Environmental scanning free essay sample

Objectives of the Paper  § To diagnose the complexity of the external environment  § To examine the Opportunities and Threats in the: †¢? Societal Environment – general environment †¢? Task Environment – groups directly affected by and who directly affect a firm  § To identify environmental shifts and analyze their impacts on the industry 7/12/11 Conrado T. Montemayor, PhD Consuelo B. Estepa PhD Consuelo B. Estepa, PhD INDUSTRY ANALYSIS PAPER POINTERS Rationale behind Environmental Scanning and Industry Analysis The O T analysis (from SWOT ) is necessary to determine: 1.? If there is a strategic fit between what the environment wants and the firm has to offer, and 2.? If there is a strategic fit between what the firm needs and the environment can provide. 7/12/11 Consuelo B. Estepa PhD 2 Framework for Scanning the External Environment Analysis of Societal Environment Political-Legal, Economic, Sociocultural, Technological Factors Market Analysis Community Analysis Competitor Analysis Supplier Analysis Interest Group Analysis 7/12/11 Conrado T. Montemayor, PhD Selection of Strategic Factors †¢ Opportunities †¢ Threats Figure 1 Governmental Analysis Consuelo B. Estepa PhD Consuelo B. Estepa, PhD INDUSTRY ANALYSIS PAPER POINTERS Your Operating Environment Your Organization’s External Environment Figure 2 Your Industry Ecological and natural issues Power or suppliers Current markets Global forces Current competitors Economic indicators Your Market Your Organization Customers New competitors Growing or declining Demographic movements New markets Market size Substitute products Social and cultural shifts Competitive rivalry Technology trends Political winds 7/12/11 Power of buyers Consuelo B. Estepa PhD 3 POINTERS ON HOW TO DO THE INDUSTRY ANALYSIS PAPER 7/12/11 Conrado T. Montemayor, PhD Consuelo B. Estepa PhD Consuelo B. Estepa, PhD INDUSTRY ANALYSIS PAPER POINTERS 1.? Examine possible shifts in the societal variables. a)? What is the industry where your firm operates? Provide a brief description of this industry as well as that of your firm. b)? Using the PEST matrix, as shown in Figure 3, decide which of the variables might be changing so as to create a strategic issue. c)? Identify those issues that are most important to your firm and the industry where you operate, and plot these variables on the issues-priority matrix, using Figure 4. Explain. 7/12/11 Consuelo B. Estepa PhD 4 Societal Environment Key Variables (PEST) Economic Technological Politico-Legal GDP trends Total government spending for RD Stability of government Interest rates Money supply Inflation rates Total industry spending for RD Socio-cultural Environmental protection laws Career expectations Consumer activism Tax laws Rate of family formation Special incentives Growth rate of population Age distribution of population Unemployment levels Focus of technological efforts Wage/price controls Patent protection Foreign trade regulations Devaluation/revaluation New products Energy availability and cost New developments in technology transfer from lab to marketplace Attitudes toward foreign companies Disposable and discretionary income Lifestyle changes Laws on hiring and promotion Productivity improvements through automation Regional shifts in population Life expectancies Birth rates Figure 3 7/12/11 Conrado T. Montemayor, PhD Consuelo B. Estepa PhD Consuelo B. Estepa, PhD INDUSTRY ANALYSIS PAPER POINTERS Strategic Issues Priority Matrix Strategic factors have a medium to high probability of occurrence and impact on firm. Medium Low High High Priority High Priority Medium Priority Medium Probability of Occurrence High High Priority Medium Priority Low Priority Low Probable Impact on Corporation Medium Priority Low Priority Low Priority FIGURE 2 7/12/11 Consuelo B. Estepa PhD 5 Remember:  § Environmental uncertainty, or the degree of complexity and change in a firm s external environment, is one key to understanding your firm s threats and opportunities.  § Use of a priority matrix helps a firm identify strategic issues and avoid strategic myopia.  § Only strategic issues are included in SW OT analysis, others are only scanned. 7/12/11 Conrado T. Montemayor, PhD Consuelo B. Estepa PhD Consuelo B. Estepa, PhD INDUSTRY ANALYSIS PAPER POINTERS 2. Identify uncertainties in each of the six forces from the task environment. a)? These can be competitors, buyers, suppliers, likely substitutes, potential entrants, and other key stakeholders b)? Make sure that all the high-priority strategic issues identified in the first step are specified in terms of the appropriate forces in the task environment. c)? Use Figure 3, â€Å"Techniques for Analyzing Industry and Competitors†, adapted from Michael Porter’s Five Forces. 7/12/11 Consuelo B. Estepa PhD 6 Porter s Industry / Task Analysis Figure 4 Potential Entrants Bargaining Power of Other Stakeholders Threat of New Entrants Industry Competitors Other Stakeholders Bargaining Power of Buyers Buyers Suppliers Bargaining Power of Suppliers Rivalry Among Existing Firms Threat of Substitute Products or Services 7/12/11 Conrado T. Montemayor, PhD Substitutes Consuelo B. Estepa PhD Consuelo B. Estepa, PhD INDUSTRY ANALYSIS PAPER POINTERS REMEMBER: Use PORTER S Industry Analysis Framework when writing the paper. 1.? Threat of new entrants – analyze the barriers to entry  §  §  §  §  §  §  § Economies of Scale Product Differentiation Capital Requirements Switching Costs Access to Distribution Channels Cost Disadvantages Independent of Size Government Policy 7/12/11 Consuelo B. Estepa PhD 7 PORTER S Industry Analysis 2.? 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 7/12/11 Conrado T. Montemayor, PhD Consuelo B. Estepa PhD Consuelo B. Estepa, PhD INDUSTRY ANALYSIS PAPER POINTERS PORTER S Industry Analysis 3.? Threat of substitute products, services 4.? Buyers bargaining power 5.? Suppliers bargaining power 6.? Other stakeholders relative power 7/12/11 Consuelo B. Estepa PhD 8 3. Identify the casual factors behind the uncertainties. a)? These sources of uncertainty can be inside the industry (e. g. , competitor behavior) or outside the industry (e. g. , new regulations). b)? It is likely that many of these causal factors were identified earlier when the societal environment was analyzed. c)? It is also likely that new ones surfaced when the task environment was analyzed. 7/12/11 Conrado T. Montemayor, PhD Consuelo B. Estepa PhD Consuelo B. Estepa, PhD INDUSTRY ANALYSIS PAPER POINTERS 4. Make a range of plausible assumptions about each important causal factor. a)? For example, if the price of oil is a causal factor, make reasonable assumptions about its future level in terms of high, low, and most probable price. A trend-impact analysis may be of some value here. 7/12/11 Consuelo B. Estepa PhD 9 5. Combine assumptions about individual causal factors into internally consistent scenarios. a)? Put various combinations of the assumptions together into sets of scenarios. Because one assumption may affect another, ensure that the scenarios are internally consistent. b)? A simplified cross-impact analysis may be of some value in one’s determining the interaction of likely trends. For example, if a scenario includes the assumptions of high oil prices and a low level of economic inflation, that scenario is not internally consistent and should be rejected. (It is an unlikely event because high oil prices tend to drive inflation upward. ) 7/12/11 Conrado T. Montemayor, PhD Consuelo B. Estepa PhD Consuelo B. Estepa, PhD INDUSTRY ANALYSIS PAPER POINTERS 6. Analyze the industry situation that would prevail under each scenario. a)? For example, if one scenario assumes that generic (no name) drugs will be more in demand than brand-name drugs, the situation in the drug industry under that assumption will be very different than under the assumption that the demand for generic drugs will be negligible. b)? For example, an industry dominated by generic drugs would have low profit margins for all firms and a very heavy degree of competition. It is likely that in that industry situation a few firms would leave the drug industry. 7/12/11 Consuelo B. Estepa PhD 10 7. Determine the sources of competitive advantage under each scenario. a)? For example, in an industry dominated by generic drugs, the combination of low price backed up by low operating costs would provide competitive advantage to a firm. If brand-name drugs dominated, the combination of strong advertising, high-quality production, and heavy promotion would provide competitive advantage to the firm using them. 7/12/11 Conrado T. Montemayor, PhD Consuelo B. Estepa PhD Consuelo B. Estepa, PhD INDUSTRY ANALYSIS PAPER POINTERS 8. Predict your competitors’ behavior under each scenario. a)? As the industry moves toward a particular scenario each competitor will make some adjustment. Some might leave the industry. New competitors might enter. Using each competitor’s history and what is known about its management, estimate what each competitor is likely to do. b)? Once this is done, you should be able to specify the strategic factors that are necessary for success (opportunities) as well as those that could cause failure (threats), in a variety of future scenarios. In order to choose the ones most likely to occur, one can also attach probabilities to each of the developed scenarios. 7/12/11 Consuelo B. Estepa PhD 11 In brief:  § The Environmental Scanning and Industry Analysis must present, in a coherent and incisive manner, the structure of the industry where your firm operates.  § Your paper must show in very clear terms the impact of the changes in the external and task environments to the firm, by identifying these shifts.  § You must illustrate how much you know your industry by using the Environmental Scanning Framework, Market Analysis, Competitive Analysis using Porter s Industry Analysis.  § Finally, your paper must be able to demonstrate how your firm will relate to the shifts in the external and task environments by being able to identify opportunities and threats. 7/12/11 Conrado T. Montemayor, PhD Consuelo B. Estepa PhD Consuelo B. Estepa, PhD INDUSTRY ANALYSIS PAPER POINTERS Formatting Note: †¢? There is no limit to the number of pages for this paper, but the Main Report should not be less than 6,500 words, excluding attachments and/or annexes, which are detailed supporting documents to the key research. –? Use A4 size paper, with margins of 1 on all sides, either 12 points Times New Roman font or 11 points Arial font. Use single space within paragraphs, and double space between paragraphs. –? Give word count at the end of the Report. †¢? The sources data for graphs, statistics, tables, etc. must be properly cited at all times using the APA format. †¢? Cite your other sources (documents, reports, etc. ) in a bibliography. †¢? DO NOT PLAGIARIZE.