• Method for making money in the current business environment
• Includes key structural and operational characteristics of firm: how it earns revenue and profits

Customer Solutions Model

• Making money by selling expertise to improve customers' operations (IBM)

Profit Pyramid Model

• Entering at low-priced, low-margin entry point, upselling to high-margin products

Multi-Component System/Installed Base Model

• The product is a system, not just one product, with one component providing most profits

Advertising Model

• Offering the basic product free to make money on advertising

Switchboard Model

• Acting as an intermediary to connect multiple sellers to multiple buyers

Time Model

• R&D and speed are keys to success
• Being first to market with a new innovation allows to earn high margins

Efficiency Model

• Company waits for standardization, then enters with low-priced, low-margin product

Blockbuster Model

• Focuses on high investment in few products with high potential payoffs

Profit Multiplier Model

• Developing a concept that may/may not make money alone but can spin off new profitable products through synergy

Entrepreneurial Model

• Offers specialized products/services to small, but high-growth market niches

De Facto Industry Standard Model

• Offering products free or low-priced to saturate the market and become the industry standard

Value Chain

• Linked value-creating activities, raw materials from suppliers, value-added activities producing and marketing a product or service, goods into consumers' hands

Organizational Structures

• Formal setup of value chain components in work flow, communication channels, and hierarchy

Simple Structure

• No functional or product categories
• Appropriate for small, entrepreneur-dominated company
• One or two product lines in small market niche

Functional Structure

• Appropriate for medium-sized firm with several product lines in one industry

Divisional structure

• Appropriate for a large corporation with many product lines in several related industries

Strategic Business Units (SBUs)

• Independent product market segments given primary responsibility and authority over their own functional areas

SBU Size/Levels Characteristics

• A unique mission
• Identifiable competitors
• An external market focus
• Control of its business functions

Conglomerate structure

• Appropriate for large corporation with many product lines in unrelated industries

Corporate Structure

• Collection of beliefs, expectations, and values
• Learned and shared by corporation's members and transmitted to employees

Cultural Intensity

• The degree to which members of a unit accept the norms, values or other culture content associated with the unit

Cultural Integration

• The extent to which units throughout an organization share a common culture

Marketing Mix

• Combination of key variables under a corporation's control to affect demand and gain an advantage

Market Segmentation

• Dividing a market into segments to identify available niches

Market Positioning

• Choosing specific areas for marketing concentration

Product Life Cycle

• Time plotted against sales of product from introduction to growth and maturity to decline

Brand

• A name of a company's product that identifies the item in the mind of the consumer

Corporate Reputation

• Widely held perception of a company by the general public

Strategic Financial Issues

• Financial leverage: The ratio of total debt to total assets
• Capital budgeting: Analyzing and ranking possible investments in fixed assets

R&D Intensity

• A company's spending on research and development as a percentage of sales revenue

Technological Competence

• Corporation's proficiency in managing research personnel and integrating their innovations into day-to-day operations

Technology Transfer

• The process of taking new technology from the laboratory to the marketplace

R&D Mix

• Balance of basic, product, and process research and development

Technological Discontinuity

• The displacement of one technology by another

Strategic Operations Issues

• Operating Leverage: The impact of a specific change in sales volume on net operating income

Experience Curve

• Conceptual framework stating that unit production costs decline by some fixed percentage each time total accumulated volume of production in units doubles

Economies of Scale

• Unit costs reduced by making large numbers of the same product

CAD/CAM

• Computer Assisted Design or Computer Assisted Manufacturing

Economies of Scope

• Unit costs are reduced when the value chains share activities

Virtual Teams

• Coworkers assembled using telecommunications and information accomplishing tasks

Supply Chain Management

• Networks forming for sourcing raw materials

IFAS (Internal Factor Analysis Summary) Table

• Organizing internal factors into strengths and weaknesses and the response of management

Strategy Formulation

• Developing corporation's mission, objectives, strategies, and policies

SWOT

• Strengths, Weaknesses, Opportunities, and Threats

SFAS (Strategic Factors Analysis Summary) MATRIX

• Summarizing strategic factors through combining external factors (EFAS) and SWOT.

Propitious Niche

• Favorable niche, suited to a firm's environment that other corporations aren't likely to challenge/dislodge

Common Thread

• Unifying theme for corporation's businesses
• Manages may be unclear about where the company is heading

TOWS Matrix

• Another way of saying SWOT
• Illustrates how external opportunities and threats can be matched to result in four sets of possible strategic alternatives

SO Strategies

• Utilize company's strength to take advantage of new opportunities

ST Strategies

• Utilize the company's strengths as a tool of defense against threats

WO Strategies

• Take advantage of opportunities by overcoming weaknesses

WT Strategies

• Defensive act to avoid and minimize weaknesses and threats

Business Strategy

• Improving the competitive position of a company's products/services within a specific industry/market

Competitive Strategy

• A strategy that states how a company will compete in the market.
• Lower cost strategy: design produce and market more efficiently
• Differentiation strategy: ability to provide unique and superior value

Cost Leadership

• A strategy that aims at the broad mass market with low-cost

Differentiation

• Aim the creation of unique product at the broad market

Cost/Differentiation Focus

• A strategy for certain niche target, excluding all others that aims to serve only this niche

Competitive Scope

• Breadth of a company's or business unit's target market

Fragmented Industry

• Consists of no firms with a large market share

Consolidated Industries

• Consists of only a few large companies

Tactic

• Short-term operating plan detailing how a strategy is implemented

Timing Tactic

• Deals with when a company implements a strategy
• First mover: Company to first manufacture/sell new product or service
• Late mover: Companies later enter a market

Market Location Tactics

• Deals with where a company implements a strategy
• Offensive Tactics: Competing in current market location Frontal Assault Flanking Maneuver Bypass attack Encirclement Guerilla Warfare
• Defensive Tactics: Company defends current market Raise structural barriers Increase expected retaliation Lower the inducement for attack

Cooperative Strategy

• A strategy that involves working with other firms for competitive gain

Collusion

• Active cooperation of firms within industry to reduce output and raise prices which is against the law

Joint Venture

• Active cooperation of firms creating independent business that allocates risks, ownership, responsibilities to members but all while preserving their separate identities

Licensing Arrangement

• Agreement of rights to grants from licensing firm to another

Mutual Service Consortium

• Partnership of similar companies pooling benefits

Strategic Alliance

• A arrangement with economic mutual gain

Value Chain Partnership

• Close alliance with a supplier or distributor