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Environmental Scanning and Industry Analysis

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Strategy

  • Match…
    • External environment
    • Internal resources OR…
  • Pattern…
    • Maximizing strengths
    • Minimizing weakness
    • Exploiting opportunities
    • Avoiding threats

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Visualizing a firm’s environment

  • Societal-environment
  • Competitive

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Macro-environment

  • Economic
  • Social/cultural
  • Political/legal
  • Technological

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High

High

High

Medium

Medium

Medium

Low

Low

Low

VISUALIZING ENVIRONMENTAL ISSUES

ISSUES PRIORITY MATRIX

IMPACT

PROBABILITY

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Competitive Environment

What is the appropriate unit of measure?

  • Industry or strategic group?
  • Industries
    • Collection of firms with similar products or services selling to the same customers
  • Strategic Group
    • Subsets of Industries that share similar characteristics

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What is the industry’s key economic indicators?

  • Market size
  • Growth
  • Number of rivals
  • Geographic scope
  • Capital requirements

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What is the competition like? How strong is it?

  • Porter’s Five Forces
    • Existing rivalry
    • Substitutes
    • New entrants
    • Power of buyers
    • Power of suppliers

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Competitors

Suppliers

Buyers

New Entrants

Substitutes

PORTER FIVE FORCE MODEL

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New Entrants

  • Economies of scale
  • Product Differentiation
  • Capital Requirements
  • Switching costs

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Competitors

  • Number
  • Industry Growth
  • Fixed Costs
  • Exit Barriers
  • Intensity of competition

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Substitutes

  • Satisfy the same need
  • Place ceilings on profitability

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Buyers

  • Large buyers
  • Backward Integration
  • Switching costs

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Suppliers

  • Dominated by a few companies
  • Switching costs
  • Substitutes are not available
  • Forward integration

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Finishing the competitive analysis

  • 3. Which companies are in the strongest/weakest positions?
  • 4. What strategic moves are these rivals considering?

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Key Success Factors

  • KSF are those variables that can affect significantly the overall competitive positions of all companies within an industry or strategic group
  • IOW, you must master these factors to succeed
  • External and Internal

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Tools for analyzing the external environment

  • Key Success Factor Matrix
  • Identify major competitors (include yourself)
  • List 10-20 key success factors, both internal and external
  • Assign weights from 0 to 1—must equal 1
  • Assign a 1 to 4 rating to indicate relative strength and weakness (1-major weakness; 4-major strength)
  • Multiply
  • Sum the weighted scores

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Tips on the KSFM

  • Use strategic groups when appropriate
  • The CSF should be directed at the industry or group

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Tools for analyzing the external environment

  • External Factor Evaluation
    • Identify major competitors (including yourself)
    • List 10-20 external factors.
    • Assign a weight to each revealing its importance to industry success (0.0-not important; 1.0-very important)
    • Assign a 1 to 4 rating to indicate firm effectiveness (1-poor; 4-superior)
    • Multiply
    • Sum the weighted scores

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Tips on the EFAS

  • Listing of factors on the EFAS and the IFAS are THE SINGLE MOST IMPORTANT THING YOU WILL DO
  • External factors—try to make them specific
  • Relate the factors to dimensions of the Porter and macroenvironment components
  • Be wary of correlation

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INDUSTRY ANALYSIS

TOOLSET CONTENTS