Environmental Scanning

& Industry Analysis

Session 4 and 5
From Thinking Strategically about the
Company’s Situation to Choosing a Strategy

Thinking
strategically
about a firm’s
external
environment Forming a
Identifying Selecting the
strategic
promising best strategy
vision of
strategic and business
where the
options model for
firm needs
for the firm the firm
Thinking to head
strategically
about a firm’s
internal
environment
The External Environment

 The Macro-Environment
 Is the broad environmental context in which a firm’s
industry is situated.
 Includes strategically relevant components over
which the firm has no direct control.
 General economic conditions
 Immediate industry and competitive environment
External Environment

4
SWOT 2 – The TOWS Matrix
Internal Factors Strengths (S) Weaknesses (W)

S1 Experience W1 Distribution
S2 Integration W2 Financial
S3 Finance W3 Position
S4 Skills W4 Manufacturing
S5 Others W5 Others

External Factors LIST ALL (S) LIST ALL (W)

Opportunities (O) SO Strategies WO Strategies

O1 Demography • S1,O1,O4 describe • W1W4O1 describe

O2 Europe Market • S1,S2,O1,O2 • W2W3O2O4
O3 Super Stores • S2, S5,O2,O4 • W2O1
O4 Others • ETC • ETC

LIST ALL (O) MATCH ALL POSSIBLE SO’s MATCH ALL POSSIBLE WO’s

ST Strategies WT Strategies
Threats (T)
• S1S2T1T3 describe • W1W3T1 describe
T1 Government Regul • S1T2T4T5 • W1T2T3
T2 Competition • S2S3T1 • W1W2T2T4
T3 Barriers to entry • ETC • ETC
T4 Others
MATCH ALL POSSIBLE ST’s MATCH ALL POSSIBLE WT’s
LIST ALL (T)

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6
SWOT 3 - External Factors: Maytag

7
SWOT 3 - Internal Factors: Maytag

8
PESTEL Analysis
 PESTEL analysis focuses on the six principal
components of strategic significance in the macro-
environment.
 Political
 Economic
 Social
 Technological
 Environmental
 Legal

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QUESTION 1: DOES THE INDUSTRY OFFER
ATTRACTIVE OPPORTUNITIES FOR GROWTH?

 Defining Growth:
 What is the current market size in units or sales?
 What is the past, current and expected rate of
growth for the market\industry?
 Considerations:
 Different sectors\regions of a market grow at
different rates.
 Growth varies with the industry’s life cycle stage—
emergence, rapid growth, maturity, and decline.
 Growth does not guarantee profitability.
 QUESTION 2: WHAT KINDS OF COMPETITIVE FORCES
ARE INDUSTRY MEMBERS FACING,
AND HOW STRONG ARE THEY?

 The Five Competitive Forces:

 Competition from rival sellers
 Competition from potential new entrants
 Competition from substitute products producers
 Supplier bargaining power
 Customer bargaining power
5 Forces

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Porters 5 Forces: Influencing Factors
Using the 5 Forces
For each of the five forces, identify the different parties
Step 1 involved, along with the specific factors that bring about
competitive pressures.

Evaluate how strong the pressures stemming from each of

Step 2
the five forces are (strong, moderate, or weak).

Determine whether the five forces, overall, are supportive of

Step 3
high industry profitability.

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Rivalry

15
Threat of Entry

16
Substitutes

17
Suppliers

18
Buyers

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 Example: New Cars in India

Source: Datamonitor
 Example: New Cars in India – Drivers of Buyer
Power

Source: Datamonitor
 Example: New Cars in India – Drivers of Supplier
Power

Source: Datamonitor
 Example: New Cars in India – Drivers for new
entrants

Source: Datamonitor
 Example: New Cars in India – Threat of
substitutes

Source: Datamonitor
 Example: New Cars in India – Degree of Rivalry

Source: Datamonitor
 Is the Collective Strength of the Five Competitive
Forces Conducive to Good Profitability?

 Is the state of competition in the industry

stronger than “normal”?
 Can industry firms expect to earn decent profits
given prevailing competitive forces?
 Are some of the competitive forces sufficiently
powerful to undermine industry profitability?
 QUESTION 3: WHAT FACTORS ARE DRIVING INDUSTRY
CHANGE, AND WHAT IMPACTS WILL THEY HAVE?

 Strategic Analysis of Industry Dynamics:

1. Identifying the drivers of change.
2. Assessing whether the drivers of change are,
individually or collectively, acting to make the industry
more or less attractive.
3. Determining what strategy changes are needed to
prepare for the impacts of the anticipated change.
Driving Forces
Driving forces are the major underlying causes of
change in industry and competitive conditions.

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Common Drivers of Industry Change
• Changes in the long-term industry growth rate
• Increasing globalization
• Emerging new Internet capabilities and applications
• Shifts in buyer demographics
• Technological change and manufacturing process innovation
• Product and marketing innovation
• Entry or exit of major firms
• Diffusion of technical know-how across companies and countries
• Changes in cost and efficiency
• Reductions in uncertainty and business risk
• Regulatory influences and government policy changes
• Changing societal concerns, attitudes, and lifestyles

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 QUESTION 4: HOW ARE INDUSTRY RIVALS
POSITIONED—WHO IS STRONGLY POSITIONED
AND WHO IS NOT?

 A strategic group is a cluster of industry rivals that

have similar competitive approaches and market
positions.
 Strategic group mapping is a technique for
displaying the different market or competitive
positions that rival firms occupy in the industry.
Comparative Market Positions of Selected Firms in the
Casual Dining Industry: A Strategic Group Map Example

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 QUESTION 5: WHAT STRATEGIC MOVES ARE
RIVALS LIKELY TO MAKE NEXT?

 Competitive Intelligence
 Information about rivals that is useful in anticipating
their next strategic moves.
 Signals of the Likelihood of Strategic Moves:
 Rivals under pressure to improve financial
performance
 Rivals seeking to increase market standing
 Public statements of rivals’ intentions
 Profiles developed by competitive intelligence units
 QUESTION 6: WHAT ARE THE KEY FACTORS FOR
FUTURE COMPETITIVE SUCCESS?

 Key Success Factors

 Are the strategy elements, product and service
attributes, operational approaches, resources, and
competitive capabilities that are necessary for
competitive success by any and all firms in an industry.
 Vary from industry to industry, and over time within the
same industry, as drivers of change and competitive
conditions change.
 QUESTION 7: DOES THE INDUSTRY OFFER GOOD
PROSPECTS FOR ATTRACTIVE PROFITS?

 Industry Profitability Considerations:

 The industry’s overall growth potential
 Effects of strong competitive forces
 Effects of prevailing drivers of change in the industry
 Competitive strength of the firm: its market position
relative to its rivals, its capability to withstand
competitive forces, and whether its position will
change in the course of competitive interactions
 The success of the firm’s strategy in delivering on
the industry’s key success factors
Building Competitive Advantage

Resources Retaining
Value Cost Preventing
Drivers Drivers Customers Imitation
Capabilities

Superior Market Position Defendable Market Position

Sustainable Competitive Advantage

Thank You
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