Environmental Analysis and Strategic Uncertainty PDF

**Environmental Analysis and Strategic Uncertainty** **TECHNOLOGY TRENDS** One dimension of environmental analysis is technological trends or technological events occurring outside the market or industry that have the potential to impact strategies. They can represent opportunities and threats to...

**Environmental Analysis and Strategic Uncertainty** **TECHNOLOGY TRENDS** One dimension of environmental analysis is technological trends or technological events occurring outside the market or industry that have the potential to impact strategies. They can represent opportunities and threats to those in a position to capitalize. For example, technology advances have enabled customers and others to co-create offerings, have generated real options to cable-based television, and have changed the face of energy competition. **BIG DATA** Big data is a significant megatrend that influences various industries, particularly marketing, as companies struggle to transform overwhelming amounts of data into actionable insights. Since 2012, it is estimated that 90% of the total data available was created within just two years, highlighting an unprecedented growth driven by sources such as online searches, social media, GPS data, and various forms of digital content. Despite the challenges of managing and analyzing this data, advancements in statistical tools have made it increasingly possible to integrate and utilize information from diverse sources, presenting substantial opportunities for businesses. **TRANSFORMATIONAL, SUBSTANTIAL, AND INCREMENTAL INNOVATIONS** Trends in the market and environment can drive innovation, which can be classified into three types: incremental, substantial, and transformational. Incremental innovation enhances attractiveness or profitability without altering the core value proposition or strategy. Substantial innovations have a greater impact, while transformational innovations radically change business models and render existing assets irrelevant. Historical examples of transformational innovation include the transition from sail power to steam and the emergence of the automobile, which reshaped markets. Substantial innovations, like the Boeing 747 and telepresence technology by Cisco, improve existing products but maintain the original value propositions. Both substantial and transformational innovations often come from new entrants rather than established firms, which typically focus on incremental changes to sustain their market position. This can lead to a blindness to potential disruption, as seen with companies that failed to adapt to significant technological changes. Ultimately, understanding substantial and transformational innovations is crucial for maintaining competitive advantage and achieving long-term success. **FORECASTING TECHNOLOGIES** Forecasting technologies involves identifying which innovations will succeed and which will fail. The retail sector provides examples, such as the successful shopping cart and UPC scanner, which enhanced the shopping experience. In contrast, failures include Ted Turner's Checkout Channel and the Video cart. Retail expert Ray Burke offers guidelines, based on diverse research, to help organizations differentiate between promising and unpromising technologies, applicable beyond retail. - Use technology to create an immediate, tangible benefit for the consumer. The benefit, in short, needs to be perceived as such. The Checkout Channel was designed to help entertain, but consumers saw it as an intrusive annoyance. - Make the technology easy to use. Consumers resist wasting time and becoming frustrated, and too often new technologies are perceived as doing exactly these things. Research shows that it takes customers an average of 20 to 30 minutes just to learn how to shop in most text-based internet grocery shopping systems. - Execution matters: prototype, test, and refine. One in-store kiosk had no way to inform frustrated customers that it had run out of paper. A bank found customers more receptive to an interactive videoconferencing system when the screens were placed in inviting locations. - Recognize that customer response to technology varies. One bank found that ATM customers rejected videoconferencing options because they actually did not want to interact with humans. Some retailers use loyalty cards to provide receipts and promotions tailored to individual customers. **IMPACT OF NEW TECHNOLOGIES** Certainly, it can be important, even critical, to manage the transition to a new technology. The appearance of a new technology, however, even a successful one, does not necessarily businesses based on the prior technology will suddenly become unhealthy. **A group of researchers at Purdue studied fifteen companies in five industries in which a dramatic new technology had emerged:** - Diesel-electric locomotives vs. steam - Transistors vs. vacuum tubes - Ballpoint pens vs. fountain pens - Nuclear power vs. boilers for fossil-fuel plants - Electric razors vs. safety razors Two key points highlights the challenges of predicting the impact of new technology. First, despite the introduction of new technologies, older ones can continue to thrive, as evidenced by the significant increase in safety-percent after electric razor sales, which rose by 800 percent after electric razors were launched. This indicates that established **technologies** can adapt and coexist with new ones for an extended period. Second, forecasting the effects of new technology is often difficult due to their initial characteristics, which can be expensive and rudimentary. An example of this unpredictability is Thomas Watson's 1943 assertion that the global market for computers might be limited to five units. New technologies frequently enter niche markets before expanding, with transistors initially used in hearing aids and pocket radios. Furthermore, new technologies can create entirely new markets rather than just competing with existing ones, as seen with disposable ballpoint pens and various transistor applications. **CONSUMER TRENDS** Consumer trends can present both threats and opportunities for a wide variety of firms. For example, a dress designer conducted a study that projected women's lifestyles. It predicted that a more varied lifestyle would prevail, that more time would be spent outside the home, and that those who worked would be more career oriented. These predictions had several implications. **INFORMATION TECHNOLOGY** New information technology based on new databases can significantly influence industry strategies and create sustainable competitive advantages (SCAs) and key success factors. Companies like Levi-Strauss, McKesson, and the Limited have implemented advanced systems for inventory control, ordering, and shipping, contributing to their SCAs. FedEx has outpaced competitors by heavily investing in technology, becoming the first express delivery service to offer package tracking and integration with customer systems. Harrah's Casino has used customer data to enhance experiences, such as offering timely meal gifts to losing customers. In supermarkets, "smart cards" enable efficient checkout for processes for customers. **CULTURAL TRENDS** Faith Popcorn has uncovered and studied cultural trends that, in her judgement, will shape the future. Her efforts provide a provocative view of the future environment of many organizations. Consider, for example, the following trends: - **Cocooning.** Consumers are retreating into safe, cozy "homelike" environments to shield themselves from the harsh realities of the outside world. This trend supports online and catalogue shopping, home security systems, gardening, and smart homes. - **Fantasy adventure.** Consumers crave low-risk excitement and stimulation to escape from stress and boredom. Responsive firms offer them restaurants, exotic cosmetics, adventure travel, fantasy clothes that suggest role-playing, fantasy-based entertainment and fantasy cars. - **Pleasure revenge.** Consumers are rebelling against rules to cut loose and savor forbidden fruits (for example, indulgent ice creams, cigars, martinis, tanning salons, and furs). - **Small indulgences.** Busy, stressed-out people are rewarding themselves with affordable luxuries that will provide quick gratification: fresh-squeezed orange juice, chocolate-dipped Tuscan biscotti, crusty bread, and upscale fountain pens. For the possibilities might include Porsche flatware, a mahogany Cris-Craft canoe, or Range Rover night-vision binoculars. - **Down-aging.** Consumers seek symbols of youth, renewal, and rejuvenation of counterbalance the intensity of their adult lives. The over-55 crowd going to school and participating in active sports (including iron man competitions and outdoor adventures) reflect this trend, but it really extends to a wide age group who favor products, apparel, activities, and entertainment that capture the nostalgia of youth. - **Being alive.** Consumers focus on the quality of life and the importance of wellness. Taking charge of their health rather than delegating it to the healthcare industry. Examples of this include the use of holistic medical approaches, vegetarian products and restaurants, organic products, water filters, and health clubs. - **99 lives.** Consumers are forced to assume multiple roles to cope with their increasingly busy lives. Retailers serving multiple needs, ever-faster ways to get prepared food, a service that manages your second home and prepares it for visit, noise neutralizers, e-commerce, and yoga are all responsive to this trend. There is a trend toward tribing, the affinity toward a social unit that is centered around an interest or activity and is not bound by conventional social links. Harley-Davidson events such as the annual rally in Sturgis, South Dakota, can attract hundreds of thousands of participants. **BEING GREEN** The green movement is a significant megatrend of the 21^st^ century, influencing many businesses as they recognize the importance of sustainability for competitiveness. A study reveals that two-thirds of firms view sustainability as crucial. Key drivers of this movement include concerns about global warming and resource depletion, prompting many companies to participate in eco-friendly initiatives. For instance, Unilever aims to have its environmental impact within ten years, with CEO Paul Polman emphasizing the financial costs of climate change as motivation for action. Additionally, green programs can lead to substantial cost savings, as evidenced by Wal-Mart's positive financial outcomes from its environmental efforts. Moreover, customers and employees increasingly value relationships with socially responsible companies. Studies show that many consumers consider sustainability when making decisions. **DEMOGRAPHICS** Demographic trends significantly influence market dynamics and can be anticipated. Key demographic factors include age, income, education, geographic location, and ethnicity. The aging population, particularly those over 65,is noteworthy due to its rapid growth and resource availability, with the segment projected to rise from 40 million (13% of the U.S. population) in 2010 to 55 million (17%) in 2020. The over-85 group in the fastest growing, with a notable imbalance in gender distribution. Elderly women often feel underserved by products targeted at younger audiences. Industry-specific impacts of aging are pronounced, as demonstrated by an Italian study forecasting increases in demand for healthcare, housing, and energy by 32%, 24%, and 21%, respectively, between 2005 and 2020, while demand for toys, motorcycles, and education is expected to decline by 41%, 36%, and 23%. **GOVERNMENT/ECONOMIC TRENDS** - Economic recessions significantly impact strategy and investment. - Businesses need to forecast and adjust to economic downturns, as they can threaten survival and offer opportunities for strategic changes. **MARKETING STRATEGIES DURING RECESSIONS** - Marketing budgets may appear discretionary, making them vulnerable during budget cuts, which can harm the firm's long-term financial health. - Cutting marketing budgets indiscriminately is suboptimal. Instead, firms should identify and defund ineffective areas while nurturing effective ones. - A budget crunch can provide an opportunity to launch new products or marketing programs, as competition may be less active during economic downturns. **CHALLENGES IN MEASURING ROI** - The main difficulty in measuring ROI is ensuring that it is not overly focused on short-term sales promotions at the expense of long-term brand health. A case study of a packaged goods firm revealed that relying on frequent price promotions can damage customer loyalty and lead to a decline in brand value over time. **MARKETING STRATEGIES FOR LONG-TERM BRAND HEALTH** - Marketing efforts should be balanced to protect the long-term health of the brand, focusing on metrics like brand image, differentiation, and customer loyalty. - Using surrogates such as brand health indicators can help measure the long-term impact of marketing efforts. **COMMUNICATING VALUE DURING ECONOMIC DOWNTURNS** - In difficult times, it's essential to communicate value effectively without cheapening the brand. - Strategies include bundling services to add value, demonstrating quality, or changing the frame of reference (e.g., comparing value meals instead of higher-end products). **REEVALUATING MARKETING BUDGETS** - Instead of just focusing on how much is spent, companies should aim for excellence in marketing by developing innovative programs and leveraging new technologies. - Organizations should share successful strategies across departments and use a mix of media, especially digital and social technologies. **OPPORTUNITIES DURING RECESSIONS** - Recessions can offer unique opportunities to gain market position by being aggressive with marketing budgets. - Studies show that companies that increase their marketing budgets during recessions often perform better both during and after the economic downturn compared to those that cut back. Being aggressive, rather than defensive, can yield significant market gains. **TYPES OF FIRMS BENEFITING FROM AGGRESSIVE STRATEGIES** - **Value Brands:** Firms positioned as value brands can benefit, as seen with Wal-Mart during the recessions of 1991 and 1992, where it gained market share from competitors like Sears. - **Relevant Superiority:** Firms with superior offerings can gain market share by aggressively marketing during recessions. - **Innovative Products:** Companies introducing new, industry-changing products can improve their competitive position during a recession, such as Starbucks with its new interior design. - **Effective Marketing Programs:** Successful marketing programs, such as Intel Inside launched during the 1991 recession, can provide a significant advantage. - **Strong Balance Sheet:** Firms with a strong financial position relative to competitors can improve market position through aggressive marketing. **GOVERNMENT REGULATIONS** - Changes in legislative or regulatory constraints can pose strategic threats or opportunities. This includes deregulation in industries like banking and energy, as well as fuel-economy standards in the automobile industry. - International regulatory changes, such as in India and China, can have significant implications for global firms. **GLOBAL EVENTS** - In a globally interconnected economy, political events must be carefully monitored as they can dramatically affect markets. - Companies need to adopt diversified and flexible strategies to mitigate the risks associated with political surprises, ensuring that they are not devastated by unexpected developments. **SUGGESTIONS FOR LEADERS AND ORGANIZATIONS** 1. **Be Curious and Connected:** Encourage external focus, interaction, and observation of emerging trends that could impact the business. 2. **Create Processes:** Use frameworks to consider the implications of trends. 3. **Force a Long-term Perspective:** Avoid getting too caught up in day-to-day operations to stay aware of broader changes. **DEALING WITH STRATEGIC UNCERTAINTY** Strategic uncertainty refers to uncertainties that have significant implications for an organization's strategy, and it is a crucial aspect of external analysis. **Managing Strategic Uncertainty:** - **Grouping Uncertainties:** External analysis often reveals numerous strategic uncertainties, which need to be grouped into logical clusters or themes to be manageable. - **Prioritizing Clusters:** It is important to assess the significance of each cluster to prioritize information gathering and further analysis. - **Impact Analysis:** This method is used to evaluate the importance of each cluster, guiding the organization in dealing with uncertainties. **Handling Unpredictable Trends** - When strategic uncertainty is driven by trends or events with inherent unpredictability, additional information gathering may not reduce the uncertainty. **Scenario Analysis:** This approach accepts uncertainty as a given and helps create multiple future scenarios. The goal is to develop flexible strategies that can adapt as the business context changes. **Outcome:** The scenario analysis might lead to decisions aimed at fostering organizational flexibility, ensuring that the strategy can evolve as circumstances shift. **IMPACT ANALYSIS -- ASSESSING THE IMPACT OF STRATEGIC UNCERTAINTIES** Impact analysis is a crucial step in external analysis that helps organizations assess the potential impact of strategic uncertainties on their strategy and performance. The goal is to evaluate the potential consequences of each uncertainty and prioritize them accordingly. **The impact of a strategic uncertainty is related to:** The extent to which it involves trends or events that will impact existing or potential businesses. **The time frame of the trends or events:** The e action time likely to be available compared with the time required to develop and implement appropriate strategic. **The immediacy of a strategic uncertainty:** Refers to the timing of its potential impact on an organization's strategy, operations, and performance. It involves assessing the time frame and reaction time required to respond to the uncertainty. **Managing strategic uncertainties:** Involves identifying, assessing, and responding to potential risks and opportunities that can impact an organization's strategy, operations, and performance. Effective management of strategic uncertainties requires a proactive and adaptive approach. **SCENARIO ANALYSIS** Scenario analysis is a method used to address uncertainty by developing multiple possible future market scenarios and assessing their likelihood and impact. It serves as an alternative to expensive information gathering processes to reduce uncertainty. **There are Two Types of Scenario Analysis:** **Strategy-developing scenarios** \- This help evaluate current strategies or inspire new ones by analyzing potential future competitive contexts. **Decision-driven scenarios** \- In this type, a proposed strategy is tested against various scenarios to assess its robustness. This helps in making go/no-go decisions and suggests adjustments to withstand competitive pressures. **COMPETITOR SCENARIO ANALYSIS** is a technique used to anticipate and prepare for potential future actions of competitors. It involves identifying uncertainties surrounding a competitor's strategy and developing scenarios to describe possible future events or trends. **Benefits of competitor scenario analysis:** **Anticipate Competitor's Actions --** anticipate potential future actions of competitors and develop strategies to respond. **Test Assumptions --** test existing assumptions and plans by considering pessimistic scenarios. **Identify Opportunities and Threats --** identify opportunities and threats that may arise from competitor's actions. **Develop Flexible Strategies --** develop flexible strategies that can adapt to changing circumstances. **RELATING SCENARIOS TO STRATEGIES** The process of testing existing strategies against different scenarios to evaluate their potential performance and identify potential risks and opportunities. It involves analyzing how different scenarios may impact an organization's strategy, operations, and performance, and identifying the optimal strategies for each scenario. **Benefits of relating scenarios to strategies:** **Improved Strategy Evaluation --** evaluate existing strategies against different scenarios to identify potential strengths and weaknesses. **Identification of New Options --** identify new strategy options that may be optimal for each scenario. **Enhanced Flexibility --** develop strategies that can adapt to changing circumstances and different scenarios. **Better Decision-Making --** make informed decisions by considering the potential performance of different strategies under different scenarios. **Estimating Scenario Probabilities --** is a crucial step in evaluating alternative strategies. It involves determining the likelihood of each scenario occurring, which can be a complex task due to the multiple variables involved. **BENEFITS:** **Improved Decision-Making --** estimating scenario probabilities can help decision-makers evaluate alternative strategies and make more informed decisions. **Risk Management --** estimating scenario probabilities can help identify potential risks and opportunities, and inform risk management strategies. **Strategy Evaluation --** estimating scenario probabilities can help evaluate the potential performance of different strategies under different scenarios. **Resource Allocation --** estimating scenario probabilities can help allocate resources more effectively, by prioritizing strategies that are more likely to succeed. **MEMBERS:** **Marissa Bongala** **Czareneh Jerrenn Bombita** **Nicole Umali**