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Environmental scanning & Monitoring Techniques

Environmental scanning is a concept from business management by which businesses gather information from the environment, to better achieve a sustainable competitive advantage.
Environmental Scanning & Monitoring- Techniques

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Environmental scanning & Monitoring Techniques

  1. 1. Environmental Scanning & MonitoringTechniques<br />
  2. 2. Environmental Scanning & Monitoring<br />Environmental scanningis a concept from business management by which businesses gather information from the environment, to better achieve a sustainable competitive advantage. <br />To sustain competitive advantage the company must also respond to the information gathered from environmental scanning by altering its strategies and plans when the need arises. <br />
  3. 3. Environmental Scanning & Monitoring- Techniques<br />SWOT<br />Techniques<br />QUEST<br />PEST<br />Industry Analysis<br />Competitor Analysis<br />
  4. 4. SWOT(Strength-Weakness-Opportunity-Threat)<br />Identification of threats and Opportunities in the environment (External) and strengths and Weaknesses of the firm (Internal) is the cornerstone of business policy formulation; it is these factors which determine the course of action to ensure the survival and growth of the firm.<br />
  5. 5. SWOT Analysis<br />
  6. 6. The SWOT analysis is an extremely useful tool for understanding and decision-making for all sorts of situations in business and organizations. SWOT is an acronym for Strengths, Weaknesses, Opportunities, Threats.<br />SWOT analysis came from the research conducted at Stanford Research Institute from 1960-1970. The background to SWOT stemmed from the need to find out why corporate planning failed. The research was funded by the fortune 500 companies to find out what could be done about this failure. The Research Team were Marion Dosher, Dr Otis Benepe, Albert Humphrey, Robert Stewart, Birger Lie.<br />
  7. 7. SWOT: Studying Internal & External Environment<br /> The aim of any SWOT analysis is to identify the key internal and external factors that are important to achieving the objective. SWOT analysis groups key pieces of information into two main categories:<br />Internal factors – The strengths and weaknesses internal to the organization. <br />External factors – The opportunities and threats presented by the external environment. <br />
  8. 8. Examples of SWOTs<br />Strengths and Weaknesses<br />Resources: financial, intellectual, location <br />Cost advantages from proprietary know-how <br />Creativity / ability to develop new products <br />Valuable intangible assets: intellectual capital <br />Competitive capabilities <br />Big campus selection <br />
  9. 9. Opportunities and Threats<br />Takeovers <br />Market Trends <br />Economic condition <br />Mergers <br />Joint ventures <br />Strategic alliances <br />Expectations of stakeholders <br />Technology <br />Public expectations <br />Competitors and competitive actions <br />Poor Public Relations Development <br />Criticism (Editorial) <br />Global Markets <br />Environmental conditions <br />
  10. 10. Uses of SWOT Analysis<br />Corporate planning<br />Set objectives – defining what the organisation is intending to do <br />Environmental scanning<br />Internal appraisals of the organisations SWOT, this needs to include an assessment of the present situation as well as a portfolio of products/services and an analysis of the product/service life cycle <br />
  11. 11. Analysis of existing strategies, this should determine relevance from the results of an internal/external appraisal. This may include gap analysis (compare its actual performance with its potential performance which will look at environmental factors) <br />Strategic Issues defined – key factors in the development of a corporate plan which needs to be addressed by the organisation<br />Develop new/revised strategies – revised analysis of strategic issues may mean the objectives need to change <br />
  12. 12. Establish critical success factors – the achievement of objectives and strategy implementation <br />Preparation of operational, resource, projects plans for strategy implementation <br />Monitoring results – mapping against plans, taking corrective action which may mean amending objectives/strategies. <br />
  13. 13. Also;<br /> Use SWOT analysis for business planning, strategic planning, competitor evaluation, marketing, business and product development and research reports. <br />
  14. 14. PEST Analysis<br />A scan of the external macro-environment in which the firm operates can be expressed in terms of the following factors:<br /><ul><li>Political
  15. 15. Economic
  16. 16. Social
  17. 17. Technological</li></li></ul><li>The acronym PEST (or sometimes rearranged as &quot;STEP&quot;) is used to describe a framework for the analysis of these macroenvironmental factors. A PEST analysis fits into an overall environmental scan as shown in the following diagram:<br />
  18. 18. Political Factors<br />Political factors include government regulations and legal issues and define both formal and informal rules under which the firm must operate. Some examples include:<br /><ul><li>tax policy
  19. 19. employment laws
  20. 20. environmental regulations
  21. 21. trade restrictions and tariffs
  22. 22. political stability</li></li></ul><li>Economic Factors<br />Economic factors affect the purchasing power of potential customers and the firm&apos;s cost of capital. The following are examples of factors in the macroeconomy:<br /><ul><li>economic growth
  23. 23. interest rates
  24. 24. exchange rates
  25. 25. inflation rate</li></li></ul><li>Social Factors<br />Social factors include the demographic and cultural aspects of the external macroenvironment. These factors affect customer needs and the size of potential markets. Some social factors include:<br /><ul><li>health consciousness
  26. 26. population growth rate
  27. 27. age distribution
  28. 28. career attitudes
  29. 29. emphasis on safety</li></li></ul><li>Technological Factors<br />Technological factors can lower barriers to entry, reduce minimum efficient production levels, and influence outsourcing decisions. Some technological factors include:<br /><ul><li>R&D activity
  30. 30. automation
  31. 31. technology incentives
  32. 32. rate of technological change</li></li></ul><li>Industry Analysis<br />An industry is a group of firms producing a similar product or service<br />An examination of the important stakeholders’ group in a particular corporation’s task environment is a part of industry analysis<br />
  33. 33. Porter’s approach to Industry Analysis<br />A corporation is most concerned with the intensity of competition within its industry<br />The level of this intensity is determined by basic competitive forces<br />In scanning its industry, the corporation must assess the importance to its success of each of the six forces<br />
  34. 34. Potential<br />Entrants<br />Threat<br />of New<br />Entrants<br />Relative<br />Power<br />of Unions,<br />Governments,<br />Industry<br />etc.<br />Other<br />Bargaining<br />Competitors<br /> Stakeholders<br />Power<br />of Buyers<br />Buyers<br />Suppliers<br />Rivalry Among<br />Bargaining<br />Existing Firms<br />Power<br />of Suppliers<br />Threat of<br />Substitute<br />Products<br />or Services<br />Substitutes<br />Forces Driving Industry Competition<br />
  35. 35. Threat of New Entrants:Some Barriers to Entry<br />Economies of Scale<br />Product Differentiation<br />Capital Requirements<br />Switching Costs<br />Access to Distribution Channels<br />Cost Disadvantages Independent of Size<br />Government Policy<br />Expected Retaliation<br />
  36. 36. Properties of Entry Barriers<br />Entry barriers can and do change as the conditions change<br />Entry barriers can change for reasons inside the firm : impact of the firm’s strategic decisions<br />Some firms may possess resources or skills which allow them to overcome entry barriers into an industry more cheaply than most other firms<br />
  37. 37. Rivalry Among Existing Firms<br />Intense Rivalry is Related To:<br />Number of Competitors: numerous or equally balanced competitors<br />Rate of Industry Growth: slow industry growth<br />Product or Service Characteristics: Lack of differentiation or switching costs<br />Amount of Fixed Costs : high fixed or storage costs<br />
  38. 38. High fixed or storage costs<br />Lack of differentiation or switching costs<br />Capacity augmented in large increments (leading to overcapacity and price cuttings)<br />Diverse competitors<br />High strategic stakes<br />High exit barriers (specialized assets, fixed costs of exit, strategic interrelationships, emotional barriers, government and social restrictions)<br />
  39. 39. Shifting Rivalry<br />The factors that determine the intensity of competitive rivalry can and do change<br />As an industry matures, its growth rate declines, resulting in intensified rivalry, declining profits<br />An acquisition can introduce a different personality to an industry<br />Focusing selling efforts on the fastest growing segments can reduce the impact of industry rivalry<br />
  40. 40. Entry Barriers and Exit Barriers<br />When entry barriers are high and exit barriers are low, entry will be deterred, and unsuccessful competitors will leave the industry<br />When both entry and exit barriers are high, profit potential is high, but is usually accompanied by more risks, and unsuccessful firms will fight to stay<br />The worst case is when entry barriers are low and exit barriers are high (overcapacity, poor profitability)<br />
  41. 41. Pressure from Substitute Products<br />Substitutes limit the potential return of an industry by placing a ceiling on the prices firms in the industry can profitably charge<br />Identifying substitute is searching for other products that can perform the same function as the product of the industry<br />The impact of substitutes can be summarized as the industry’s overall elasticity of demand<br />
  42. 42. Bargaining Power of Buyers<br />Buyers compete by forcing down prices, bargaining for higher quality or more services, and playing competitors against each other<br />A buyer’s group is powerful if:<br />It purchases large volumes relative to seller sales<br />The products it purchases from the industry represent a significant fraction of the buyer’s cost of purchase (shop for good price)<br />
  43. 43. The products it purchases from the industry are standard or undifferentiated<br />It faces few switching costs<br />It earns low profits (thus sensitive to costs)<br />Buyers pose a credible threat of backward integration<br />The industry’s product is unimportant to the quality of the buyer’s products or services<br />The buyer has full information<br />
  44. 44. Bargaining Power of Suppliers<br />Suppliers can exert bargaining power over participants in an industry by threatening to raise prices or reduce the quality of purchased goods and services<br />A supplier group is powerful if:<br />It is dominated by a few companies<br />It is not obliged to contend with other substitute products for sale to the industry<br />The industry is not an important customer<br />The supplier’s product is an important input to the buyer’s business<br />
  45. 45. The supplier’s group products are differentiated or it has built up switching costs<br />The supplier group poses a credible threat of forward integration<br />Labor must be considered as a supplier that exerts great power in many industries<br />
  46. 46. Government as a force in industry competition<br />Government role as supplier and buyer can be influenced by political factors<br />Government regulations can set limits on the behavior of firms as suppliers or buyers<br />Government can affect the position of an industry with substitutes through regulations, subsidies, or other means<br />Government can affect rivalry among competitors by influencing industry growth<br />
  47. 47. 10 questions to monitor competitors for strategic planning<br />Why do your competitors exist? to make profits or to support another unit?<br />Where do they add customer value? Higher quality, lower price, credit terms, better service?<br />Which of your customers are the competition most interested in? best customers or the ones you don’t want?<br />What is their cost base and liquidity?<br />Are they less exposed with their suppliers than your firm?<br />
  48. 48. What do they intend to do in the future? Target your market segments? Growing?<br />How will their activities affect your strategies? Should you adjust your plans and operations?<br />How much better than your competitor do you need to be in order to win customers?<br />Will new competitors appear over the next few years?<br />If you were a customer, would you choose your product over those offered by your competitors?<br />