Strategic Management and Business Policy: Globalization, Innovation and Sustainability PDF

Strategic Management and Business Policy: Globalization, Innovation and Sustainability Sixteenth Edition Chapter 4 Environmental Analysis and Industry Analysis Copyright © 2024 Pearson Education, Inc. All Rights Reserved Learning Objectives (1 of 2) 4.1 List the aspects of an organization’s environm...

Strategic Management and Business Policy: Globalization, Innovation and Sustainability Sixteenth Edition Chapter 4 Environmental Analysis and Industry Analysis Copyright © 2024 Pearson Education, Inc. All Rights Reserved Learning Objectives (1 of 2) 4.1 List the aspects of an organization’s environment that can influence its long-term decisions 4.2 Identify the aspects of an organization’s environment that are most strategically important 4.3 Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry 4.4 Discuss how industry maturity affects industry competitive forces 4.5 Categorize international industries based on their pressures for coordination and local responsiveness Copyright © 2024 Pearson Education, Inc. All Rights Reserved Learning Objectives (2 of 2) 4.6 Identify key success factors and develop an industry matrix 4.7 Construct strategic group maps to assess the competitive positions of firms in an industry 4.8 Develop an industry scenario as a forecasting technique 4.9 Use publicly available information to conduct competitive intelligence 4.10 Construct an E F A S table that summarizes external environmental factors Copyright © 2024 Pearson Education, Inc. All Rights Reserved Environmental Uncertainty Environmental uncertainty – the degree of complexity plus the degree of change that exists in an organization’s external environment – environmental uncertainty is increasing due to; ▪ markets becoming more global ▪ technological change Copyright © 2024 Pearson Education, Inc. All Rights Reserved Environmental Analysis Environmental analysis – the monitoring, evaluation, and dissemination of information relevant to the organizational development of strategy Copyright © 2024 Pearson Education, Inc. All Rights Reserved Identifying External Environmental Variables (1 of 4) Natural environment – includes physical resources, wildlife, and climate that are an inherent part of existence on Earth – form an ecological system of interrelated life Copyright © 2024 Pearson Education, Inc. All Rights Reserved Identifying External Environmental Variables (2 of 4) Societal environment – humankind’s social system that includes general forces that do not directly touch on the short-run activities of the organization, but that can influence its long-term decisions – factors: economic, technological, political–legal, sociocultural Copyright © 2024 Pearson Education, Inc. All Rights Reserved Identifying External Environmental Variables (3 of 4) Task environment – those elements or groups that directly affect a corporation and, in turn, are affected by it – government, local communities, suppliers, competitors, customers, creditors, employees/labor unions, special-interest groups, and trade associations Copyright © 2024 Pearson Education, Inc. All Rights Reserved Identifying External Environmental Variables (4 of 4) Industry analysis – an in-depth examination of key factors within a corporation’s task environment Copyright © 2024 Pearson Education, Inc. All Rights Reserved Analyzing the Natural Environment (1 of 2) The natural environment includes; – Physical resources – Wildlife – Climate Exploitation of these natural resources has resulted in externalities, or side effects such as pollution Copyright © 2024 Pearson Education, Inc. All Rights Reserved Analyzing the Natural Environment (2 of 2) Sustainability is premised on the view that long-term survival of society depends on the responsible use of these resources A firm’s carbon footprint is one way to measure a firm’s commitment to sustainability Copyright © 2024 Pearson Education, Inc. All Rights Reserved Analyzing the Societal Environment: STEEP Analysis (1 of 3) STEEP analysis – monitoring trends in the societal and natural environments – sociocultural, technological, economic, ecological, and political–legal forces Copyright © 2024 Pearson Education, Inc. All Rights Reserved Table 4-1 Some Important Variables in the Societal Environment Sociocultural Technological Economic Ecological Political–Legal Lifestyle changes Total government spending for R&D GDP trends Environmental protection laws Antitrust regulations Total industry spending for R&D Money supply Focus of technological efforts Unemployment levels Non-governmental organizations Patent protection Wage/price controls Pollution impacts Devaluation/ revaluation Tax laws New products Reuse Special incentives Triple bottom line Foreign trade regulations Career expectations Consumer activism Rate of family formation Growth rate of population Age distribution of population Regional shifts in population Life expectancies New developments in technology transfer from lab to marketplace Pension plans Productivity improvements through automation Health care Internet availability Level of education Telecommunication infrastructure Birth rates Living wage Unionization Interest rates Inflation rates Energy alternatives Energy availability and cost Disposable and discretionary income Currency markets Global financial system Global climate change impacts Recycling Environmental protection laws Global climate change legislation Immigration laws Attitudes toward foreign companies Laws on hiring and promotion Stability of government Outsourcing regulation Foreign “sweatshops” Computer hacking activity Copyright © 2024 Pearson Education, Inc. All Rights Reserved Table 4-2 Current U.S. Generations Generation Born Age in 2022 % of Total Adult Population Greatest Before 1928 95 and older > 1% Generation 1928–1945 77–94 7.8% Baby Boomers 1946–1964 58–75 22.6% Generation X 1965–1980 42–57 20.2% Millennials 1981–1996 26–41 22.1% Generation Z 1997–Present 0–25 26.5% WWII / Slient World War 2 slash silent Sources: Developed by Statistics from more than 22,500 sources (2019), ( https://www.statistics.com/statistics/797321/us-population-by-generation/ ). Copyright © 2024 Pearson Education, Inc. All Rights Reserved Analyzing the Societal Environment: STEEP Analysis (2 of 3) Current Sociocultural Trends include: Increasing environmental awareness Growing health consciousness Expanding seniors’ market Impact of millennials Declining mass market Changing pace and location of life Changing household composition Increasing diversity of workforce and markets Copyright © 2024 Pearson Education, Inc. All Rights Reserved Analyzing the Societal Environment: STEEP Analysis (3 of 3) Categories of Risk: Climate Change Regulatory Supply chain Product and technology Litigation Reputational Physical Copyright © 2024 Pearson Education, Inc. All Rights Reserved International Societal Considerations Multinational corporation (MNC) is a company with significant assets and activities in multiple countries. MNCs conduct the following activities in other countries; marketing financial manufacturing other functional activities Every country a company operates in presents a unique societal environment Copyright © 2024 Pearson Education, Inc. All Rights Reserved Table 4-3 Some Important Variables in International Societal Environments Sociocultural Technological Economic Ecological Political–Legal Customs, norms, values Language Demographics Life expectancies Social institutions Status symbols Lifestyle Religious beliefs Attitudes toward foreigners Literacy level Human rights Environmentalism “Sweatshops” Pension plans Health care Slavery Regulations on technology transfer Energy availability/ cost Natural resource availability Transportation network Skill level of workforce Patent-trademark protection Internet availability Telecommunication infrastructure Computer hacking technology New energy sources Economic development Per capita income Climate GDP trends Monetary and fiscal policies Unemployment levels Currency convertibility Wage levels Nature of competition Membership in regional economic associations— e.g., EU, NAFTA, ASEAN Membership in World Trade Organization (WTO) Outsourcing capability Global financial system Nongovernmental groups Passion for environmental causes Infrastructure to handle recycling Form of government Political ideology Tax laws Stability of government Government attitude toward foreign companies Regulations on foreign ownership of assets Strength of opposition groups Trade regulations Protectionist sentiment Foreign policies Terrorist activity Legal system Global warming laws Immigration law Copyright © 2024 Pearson Education, Inc. All Rights Reserved Figure 4-1 Scanning External Environment Copyright © 2024 Pearson Education, Inc. All Rights Reserved Figure 4-2 Forces Driving Industry Competition Copyright © 2024 Pearson Education, Inc. All Rights Reserved Threat of New Entrants (1 of 2) Threat of new entrants – new entrants to an industry bring new capacity, a desire to gain market share and substantial resources Entry barrier – an obstruction that makes it difficult for a company to enter an industry Copyright © 2024 Pearson Education, Inc. All Rights Reserved Threat of New Entrants (2 of 2) Some of the possible barriers to entry are: Economies of scale Product differentiation Capital requirements Switching costs Access to distribution channels Cost disadvantages independent of size Government policy Copyright © 2024 Pearson Education, Inc. All Rights Reserved Rivalry among Existing Firms (1 of 2) In most industries, corporations are mutually dependent. A competitive move by one firm can be expected to have a noticeable effect on its competitors and thus may cause retaliation. Copyright © 2024 Pearson Education, Inc. All Rights Reserved Rivalry among Existing Firms (2 of 2) According to Porter, intense rivalry is related to the presence of several factors, including: Number of competitors Rate of industry growth Product or service characteristics Amount of fixed costs Capacity Height of exit barriers Diversity of rivals Copyright © 2024 Pearson Education, Inc. All Rights Reserved Threat of Substitute Products or Services Substitute product – a product that appears to be different but can satisfy the same need as another product The identification of possible substitute products means searching for products that can perform the same function, even though they have a different appearance. Copyright © 2024 Pearson Education, Inc. All Rights Reserved The Bargaining Power of Buyers (1 of 2) Buyers affect an industry through their ability to force down prices, bargain for higher quality or more services, and play competitors against each other. Copyright © 2024 Pearson Education, Inc. All Rights Reserved The Bargaining Power of Buyers (2 of 2) Bargaining power of buyers: – Large purchases – Backward integration – Alternative suppliers – Low cost to change suppliers – Product represents a high percentage of buyer’s cost: Incented to shop around – Buyer earns low profits: Cost/service sensitive – Product is unimportant to buyer Copyright © 2024 Pearson Education, Inc. All Rights Reserved The Bargaining Power of Suppliers (1 of 2) Suppliers can affect an industry through their ability to raise prices or reduce the quality of purchased goods and services. Copyright © 2024 Pearson Education, Inc. All Rights Reserved The Bargaining Power of Suppliers (2 of 2) A buyer or a group of buyers is powerful if some of the following factors hold true: Industry is dominated by a few companies Unique product or service Substitutes are not readily available Ability to forward integrate Unimportance of product or service to the industry Copyright © 2024 Pearson Education, Inc. All Rights Reserved Relative Power of Other Stakeholders Government Local communities Creditors Trade associations Special-interest groups Unions Shareholders Complementors Copyright © 2024 Pearson Education, Inc. All Rights Reserved Industry Evolution Fragmented industry – no firm has a large market share, and each firm only serves a small piece of the total market in competition with other firms Consolidated industry – domination by a few large firms, each struggles to differentiate products from its competition Copyright © 2024 Pearson Education, Inc. All Rights Reserved Categorizing International Industries Multi-domestic industries – specific to each country or group of countries Global Industries – operate worldwide with multinational companies making only small adjustments for country-specific circumstances Regional industries – multinational companies primarily coordinate their activities within regions Copyright © 2024 Pearson Education, Inc. All Rights Reserved Figure 4-3 Continuum of International Industries Copyright © 2024 Pearson Education, Inc. All Rights Reserved Strategic Groups Strategic group – a set of business units or firms that pursue similar strategies with similar resources – strategic groups in a particular industry can be mapped by plotting the market positions of industry competitors on a two-dimensional graph, using two strategic variables as the vertical and horizontal axes Copyright © 2024 Pearson Education, Inc. All Rights Reserved Figure 4-4 Mapping Strategic Groups in the U.S. Restaurant Chain Industry Copyright © 2024 Pearson Education, Inc. All Rights Reserved Strategic Types Defenders – focus on improving efficiency Prospectors – focus on product innovation and market opportunities Analyzers – focus on at least two different product market areas Reactors – lack a consistent strategy-structure-culture relationship Copyright © 2024 Pearson Education, Inc. All Rights Reserved Hypercompetition Market stability is threatened by: – short product life cycles – short product design cycles – new technologies – frequent entry by unexpected outsiders – repositioning by incumbents – tactical redefinitions of market boundaries as diverse industries merge Copyright © 2024 Pearson Education, Inc. All Rights Reserved Using Key Success Factors to Create an Industry Matrix Key success factors – Variables that can significantly affect the overall competitive positions of companies within any particular industry Copyright © 2024 Pearson Education, Inc. All Rights Reserved Table 4-4 Industry Matrix Industry matrix – summarizes the key success factors within a particular industry Key Success Factors Weight 1 Company A Rating 2 3 Blank Total Company A Weighted Score Company B Rating 4 Blank Company B Weighted Score 5 Blank 6 Blank 1.00 Source: T. L. Wheelen and J. D. Hunger, Industry Matrix. Copyright © 1997, 2001, and 2005 by Wheelen & Hunger Associates. Reprinted with permission. Copyright © 2024 Pearson Education, Inc. All Rights Reserved Competitive Intelligence Competitive intelligence – a formal program of gathering information on a company’s competitors – also called business intelligence Sources of competitive intelligence: – social media – information brokers – Internet – industrial espionage – investigatory services Copyright © 2024 Pearson Education, Inc. All Rights Reserved Monitoring Competitors for Strategic Planning (1 of 2) 1. Why do your competitors exist? Do they exist to make profits or just to support another unit? 2. Where do they add customer value? 3. Which of your customers are the competitors most interested in? Are they cherry-picking your best customers, picking the ones you don’t want, or going after all of them? 4. What is their cost base and liquidity? How much cash do they have? How do they get their supplies? 5. Are they less exposed with their suppliers than your firm? Are their suppliers better than yours? Copyright © 2024 Pearson Education, Inc. All Rights Reserved Monitoring Competitors for Strategic Planning (2 of 2) 6. What do they intend to do in the future? Do they have a strategic plan to target your market segments? How committed are they to growth? Are there any succession issues? 7. How will their activity affect your strategies? Should you adjust your plans and operations? 8. How much better than your competitor do you need to be in order to win customers? Do either of you have a competitive advantage in the marketplace? 9. Will new competitors or new ways of doing things appear over the next few years? Who is a potential new entrant? 10. If you were a customer, would you choose your product over those offered by your competitors? What irritates your current customers? What competitors solve these particular customer complaints? Copyright © 2024 Pearson Education, Inc. All Rights Reserved Useful Forecasting Techniques (1 of 3) Some useful forecasting techniques are: Extrapolation Brainstorming Expert opinion Delphi technique Statistical modeling Prediction markets Cross-impact analysis (CIA) Scenario writing and scenario planning Copyright © 2024 Pearson Education, Inc. All Rights Reserved Useful Forecasting Techniques (2 of 3) Industry Scenario Process Steps are: 1. Examine possible shifts in the natural environment and in societal variables globally. 2. Identify uncertainties in each of the six forces of the task environment (i.e., potential entrants, competitors, likely substitutes, buyers, suppliers, and other key stakeholders). 3. Make a range of plausible assumptions about future trends. 4. Combine assumptions about individual trends into internally consistent scenarios. Copyright © 2024 Pearson Education, Inc. All Rights Reserved Useful Forecasting Techniques (3 of 3) 5. Analyze the industry situation that would prevail under each scenario. 6. Determine the sources of competitive advantage under each scenario. 7. Predict competitors’ behavior under each scenario. 8. Select the scenarios that are either most likely to occur or most likely to have a strong impact on the future of the company. Use these scenarios as assumptions in strategy formulation. Copyright © 2024 Pearson Education, Inc. All Rights Reserved Table 4.5 External Factor Analysis Summary (EFAS Table): Skechers USA as Example (1 of 4) Opportunities External Factors Weight 1 Rating 2 Weighted Score 3 Comments 4 5 Global marketplace.15 5 5.15 Skechers moved into regions around the world with retail stores and distribution centers Consumer need for shoes.10 5.50 Consumers consistently need new athletic and leisure shoes, and Skechers offers them for lower prices than competitors E-commerce sales.10 5.50 Skechers e-commerce sales have been lacking Social media popularity.00 2.00 Skechers social media does not have as many followers as main competitors Customized footwear.00 1.00 Skechers does not customize shoes like Nike and Adidas Cultural interest in staying fit and active.05 4.20 Interest in staying fit means individuals will buy shoes Giving back to the community.00 3.00 Giving back is part of Skechers Triple Bottom Line Following celebrity endorsements.00 4.00 Skechers focused on getting celebrity endorsements for their niche market Brand awareness.10 3.30 As a global brand, Skechers has a lot of brand awareness, but not as much as the top 4 companies Copyright © 2024 Pearson Education, Inc. All Rights Reserved Table 4.5 External Factor Analysis Summary (EFAS Table): Skechers USA as Example (2 of 4) Threats External Factors Weight 1 Rating 2 Weighted Score 3 Comments 4 5 Foreign currency exchange.00 5 00 Foreign currency that doesn’t translate well to the dollar means a profit loss “Bing Bang Disruption”.15 4.60 Skechers could be popular in one region today, but not popular tomorrow. At the same time, Skechers could oust one of the big competitors quickly, but it is not as likely. Red Ocean Environment.10 3.30 Skechers has a difficult time competing in an environment where there was almost no room for growth Four companies controlled 75% of the market.15 3.45 With only four companies controlling 75% of the market, it became a major challenge for Skechers to grow Ethics laws.00 1.00 Skechers ran into some ethics violations. For example, they violated employee regulations Importing laws.00 5.00 While it is a hassle to follow import laws, it is necessary if Skechers wants to grow internationally Intellectual property rights.05 1.05 Skechers has been accused of violating multiple intellectual property rights including patent infringements Changing consumer tastes.05 4.20 Changing consumer tastes means the footwear industry has to constantly keep updating their fashion Total Scores 1.00 Blank 8.25 Blank Copyright © 2024 Pearson Education, Inc. All Rights Reserved Table 4.5 External Factor Analysis Summary (EFAS Table): Skechers USA as Example (3 of 4) Notes: 1. 2. List opportunities and threats (8–10) in Column 1. Weight each factor from 1.0 (Most Important) to 0.0 (Not Important) in Column 2 based on that factor’s probable impact on the company’s strategic position. The total weights must sum to 1.00. 3. Rate each factor from 5.0 (Outstanding) to 1.0 (Poor) in Column 3 based on the company’s response to that factor. Multiply each factor’s weight times its rating to obtain each factor’s weighted score in Column 4. Use Column 5 (comments) for the rationale used for each factor. 4. 5. 6. Add the individual weighted scores to obtain the total weighted score for the company in Column 4. This tells how well the company is responding to the factors in its external environment. Copyright © 2024 Pearson Education, Inc. All Rights Reserved Table 4.5 External Factor Analysis Summary (EFAS Table): Skechers USA as Example (4 of 4) Source: Thomas L. Wheelen. Copyright © 1982, 1985, 1987, 1988, 1989, 1990, 1991, 1998, and every year after that. Kathryn E. Wheelen solely owns all of (D r.) Thomas L. Wheelen’s copyrighted materials. Kathryn E. Wheelen requires written reprint permission for each book that this material is to be printed in. Thomas L. Wheelen and J. David Hunger, copyright © 1991–first year “External Factor Analysis Summary” (EFAS) appeared in this text (4th e d). Reprinted by permission of the copyright holders. Copyright © 2024 Pearson Education, Inc. All Rights Reserved Copyright This work is protected by United States copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including on the World Wide Web) will destroy the integrity of the work and is not permitted. The work and materials from it should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials. Copyright © 2024 Pearson Education, Inc. All Rights Reserved