External Environmental Analysis

Macro-environment, Industry, and Competitive Analysis

Macro-environmental Forces

General Environment

• Dimensions in the broader society that influence and industry and the firms within it− Economic− Sociocultural− Global− Technological− Political/legal− Demographic

Industry Environment

• Set of factors directly influencing a firm and its competitive actions and competitive responses

Competitor Environment

• All of the companies that the firm competes against.

Analysis of the External Environments• General environment

−Focused on the future• Industry environment

−Focused on factors and conditions influencing a firm’s profitability within an industry

• Competitor environment−Focused on predicting the dynamics of

competitors’ actions, responses and intentions

Opportunities and Threats

• Opportunity−A condition in the general environment that if

exploited, helps a company achieve strategic competitiveness

• Threat−A condition in the general environment that

may hinder a company’s efforts to achieve strategic competitiveness

External Environmental Analysis

• A continuous process which includes−Scanning for early signals of potential

changes and trends in the general environment

−Monitoring changes to see if a trend emerges from among those spotted by scanning

−Forecasting projections of outcomes based on monitored changes and trends

−Assessing the timing and significance of changes and trends on the strategic management of the firm

General Environment•The Economic Segment

−Inflation rates−Interest rates−Trade deficits or surpluses−Budget deficits or surpluses−Personal savings rate−Business savings rates−Gross domestic product

•The Socio-cultural Segment−Women in the workplace−Workforce diversity−Attitudes about quality of work-life−Concerns about environment−Shifts in work and career preferences−Shifts in product and service preferences

General Environment•The Global Segment

− Important political events− Critical global markets − Newly industrialized countries and emerging markets− Different cultural and institutional attributes

•The Technological Segment−Product innovations−Applications of knowledge−Focus of private and government-supported R&D expenditures−New communication technologies

General Environment•The Political/Legal Segment

−Antitrust laws−Taxation laws−Deregulation philosophies−Labor training laws−Educational philosophies and policies

•The Demographic Segment−Population size−Age structure−Geographic distribution−Ethnic mix−Income distribution

Legal requirements for establishment of a new unit• Setting up your Business• Company Name• Business Insurance• Value Added Tax (VAT)• Register with Revenue• Data Protection• National Insurance Contributions (NIC)• Business Licenses• Other Legal Issues

Competitor Analysis Components

Innovation and Entrepreneurship

Entrepreneurship ,risk ,and methodology• Entrepreneurship, it is commonly

believed, is enormously risky• Entrepreneurship is risky mainly because

so few of the so-called entrepreneur know what they are doing. they lack methodology

• Entrepreneurship does need, however, to be systematic, to be managed. Above all ,it needs to be based on purposeful innovation.

About innovation• Innovation is the specific instrument of

entrepreneurship. It is the act that endows resources with a new capacity to create wealth

• Whatever changes the wealth-producing potential of already existing resources constitutes innovation

• Innovation does not have to be technical, it is also an economic or social term

• Innovation can be defined as changing the yield of resources, or defined in demand terms rather than in supply terms, that is as changing the value and satisfaction obtained from resources by the consumer

The theory and practice of innovation• We already know enough: when,

where, and how one looks systematically for innovation opportunities

• And how one judges the chances for their success or the risks of their future

From Invention,Research to Innovation • Invention: one of the great

achievements of the nineteenth century was the ”invention of invention.”

• Invention was mysteries ,resulted from ”flash of genius”

From Invention,Research to Innovation• Research:by1914,the time WW1

broke out, invention had become research

• Research is a systematic, purposeful activity, which is planned and organized with high predictability both of the results aimed at and likely to be achieved

• Something similar now has to be done with respect to “INNOVATION” ,i.e. systematic innovation