STRATMGT M1 PDF - Environmental Scanning And Industry Analysis

STRATMGT – MIDTERM As shown in Table 4–1, large corporations categorize the natural and societal environments in any one Chapter 4: ENVIRONMENTAL SCANNING AND geographic r...

STRATMGT – MIDTERM As shown in Table 4–1, large corporations categorize the natural and societal environments in any one Chapter 4: ENVIRONMENTAL SCANNING AND geographic region into f ive areas and f ocus their INDUSTRY ANALYSIS scanning in each area on trends that have corporate Environmental scanning wide relevance. - the monitoring, evaluation, and dissemination of These analyses take the f orm of individual reports inf ormation relevant to the organizational written by various people in dif f erent parts of the f irm. development of strategy Current U.S. Generations Identifying External Environmental Variables Natural environment - includes physical resources, wildlif e and climate that are an inherent part of existence on Earth - f orm an ecological system of interrelated lif e For example, the demographic bulge in the U.S. population caused by the baby boom af ter WWII Societal environment continues to af f ect market demand in many industries. - mankind’s social system that includes general f orces This group of 77 million people now in their 50s and 60s that do not directly touch on the short-run activities is the largest age group in all developed countries, of the organization, but that can inf luence its long- especially in Europe. (See Table 4–2.) term decisions - economic, technological, political-legal and sociocultural Current Sociocultural Trends Task environment Eight current sociocultural trends are transf orming North - those elements or groups that directly af f ect a America and the rest of the world: corporation and, in turn, are af f ected by it Increasing environmental awareness: Recycling - government, local communities, suppliers, competitors, customers, creditors, unions, special and conservation are becoming more than slogans. interest groups/trade associations Busch Gardens, f or example, has eliminated the use of disposable styrofoam trays in f avor of washing Industry analysis and reusing plastic trays. - an in-depth examination of key f actors within a corporation’s task environment Growing health consciousness: Concerns about personal health f uel the trend toward physical f itness and healthier living. As a result, sales growth is Scanning the Societal Environment: STEEP Analysis slowing at f ast-f ood “burgers and f ries” retailers such as McDonald’s. STEEP Analysis - monitoring trends in the societal and natural Expanding seniors market: As their numbers environments increase, people over age 55 will become an even - sociocultural, technological, economic, ecological more important market. and political-legal f orces Impact of Millennials: Some Important Variables in the Societal Environment Declining mass market: Niche markets are def ining the marketers’ environment. People want products and services that are adapted more to their personal needs. Changing pace and location of life: Instant communication via e-mail, cell phones, and overnight mail enhances ef f iciency, but it also puts more pressure on people 1  Changing household composition: Single-person Some Important Variables in International households, especially those of single women with children, could soon become the most common Societal Environments household type in the United States. Increasing diversity of workforce and markets: Between now and 2050, minorities will account f or nearly 90% of population growth in the United States. Over time, group percentages of the total United States population are expected to change as f ollows: NonHispanic Whites—f rom 90% in 1950 to 74% in 1995 to 53% by 2050; Hispanic Whites— f rom 9% in 1995 to 22% in 2050; Blacks—f rom 13% in 1995 to 15% in 2050; Asians—f rom 4% in 1995 to 9% in 2050; American Indians—1%, with slight increase. To account f or the many dif ferences among societal Technological Breakthroughs environments f rom one country to another, consider Table 4–3. It includes a list of economic, technological, Researchers at George Washington University have political–legal and sociocultural variables f or any identif ied a number of technological breakthroughs that particular country or region. are already having a signif icant impact on many industries: Scanning External Environment Portable inf ormation devices Electronic networking. Alternative energy sources Precision f arming Virtual personal assistants Genetically altered organisms Smart, mobile robots Categories of Risk The ef f ects of climate change on companies can be As shown in Figure 4–1, a corporation’s scanning of the grouped into six categories of risks: environment includes analyses of all the relevant Regulatory risk elements in the task environment. Supply chain risk Product and technology risk Forces Driving Industry Competition Litigation risk Reputational risk Physical risk 2 Michael Porter, an authority on competitive strategy, Access to distribution channels: Small contends that a corporation is most concerned with the entrepreneurs of ten have dif f iculty obtaining intensity of competition within its industry. The level of supermarket shelf space f or their goods because this intensity is determined by basic competitive f orces, large retailers charge f or space on their shelves and as depicted in Figure 4–2. give priority to the established f irms who can pay f or the advertising needed to generate high customer Using the model in Figure 4–3, a high f orce can be demand. regarded as a threat because it is likely to reduce prof its. A low f orce, in contrast, can be viewed as an opportunity Cost disadvantages due to size: Once a new because it may allow the company to earn greater product earns suf f icient market share to be accepted prof its. In the short run, these f orces act as constraints as the standard f or that type of product, the maker on a company’s activities. In the long run, however, it has a key advantage. may be possible f or a company, through its choice of strategy, to change the strength of one or more of the Government policies: Governments can limit entry f orces to the company’s advantage. into an industry through licensing requirements by restricting access to raw materials, such as oil- Threat of New Entrants drilling sites in protected areas. Threat of new entrants Rivalry among Existing Firms - new entrants to an industry bring new capacity, a desire to gain market share and substantial - In most industries, corporations are mutually resources dependent. Entry barrier - A competitive move by one f irm can be expected to - an obstruction that makes it dif f icult f or a company to have a noticeable ef f ect on its competitors and thus enter an industry may cause retaliation. According to Porter, intense rivalry is related to the presence of several factors, including: Barriers to Entry Number of competitors: When competitors are f ew Some of the possible barriers to entry are: and roughly equal in size, such as in the auto and Economies of scale: Scale economies in the major home appliance industries, they watch each other caref ully to make sure that they match any production and sale of microprocessors, for move by another f irm with an equal countermove. example, gave Intel a signif icant cost advantage over any new rival. Rate of industry growth: Any slowing in passenger Product differentiation: Corporations such as traf f ic tends to set of f price wars in the airline industry because the only path to growth is to take Procter & Gamble and General Mills, which sales away f rom a competitor. manuf acture products such as Tide and Cheerios, create high entry barriers through their high levels of Product or service characteristics: A product can advertising and promotion be very unique, with many qualities dif f erentiating it Capital requirements: The need to invest huge f rom others of its kind or it may be a commodity, a f inancial resources in manuf acturing f acilities in product whose characteristics are the same, regardless of who sells it. For example, most people order to produce large commercial airplanes creates choose a gas station based on location and pricing a signif icant barrier to entry to any competitor f or because they view gasoline as a commodity. Boeing and Airbus. Amount of fixed costs: Because airlines must f ly Switching costs: Once a sof tware program such as their planes on a schedule, regardless of the number Excel or Word becomes established in an of f ice, of paying passengers f or any one f light, they of fer of f ice managers are very reluctant to switch to a new cheap standby f ares whenever a plane has empty program because of the high training costs. seats. 3  Capacity: If the only way a manuf acturer can The Bargaining Power of Suppliers increase capacity is in a large increment by building - Buyers af f ect an industry through their ability to f orce a new plant (as in the paper industry), it will run that down prices, bargain f or higher quality or more new plant at f ull capacity to keep its unit costs as low services and play competitors against each other. as possible—thus producing so much that the selling price f alls throughout the industry. A buyer or a group of buyers is powerf ul if some of the f ollowing f actors hold true: Height of exit barriers: Exit barriers keep a company f rom leaving an industry. The brewing Industry is dominated by a few companies: The industry, f or example, has a low percentage of supplier industry is dominated by a f ew companies, companies that voluntarily leave the industry but it sells to many (f or example, the petroleum because breweries are specialized assets with f ew industry). uses except f or making beer. Unique product or service: Its product or service is unique and/or it has built up switching costs (f or Diversity of rivals: Rivals that have very dif f erent example, word processing sof tware). ideas of how to compete are likely to cross paths of ten and unknowingly challenge each other’s Substitutes are not readily available: Substitutes position. This happens of ten in the retail clothing are not readily available (f or example, electricity). industry when a number of retailers open outlets in the same location—thus taking sales away f rom Ability to forward integrate: Suppliers are able to each other. integrate f orward and compete directly with their present customers (f or example, a microprocessor producer such as Intel can make PCs). Threat of Substitute Products or Services Unimportance of product or service to the Substitute product industry: A purchasing industry buys only a small portion of the supplier group’s goods and services - a product that appears to be dif ferent but can satisf y and is thus unimportant to the supplier (f or example, the same need as another product sales of lawn mower tires are less important to the - The identif ication of possible substitute products tire industry than are sales of auto tires). means searching f or products that can perf orm the same f unction, even though they have a dif f erent appearance. Relative Power of Other Stakeholders A sixth f orce should be added to Porter’s list to include a The Bargaining Power of Buyers variety of stakeholder groups f rom the task environment. - ability of buyers to f orce prices down, bargain f or Some of these groups are: higher quality and play competitors against each Government other Local communities - Large purchases, backward integration, alternative Creditors suppliers, low cost to change suppliers, product Trade associations represents a high percentage of buyer’s cost, buyer Special interest groups earns low prof its, product is unimportant to buyer Unions - Buyers af f ect an industry through their ability to f orce Shareholders down prices, bargain f or higher quality or more services and play competitors against each other. A buyer or a group of buyers is powerf ul if some of the Industry Evolution f ollowing f actors hold true: large purchases, backward integration, alternative suppliers, low cost Fragmented industry to change suppliers, product represents a high - no f irm has a large market share and each f irm only percentage of buyer’s cost, buyer earns low prof its serves a small piece of the total market in and product is unimportant to buyer. competition with other f irms 4 Consolidated industry Mapping Strategic Groups in the U.S. Restaurant - domination by a f ew large f irms, each struggles to Chain Industry dif f erentiate products f rom its competition Categorizing International Industries Multi-domestic industries - specif ic to each country or group of countries. This type of international industry is a collection of essentially domestic industries, such as retailing and insurance. Global industries - operate worldwide with multinational companies making only small adjustments f or country-specif ic circumstances Strategic groups in a particular industry can be mapped Regional industries by plotting the market positions of industry competitors on a two-dimensional graph, using two strategic - multinational companies primarily coordinate their variables as the vertical and horizontal axes activities within regions, such as the Americas or Asia. (see Figure 4–4). Continuum of International Industries 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 (See Figure 4–5): Select two broad characteristics, such as price and menu, that dif ferentiate the companies in an According to Porter, worldwide industries vary on a industry f rom one another. continuum f rom multi-domestic to global (see Figure 4– Plot the f irms, using these two characteristics as 3). the dimensions. Multidomestic industries are specif ic to each country or group of countries. This type of international industry Draw a circle around those companies that are is a collection of essentially domestic industries, such as closest to one another as one strategic group, retailing and insurance. The activities in a subsidiary of a varying the size of the circle in proportion to the multinational corporation (MNC) in this type of industry group’s share of total industry sales. (You could are essentially independent of the activities of the MNC’s also name each strategic group in the restaurant subsidiaries in other countries. Within each country, it industry with an identif ying title, such as quick has a manuf acturing f acility to produce goods f or sale f ast f ood or buf fet-style service.) within that country. The MNC is thus able to tailor its Strategic Types products or services to the very specif ic needs of consumers in a particular country or group of countries These general types have the f ollowing characteristics: having similar societal environments. Defenders are companies with a limited product line that focus on improving the efficiency of their Strategic Groups existing operations. Strategic group Prospectors are companies with f airly broad - a set of business units or f irms that pursue similar product lines that focus on product innovation and strategies with similar resources market opportunities. 5  Analyzers are corporations that operate in at least time into the future. It is only used for time-series two different product-market areas, one stable and forecasts. one variable. Brainstorming: expert opinion, and statistical modeling are also very popular forecasting techniques. Reactors are corporations that lack a consistent Brainstorming is a non-quantitative approach that requires strategy-structure-culture relationship. simply the presence of people with some knowledge of the situation to be predicted. Hypercompetition - Market stability is threatened by short product lif e Expert opinion: is a nonquantitative technique in which experts in a particular area attempt to forecast likely cycles, short product design cycles, new developments. This type of forecast is based on the ability technologies, f requent entry by unexpected of a knowledgeable person(s) to construct probable future outsiders, repositioning by incumbents and tactical developments based on the interaction of key variables. redef initions of market boundaries as diverse industries merge. Delphi technique: The Delphi method is a process used to arrive at a group opinion or decision by surveying a Using Key Success Factors to Create an Industry Matrix panel of experts. Experts respond to several rounds of questionnaires, and the responses are aggregated and Key success factors shared with the group after each round - variables that can signif icantly af f ect the overall competitive positions of companies within any Statistical modeling: is a quantitative technique that particular industry attempts to discover causal or at least explanatory factors that link two or more time series together. Examples of Industry matrix statistical modeling are regression analysis and other - summarizes the key success f actors within a econometric methods. Although very useful in the particular industry grasping of historic trends, statistical modeling, such as trend extrapolation, is based on historical data. As the patterns of relationships change, the accuracy of the forecast deteriorates. Prediction markets: is a recent forecasting technique enabled by easy access to the Internet. As emphasized by - As shown in Table 4–4, the matrix gives a weight f or James Surowiecki in The Wisdom of Crowds, the each f actor based on how important that f actor is f or conclusions of large groups can often be better than those success within the industry. The matrix also of experts because such groups can aggregate a large amount of dispersed wisdom. specif ies how well various competitors in the industry are responding to each f actor. Cross impact analysis: attempts to connect relationships Competitive intelligence between events and variables. These relationships are then categorized as positive or negative relative to each - is a f ormal program of gathering inf ormation on a other, and are used to determine which events or company’s competitors. Of ten called business scenarios are most probable or likely to occur within a intelligence, it is one of the f astest growing f ields given time frame. within strategic management. Sources of competitive intelligence are: Synthesis of External Factors—EFAS Inf ormation brokers Internet Industrial espionage Investigatory services Useful Forecasting Techniques Some usef ul f orecasting techniques are: Extrapolation: Making statistical forecasts by using historical trends that are projected for a specified period of 6