environmental scanning and industrial analysis

8/6/2019 Environmental Scanning and Industrial Analysis

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Environmental Scanning &Industrial analysis


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Environmental scanning is a concept from businessmanagement by which businesses gather information from theenvironment, to better achieve a sustainable competitiveadvantage.

To sustain competitive advantage the company must alsorespond to the information gathered from environmentalscanning by altering its strategies and plans when the needarises.


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Environmental Scanning & Monitoring-

Techniques

SWOT

Industry Analysis

Techniques

Competitor Analysis

PEST QUEST


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SWOT(Strength-Weakness-Opportunity-Threat)

Identification of threats and Opportunities inthe environment (External) and strengths and

Weaknesses of the firm (Internal) is thecornerstone of business policy formulation; itis these factors which determine the course of

action to ensure the survival and growth of thefirm.


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SWOT Analysis


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The SWOT analysis is an extremely useful tool for understanding and decision-making for all sorts of situationsin business and organizations. SWOT is an acronym forStrengths, Weaknesses, Opportunities, Threats.

SWOT analysis came from the research conducted atStanford Research Institute from 1960-1970. The backgroundto SWOT stemmed from the need to find out why corporate

planning failed. The research was funded by the fortune 500companies 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.


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Examples of SWOTs

Strengths and Weaknesses

y Resources: financial, intellectual, location

y Cost advantages from proprietary know-how

y Creativity / ability to develop new products

y Valuable intangible assets: intellectual capital

y Competitive capabilities

y Big campus selection


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Opportunities and Threats

y Takeoversy Market Trends

y Economic condition

y Mergers

y Joint ventures

y Strategic alliances

y Expectations of stakeholders

y Technology

y Public expectations

y Competitors and competitive actionsy Poor Public Relations Development

y Criticism (Editorial)

y Global Markets

y Environmental conditions


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Also;

Use SWOT analysis for business

planning, strategic planning,

competitor evaluation, marketing,business and product development

and research reports.


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Industry Analysis

An industry is a group of firms producing a

similar product or service

An examination of the important

stakeholders group in a particular

corporations task environment is a part of

industry analysis


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Porters approach to Industry Analysis

A corporation is most concerned with the

intensity of competition within its industry

The level of this intensity is determined by

basic competitive forces

In scanning its industry, the corporation must

assess the importance to its success of each

of the six forces


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Forces Driving Industry Competition

Threatof NewEntrants

BargainingPower

of Suppliers

BargainingPower

of Buyers

RelativePower

of Unions,Governments,

etc.

PotentialEntrants

Threat ofSubstituteProductsor Services

IndustryCompetitors

Rivalry AmongExisting Firms

OtherStakeholders

Buyers

Substitutes

Suppliers


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Threat of New Entrants:

Some Barriers to Entry

Economies of Scale

Product Differentiation

Capital Requirements Switching Costs

Access to Distribution Channels

Cost Disadvantages Independent of Size Government Policy

Expected Retaliation


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Properties of Entry Barriers

Entry barriers can and do change as the

conditions change

Entry barriers can change for reasons inside

the firm : impact of the firms strategic

decisions

Some firms may possess resources or skills

which allow them to overcome entry barriersinto an industry more cheaply than most

other firms


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Rivalry Among Existing Firms

Intense Rivalry is Related To:

Number of Competitors: numerous or equally

balanced competitors

Rate of Industry Growth: slow industry

growth

Product or Service Characteristics: Lack ofdifferentiation or switching costs

Amount ofFixed Costs : high fixed or storage

costs


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Rivalry Among Existing Firms

High fixed or storage costs

Lack of differentiation or switching costs

Capacity augmented in large increments(leading to overcapacity and price cuttings)

Diverse competitors

High strategic stakes

High exit barriers (specialized assets, fixedcosts of exit, strategic interrelationships,emotional barriers, government and socialrestrictions)


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Entry Barriers and Exit Barriers

When entry barriers are high and exit barriersare low, entry will be deterred, andunsuccessful competitors will leave the

industry When both entry and exit barriers are high,

profit potential is high, but is usuallyaccompanied by more risks, and

unsuccessful firms will fight to stay The worst case is when entry barriers are low

and exit barriers are high (overcapacity, poorprofitability)


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Pressure from Substitute Products

Substitutes limit the potential return of an

industry by placing a ceiling on the prices

firms in the industry can profitably charge

Identifying substitute is searching for other

products that can perform the same function

as the product of the industry

The impact of substitutes can be summarizedas the industrys overall elasticity of demand


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Bargaining Power of Buyers

Buyers compete by forcing down prices,

bargaining for higher quality or more

services, and playing competitors against

each other

A buyers group is powerful if:

1. It purchases large volumes relative to seller

sales2. The products it purchases from the industry

represent a significant fraction of the buyers

cost of purchase (shop for good price)


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3. The products it purchases from the industry arestandard or undifferentiated

4. It faces few switching costs

5. It earns low profits (thus sensitive to costs)

6. Buyers pose a credible threat of backwardintegration

7. The industrys product is unimportant to thequality of the buyers products or services

8. The buyer has full information


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Bargaining Power of Suppliers

Suppliers can exert bargaining power over

participants in an industry by threatening to raise

prices or reduce the quality of purchased goods and

services A supplier group is powerful if:

1. It is dominated by a few companies

2. It is not obliged to contend with other substitute

products for sale to the industry

3. The industry is not an important customer

4. The suppliers product is an important input to the

buyers business


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5. The suppliers group products are

differentiated or it has built up switching

costs

6. The supplier group poses a credible threat of

forward integration

7. Labor must be considered as a supplier that

exerts great power in many industries


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Government as a force in industry

competition

Government role as supplier and buyer can

be influenced by political factors

Government regulations can set limits on the

behavior of firms as suppliers or buyers

Government can affect the position of an

industry with substitutes through regulations,

subsidies, or other means Government can affect rivalry among

competitors by influencing industry growth

environmental scanning and industrial analysis

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