CHAPTER 4

Environmental
Scanning and
Industry Analysis

STRATEGIC MANAGEMENT & BUSINESS POLICY

11TH EDITION
THOMAS L. WHEELEN J. DAVID HUNGER

Prentice Hall, Inc. © 2008 4-1

 Environmental Scanning

Societal environment --

–Economic forces - Regulate exchange of

materials, money, energy and information

–Technological forces - Generate problem-solving

inventions

–Political-legal forces - Allocate power; provide

laws and regulations

–Sociocultural forces - Elements or groups that

directly affect a corporation and are affected by it
Prentice Hall, Inc. © 2008 4-2
 Variables in Societal Environment

Prentice Hall, Inc. © 2008 4-3

 Task Environment

Task environment --

–Elements or groups that directly affect a

corporation and are affected by it

Industry Analysis --

–In-depth examination of key factors within a

corporation’s task environment

Prentice Hall, Inc. © 2008 4-4

 Demographic Trends

Prentice Hall, Inc. © 2008 4-5

 Transformational Sociocultural Trends

8 Current Trends –

–Increasing environmental awareness

–Growing health consciousness
–Expanding seniors market
–Impact of the Generation Y boomlet
–Declining mass market
–Changing pace and location of life
–Changing household composition
–Increasing diversity of workforce & market

Prentice Hall, Inc. © 2008 4-6

 International Societal Environments

Prentice Hall, Inc. © 2008 4-7

 Scanning the Task Environment

Prentice Hall, Inc. © 2008 4-8

 External Strategic Factors

WARNING!
Strategic myopia --

–Willingness to reject unfamiliar as well as

negative information

Concept of “Receptors” for information in an organization.

Prentice Hall, Inc. © 2008 4-9

 Issues Priority Matrix

A “Portfolio” of Issues
Prentice Hall, Inc. © 2008 4-10
 Analyzing the Task Environment

Prentice Hall, Inc. © 2008 4-11

 Porter’s Approach to Industry Analysis

Threat of New Entrants –

–Economies of scale
–Product differentiation
–Capital requirements
–Switching costs
–Access to distribution channels
–Cost disadvantages
–Government policy

Prentice Hall, Inc. © 2008 4-12

 Porter’s Approach to Industry Analysis

Rivalry Among Existing Firms –

–Number of competitors
–Rate of industry growth
–Product or service characteristics
–Amount of fixed costs
–Capacity
–Height of exit barriers
–Diversity of rivals

Prentice Hall, Inc. © 2008 4-13

 Porter’s Approach to Industry Analysis

•Threat of Substitute Products or Services

•Bargaining Power of Buyers

•Bargaining Power of Suppliers

•Relative Power of Other Stakeholders

Prentice Hall, Inc. © 2008 4-14

 Industry Evolution

Fragmented Industry –

–No dominant industry

Consolidated Industry –

–Dominated by a few large firms (3 +/-)

Prentice Hall, Inc. © 2008 4-15

 International Risk Assessment

Continuum of International Industries

Prentice Hall, Inc. © 2008 4-16

 Strategic Groups

Prentice Hall, Inc. © 2008 4-17

 Competitive Product Matrix
Ericsson IBM
Network IQ™ Tivoli Netcool
Customer Experience
Large OSI (SRIT)
Management SW
Company Size

(>$100M) Service Nokia

Assurance Mobile Quality
Analyzer
Agilent + Teradata
Customer Experience
Management System
Medium TTI
($10M-$100M) Netrac™

Nexus Arantech
Small Netview touchpoint™
(<$10M)

Network Service Customer

Service Quality Monitoring Viewpoint
Prentice Hall, Inc. © 2008 4-18
 Strategic Types

General Company Approaches to Strategy

•Defenders
•Prospectors
•Analyzers
•Reactors

Prentice Hall, Inc. © 2008 4-19

 Competitive Intelligence

Called business intelligence

Gathering information on a company’s

competitors
• Product/offering – features, functionality,
pricing, targets, etc.
•Company – size, profitability, margins,
target markets, apparent strategy, etc.

Prentice Hall, Inc. © 2008 4-20

 Forecasting

Forecasting Techniques --

–Extrapolation – “If things keep going the way they

are going now…”
–Brainstorming – Free-flowing ideas followed by
triage
–Expert opinion – Hire a consultant!
–Delphi technique – Ask a lot of people.
–Statistical modeling – Trending, curve-fitting, etc.
–Scenario writing – Map out 3-5 scenarios

Prentice Hall, Inc. © 2008 4-21

 Synthesis of External Factors -- EFAS

Prentice Hall, Inc. © 2008 4-22