Strategic Management and Business Policy 15E Global Edition PDF

Strategic Management and Business Policy 15e, Global Edition Chapter 4 Environmental Scanning and Industry Analysis Copyright © 2018 Pearson Education, Lt...

Strategic Management and Business Policy 15e, Global Edition Chapter 4 Environmental Scanning and Industry Analysis Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. Reminders Group assignment First quiz next week Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 2 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 © 2018 Pearson Education, Ltd. All Rights Reserved. 4-3 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 EFAS Table that summarizes external environmental factors Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 4-4 Reflective question If you were planning to open a new business in a foreign country what would be the first thing to study? and Why? Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 5  Strategic Management Process Environmental Scanning Copyright © 2018 Pearson Education, Ltd. All Rights Reserved.  Prentice Hall, Inc. © 2018 Environmental Analysis 1 List the aspects of an organization’s environment that can influence its long-term decisions Environmental uncertainty – The degree of complexity plus the degree of change that exists in an organization’s external environment. Environmental Scanning – Monitoring, evaluation and dissemination of information relevant to the organizational development of strategy Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 4-7  Prentice Hall, Inc. © 2008 Environmental Variables 1 List the aspects of an organization’s environment that can influence its long-term decisions Natural Environment – Physical resources, wildlife, climate – an inherent part of existence on Earth Societal Environment – Social system including general forces that do not directly touch on the short-run activities of the organization but can influence its long-term decisions.  political-legal , Economic, socio-cultural technological (PEST) or (STEEP) or (SLEPT) Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 4-8 Environmental Variables Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. Environmental Variables List the aspects of an organization’s environment that can influence its long-term decisions 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 Industry Analysis – In-depth examination of key factors within a corporation’s task environment. Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 4-10 Strategic importance of the external environment 2 Identify the aspects of an organization’s environment that are most strategically important STEEP analysis – monitoring trends in the societal and natural environments – sociocultural, technological, economic, ecological, and political-legal forces Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 4-11 Table 4-1: STEEP Analysis: Monitoring Trends in the Societal and Natural Environments Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 4-12 Demographic trends are part of the sociocultural aspect of the societal environment. SOURCES: Developed from Pew Research Center analysis of census bureau population projections (September 3, 2015), (http://www.people-press.org/2015/09/03/the-whys-and-hows-of-generations-research/generations_2/). Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 4-13 Demography Identify information that might influence the following businesses: Higher education institution, Real estate, and services to elderly people. Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 14 Current Sociocultural Trends 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 © 2018 Pearson Education, Ltd. All Rights Reserved. 4-15  Prentice Hall, Inc. © 2008 Activity: Identify major STEEP variables in the UAE (BB assignment) Sociocultural Technological Economical Political/legal Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 4-16 Table 4-3: Some Important Variables in International Societal Environments Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 4-17 Scanning the External Task Environment Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 4-18 Porter’s five forces Model 3 Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 19 Task Environment 3 Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry Industry A group of firms that produces a similar product or service such as drinks or financial services. Industry Analysis In-depth examination of key factors/stakeholders/shareholders/suppliers/customers within a corporation’s task environment High force –High Competitive intensity – less chances of raising prices- reduces profits Low force – Low competitive intensity- more chances to increase price - increases profits Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 20 Assumptions of Porter’s Model 3 Conduct an industry analysis to explain the competitive forces that influence the intensity of rivalry within an industry A corporation is most concerned with the intensity of competition within its industry The level of this intensity is determined by basic competitive forces “The collective strength of these forces determines the ultimate profit potential in the industry Profit potential is measured in terms of long-run return on invested capital. Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 21 Forces Driving Industry Competition Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 4-22 Threat of New Entrants Porter’s five forces Entry barrier: An obstruction that makes it difficult for a company to enter an industry Why new entrants are a threat to the existing firms? – The “barriers to entry” Economies of scale Product differentiation Capital requirements Switching costs Access to distribution channels Cost disadvantages Government policy Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 4-23  When is threat of new entrant ‘low’ Low amount of capital is required to enter a market; Existing companies can do little to retaliate; Existing firms do not possess patents, trademarks or do not have established brand reputation; There is no government regulation; Customer switching costs are low (it doesn’t cost a lot of money for a firm to switch to other industries); There is low customer loyalty; Products are nearly identical; Economies of scale can be easily achieved. Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 24 Rivarly among existing firms Porter’s five forces Number of competitors Rate of industry growth Product or service characteristics Amount of fixed costs Capacity Height of exit barriers Diversity of rivals Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 4-25 Threat of substitute products or services Porter’s five forces 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 © 2018 Pearson Education, Ltd. All Rights Reserved. 26 Bargaining power of buyers Porter’s five forces Buyers affect an industry through their ability to force down prices, bargain for higher quality or more services, and play competitors against each other. When is bargaining power of buyers high – Large purchases – 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 © 2018 Pearson Education, Ltd. All Rights Reserved. 27 Bargaining power of suppliers Porter’s five forces Suppliers can affect an industry through their ability to raise prices or reduce the quality of purchased goods and services. A supplier or a group of suppliers 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 Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 28 When bargaining power of supplier ‘high’ There are few suppliers but many buyers; Suppliers are large and threaten to forward integrate; Few substitute raw materials exist; Suppliers hold scarce resources; Cost of switching raw materials is especially high. Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 29 6. Relative Power of Other Stakeholders Government Local communities Creditors Trade associations Special-interest groups Unions Shareholders Complementors Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 4-30  Prentice Hall, Inc. © 2018 Activity: find out high medium and low competitive industries in the UAE High Medium Low Intensity of Profitability Active industry -tourism Agriculture competition oil -Restaurant - Real Estate - Healthcare - Banking and finacne Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 4-31 Case Zoom Inc. How would you evaluate Porter’s five forces forces for this industry? Explain. Blackboard Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 32 Industry Evolution 4 Discuss how industry maturity affects industry competitive forces space where similar service or products are like apple laptop, compete like resturant airplane, car (toyato) Fragmented industry Consolidated industry no firm has a large market share and domination by a few large firms, each each firm only serves a small piece of struggles to differentiate products from the total market in competition with its competition other firms Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 4-33 Categorizing International Industries 5 Categorize international industries based on their pressures for coordination and local responsiveness Multi-domestic industries a company that can be called the same in the whole world but it can be diiferent in each country like mcdonalds – specific to each country or group of countries Global Industries the same thing where very you go like cars,smart phone, computer – operate worldwide with multinational companies making only small adjustments for country-specific circumstances Regional industries in the regions only like netflix – multinational companies primarily coordinate their activities within regions Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 4-34 Figure 4-3: Continuum of International Industries 5 Categorize international industries based on their pressures for coordination and local responsiveness Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 4-35 Strategic Groups 5 Categorize international industries based on their pressures for coordination and local responsiveness Strategic group – a set of business units or firms that pursue similar strategies with similar resources Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 4-36  Figure 4-4: Mapping Strategic Groups in the U.S. Restaurant Chain Industry examples Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 4-37 Strategic Group Mapping Level of Internationalization Elisabeth Arden Christian Dior Global L'Oréal International Coty Estee Lauder Arabic Perfumes Local Large Average Limited Product Range UAEU - CBE Strategic Group Mapping High-end Market Coty (Lancaster) Elisabeth Arden Estee Lauder Christian Dior Targeted Market Arabic Perfumes Mid-category market Elisabeth Arden Estee Lauder L'Oréal Mass Market Coty Elisabeth Arden L'Oréal Large Average Limited Product Range UAEU - CBE 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 © 2018 Pearson Education, Ltd. All Rights Reserved. 4-40 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 © 2018 Pearson Education, Ltd. All Rights Reserved. 4-41 Using Key Success Factors to Create an Industry Matrix 6 Identify key success factors and develop an industry matrix Key success factors – Variables that can significantly affect the overall competitive positions of companies within any particular industry Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 4-42 Table 4-4: Industry Matrix Industry matrix – summarizes the key success factors within a particular industry Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 4-43  Using Key Success Factors to Create Industry Matrix (1/2)  Industry matrix is also called “Competitive Profile Matrix” (CPM).  It is used to summarize the importance of success factors 1- 44 within an industry and to analyze the responsiveness/performance of each company at the level of each success factor.  It allows also to identify the leading competitors. UAEU - CBE  Using Key Success Factors to Create Industry Matrix (2/2) 1- 45 Total should be 1 or 100 Each cell is a rating from 5 (Outstanding) to 1 (Poor) Calculates company’s performance e.g. marketing by multiplying Weight (4) by the company score (4) Source: Adapted from https://expertprogrammanagement.com/2017/01/competitive-profile-matrix-cpm/ UAEU - CBE Competitive Intelligence 7 Construct strategic group maps to assess the competitive positions of firms in an industry Competitive intelligence – a formal program of gathering information on a company’s competitors – also called business intelligence Sources of competitive intelligence: – information brokers – Internet – industrial espionage – investigatory services Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 4-46 Useful Forecasting Techniques 8 Develop an industry scenario as a forecasting technique Some useful forecasting techniques are: Extrapolation predicat the future by seeing historical data Brainstorming Expert opinion Delphi technique groups have questions and then gather and give each others answer Statistical modeling forcast stocks Prediction markets Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 4-47  External Factors Synthesis (EFAS) 10 Construct an EFAS table that summarizes external environmental factors  Summarizes the identified external factors based on scanned natural, societal, and task environments.  Helps companies in assessing more “objectively” the impact of the key factors and the capability of the company to respond / to perform to/against them. Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 4-48 Table 4-5: Synthesis of External Factors— EFAS have to be 1 the higher the better Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 4-49  External Factors Synthesis (EFAS) (2/2) Comments 1- Total 1 or 100 50 Rating/scoring from 5 (outstanding) to 1 (poor) Column 1 X Column 2 Source: Adapted from David & David, (2017), Strategic Management: A Competitive Advantage Approach, Concepts, 16th edition, Pearson Education Limited. UAEU - CBE  External Factors Synthesis (EFAS) 10 Construct an EFAS table that summarizes external environmental factors  Create an EFAS table for Zoom Inc.  Blackboard Copyright © 2018 Pearson Education, Ltd. All Rights Reserved. 4-51