The Firms Environment

Environmental Analysis Nature Scope Impact

Some Quotes to Start With

The chief executive who pleads the case for holding on until things get back to normal has missed the point The strategic problem for the decade for many firms is nothing less than survival The present conditions are not going away, they are getting worse. Turbulence and change is a way of life.

Assessing the Environment

The business needs to assess its environment for changes that will affect its competitive stance:
Environmental

Scanning Environmental Analysis Environmental Diagnosis

Some Definitions
Environmental

Scanning: Looking for trends and changes Environmental Analysis: Identifying trends that may be important for the business Environmental Diagnosis: Assessing the impact of key trends and identifying the strategic response by the firm to them

Environmental Aspects in Three Contexts

The Firm in Three Contexts

Performance of the Firm

The Industry Context

The National Context

The International Context

The Business Environment

Environmental Fit Environmental Change

How Can We Study This?

General

Factors Industry Factors Competitive Factors

Environmental Analysis and Industry Analysis

The starting point is some kind of system or framework for analysis

PEST Analysis

Environmental influences by source

Political - Governmental factors Economic Social & Demographic Technological

Environmental influences by proximity

Micro-Environment or Task Environment Macro-Environment

The Macro environment

The National/ international economy The Industry Environment Suppliers Competitors Customers

Natural environment Demographic structure Social structure

Technology

Government

The core of the firms environment - the micro environment

Competitors Suppliers Customers Regulatory System

The Firms Battleground

The Determinants of Industry Profit

Demand
Competition Regulatory

framework

Examples - the utilities

Problems and Questions

What

is the relevant environment for the

firm? How do we select the elements that most affect the firm? What data do we need to gather to make informed decisions, how often and at what cost? What methods do we use?

Environmental Forecasting

Two Broad Methods

Methods - forecasting models, econometric models Qualitative Methods - social models, expert and inside knowledge, speculation
Quantitative

Some Examples of Models Used

Delphi

Techniques Cross Impact Analysis Models Simulation and Gaming Models Strategic Issues Analysis Models Scenario Building Models The aim is to see how environmental aspects impact on the firm and its ability to respond

The Scenario Process

Identify Key Factors
Economic Social Political Technological

Alternative World Futures

Scenario 1

Scenario 2

Scenario 3

Alternative Company Futures

Focused Scenarios Action Scenarios Planning Process

Essential Components of the Scenario Process

Identify the central theme (s) Identify the key drivers/inhibitors Select a series of ranges from the available forecasts for ech factor Assemble alternative futures Build narrative/qualitative scenarios Build focused scenarios Select the action scenario and build the business strategy and plans around it.

The Aim of these Models is to:

Assess

the downside facing the

firm Assess the Opportunities facing the firm Assess the Threats facing the firm Build the Future

Some Examples:
The

UK Car Industry - no British volume manufacturer left in the industry Machine Tools - specialists yes, but little else Computer hardware - the same Consumer electronics Services - probably the success of the last 20 years

Fit between Firm Strategy and its Environment

Re-shape Environment by Choice of Strategy
The Degree of Fit of the Strategy with the Existing Environment Creates a New Environment where there is a New Fit between Strategy and the Environment

Competitive Success Requires

Quest for Competitiveness in the 1990s

Restructuring/ Downsizing Re-evaluating the Portfolio Process Re-engineering Continual Improvement Re-inventing the Business

Smaller

Better

Different

Hamel & Prahalad 1994

Managers Needs to Know:

What the Future Holds

How to Respond

Trends Impacts Effects Strategies

New Products New Services New Ways of Working New Value Creation New Customer Needs

Key Strategic Questions

Today Which customers? What Channels? Competitive Adv.? Margins? Skills & Resources? What End Products/Markets? 5 or 10 years from now Which customers? What Channels? Competitive Adv.? Margins? Skills & Resources? What End Products/Markets?