Chapter Four

Environmental Scanning
And
Industry Analysis

Learning Objectives
Recognize aspects of an organizations
environment that can influence its long-term
decisions
Identify the aspects of an organizations
environment that are most strategically
important
Conduct an industry analysis to understand the
competitive forces that influence the intensity of
rivalry within an industry

 Understand how industry maturity affects

industry competitive forces
Categorized international industries based
on their pressures for coordination and
local responsiveness
Construct strategic group maps to assess
the competitive positions of firms in an
industry
Identify key success factors and develop
an industry matrix

 Use publicly available information to

conduct competitive intelligence
Know how to develop an industry scenario
Construct an EFAS Table that summarizes
external environmental factors

Environmental Scanning
Enviromental scanning is the monitoring,
evaluation, and dissemination of information from
the external and internal environments to key
people within the corporation
Identifying External Environmental Variables
1. Economic force
2. Technological force
3. Political legal force
4. Socio-cultural force

Economical
1.
2.
3.
4.
5.
6.
7.
8.

9.

10.

GDP trends
Interest rates
Money supply
Inflation rates
Unemploymen
t levels
Wage/price
control
Devaluation /
revaluation
Energy
availability
and cost
Disposable
and
discretionary
income
Currency
market

Technological
1.

2.

3.

4.
5.
6.

7.
8.

9.

Total Government Spending for R & D

Total Industry
spending for R
&D
Focus of technological efforts
Patent
protection
New products
Productivity
improvement
through automation
Internet
availability
Telecommunic
ation
infrastructure
Computer
hacking

Political Legal
1.
2.
3.
4.
5.
6.
7.
8.
9.

Antitrust
regulations
Environmental
protection law
Tax laws
Special
incentives
Foreign trade
regulations
Laws on hiring
and promotion
Stability of
government
Outsourcing
regulation
Foreign
sweat shops

Socio-cultural
1.
2.
3.
4.
5.
6.

7.

8.
9.
10.
11.
12.

Lifestyle
changes
Career
expectations
Consumer
activism
Rate of family
formation
Growth rate of
population
Age
distribution of
population
Regional
shifts in
population
Life
expectancies
Birth rate
Pension plans
Health care
Level of
education

The breakthrough development in

technology (2000 to 2010)
Portable Information Devices and
Electronic Networking
Fuel Cell and Alternative Energy Sources
Precision Farming
Virtual Personal Assistance
Genetically Altered Organism
Smart, Mobile Robots

Eight Socio-cultural trends in US

1.
2.
3.
4.
5.
6.
7.
8.

Increasing environmental awareness

Growing health conciousness
Expanding senior market
Impact of Generation Y boomlet
Decline mass market
Changing pace and location of life
Changing household composition
Increasing diversity of workforce and markets

Economical
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.

11.
12.

Economic
development
Per capita
income
Climate
GDP trends
Monetary and
fiscal policies
Unemploymen
t level
Currency
convertibility
Wage levels
Nature of
competition
Membership
in regional
economic
associations
Membership
in WTO
Outsourcing
capability

Technological
1.

2.

3.

4.
5.
6.

7.
8.

9.

Regulation on
technology
transfer
Energy
availability/
cost
Natural
resource
availability
Transportation
network
Skill level of
work force
Patenttrademark
protection
Internet
availability
Telecommunic
ation
infrastructures
Computer
hacking

Political Legal
1.
2.
3.
4.
5.

6.

7.

8.
9.
10.

Form of
government
Political
ideology
Tax laws
Stability of
government
Government
attitude
toward foreign
companies
Regulations
on ownership
of assets
Strength of
opposition
groups
Trade
regulation
Protectionist
sentiment
Foreign
policies

Socio-cultural
1.
2.
3.
4.
5.
6.
7.
8.
9.

10.
11.
12.
13.
14.

Customs,
norms, values
Language
Demographics
Life
expectancies
Social
institutions
Status
symbols
Lifestyle
Religious
beliefs
Attitude
toward
foreigners
Literacy level
Human rights
Environmental
ism
Sweat shop
Pension plans

Analysis
Analysisof
ofSocietal
SocietalEnvironment
Environment

Economic,
Economic,Sosiocultural,
Sosiocultural,Technological,
Technological,Political-Legal
Political-LegalFactor
Factor

Market
Analysis
Competitor
Analysis

Community
Analysis

Supplier
Analysis

Interest Group
Analysis

Selectionof
of
Selection
StrategicFactors
Factors
Strategic
Opportunities
- -Opportunities
Threats
- -Threats

Figure 3-1 Scanning the External Environment

Government
Analysis

High
Medium
Low

Probability of Occurence

Probable Impact on Corporation

High

Medium

Low

High
Priority

High
Priority

Medium
Priority

High
Priority

Medium
Priority

Low
Priority

Medium
Priority

Low
Priority

Low
Priority

Figure 3-2 Issues Priority Matrix

Potential
Entrants

Other
Stakeholders

Relative Power
of Unions,
Governments,
etc.

Threat of
New
Entrants

Industry
Competitors

Bargaining
Power of
Buyers

Buyers

Suppliers

Bargaining
Power of
Suppliers

Rivalry Among
Existing Firms
Threat of Subtitutes
Product of Services

Substitutes

Figures 3-3 Forces Driving Industry Competition

Industry Analysis :
Analyzing the Task Environment
Porters Approach to Industry Analysis
1. Threat of New Entrants Barrier to entry
a. Economies of Scale
b. Product differentiation
c. Capital requirements
d. Switching Costs
e. Access to Distribution Channels
f. Cost disadvantages independent of size
g. Government policy

2. Rivalry among existing firms

a. Number of competitors
b. Rate of industry growth
c. Product or service characteristics
d. Amount of fixed costs
e. Capacity
f. Height of exist barriers
g. Diversity of rivals

3. Threat of Substitute Products or

Services
4. Bargaining power of Buyers
5. Bargaining power of Suppliers
6. Relative power of other stakeholders

 Strategic Types
1. Defenders
2. Prospectors
3. Analyzers
4. Reactors

Hyper-competition (DAveni)
In hyper-competition the frequency, boldness, and aggresiveness
of dynamic movement by the players accelerates to create a
condition of constant disequilibrium and change. Market stability
is threatened by short product life cycles, new technologies,
frequent entry by unexpected outsiders, repositioning by incumbents
and tactical redefinitions of market boundaries as diverse industry
merge. In other words, environment escalate toward higher and
higher levels of uncertainty, dynamism, heterogeneity of the
players and hostility

External Strategic Factor Analysis Summary (EFAS Table) : Maytag as

Example
External Strategic Factors

Weight

Rating

Weighted
Score

Comments

Opportunities
Economic integration of European
Community

.20

4.1

.82

Acquisition of Hoover

Demographics favor quality appliances

.10

5.0

.50

Maytag quality

Economic development of Asia

.05

1.0

.05

Low Maytag presence

Opening of Eastern Europe

.05

2.0

.10

Will take time

Trends to Super Stores

.10

1.8

.18

Maytag weak in this

channel

Increasing government regulations

.10

4.3

.43

Well positioned

Strong U.S Competitions

.10

4.0

.40

Well positioned

Whirlpool and Electrolux strong globally

.15

3.0

.45

Hoover weak globally

New Product advances

.05

1.2

.06

Questionable

Japanese appliance companies

.10

1.6

.16

Only Asian presence

in Australia

Threats

1.00

3.15

Competitive Intelligence
A formal program of gathering information
on a companys competitors
= Business Intelligence
Sources of Competitive Intelligence
Monitoring Competitor for Strategic
Planning

Forecasting
Danger of Assumptions
Useful Forecating Techniques
1) Extrapolation
2) Brainstorming
3) Expert Opinion
4) Delphi Technique
5) Statistical modeling
6) Scenario writing