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Environmental Scanning & MonitoringTechniques
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Environmental Scanning &
MonitoringEnvironmental scanning is a concept from businessmanagement by which businesses gather information from the
environment, to better achieve a sustainable competitiveadvantage.
To sustain competitive advantage the company must also
respond to the information gathered from environmental scanning by altering its strategies andplans 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) andstrengths 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 for Strengths, Weaknesses, Opportunities, Threats.
SWOT analysis came from the research conducted at Stanford 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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SWOT: Studying Internal & External
Environment
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:
Internal factors The strengths and
weaknesses internal to the organization.External factors The opportunities and
threats presented by the external environment.
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Examples of SWOTs
Strengths and Weaknesses Resources: financial, intellectual, location
Cost advantages from proprietary know-how
Creativity / ability to develop new products
Valuable intangible assets: intellectual capital
Competitive capabilities
Big campus selection
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Opportunities and Threats
Takeovers Market Trends
Economic condition
Mergers
Joint ventures
Strategic alliances
Expectations of stakeholders
Technology
Public expectations
Competitors and competitive actions Poor Public Relations Development
Criticism (Editorial)
Global Markets
Environmental conditions
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Uses of SWOT Analysis
Corporate planning
Set objectives defining what the organisation is intending todo
Environmental scanning Internal appraisals of the organisations SWOT, this needs to include
an assessment of the present situation as well as a portfolio ofproducts/services and an analysis of the product/service life cycle
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Analysis of existing strategies, this should determine
relevance from the results of an internal/externalappraisal. This may include gap analysis (compare itsactual performance with its potential performance whichwill look at environmental factors)
Strategic Issues defined key factors in the developmentof a corporate plan which needs to be addressed by theorganisation
Develop new/revised strategies revised analysis ofstrategic issues may mean the objectives need to change
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Establish critical success factors the achievement ofobjectives and strategy implementation
Preparation of operational, resource, projects plans for
strategy implementation
Monitoring results mapping against plans, taking
corrective action which may mean amending
objectives/strategies.
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Also;
Use SWOT analysis for business planning,
strategic planning, competitor evaluation,
marketing, business and productdevelopment and research reports.
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PEST Analysis
A scan of the external macro-environment in which the firm
operates can be expressed in terms of the following factors:
Political
Economic
Social
Technological
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The acronym PEST (or sometimes rearranged as "STEP") is used to
describe a framework for the analysis of these macroenvironmental
factors. A PEST analysis fits into an overall environmental scan asshown in the following diagram:
Environmental Scan
/ \
External Analysis Internal Analysis
/ \
Macroenvironment
Microenvironment
|
P.E.S.T.
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Political Factors
Political factors include government regulationsand legal issues and define both formal and
informal rules under which the firm must operate.
Some examples include:tax policy
employment laws
environmental regulations
trade restrictions and tariffs
political stability
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Economic Factors
Economic factors affect the purchasing power of potential
customers and the firm's cost of capital. The following are
examples of factors in the macroeconomy:
economic growth
interest rates
exchange rates
inflation rate
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Social Factors
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:health consciousness
population growth rate
age distribution
career attitudesemphasis on safety
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Technological FactorsTechnological factors can lower barriers to entry, reduce
minimum efficient production levels, and influence
outsourcing decisions. Some technological factors include:
R&D activity
automation
technology incentives
rate of technological change
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Industry Analysis
An industry is a group of firms producing a
similar product or service
An examination of the important stakeholdersgroup 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 basiccompetitive 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 thefirm : impact of the firms strategic decisions
Some firms may possess resources or skills
which allow them to overcome entry barriers
into 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 of
differentiation or switching costs
Amount of Fixed Costs : high fixed or storage
costs
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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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Shifting Rivalry
The factors that determine the intensity of
competitive rivalry can and do change
As an industry matures, its growth rate declines,resulting in intensified rivalry, declining profits
An acquisition can introduce a different
personality to an industry
Focusing selling efforts on the fastest growing
segments can reduce the impact of industry
rivalry
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Entry Barriers and Exit Barriers
When entry barriers are high and exit barriersare low, entry will be deterred, and unsuccessfulcompetitors will leave the industry
When both entry and exit barriers are high,profit potential is high, but is usuallyaccompanied by more risks, and unsuccessfulfirms will fight to stay
The worst case is when entry barriers are lowand exit barriers are high (overcapacity, poor
profitability)
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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 summarized as
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
sales
2. 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 the
quality of the buyers products or services8. 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 offorward 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 thebehavior 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
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10 questions to monitor competitors for
strategic planning
1. Why do your competitors exist? to make profits or tosupport another unit?
2. Where do they add customer value? Higher quality,
lower price, credit terms, better service?3. Which of your customers are the competition most
interested in? best customers or the ones you dontwant?
4. What is their cost base and liquidity?5. Are they less exposed with their suppliers than your
firm?
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6. What do they intend to do in the future? Target yourmarket segments? Growing?
7. How will their activities affect your strategies? Should
you adjust your plans and operations?8. How much better than your competitor do you need to
be in order to win customers?
9. Will new competitors appear over the next few years?
10.If you were a customer, would you choose yourproduct over those offered by your competitors?