Environmental AnalysisEnvironmental ScanningThe process by which organizations monitor their opportunities and threats affecting their business is known as environmental scanning

Environmental scanning refers to possession and utilization of information about occasions, patterns, trends, and relationships within an organization’s internal and external environment.

It helps the managers to decide the future path of the organization. Scanning must identify the threats and opportunities existing in the environment.

While strategy formulation, an organization must take advantage of the opportunities and minimize the threats. A threat for one organization may be an opportunity for another

Environmental scanning

External analysis Internal analysis

Macro environment Micro environment

PEST analysis Five force analysis

Tools for Analyzing the Environment – PESTL Analysis

SWOT ANALYSIS (Internal Scanning) Environmental factors internal to the firm usually can

be classified as strengths (S) or weaknesses (W), and those external to the firm can be classified as opportunities (O) or threats (T). Such an analysis of the strategic environment is referred to as a SWOT analysis.

The SWOT analysis provides information that is helpful in matching the firm's resources and capabilities to the competitive environment in which it operates. As such, it is instrumental in strategy formulation and selection.

Shoppers StopSWOT Analysis

Strength

1. It has strong domestic presence with 50+ stores in India2. Shoppers stop has become highest benchmark for retail industry3. Loyal customer base with more than 750,000 first citizen members4.Increasing footfalls and conversion rates5. Management team is strongly established as well as skilled labor force

Weakness

1. It has lesser promotional strategies on both ATL and BTL level compared to global leaders2. It always follows low risk strategy in business or entering into new segment

Opportunity

1. Big opportunity to enter into new geographies nationally2.Foreign players see it as preferred partner for making investment in India4.It could enter into Hypercity -high retail value category

Threats

1. Due to global slowdown consumers’ purchase power has reduced for  top high value brands2.Increasing brand awareness among consumers across all socio-economic classes

Competition

Competitors

1.Pantaloons2.Westside3.Wills Lifestyle4. Globus

Porter’s Five Forces Model The five forces framework developed by Michael Porter is the

most widely known tool for analysing the competitive environment, which helps in explaining how forces in the competitive environment shape strategies and affect performance. The frame work as shown in Figure suggests that there are competitive forces other than direct rivals which shape up the competitive environment. These competitive forces are as follows:

1) The rivalry among competitors in the industry 2) The potential entrants 3) The substitute products 4) The bargaining power of suppliers 5) The bargaining power of buyers However, these five forces are not independent of each other.

Pressures from one direction can trigger off changes in another which is capable of shifting sources of competition.

BuyersSuppliers

Substituteproducts

Potentialentrants

Industry competitors

Rivalry amongexisting firms

Threat ofnew entrants

Bargaining powerof suppliers

Bargaining powerof buyers

Threat ofsubstitutes

PORTER’s FIVE FORCES MODEL

Structural reasons why …

… some industries were profitable * Established cost advantages

* Product differentiation * Economies of scale

Structural reasons …

… all represented barriers to barriers to entryentry in certain industries, thus allowing those

industries to be more more profitableprofitable than others.

Porters Five Forces … * Threat of EntryEntry

* Bargaining Power of SuppliersSuppliers * Bargaining Power of BuyersBuyers

* Development of SubstituteSubstitute ProductsProducts or Services

* RivalryRivalry among Competitors

Barriers to EntryEntry …… large capital requirementscapital requirements or

the need to gain economies of scaleeconomies of scale quickly.

… strong customer loyaltycustomer loyalty or strong brand preferencesbrand preferences..

… lack of adequate distributiondistribution channels or access to raw raw materialsmaterials.

Power of Suppliers Suppliers … … high when

* A small number of dominant, dominant, highly highly concentrated suppliersconcentrated suppliers exists.

* Few good substituteFew good substitute raw materials or suppliers are available.

* The cost of switchingcost of switching raw materials or suppliers is high.

Power of Buyers Buyers … … high when

* Customers are largelarge or buy in buy in volumevolume .

* The products being purchased are standard standard or undifferentiatedundifferentiated making it easy to switcheasy to switch to other suppliers.

• Customers’ purchases represent a major portionmajor portion of the sellers’ total revenue.

• Backward integration

Substitute Substitute products … … competitive strength high

when* The relative pricerelative price of substitute

products declinesdeclines .* Consumers’ switching costs switching costs

declinedecline.

Rivalry Rivalry among competitors … intensity increases

as* The numbernumber of competitors

increasesincreases * Demand for the industry’s

products declinesdeclines or industry industry growth slowsgrowth slows.

* Fixed costsFixed costs or barriers to leavingbarriers to leaving the industry are highhigh.

Key Points: Porter's Five Forces Analysis is an important tool for assessing the

potential for profitability in an industry. With a little adaptation, it is also useful as a way of assessing the balance of power in more general situations.

It works by looking at the strength of five important forces that affect competition:

Supplier Power: The power of suppliers to drive up the prices of your inputs.

Buyer Power: The power of your customers to drive down your prices.

Competitive Rivalry: The strength of competition in the industry. The Threat of Substitution: The extent to which different products

and services can be used in place of your own. The Threat of New Entry: The ease with which new competitors can

enter the market if they see that you are making good profits (and then drive your prices down).

SummarySummary …

As rivalry among competing firms intensifiesintensifies, industry profits declinedecline, in some cases to the point where an industry becomes inherently unattractiveinherently unattractive.

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Porter’s five force model

Coca-cola

Traditional competition: Prices of Pepsi, local brands Market share Promotional actions of competition

• New entrants: New “look-a-like” manufacturers

• Substitute products: Fashionable new drinks, milk drinks, coffee...

Coca-cola

Suppliers: Price and availability of ingredients on world

market

• Buyers/consumers: High as a result of intense competition both

among branded and unbranded products. Combined purchase power of shops, bars,

supermarkets

Competitor analysis is necessary for formulating right strategies and determining the right positioning for the firm in the industry. Competitor analysis seeks to find answers to certain basic questions such as:

(i) Who are the competitors of the firm? (ii) What are the strategies of the competitors? (iii) What are their future goals ? (iv) What drives the competitor? (v) Where is the competitor vulnerable? (vi) How are the competitors likely to respond to the strategies of others?

Porter has suggested a framework for competitor analysis, consisting of four diagnostic components, viz.,

1.future goals, 2.current strategy, 3.assumptions and4.capabilities.

As Porter observes, its goals, assumptions, and current strategy will influence the likelihood, timing, nature, and intensity of competitor’s reactions. Its strengths and weaknesses will determine its ability to initiate or react to strategicmoves and to deal with environmental or industry events that occur.

COMPETITOR RESPONSE PROFILEAnswers to critical questions such as: What moves or developments will provoke the competitor and how is the competitor likely to respond or retaliate? The competitor response profile seeks to predict the competitor's offensive moves and defensive capabilities.1.Future Goals2.Current Strategy3.Capabilities

VALUE CHAINValue is the amount which buyers are willing to pay for what a firm provides them. The total revenue reflects the value. Creating value for

buyers that exceeds the cost of activities are the physically and technologically distinct activities a firm performs.Primary activities include: (i) inbound logistics (activities associated with receiving, storing and disseminating inputs to products); (ii) operations (processing activities); (iii) marketing and sales; and (iv) services.Support activities include: (i) procurement (purchasing of inputs); (ii) technology development; (iii) human resource management; (iv) firm infrastructure (includes general management, planning, finance, accounting, legal and government affairs and quality management).

BENEFITS OF STRUCTURAL ANALYSISThe purpose of the structural analysis is to diagnose the competitive forces and to identify the strengths and weakness of the firm vis-à-vis the industry, to help formulate an effective competitive strategy that "takes offensive or defensive action in order to create a defendable position against the five competitive forces".

COMPETITIVE ADVANTAGE AND HOW IT IS OBTAINED Competitive Advantage

What sets an organization apart -- competitive edge Controlling or having something others do not have Doing something better than other organizations Doing something other organizations cannot do

Competitive strategies are designed to exploit an organization’s competitive advantage

Implies there are other competitors also trying to develop competitive advantage & attract customers

Understanding the Competitive Environment

What is competition? When organizations battle for some desired

object or outcome Customers Market share Survey rankings Needed resources

Competitive Advantage & Competitive Strategy

What is competitive strategy?• Consists of business approaches to

– Attract customers by fulfilling their expectations

– Withstand competitive pressures– Strengthen market position

Exploits competitive advantage by finding ways to use resources &

capabilities to set firm apart from competitors

PORTER’S GENERIC COMPETITIVE STRATEGIES Competitive advantage come from one of

two sources: Having the lowest cost in the industry Possessing a product or offering a service that

is perceived as unique in the industry Another important factor is the scope of

the product-market (broad or narrow) Mix of these factors provide basis for

Cost leadership strategy (low-cost strategy) Differentiation strategy Focus strategy

PORTER’S GENERIC COMPETITIVE STRATEGIES

MarketScope

Competitive Advantage

Low Cost Differentiation

Broad

Narrow

Cost Leadership Differentiation

Focus(Low Cost)

Focus(Differentiation)

Cost Leadership Strategy

• Objective:– Gain sustainable competitive advantage over

competitors, using low-cost (not price)– Produce for broad customer base

• Basic Theme (Keys to Success):– Low-cost relative to competitors

Low cost implies OVERALL LOW COST Not just low manufacturing or production

cost Product quality cannot be ignored

Differentiation Strategy

• Objective– Offering products/services perceived as

unique over the brands of rivals in an industry

• Keys to Success– Offer products/services that create value to

customers– Offer products/services not easily matched

or easily copied by rivals– Not spending more to differentiate the firm’s

products or service than the price premium that can be charged

Differentiation Themes

• Superior service -- FedEx, Ritz-Carlton• More for your money -- McDonald’s, Wal-Mart• Engineering design and performance --

Mercedes• Prestige -- Rolex• Quality manufacture -- Honda , Toyota• Top-of-the-line image -- Ralph Lauren, Chanel

Focus Strategy

Firm pursues either a cost leadership or differentiation strategy but in a narrow customer group of segment

Concentrates on serving specific market niche Geographical area Type of customer -- specific group of

customers Specific & specialized product line

Focus Strategy

Objective Serve the niche customers better than

competitors Keys to Success

Choose a market niche where buyers have distinctive preferences, special requirements, or unique needs

Develop unique capabilities to serve needs of target buyer segment

Focus Approaches

Approach 1: Cost Advantage Achieve lower cost than rivals in serving

the specific or narrow segment Approach 2: Differentiation

Advantage Offer customers in niche market something

unique in that market Product features Product innovations Product quality Customer responsiveness

Examples of Focus Strategy

• Focus Low-cost– Ikea: Young furniture buyers who want style at low

cost (price sensitive and low service customer groups)

– Southwest Airlines: Short-haul, point-to-point service between midsize cities & secondary airports in large cities (low pricing & low service)

• Focus Differentiation– Rolex: Serve highest end of wristwatch market

(premium pricing & image) Rolls-Royce: Serving luxurious end of automobile

market (premium pricing & image)

Global Competiveness IndexThe World Economic Forum has ranked

139 economies in its 2010-2011 Global Competitiveness Report.

In overall competitiveness India scores a passable 51st place. It ranks notably ahead of Latin America’s powerhouse Brazil (58) and way ahead of its neighbors Pakistan (123), Sri Lanka (62) and Bangladesh (107), but behind China (27).

Switzerland tops the chart and USA is on 4th position due to economic instability from 2007-10

Delhi tops 2010 ranking of India's most competitive city

Chennai cornered the second position in the list ahead of Mumbai , which dropped to third place from second position last year.

Chennai's ranking improved on the back of good performance under all the sub-indices used to benchmark the cities, particularly its educated workforce and logistics infrastructure, while Mumbai's fall was primarily due to the worsening state of its physical infrastructure.

Bengaluru is at fourth place in the list, followed by Kolkata, Hyderabad , Ahmedabad, Pune, Nagpur and Jaipur.

Ahmedabad and Pune have emerged as the most competitive tier-two cities in India.

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