"tt

PARTTWO ,

Scanningthe Environment
9*r ;$

EnvironmentalScanning
andIndustryAnalysis

An. eventdefinedthe globalautomotiveindustry in l9l3 - Henry Ford'smoving assemblyline.

\-f It pavedthe way for massproduction and consumption of cars;it led to the birth of the world's
first blockbuster car - the legendarymodel T; it spawneddozensof gigantic automotive companies
whoserevenuesrivalled the GDPsof many nations;it made car manufacturingone of the most exalted
ltrrmsof industrialactivity.
Ninety yearslater,the automotive industry is perhapsin the middle of the secondsuch defining
moment *'the moving designlinel The moving designline was conceivedmore than a decadeago.
The break up of the automotive engineeringdesign processand the disperseddevelopment of the
building biocks are now a way of life for carmakers.They have demonstrateda strong tendencyto

49
Fi:r"::::-:.- i
j

ti;a:,,..;,,.
THITNVIRON^4ENT
TWO STANNIN6
5O PART

passon R&D, design,engineering and prototypingresponsibilityto vendors.Theyhavealsopreferred

to outsourcewhat little designresponsibilitywas1eftn'ith them. But recently,this moving designline
-
has startedbehavinglike a snakeon steroids.It is growing continuousiyand hasreachedIndia ali
the way from Detroit to Bangalore,Chennaiand Pune.Severalcompanies iike Ford,General Motors,
DaimlerChrysler, Toyota, Honda, Nissan, BMW Robert Boschm Johnson Controls now have in-
houseengineeringdesigncentresin India or outsourcework to third-partyvendorsin India. Indian
firms areworking on atleast$500million rvorth of automotiveengineeringdesignservices proiects.
That ligure could double iu two ,vears,perhapsearljer.r
Companiesmade huge businessbecauseof their ability to adaptto environmentalchange.The
aforementionedAuton-robileindustr,vexan-rple showshow a.changingenvironmenlcan createnew
'fo overtime,
The iessonis sirnple: be successful
opportuniiiesat the sametitne it destroysold or.res.
an organizationneedsto be in tunewith its externalenvironment.Therer.nustbe a strategic between
fit
what the environmentu,antsand 'w'hatthe corporation has to offer,as well as betweenwhat the
corporatioltneedsand what the environmentcarrprovide'
Current predictionsarethat the environmentfor all organizations becomeevenmoreuncertajn
r^,'ill
u,ith evervpassingyear.What is environmental uncertainty? It is the degreeof comptrexity plus the
degreeof changeexistingin an organization'sexternalenvironment.As more and tnore markets i,:
becomeglobal,the number of factorsa companymust considerin any decisionbecomehuge-more
complex.With new techno)ogiesbeing discoveredevery,vear,nrarketschangeand productsmust
changewith thern.
On the one hand, environmentaluncertaintyis a threatto strategicmanagersbecause it hampers
their ability to developIong-rangeplansand to make strategicdecisionsto keepthe corporationin
equilitlrium with its external environment. On the other hand, environmental uncertainty is an
opportunity becauseit createsa new playing field in which creativityand innovation canhavea rnajor
oart in strategicdecisions.

I fnvironmentolSconning
Beforean organiz-ationcan begin strategyformulatitin, it must scanthe externalenvironmentto
identifu possibleopportunities and threatsand its internal environrnentfor strengthsand weaknesses.
Environmental scanning is the monitoring, evaluating,and disseminating of informationfrom the
externaland internalenvironmentsto key people within the corporation.A corporation usesthis tool
to avoid strategicsurpriseand to ensureits iong-term health.Research has found a positiverelation-
ship betweenenvironmentalscanningand profits.r

EXTERNAL
IDENTIFYING VARIABLES
ENVIRONMENTAL
In undertakingenvironmentalscanning,strategicmanagersmust firstbe awareof the manyvariables
within a corporation'ssocietaland task environments.The societal environment includesgeneral
on the short-runactivitiesofthe organizationbut that can,and often
forcesthat do not directl1,16s6h
do, influenceits long-run decisiols.These,shown in Figure l-3,are as follorvs:
. Economic forcesthat regulatethe exchangeof materials,money,energy,and information
. Technological forcesthat generateproblern-soh'inginventions
. Political-legal forces that allocate power and provide constraining and prolecting iaws and
regulations
. SocioCulturalforcesthat regulatethe values,mores,and customsof sociefy

The task environment includes thoseelementsor groupsthat directlv affectthe corporation and, in
turn, areaffectedby it. Theseare govetnments,Iocalcommunities,suppliers,competitors,customers,
creditors,employees/laborunions, special-interest A corporation'stask
groups,and tra<ieassociation.s.
environment is typicalli' the industry within which that firm operates.Industry analysis refersto an
 '.i..i;,
THREEENVIRONMINTAI
T|IAPTIR AND
SIANNING ANALYSIS
INDUSTRY 5-I , ,:

in-depth examinationof key factorswithin a corporation'stask environment.Both the societaland

task environments musr be monitored to detectthe strategicfactors that are likely to have a strong
impact on corporatesuccessor failure.

Sconning the Societol Environment

The number of possiblestrategicfactorsin the societalenvironmentis very high.The number becomes
enornous when we realizethat, generallyspeaking,eachcountry in the world canbe represented by
its ou.n unique set of societalforces-some of u'hich are verv similar to neighboringcountriesand
some of rvhichare very different.
For exanple,eventhough Koreaand ChinashareAsia'sPacificRint areau'ith Tiraiiand,Taiwan,alld
Hong Kong (sharing manl' similar cultural values),they havever,vdifferent viervsabout the role of
br-rsjness it is generallybeiievedin Koreaand China (andto a lesserextentin ]apan)that the
ir.rsociet1,.
t'oleof businessis prin.rarill'to contributeto nationaldeveloprrent; t'hereasin Hong Kong,Tairvan,and
Thailand (a6 j to a lesserexteut in the Ptrilippines,hrdonesia, Sineapore, and N4alaysia), the role of
business:isprirrarily to malie profits Such
for theshareiicllders.'1 differences mav translate into different
tradercgulaiionsand varyingdifficulry in therepatriation ofprofits (transferringprofits from a foreign
subsidiarvto a corporation'sheadquarters) fron.rone group of Pacific Rim countries to another.

Moniforing Sociefol Trends

As noted in Table 3-l,large corporationscategorizethe societalenvironmentin anyone geographic
region inlo four areasand focustheir scanningin eachareaon trendswith corporatewidetelevance.
but of lesser
Obviqusly trends in an1,I areamay be very important to the firms in one indr-rstry
importanceto firms in other industries.
Trendsin lhe economicparl of the societalenvironnretrtcan havean obviousirapacton business
activity.For example,an increasein interestratesmeansferversalesof major hone appliances. \\4ry?
A rising interest rate tends to be reflectedin higher mortgage rates.
Becauseirigher mortgage rates
increasethe cost of buying a house,the dernand for new and used housestendsto fall. Becausemost
major honreappliances aresoldu'henpeoplechangehouses,a reductionirt holtsesalessoontranslates
into a dcclinejn sales of refrigerators, and reducedprofrtsfor everyonein that
stoves,and dishn'asl.rcrs
ind ustrl'.
Charrgesin Lhetcchnologicalpart of the societalenvironmentcan also have a great imPact on
multiple industries.For example,implovementsin contputcrnricroprocessors havenot only led to
the widespleadr-rse of home computers, but alsoto better ertgine
auton'robile performance in terms
the useof
of porverand lr,relecor.ron-r1'through microprocessors to monitor luel Researchers
injection.

Toble 3-l Some lmportont Voriobles in the SocietolEnvironmenl

Economic Technological Political-Legal Sociocultural

GI)P trends Tcrtalgovernment spending Antitrust regulations Lifestylechanges

Interestrates
Money supply
Inflation rates
Unernploymentlevels
Wage/pricecontrtlls
Devaluation/revaluation
Ener:gyavailability and cc-rst
Disposableand
discretionary income
1or R&D
Total industrv spending
for R&f)
Focusof technologicaieffcrrts
Patent protectlon
Nerv prod ucts
N e r vd e v e l o p m e n tisn
technology transfer frcm lab
to marketplace
Productivity improvements
through automation
lnternet avaiJability
Environmenlal Careerexpectations
Protectlon laws Consumeractivism
Tax laws Rate oI family formation
Specialincentives Growth ,rateof population
Foreigntraderegulations Age distribution of
Attitudes torvard foreign population
companies Regionalshiftsin popuiation
Laws on hiring and Life expectancies
promotion Birth ratbs
Stability of government

";i.-,-,-T::-:T:
ti!;,,r';,i, 5 2 PART TI]I TNVIRONMEN]
IWO SIANNIN6
t':t
'it
developmentsin technol-
at George\\rashingtonUniversityhaveidentified a number of breakthrough
impact during the decade from 2000to 2010:
ogy,whlch they forecastwill havea significant
. Portable Information Devicesand Electronic Networking: Combiningthe computrngPower
of the television,and the
of the personalcomputer,the networkingof the Internet,the images
convenienceofthe telephone,theseuppliurrces will soonbe usedby over30% ofthe population
of industrialized nationsto make phone calls, send e-mail,andtransmitdataanddocuments'Fven
(via wires and wireless)irrto ir-rtelligent
now, homes,autos,and officesare being connected
that interactrvith one another. The traditional stand-alone desktopcomputelmaYsoon
netr,r'orks
join the manualtypewriteras a historicalcuriosity'
. Fuel cells and Alternative Energy sources:The useof wind, geothermal, hydroelectric, solar'
fror.ntheir present level of I096 to
biorlass,and other alterLativeenergysourcesshouldincrease
usedexclusively to powerspacccraft, fuel celis offcr the
about 30%by the end of tbe decade.Or-rce
prospectof pollution-free electrical power. Fuel cells chemically conlbinehydrogenand oxygento
a numberof 1'ears beforefuel
prc,duceelectrrcrtYwith waterasa byproduct.Althoughit rvili take
ceilsreplacegas-pou,ered engiles or vast po\\'el genelalionplanls' this technologyis already
providing an allematesoLlrceof power for lar.gebuildings'
. Precision Farming: The conipuierizedrnanageilentof crops to sui'tvariationsin land charac-
terisricsrvill makefarmingmore efficient'
. Virtual Personal Assistants:Very smart comPuterproglamsthat monitor e-mail' faxes'and
letter,retrievinga file' making
pho'e callswill be ableto takeoverroutine taski,suchaswriting a
a phonecall,or screeningrequests. Acting iike a secretary, a person'svirtual assistant(VA) could
s,'.bstituteforapersonatmeetingsorirrdealingwithroutineactions.
. GeneticallyAltered Organisms:A convergenceof biotechnologyand agricultureis creatinga new
field of life science s.irlait seedscanbe ger.reticall,v modifiedto producen]creneededvitaminsor
to treiessattractiveto pestsand more ubl. to sur-vive. Animals (and peopie)could be similarly
modified for desirablecharactelistics and to eliminategeneticdisabiiiticsand diseases'
. Smart, Mobile Robots: Robot developm€l]thasbeen limited by a lack of sensorydevicesand
sophisticated artiflcjalintelligencesystems. Improvementsin theseareasmcanthat robotsu'ill be
c h c - r c sa'n d a s s i sttl l e
g o r e s o p h i s t i c a i efda c t o r y , u o r k , . u ne r t - a n d sd,o h o u s e h o l d
p e r f o r r T r i nm
handicapped.a
on the
-lreirds
inthepolitical-legal part of the socictalenlirontnent havea significantirnPactnot only
strate gies might be successful's ror cxarnplc'
levelof competitioll-rthln an intlustry,but alsoot'twhich
outletsin 2002hasled to the entrl'
cha'gesin the law by the Governmentto ailorvprivatefuel retail
like Reliance,Essarand Shell to enter the marketand compctewith the
of Pri'ate sectorenterprises
the formation of the EuropeanUnion l-ras
Public sectorgiantslike IOC, HPC and BPCL.In Europe,
led to an increase b
l n m e r g e rs c t i v i t ) a/ c r o s sI l a t i o n a l o u n d a r i e s '
environment'lndia'smiddle
D e m o g r a p h i c t r e n d s a i e p ,oafrrth e s o c i o c u l t t t r a l a s p e c t o f t h e s o c i e t a ]
lessthan t o% of thepopulation in 1984 and I 985, according to theNational,cor'rncil
classconstitutecl
(NCAER). Since then, it has more than tripled, but is stilllessthan 20ozir
of AppliedEconomicResearch
grows at the rate of 7o/u over the ibreseeable future and
of the popululation.If the Indian economy
the
if the population rncreases annualll'by 1.5%,if the literacyrate keepsrising and if we-assume
between
historicaln-riddle-class gro\{th rateof the past 15years,then half of india u'ill turn middle class
south India wili turn middle class by 2020, but the backward states
2020a'd 2040.Much ojwest and
Disparitiesare obviously bad, but
like Bihar,Uttar pradeshand orissawon't get therebefore2040.
on the backwardstates to catch-
vigorousmigration helpsto amelioratethem and createspressule
or.r the same growth assumPtions listed above'india's individual
up. At thesemilesto.t.r,bur.d
pel Pelsonin 2020- and to $16'500itt
purcl]asi.rgporverrvill climb from $2,i49 in tsss to $5,653
(Cars),BPL (ConsumerDurables)'
2040.This trend can meanincreasingsalesfor firms like Maruti
H L L I F M C G ) ,a m o n go t h e r s .
world will soon look like are:
Sevensocioculturaitrends that are helping to define what the
conservationare becomingmore than
1. Increasing environmental awareness:Recyclingand
sloeans.TataInternational,for example,at the Dewas tannery developeda Processfor using
 tHAPTiR
THRtI iNVlR0l'l//'ENTAL
S[A|{NiNG ANALYSIS
AtlDINDUSTRY

chromed leather shaving dust for Biomethanation to generatefuel gas and save energy-by
substitutingcoal.
Growth of the seniors rnarket: As their numbersincrease,peopleoverage55wiil becomean even
r more important market.Already somecompaniesare segmentingthe seniorpopulation into
Young N{atures,Older N4atures,and the Elderll'-each having a different set of attitudes and
I
interests.
I
Impact of GenerationY boomlet: Born after1980to theboomerandX generations, this cohort
r
mayendup beingaslargeasthe boomergeneration.In1957,thepeakyearof the postwarboom,
t
4.3million babieswereborn. In 1990,therewere4.2miilion births.By the mid- 1990s,elementata
schoolswerebecomingovercron'ded.6 As a result,both Republicanand Democraticcandidates
in the 2000presidentialelectioirmade"education"a primary issue.The U.S.censusbureauprojects
GenerationY to crestat 30.8million births by 2005.Expectthis cohort to havea strongin.rpact
o n f u l u r ep r o d u c t sa n d s e r v i c e s .
Decline of the massmarket: Niche marl<etsarebeginningto definethe marketers'euvironment.
Peoplewant products and servicesthat are adaptedmore to their personalneeds."lr4ass
customizatior.r"-the nrakingand marketingof productstailoredto a person's requirernents (e.g.,
Dell and Gater,r'ay Computers)-is repiacingthe massproduction and marketingof the same
product in somemarkets.
Changing pace and location of life: Instant communication via fax machines,cell phones,and
overnightmail enhancesefficiency,but it alsoputs more pressureon people.Mergingthe personal
computerwith the communication and entertainmentindustry through teiephonelines,satellite
dishes,and cabletelevisionincreasesconsumers'choicesand allowsworkersto leavcovercrou'ded
urban areasfcrr sniall to'wnsand "telecommute" via personaicornputersand rnodems.
Changinghouseholdcomposition: Single-person households couldbecomethe mostcommon
householdtype in the United Statesafterthe year2005.By 2005,only householdscomposedof
marriedcouplesu,ith no childrenwlli be larger.T Although the Y generationbabyboomlel may
alterthis estimate,a householdcleadyis r.rolongerthe sameasit wasonceportrayedin The i3rady
B u n c hi n t h e 1 9 7 0 so r e v e nT h e C o s b vS h o u ' i nt h e 1 9 8 0 s .
7. Increasingdiversity of workforce and markets:Minoritl'groupsareincreasingasa Fercentage
of thetotal U.S.population.Frorn1996to20-50, grouppercentages areexpected b1'theU.S.Census
llureauto changcasfollows:rvhites-frorn 83% to 75(h; AfrtcanAnrericans-from 13olo to 159'o;
Asian-from 40/oto 9o/o; AmericanIndian-slight increase. Hispanics,lr.hocan be of anl'race,
areprojected to grow from 10%Io 25o/o during this timc pcritrd.sTraditional minority groupsare
increasingtheir numbersin the workforceand arebeingidentifiedasdesirabietargetmarkets.
For example,the SouthDekalb Mall in Atlanta,Georgia,restyleditselfas an'Afrocentricre*.ail
center"in responseto the rapid growth of theAfricanAmerican 18-to-34agegroup.o

I n t e r n o i i c n o lS o c i e t o l C o n s i d e r o t i o n s
Each country cr group of countriesin which a company operatespresentsa whoie ne\v societal
environmentwith a different setof economic,technological,political-1egal, and 3ocioculturalvariables
for the companyto face.Internationalsocietalenvironmentsvary so widely that a corporation's
internal environmentand strategicmanagementprocessmust be very flexible.Culturai trends in
Germany,for exampie,haveresultedin the inclusionof workerrepresentatives in corporatestrategic
planning. Differencesin societalenvironments strongly affect the ways in rvhich a multinational
corporation (MNC), a companywith significantassets and activitiesin muitiplecountries,conducts
its marketing,financial,manufacturing,and other functionalactivities.For example,the existenceof
regionalassociations like the EuropeanUnion, the North AmericanFreeTradeZone, and Mercosur
in SouthAmerica hasa significantimpact on the competitive"rulesof the game"both for thoseMNCs
operating within and for those MNCs wanting to enter theseareas.
To accountfor the many differencesamong societalenvironmentsfrom one country to another,
considerTable 3-2. It includesa list of economic,technological, political-legal,and sociocultural
variablesfor any particular country or region. For example,an important economicvariablefor any

':
 .WO
PART
TWOSIAN[liNG
IiJI ENViRONMINT

firm investing in a foreign country is currency

operatlng in Russia cannot convert its profits
variables'many Asian t"lt-ot.: (especiallychina)
than are Europeanand North American cultures.
companiesare trying to impose \vestern human
Asianproductslesscompetitiveby raisingtheir
Beforepianning its strategl'fo, u pa.iic,rlar
particularcountryenvironrnent(s)in question
its own organizationalstrengthsand weaknesses.
iirdustrysuchasautomobijes,tires,electronics,
a sigrrificantPresence in the threedevelopedareasof the world known
term was coined by the Japanese
developedmarketsof lapan,North Ameiica,
with co'lrnon neecs'llFocusingon the liiad
industry' accordingto ohmae,r becauseclose
manufacturedgoods are producedand consumed
Idealiya companyshouid havea significantpresence
produce'and nlarket its productssimultane.usly
advantageto Jiiad-orien-tedMNCs. No longer
one part of the worrd beforeit exportsit totther
Focusingonly on the developednations,however,
.pportuniticsin the developingnationsof the world.
to tlie poinl that theyhavesignificantdemand
bc on the thresholdof rapid growth in the demand
for a conrpanyto enterthis market-before competilion
the "triggerpoint" rvhen demantlfor a particular
Global Issuefeaturefor a-nin-depthexpianation
a p a r t i c u l a rm a r k e ti n a d e v e l o p i n g
convertibility. without convertibility, a company
from rubles to dollars. In terms of sociocultural
are lessconcernedwith the value of human rights
SomeAsians actuallycontend that American
rights requirementson them in an attempt to make
costs.t0
internationallocation, a companymust scan the
for opportunitiesand threats,and comparethese
with
For exampie,to operatesuccessfully in a global
or watches,a companymust bepreparedto establish
collectiveiyasthe Triad. This
managementexpert,Kenichi ohmae, and it refers
to the three
and westernEurope,*hi.h ,ro, form a singler'arket
is essentialfo. uri MNC pursuingsuccess in a global
to- 90% of all high-value-addecl, lrigh-technology
in North An-rJ.icu,western Europe,and
Japan.
in eachof theseregionsso that it can develop,
in all threeareas.otherwrse,it u.illlosecompetitive
can_ an MNC developand nrarketa new product in
deveropedco,,rrt.i"s.
causesa corporationto missimportant market
Althoughthesenationsmay not havedeveloped
for a broadsplct.,rrnof products,theymay verylikeiy
f.,r specrficp.;;r;;, This would be rhe idea,tirne
is established.
The keyis to be ableto identiiy
product or serviceis readyto boom. Seethe
{311
.fa rech'iqueto identifythe optirnurntime to enter
nation.

S c o n n i n gt h e T o s k E n v i r o n m e n i
As shor'vnin Figure 3-1, a corporatjon's scanninq
of the envjronment rvili include anal1,5s5
of all the
relevant elenents in the task environment.
These analysestake the form of individual reports
written

Toble 3-2 s o m e l m p o r t o n tv o r i o b l e si n t h e l n l e r n q t i o n o l
Economic
Economic developrnent
Per capita income
Climate
GDP trends
Monetary and fiscal poli-cies
Unemploynent levei
Currency convertibility
WageIeveis
Nature of competition
Membership in regional eco-
nornlc assocratrons
s o c i e t o lE n v i r o n m e n r s
Technological Political-Legal Sociocultural
Regulations on technology Forrn of government Customs,norms, values
transfer Political ideology Langrugs
Energyavailability/cost Tax larvs Demographics
Natural resourceavailability Stabilityof government Lif-eexpectancies
Transportation network Government attitude toward Social institutions
Skill level of work force foreign Statusslmbols
P a t e n t - t r a d c m a rpkr o l e c t i o n companies Lifesryle
Internet availability Regulationson fcrreignown- Religiousbeliefs
Telecommunication ership of assets Attitude.stoward foreigners
Infrastructure Strengthof oppositiongroups Literacylevel
Traderegulations Human rights
Protectionistsentiment Environmentalisnr
Foreignpolicies
Terroristactivity
Legalsystem

;]

.*--_.._:. 5'EJ -,
:
 CHAPTIR
T|1REE
INVIRONMINTAT
STA!']NING
ANDINDUSIRY
At,]ALYSiS

ny /*\l I
i, -ni,'"1-"-t.,
t, l':.- r 'n;
'al Etz Mexico Citycan enjoythe samestandardof living {with
Its
respectto shoe shines)as peoplein NervYork City with
ln ldentifying Poientiol only 5ozirto I09o of the money. Correcting for PPP
ke Morketsin Developing restatesall Mexican shoe shines.atl-heirU.S. purchase
value of $5. lf one million shoe shineswere purchased
Noiions
te in Mexico iast year, using the PPP model would effec-
th tively increasc N{edcan GDP by $5 rnillion to $10
AI million. Using PPP,China becomesthe world's second
;h largesteconomy after the LTnitedStates,with Brazil,
Mexico, and lndia moving aheadof Canadainto the
ls by thc Del,'itte& ToucheConsultingGroup
f) e,sear-ch I o p I 0 r v o rJ d m ar k c t s .
3e I\'everls that thc demirn,l ftir a specificproduct irr- Triggerpoints identiiywhen demandfor a particular
creasesexponentiallyat certtrin points in 3 country's prodr:ct is about to rapidly increasein a countr)'. This
ai developrnent.ldentifying this tr.iggerpoint of denrand can be a very usefultechniqueto identify when to enter
is thus criticalto entetingemergingmarketsat the best a nerv market in a developing nation- Trigger points
i)'
n. time. A trigger point is the time when enough people vary for different products. For exan-rple,an apparent
haveenoughmone)'to buy what a compan)rha.sto sell, trigger point fol long-distancetelephone servicesis at
P'
but befrrrecon'rpetitionis established.This can be done $7,500 in GDP per capita-a point when demand for
TC
by using the concept of purchasing power parity teiecommunications servicesincreasesrapidly. Once
n (PPP), which measlrresthe cost in doilars of the U.S.- national rvealthsurpasses$15,000per capita, demand
producedecluivalent volume of goodsthat an economy incrcases at .i much slowerratewilh further increases in
et lroduces. weaLth.The trigger poinl fbr life insurance is around
'd PPP offers an estimate of the material wealth a $8,000in GDP per capita.At this point, the demand
t1' nation can purchase,rather than the financialwealthit iirr iife insurance increase.s betwcen 200o/oand 3(l0o/o
te createsas typicallymcasuredby GrossDomestic.Prod- above those countrieslvith GDP per capitabeiow the
;i, uct (GDP).As a result,restatinga iration'sGDP in PPP triggerpoint.
i terms revealsmuch greaterspendirrgpolver than rnarket
t exchangerateswould suggest. For example,a shoeshinc
:r
costing $5 to $10 il Nc1rrYork City can be purrhased Sourct l). Fraser and M, Raynor, "The
for 50( in Mexico Citv. Consequentlythe people of Porver (May/lune, 1996), pp. 8-12.

Figure 3-l
S c a n n i n gt h e E x l e r n a l F ) r v i r o n m e n l

Analysis ol Societal Environment

r* Technological,
Econonric,Socioculturai. Political-LegalFactors
II
l
I Markel
Iu Analysis
I

I
I Community
I Analysis i f r** -"--;-""*-''&''
";fffilf' I I
I
I
tt
ififi
tr*f'
M
I

:
&*r.*-"..#ilH*l
rW
Sefection ot ,
lnterestGr

t'\:

,,,.,'
i,
fl
o'. '
ii TWO
/ O S i A N N ITNHGII N V I R O N / 1 l I N T
il,
l', fi
by'r'ariouspeopiein different parts of the firm. At Procter& Gamble (p&G), for
example,peoplefrom
each of the brand managemcntteamswork with key peopie frorn the sales
and market research
departmentsto researchand r,r'ritea "competitiveactivityref ort" eachquarteron
eachof the product
categoriesin which P&G competes.Peoplein purchasingalso rvrite simiiar reports
.orr..r.rirg .r.*
developmentsin the industriesthat supplvP&G. Theseand other reportsarethen
summarizedand
transmittedup the corporatehierarchyfor top nanagementto usein strategicdecision
making.Ii a
new developl.tlent is reportedregardinga particularproductcategory, top management may then send
Illentosaskingpeopletl.rrouehoutthe organizationto rvatchfor and report on cievelopmenis
in related
product areas.The nlanv rePortsresultingfrom thesescanningefforls,when
boiled down to their
e s s e n t i a l sa ,c t a s a d e t a i l c dl i s t o f e x t e r n a ls t r a t e g i fca c t o r s .

IDENTIFYINGEXTERNAL
STRATEGIC
FACTORS
\\'l-ry do conlpanies often respond difl'erently to the sanie environmentai
changes?one reason is
becauscofdifferences in the ability ofmanagers to recognize and unclerstand
external strategic rssues
and factors. No firn.r can successfirllymonitor all extenial factors. Choices rnust
be rnade regar.ding
rvl.rjchfactors are inlportant and wlrich are not. Even though managers
agreethat strategicimplrtance
dctcrmines\vhat Yariablesare consistently tracked, they sometimes miss
or choose to ignore crucial
new develoPments-12Personal values and functicnal experiencesof a corporation's
managers as rvell
as the successofcurrent strategies are likely to bias both their perception
ofwhat is im-portant to
monitor in the external environment and tlieir interpretations of n,hat thev
perceive.r3
This u'illingness to reject unfamiliar as well as negative information is called
strategic myopia.la If
a llrm needs to change its strategy,it might not be gathering the appropriate
external intbrmation to
cirangestrategiessuccessfully.
One wa1'to identify arld analyze developrnents in the external environment
rs to u.sethe issues
priority matrix (Figure 3-2) as follows:

Figure 3-2
IssuesPriontr' lv{a1rix

Frobable lmpact on Corporation

S o u r c e :R e p r i n t e d f r o n r L . L . L e d e r m a n , " F o r e s i g h t A c t i v i t i e s i ' t h e U . s . A . : T i m e
f o r a R e - A s s e s s m e n"t TL o n g -R a n g e
P l a n t r i n g( J u n e 1 9 8 4 ) ,p . 4 6 . c o p y r i g h r o I 9 g 4 . R e p r i n t e dw i t h p e r m i s s i o nf r o m
E l s e ' i e r S c i e nc e .
 THAPTER STANNING
T|]REEINVIROt,lMIl.{TAt AND ANALYS
INDUSiRY IS 57
ANATYSIS

an l. ldentifv a number of likely trends emergingin the societaland task eirvironmrnts.Theseare

strategicenvironmental issues-those important trends that, if the,voccur,determiner,r'hatthe
ct industry or the r,r'orldwill look like in the near future.
2. Assessthe probability of thesetrendsactuallyoccurringfrom low to high.
d 3. Attempt to ascertainthe likeiy impact (from low to high) of each of thesetrends on the
a corporationbeing examined.
A

)
u,
A corporation'sexternal strategic factors arethosekey environmentaltrendsthat arejudgedto
iri haveboth a medium to high probabilityof occurrenceand a rnediumto high probabilityof impact
on the corporationT . h e i s s u e sp r i o r i t v m a t r i x c a n t h e n b e u s e dt o h e l p m a n a g e r sd e c i d ew h i c h
environmentaltrends should be merely scanned(low priority) and rvhichshouldbe n'ronitoredas
strategicfactors(high priority). Thoseeuvironnentaltrerrdsjudged to be a corporatiot.t's strategic
factorsare then categorized as opportur.rities and threats and are included in strategy- formulation-
l )

rs
D
Anolysis:
Industry the ToskEnvironment
Anolyzing
!'

rl
An industryis a group of firms producinga similarproduct or sen'ice,suchassoftdriuks or financial
ti
services.An examinationof the important stakeholdergroups,suchas suppliersand customers,in
o
a particular corporation'stask environmentis a part of industry analysrs.
f
c PORTER'S ANALYSIS
APPROACHTO INDUSTRY
MichaelPorter,an authoritl'cn con.rpetitive strateg)., contendsthat a corporationis most concerned
w i t h t h e i n t e n s i t y o f c o r n p e t i t i o n w i t h i n i t s i r . r d u s t r , v . T h e l e v e l o f t h i s i n tiesndiei ttfe r r n i n e d b v b a s i c
competitir.eforces,nl'rich are depictedin Figure 3-3. "The collectivestrengthof thcseforces,"he
contends,"determinesrhe ultimateprofit potentialin the industry,wl-re re profi1poter.rtial is measured
in termsof long-run return on investedcapital."l5 ln carefuliy scattniug its industr,v, the corporation
m u s ta s s e st sh ei m p o r t a n c et o i t s s u c c e sosf e a c ho f t h es i xf o r c e sl:h r e a to f n t n ' e t l t r a l l t sr,i v a h ' r ' a l n o n g
existii.rg firms,threatof substituteproductsol services, bargainingpowerof buvers,bargaining;rower
o f s u p p l i e r sa, n d r e l a t i v ep o n , e ro f o t h e r s t a k e h o l d e r s .Tl 6 h e s t r o n g c re a c ho f t h e s cf o r c e st,h e m o r e
lin-ritedcompaniesarein tl.reirabilityto raiseprices and earn greaierprc.tfits. AlthoughPortertncntions
only five fcrrces,'a si-rth-other stake]-rolders-isadded here to reflect the porver thal governnrents,local
cornmunities,and othel groupsfrom the taskenvironrnent wield over itidustrv activities.
Usir.rg thc ntodelin Figure 3-3, a high fcrrcecanbc regardedasa threat because it is likel,vto reduce
profits.A lon,force,in contrast,canbe viervedasan opporlunity becatrse il ntal'a1lou'the con.rpanv
to earn grealerprofits. In the short run, theseforcesact as constraitttson a colrpail,v's activities. In
rhe long run, holr,ever', it may be possiblefor a conrpany,through its choiceof strategy, to change the
strengtitof one or more of the lbrcesto the companv'sadvantage. For example'ii.rorder to pressure
its customers(PC makers)to purchasemore of Intel'siatestmicroprocessors for usein their PCs,Intel
supportedthe deveiopmentof sophisticated softwareneedingincreasingiy iargerxmoulltsof process-
i1g power.ln the mid- 1990sIntel beganselling3D graphicschips-not because it n'antedto be in that
business,but because3D chips neeciedlargeamountsof processingpower (provided of courseby
Intel). intel aisointroducedsoftwarethat madeit easierfor network administratorsto managePCs
on their networks,which Intel believedwould helpsellmore PCsand neutralizea threatfrom netu'ork
cornputers.lT
A strategistcan analyzeany industr,vby rating eachcornpelitiveforce ashigh, medium, or low in
strength.For exarnple,the athleticshoeindustrycouid be currentiyrateciasfollows:rivalry is high
(Nike,Reebok,Adidas,and Conversearestrongcompetitorsworldwide);threatof potentialentrants
is low (industryhasreachedmaturity;salesgrowthratehasslowed);threatof substitutes is low (other
shoesdon't providesupport for sportsactivities);bargainingpowerof suppliersis medium but rising
F---
AA ) S I A N N ITNHGtt N V l R 0 l i / ' i t N T
rt::
Figure 3-3
ForcesDrivingIndustn'Competition

Belative
Power
of Unions,
Governments,
elc

Suppliers
Bargaining
Power
of Suppliers

s o r r c c ; A d a p t e d w i t h p e r m i s s i o n o f - I ' h eF r e ep r e s s ,a D i v i s i o n
o f S i m o n & s c h u s r e r ,f r o m Contp etitive Strat cgy : Tbch
n t q u e s f o r A n a l , v z i n gI n c l u s t r i e sa n d c o m p e t i t o r s b v N , l i c h a e r p o r t e r .
Ir. c o p y r i g h t c , t s s o , I 9 8 8 b y ' I ' h el i r e e P r e s s .

(suppliersiIl Asiancountriesareincreasing
in sizeand ability);bargaininepo.rver of buyersis medjum,
but increasing(athletic shoesare dropping in popularity us b.o*r,
shoesgain); threat of other
stakeholders is medium to high (governmentregulationsand human rights concerns
aregrowrng).
Basedor.rcurrent trcndsin eachof thesecon.rpetitiveforces,the industrvappearsto be increasrng rn
its levelof competitiveintensity,meaningprofit marginswill
be falling for the industry asa whole.

Threot of New Entronts

New entrantsto an industry typicallybring to lt new capacity,a
desireto gain market share,and
suLrstantiai resources. They are,therefore,threatsto an establishedcorporation.The threatofentry
dependson the presenceof entry barriers and the reactionthat
can be expectedfrom existrng
competitors'An entry barrier is an obstructionthat makesit difficult
for a iompany to enter an
industrl For example,no ilew companiessuccessfully enterthe Indian FMCG marketbecauseof the
high productdifferentiationand theneedfor a strongdealerdistribution
network.Someof thepossible
b a r r i c r st o e n t r ya r e :
' Economiesof Scale:Scale
economies in tireprotluctionand saleof microprocessors, for example,
gaveIntel a significantcostadvantageover any new rival.
' Product Differentiation:
Corporationslike Procter & Gamblewhich manufactureproductslike
Tide and Ariel, createhigh entrybarriersthroughtheir high levels
of advertisinga.rj promotion.
' Capital Requirements: The '::
needto investhugefinancialiesourcesin manufacturingfacilitiesin
order to producelargecommercialairplanescreatesa significant '1
barrierto entryto a"nycompetr- ;l
tor for Boeingand Airbus.
Ir,

t',
i
 .,ti::l
IHAPTER
T|lRII INVIRONMENTAT AND
SCANNINGINDUSTRY
ANALYSIS
59 ..:

' Switching Costs: Once a softi,r'areprogram like Excelor \Alordbecomesestablishedin an office,

office managersarevery reluctant to switch to a new program becauseof the high training costs.
. Accessto Distribution Channels: Smallentrepreneursoften havedifficultyobtaining supermar-
ket shelfspacefor their goodsbecauselargeretailerschargefor spaceon their shelvesand give
prioritvto the establishedfirms who canpay for the advertisingneededto generatehigh customer
demand.
' Cost DisadvantagesIndependent of Size:Oncea new product earnssufficientmarketshareto
be acceptedasthe standardfor that type of product,the makerhasa key advantage. Microsoft's
developmentof the first rvideiyadoptedoperatingsystem(MS-DOS)for the IBM tlpe personal
computergaveit a significantcompetitiveadvantage overpotentialcompetitors.Its introduction
of \\tindowshelpedto cementthat advantageso that the Microsoft operatingsystemis now on
over 90%oof personalcomputersworldwide.
. Government Policy: Governnentscan limit entry into an industry throughlicensingrequire-
ments by restrictingaccessto law nraterials,such as oil-driliing sitesin protectedareas.

RivolryAmong ExistingFirms
In most industries,corporationsare mutually dependent.A conrpetitivemove by one firm can be
expectedto havea noticeableeffecton its competitorsand thusmay causeretaliationor counterefforts.
For examplc,the entryby mail order companiessuchasDell into a PC industrypreviouslydominated
by IBM, Apple,and Compaqincreased the levelof competitiveactivityto suchan extentthat anyprice
reduction or new product introduction is now quickly followed by similar movesfrom other PC
makers.Accordingto Porter,intenserivalry is,relatedto the presenceof severalfactors,including:
. Number of Competitors: When cornpetitorsare few and roughly equalin size,suchas in the
Indian two-wheelerand rnajor home appiianceindustries,they watch eachother carefuliyto make
surethat any move by anotherfirm is matchedby an equal countermove.
. Rate of Industry Growth: Any slowingin passengertraffic tendsto setoff pricewarsin the airline
Tech'
is. industry becausethe only path to growth is to take salesawayfrom a competitor.
. Product or Service Characteristics:Many people choosea videotaperentai store basedor-r
location,varietyof selection,and pricing becausethey vien'videotapesasa commodity-a product
ium, whosecharacteristics are the sameregardless of n'ho sellsit.
r t he r . AmountofFixedCosts:P,ecauseairlinesmustfly.tl.reirplanesonascheduleregardlessofthe
in.' )
number of payingpassengers for any one flight, they offer cheapstandbyfaresn henevera piane
:lg rl h a se m p t y ' s e a t s .
hole. . Capacity:If the only way a manufacturercanincreasecapacityis in,alargeincrementby building
a new plant (asin the paperindustry),it will run that new plant at full capacityto keepits unit
costsas lorv as possible-thus producing so much that the sellingprice falls throughout the
and industrl'.
. Height of Exit Barriers: Exit barrierskeepa companl'from leavingan industry.The brewing
rntry
sting industry, for example,has a low percentageof companiesthat voluntarily leavethe industry
lr an becausebreweriesare specialized assetswith few usesexceptfor making beer'.
. Diversity of Rivals: Rivalsthat havevery different ideasof how to competearelikely to crosspaths
f the
sible often and unknowinglychallengeeachother'sposition.This happensoftenin the retailclothing
industrywhen a nurnberof retaiiersopen outletsin the samelocation-thus taking salesaway
from each other.
nple,
Threot of SubstifuteProductsor Services
; like
tion. Substitute products are those products that appearto be different but can satisfythe sameneed as
esin anotherproduct. For example,fax machinesare a substitutefor FedEx,Sugarfreeis a substitutefor
sugar,and bottied wateris a substitutefor a cola.Accordingto Porter,"substituteslimit the potential
r6
returns of an industry by placing a ceiling on the pricesfirms in the industry can profitably cha-rge."
F,, SCANNING
T|li ENVIROII[48N1

To the extentthat swjtchingcostsarelow, substitutesmay havea strongeffecton an industry.Teacan

be considereda substitutefor cofTee. Ifthe price ofcoffeegoesup high enough,coffeedrinkerswill
siordvbeginswitchingto tea.The priceof teathusputs a priceceilingon thepriceof coffee.Identifying
possiblesubstituteproduclsor servicesis sometimesa difficult task.It neans searchingfor products
or servicesthat can perform tlre samefunction, eventhough they havea different appearanceand may
not appearto be easilysubstitutable.

B o r g o i n i n gP o w e r o f B u y e r s
Buversaffectan industrl'throughtheir abilityto forccdor,r'n quaiityor more
priccs,bargainfor l"righer
sen,ices,and play competitorsagainsteachothe;'.A buyer or a groul of buyersis powerful if sorle
of the follou'ingfactorslroid true:
. A buver purchasesa largeproportion of the seller'sproduct or service(for example,oil fiiters
p u r c h a s e bd v a n r a j o ra r t t om a k e r ) .
. A b u v e rh a st h e p o t e n t i a tl o i n t e q r . a tbca c k y a r db y p r o d u c i n gt h e p r o d u c ti t s e l f( f o r e x a m p l ea,
n c w s p a p ecr h a i nc o u l d n . r a k e its own paper).-'
' A l t e r - n a t i vseu p p l i e r sa r e p l e n t i f u lb e c a u s teh e p r o d u c ti s s t a n d a r do r u n d i f f e r e n t i a t e(df o r e x -
an'rple,motoristscan chooscamong n-ranypetrol retail outlets).
. Changingsupplierscostsvery littlc (for example,officesuppliesare easyto find).
' The pur-chascd pr.oductrepresents a high percentage of a buyer'scosts,thusprovidingan incentive
to shoparound for a lou'erpricc (for exanrple, precior,rs metalspurcl.rased for jewelervby jewelery
s h ( ) p sn t a l i cu p h a i f l h c i r l o t a l c o s t s ) .
. A buyer earnslou,profits and is thus very sensitiveto coslsand servicedifferernces (for e-xample,
grocerystoreshavevery srnallmargir.rs).
' The purchasedpr oduct is unimportantto tl.refinal qualityor priceof a buyer'sproductsor services
and thus can bc easilysubstitutedlvithout affectingthe final product adversely(for example,
e l e c t r i cw i r e b o u g h tf o r u s ei n l a m p s ) .

BorgoiningPower of Suppliers
canaffectan industr,vthrough their ability to raisepricesor reducethe qualityof purchased
Sr"rppJiers
sr.rods servjces.
and A supplieror suppliergroup is polverfulif someof the following factorsapply:
. The supplierindustrv is dorninatedby a few companies,but it sellsto man)/ (for example,the
petroleurl industry).
' I t s p r o d u c t o r s e r v i c ei s u n i q u e a n d / o r i t has built up switching costs (for example,word
processingsoftu'are).
. S u b s t i t u t easr en o t r e a d i l ya v a i l a b i e( f o r e x a r n p l ec,l e c t r i c i t l ' ) .
' S u p p l i r r sa r e a l r l et o i n t e g r a t ef o r w a r da n d c o m p e t ed i r e c t l yw i t h t h e i r p r e s e n ct u s t o m e r s( f o r
exarnplc.a rnicroproccssorproducerlike lntel can rnakePCs).
' A p u r c h a s i n g i r - r d u s t r y b u y s o n l y a s mpaol rl t i o n o f t h e s u p p l i e r g r o u p ' s g o o d s a n d s e r v i c e s a n d
is tl'rusunimportanl 1othe supplier(for example,salesof bi-cycletiresarelessimportant to the
t i r r 'i n d u s l r vt h a na r es a l e so f a u t o t i r e s ) .

RelotivePower of Other Siokeholders

A sixth forceshouldbe addedto Porter'slist to includea varietyof stakeholder groupsfroin the task
environrnent.Some of these groups (if
are governments not explicitly included elsewhere),local
cornmunities,creditors(if not includedwith suppliers),trade associations, special-interestgroups,
unions(if not includedwith suppliers),shareholders, and complementors. Accordir-rg to Andy Grove,
cx-CEOof Intel,a complernentor is a company(e.g.,Microsoft)or an industrywhoseproductworks
well r.r'ithanotherindustry'sor a firm's (e.g.,Intel's)product and without u'hich the product u'ouid
losemuch of its value.leAnotherexampleis the tire and autornobileindustries.
 T|1RIETNVIRClNI'IINTAL
iliAPTIR AND
STANtlING AIYSIS
AN
INDUSTRY

The importanceof thesestakeholders variesby'industrv.For example,environmentaigroupsin

:a can to passbills outlawingdisposable bottlesand
Maine,Michigan,Oregon,and Iowa successfulh'fought
:s \^'ili arenow required.This effectively raisedcostsacross
cans,and thus depositifor most drink cor-rtainers
ifving marginal producers who could not internaily absorb all of
the board, u,ith the most impact on the
ducts of nationalunions in the U.S. auto and railroad industries
thesecosts.The traditionallystrongpower
i mav industriesbut are of littie importance ln comPuter
has effectivelyraisedcoststhroughout these
sofin'are.

INDUSTRYEVOLUTION
more i maturity to eventual
some Overtime most industriesevolvethrough a seriesof siagesfron.rgrowththrough
to the stageof industry
deciine.The strcngthof eachof the six forcesmenti,.nedearlierlaries according
among the six forces
e'olution. The industry life cycleis usefulfor explainingand predictingtrends
often buy tire product
filters driving industry competition.For example,*'hen an industry is tlerr',people
industry-no firm
..gurdi.., of pric. becauseit fulfills a uniqueneed.This is p,robablya fragmented
marketiD competition with
haslargemarketshareand eachfirm senresonly a smallpieceof the total
nle :

Chinese restaurants and clear.ringservices).As new competitors enterthe industry'

others1:forexample,
)r ex- (to
curve be discussed in Chapter
pricesdrop asa I esultof competition.Cornpaniesusethe experience
to reduce
4) and econon-ries of scaleto reducecostsfasterthan the competition'Companiesintegrate
try to differentiatetheir
costsevenfurthcr by acquiringtheir suppliersand distributors.Competitors
:ntiVe common to a maturlng
productsfrom one urroth.r', i.t o.d.. to avoid the fierceprice competition
r'elen' industry.
like commodities'This is
By the tin.rcan ildustry entersmaturrtir,ploductstend to becomemore
mple, now a consolidated industry-dominated by a fer,r'large firms, eachof which strugglesto differentiate
its products from the competition' As bu1'ersbecome more sophisticatedover time' purchasing
rvices decisionsarebasedon better information.PriceL'recomes a dominantconcern'givena minimum level
mple, of qualityand fealures.One exampleof this trend is the videocassette recorderindustry'B)'the 1990s'
\/CRshad reachedthe point lvh"r. ther. werefewrnajorclifference s amongthem.Consumersrealized
that becauseslightimprovcmentscostsignificantly more money, ir madelittle senseto paymore than
the lninimum for a VCII..The sameis true of gasoline'
s' growth rate-ofsales
hased As an industrymovesthrough maturity torn.lrdpossibiedecline, its producl
To the eitent that exit barriers are low firms u'ill begin
rpply: slclwsand may even begin to clecrease.
o1-willsell then'r to another firm. The industry tends to
convertingtheir facilitiesto alternateuses
e,the In tl.re caseof the Indian tel:vision industry' the
consolidatearound ferverbut larger competitors.
(pure competition) composr:d of hundreds of TV
industrychangedfrom beinga fralmenteiindustry
word consoliclated industry con-rposed of around ten
rnanufacturersin tire industry'seariy yearsto a
consolidation is occurring now in European
companiescor-rtrolling over 957oof TV sales.A similar
maior hon-reappliar-rces.
s (tbr

s ancl CATEGORIZING INDUSTRIES

INTERNATIONAL
to global(seeFigure
:o the Accordingto porter,world industriesvary on a continuurnfrom rnultidomestic
group of countlries'This type of
3-4).ruMultidomestic industries are specificto eachcountry or
like retailinga nd insurance'The
internationalindustry is a collectionof essentiallydomesticindustries,
qpe of industryareessentialiy
activitiesin a subsidiaryof a multilational corporation(MNC) in this
within eachcountry,it has
e task independentof the activitiescf the lv{NC'ssubiidiariesin other countries.
The lv{NC is tJrusableto tailor
local a manufacturing faciliti' to produce goodsfor salewithin tlnatcountrv'
a prarticularcountry or group of
ouPs, .t, its productso, ...rri.., to ihe very specificneedsof consllmersin
lrot'e, .,, countrieshavingsimilarsocietalenvironments'
oniy small ,adjustmentsfor
vorks
-i Global industries, ln contrast,operateworldwide, with l-4NCsmaking
MNC's activitiesin one country
uorld r''i country-specificcircumstalces.A global industry is one in which an
products or servicesin
.:! are significantly affectedby its activities in othei countries.N'fNCsProduce
1,.,i*
:r':"{
',,t.j;

,:?:.tf
.: lll

.i.. ,.,i,:1 ';irl:,!;,:.1,1 il;

i'r',i-,;
.:
.
;t"i';

tr
l:. ...
. , .. . . . , ' : tt]
':
__{ I a.'

} S T A N NTi N
HGE
INVIRONil4ItiI
l'".:
$,i'
t,: E
t'
"ii
Figure 3-4
Continuumof lnternational
Industries

Multidomestic

Industryin which companiestailor

lndustryin whichcompaniesmanufacture
their productsto the specificneeds
and sell the same nroducts,with only minor
ot consumersin a pariicularcountry
. Retailing adjUstmentsmadefor individualcountries
. Insurance aroundthe world.
. Automobiles
. Banking
. Tires
. Televisionsets

variouslocationsthroughout the rn'orldand-seil

them, making or.rlyminor adjustnrentsfor specific
countryrequirements'Examplesof globalindustries
ur. .om-Jr.ial arrcraft,televjsionsets,semlcon-
ductors'copiers'auton.robiles, vratJes, and tires.The largestindustrialcorpol-atjons in the worlri in
termsof dollar salesare,for the most part, multinational
irporations operatingin globalinduslries.
The factorsthat tend to determiner.r'hether
an industryn ilibe primarily multidomesticor primarily
globalare:

l' Prcssure for coordinatiorr

witl.rinthe nrultinationalcorporationsoperatingin that
indusrry
2' Pressure.for localresltonsi,eness on the part of individuarcountry markets
To the extentthat the Pressurefor coordinationis
strongand the pressurefor local responsi'eness
is weakfor multinational corporationswithin a particular
industrl',that industrywill tend to become
global'In contrast'when the pressurefor locafresponsiveness
is'strongand the pressurefor coor-
dination is weak for multinational corporari'ns
i' i";;r;.;,-that industry wili tend to be
multidomestic'Betweenthesetwo extremesiie a "r
number of industrieswith varyingcharacteristics of
both multidomesticand globalindustries.The dl.namic
ter.rsionbetweerthesetwo factorsis co'tained
in the phrase: Think globaltl,,bt.rt actlocall1,.

INTERNATIONAL
RISKASSESSMENT
Somelirms' such as Tatasand ONGC, develop
elaborateinformation networksand computerized
systemsto evaluateand rank investmentrisks.
Smallcornpaniescan hire outsidecgnsultantssuchas
ICRA or crisil to providerisk assessments. Among rhe many systemsthat existto assess
economicrisksarethe PoliticalSystemstability political and
Index,the Business Environmentfusk Index,Busrness
lnternational'scountrvAssessmentService,and
Frostand sullir.an'sworld politicalRiskForecasts.2r
BusinessInternationalprovidessubscribers u,jth continuouslyupdatedinformationon conditronsin
63 countries'A BostoncompanycalledIntcrnational
Strategies
offersan Export Hotline (g00 uSA-
xPoR:l') that faxesinformation to cailersfor only
the costofihe call.(contact.ExportHotline.comO
for a free membership.)Regardless of the sourceof data, a firm must developits own method
assesslng of
risk' It must decideon its most important risk factors
and then assiln weightsto each.

STRATEGIC
GROUPS
A strategic group is a set of businessunits or
firms that "pursue similar strategieswith similar
resources"'22 categorizingfirms in any one industry into a sei of strategic
groupsis very useful as a
way of betterunderstandingthe competitiveenvironment.23
Becausea corporation,sstructureand
culture tend to reflectthe kinds of stiategiesit follows,
companiesor businessunits belongingto a
particular strategicgroup within the samelndustry
tend to be strong rivalsand tend to be more similar
to eachother than to competitorsin other strategic
groupsu,ithii the sameindustry.
For exampie,although McDonald's and Haldirans
u.. a purt of the samerestaurantindustry, they
have different missions,objectives,and strategies,
and thus Lelong to different strategicgroups. They
generallyhavevery little in common and pay little
attention to .u.h other when planning competitive

-t;,:r.!' 1.,a--?:-t:?::.ai:rr.j ::,:-:rryal;fi?#

 TR
THANE I ATNANLIAl lN
H R E IE N V I R O N MSI N cDI N D U SA
TNRA
Y L Y6S3I S
.

actions.Burger King and Domino's, ho\,ve\rer, havea greatdealin common with McDonald'sin terms
of their simiiar strategyof producing a high volurneof low-pricedmealstargetedfor saieto the average
family. Consequentlythey are strong rivals and are organizedto oPeratesimilarll'.
Strategicgroups in a particular industry canbe mappedby plotting the market positionsof industry
competitors on a two-dimensional graph using two strategicvariablesasthe verticai and horizontai
axes.(SeeFigure 3-5.)
1. Selecttwo broad characteristics,sucitasprice and menu,that differentiatethe conlpaniesin an
industry from one another.
2. Plot the firms using thesetwo characteristicsas the dimensions.
3. Dran' a circle around thosecompaniesthat are closestto one anotheras one strategicgroup'
varyingthe sizeofthe circiein proportion to the group'sshareoftotal industrysales.(Youcould
lc
alsonameeachstrategicgroup in the restaurantindustrywith an identifyingtitie, suchasquick
fast food or buffet style service.)
in
)s. Other dimensions,such as qualitv,service,location,or degreeof verticalintegration,can alsobe
Iy usedin additionalgraphsofthe restaurantindustryto gaina betterunderstandingofhow the various
firms in the industry compete.Keepin mind, however,that rvhenchoosingthe two din-rensions, they
shouldnot be highly correlated;otherwise,the circleson the map will simplylie alongthe diagonal,
providingvery little new information other than the obvious.

SS
TYPES
STRATEGIC
le
l -
In analyzingthe levelof competitiveintensitywithin a particularindustry or strategicgroup,it is useful
)e to characterizethe various competitorsfor predictivepurposes.A strategic type is a categoryof firms
rf basedon a cornlnon strategicorientation and a combinationof structure,culture,and processes
u consistentwith that strategy.Accordingto Miles and Snow,competingfirms n ithin a singleindustry
canbe categorized on thebasisof their generalstrategicorientationinto oneof four basictipes.24 This
distinctionhelps explainwhy companiesfacing similar situationsbehave differentlyand why they
conlinue to do so over a long period of timc. Tl.rcscgeneraltlpes havethe follou'ing characteristics:

. Defendersarecompanieswith a limited productline that/ocu-s ortintprovingtheefficiency of their

l
u
This cost orientationmakesthem unlikelyto innovatein new areas.
existirtgoperations.
rs . Prospectorsarecontpanieswith fairly broad product linesthat/ocus on produclinrrovatiort and
d inefficient.They tend to
market opportunities.This sales orientation makes them somewhat
is
ll
emphasize creativity over efficicncy.
. Analyzers arecorporationsthat operatein at leasttwo differentproduct-marketareas,one stable
n ln the variableareas,innovation
and one variable.In tl-restableareas,efficiencyis emphasized.
is emphasized.
) . Reactors are corporationsthat lack a consistent stratcgy-structure-culture relotionship.Their
,f
(oftenineffective)responses to environmental pressurestend to be piecemeal strategicchanges.

Dividing the competition into thesefour categoriesenablesthe strategicmanagernot only to

of certain strategicorientations,but alsoto developscenariosof future
monitor the effectiveness
industry developments(discussed later in this chapter).
r

t RCOMPETITN
HYPE IO
l Most industries today are facing an ever-increasinglevel of environmental uncertainty. They are
r becomingmore complexand more dynamic.Industriesthat usedto be multidomesticarebecoming
globat.New flexible,aggressive, innovative competitorsaremoving into establishedmarketsto erode
rapidly the advantagesof large previously dominant firms. Distribution chz.nnelsvary from country
to country and are being altered daily through the useof sophisticatedinformation systems.Closer
relationshipswith suppliersare being forged to reducecosts,increasequality,and gain accessto new

ii+
| !' ,..1
It :;.
't:t
1l PART ) SiANNIN6
T|lI INVIROI,][iINT
f:

Figure 3-5
MappingStrareeic
Groupsrr t h e I n d i a n Food Retail Industrv

High

W
q)

product_LineBreadth

technology' Companies learn to quickly in'ritate tl.rc

successfulstratesies of rr.rarketleaders, and it
becomes harder to sustain anv competitive advantagr
for vcry 1ong. Oonsequentll,, the le'el of
competitive intensity-j-. increasinq in ntost incjustr.ies.
Richard f)'A'eni contcnds that as this type of environme
ntal turbulence reachcsmore industries,
competitio' becomeshypercompetition. Accordins to D,Aveni:
In hypercontpetitionthc .frequency,bolclness, and oggressit,cnessof d1,716111it
ntoyentenlb1,tlte pla1,e75111;6gl_
?'ralestu crealeo conditionn.[conslanldiscquilibriumand changc.
Markct stabitityislthrrot)nrr]Ity sltort
prodt'tct life cycles, shor.'t
protittct design cvtlt:s,new technol.o:jies,
frequcnr.attrv by urtcxpectecl ortsitjers,
reposttronitig by incuntbents, and taclicnlrcdefinirionsof mariet bo,-tnr]uricsns dit.,crsc
iniustries Tvgrgt.In
other words,enyironntcn_ts escalatetowartihigherant) higharlet,clsof uncertainrl,, dynamisnl,heterogenettl
o.fthe ployer5ond hostility.25
In hwercompetitive jndustries such as computers, competitive
advantagecomes from an up-to-
date kr.rorvle dge of environmenial trends and competitive aitivity coupied
with a willingness to risk a
current advantagefor a possible new advantage.Cornpanies
must be r.r,illingto cannibal--izetheir own
products (replacing popular products before competitors
do so) in order to sustain their competitive
advantage' As a result, industry or competitive ir:rtelligence
has never been more important. Seethe
boxed exampie tcl learn horv Microsoft is oper-atingin the
h,lpercourpetitive industry of comp'ter
software. (Hlpercompetition is discussedin more detail
in it S'.;
"pt..

*
fil

: l
' '. _-i
' ::
 THREIEliVIRON/!{TNTAL
CHAPTIR AND
STANNING S
ANATYSI
INDUSTRY

M i c r o s o f i O p e r o l e s i n o H y p e r c o m p e t ; i i v el n d u s t r y

Microsoft is a hypercompetitive firm operating in a hypercompetitiveindustty. lt has used its dominance

in operating systems(DOS and Windows) to nove intc, a ver)'strong position in applicalion prograns like
,,uori proc"isirrg and spreadsheets(Wcrrdand Excel). Even though N4icrosoftheld 90% o[the market for
perronal computer operating systemsin 1992,it still investedmillions in deveJopingthe next generation*
Windows 95 and \\rindows NT. lnsread of tr,ving to protect its advantagein the profitable DOS operating
svstem,Microsoft activelysoughtto rep)aceDOS with variousversionsof \\rindol's. Beforehlpercompetjtion'
m(,st.experts argued against canr-ribal.izationof a compan)"sorvn productrline becauseit destroysa very
p1nfitabieproduct instead of harvestirlgit lii(e a "cash cow."According to this line of thougbt, a company
would be bettcr-off defendingits olclerproducts.t,\ewproducls u'ould bc inlroduced only if it could be
provcn that the.vrvould not takc salesawayltom current products.N'licrosoft$'asorreof the first companies
to disprovethis argumcnt againstcannibalization.
Bii Gates,Microsoft'sCofourrder,Chairmal, and CEO, realizedthat if his companydidn't replaceits
oyp llOS prgduct line rvith a better product, someoneelsewould (such as IB\'l with OS/2 Warp). He knerv
that .succeisin the software ipdustry dependsllot so nuch on company size but on moving aggressively
to the ncxt competitive advantagebefore a compelitor does."T'hisis a hypercompetitivemarket,"explained
Gates."Scale is not all pnsitive in this business.Clevernessis the positiotr in this business."By 2000'
Microsoft stili controlled over 9001,of operating systemssoftwareand had achieveda dominant position
in applications .soflwateas rnrell.

.sorrre: R. A. D'Aveni, Hypercontpetitior: (New lbrk: Free Press, i994), p' 2'

TO CREATE
FACTORS
USINGKEYSUCCESS MATRIX
AN INDUSTRY
Within any industry there usually are certain variables-key successfactors-that a comPanv's
managementmust understandin orderto be successful. Key successfactors arethosevariablesthat
canafiectsignificantlythe overall competitivepositions of all companieswithin anv particularindustr,v.
'l'hey and are crucial to determininga company'sabilitv to
typicalll,varyfrom industryto industry
'fl'rey bv the economicand technologicalchar-
succeedwithin that industry. are usuallydeterrnir.red
acteristicsof the industryandby the competitivc weapons on rvhich the firms in the industryhavebuilt
I it
thcir strategies.26 For example,in the major home appliance industrl',a firm must achievelow costs,
o1
typicall1'bybuildinglargcmanufacturing dedicated
facilities to making multipleversionsof one tlpe
giappliance,suchaslvashingmachines. Since900/o of major home appliances in India aresoldthrough

cel-
nrt
ers, T ob l e 3 - 3 lndusl.ryMotrix
ht
Company A Company A Company B Company B
Key Success
Factors Weight Rating Weighted Score Rating Weighted Score
to-
ka
wn
ive
.he

:Iotai 1.00

Sourct: L
Reprinted by
L. \Vne€len ano f. D. Hunger, lndustry Matrix. Copyrighr o 2001 b,v \{heelen and Hunger Associates.
Permlssron.

ry?,:]:ryt1 1r1, *:11+.r..'11Lr.

PARI
IWO
I/O STANNIN6
THITNVIRON[{TNi

"retailers"'afirm
must havea strongpresencein
the distributionchannel.It must
appliancesand provide a just-in-tiJt offer a full line of
ati*..y to keepstoreinventoryand ordering
a minimum' Becausethe consumer frltem coststo
expectsreliability and arriujiiry
t, appliance,a firm must have
:J:::,',T.:i::ff,I::;ilT,^,oJ.lru*ru****ij;ffi':1i'1..,*...,,r "n

Key successfactors are different

r'o- ,t.ut.gic factors. Keysuccess
industry; whereas,strategic factorsdeal with an entlre
factorua.ul *itiu particularcompan)1
An industry -utttl-':1*arizes
the key success factorswiiiia partrcurarindustry.
Table 3-3' the matrix givesa weight As shownin
fo. factorbased_on how important that factor-isfor
within the industry' The matrix"ar,o "ui success
tp..ia. how r'ell'arious c.mpetitors
respondingto eachfactor'To generate in the inclustryare
a; industry matrix usir.rg
trvo industry competitors(called
and B), cornpletethe followin"g A
srepsfor ,i. _aurr.y being analyzed:
t
the8tor0racrors
thatappear
rodetermine
current
:*:LTl.:JITt::::ITi:"'rist and
2' in column 2 (\\reight)assr'gn
a.ra,eightto eachfactor from r.0 (Most
'' Important) basedon that fuito.'s priuuui. impacr Important) to 0.0 (Not
o' th. ou.ruit i.raurtry,.current
success'
(All weights must.sum.to and furure
r.0 regardiessof the oo-i..
3' In column 3 (company A I{ating) orrtrategic factors.)
."""1,1: a.particularcompany within
exan-rple'
cornpanvA Assigna ratiig to the industry_for
eachfactorfrom 5.0 (outstanding)
on company A'scurrent.response-tolhat to r.0 (poor) based
particularfactor.Each.ating is judgment
how well that companf is currently a regarding
d";;g with eachkey success tactor.

5.0 4.0 3.0 2.0

Above Average Average Below.Average Poor

4' incolumn4(companyAWeightedScore)multiplytheweightincolumn
its rating in corumn 3 to obtain 2foreachfactortrmes
that factor,s*.rght"cl ,.;;;;,
company A. This resuitsin a
eachkey success fac10rrangingfrom 5.0 (ourstanding)
ffi::i"f."r:;for to r.0 (poor) with
5' In column 5 (cornpanyB
Rating)examinea secondcompany
company B' Assigna,rating to each within the industry-i' this case,
key success factor from 5.0 (outstanding)
CompanyB s curr-entr.rporrri to 1.0 (poor)
- lur:d-o" to eachparticularfactor.
6' Incolumn6(companyBWeightedScore)
multipry,rr.*.igr"rnbotrr*r2foreachfactortimes
its rati'g in column 5 to obtain
rhat factor'sweighted.i.. fo,.
company B.
Finaliy'add the weightedscores
for ail the factorsin corumns 4
scoresfor companiesA and B' The and 6 to determinethetotal weighted
total rn'eighted scoreindicare,h;;;;
to current and expectedkey success eachcompanyis responding
factorsin the industry', .n.,,i.o.r-.lrt.
The industry matrix canbe
witrrin
:iifii:tri:i:$""hllli*,T;fffiilpetitors ." i"a',,.f,,''pry
byadding
i," ,lJiii"""r

mpeiifiveInfelligence
Much externalenvironmentalscanning
is done on an informal and individual
obtained from a variety of sou'.".-r,rp'pti.rr, basis.Information is
Lro-..s, industrypublicatio's, employees,
experts'industry conferences,u'td i'dustry
the Inte.net.27Fo, example,,.i.'*i*r-.rra
firrl's R&D Iab canlearn abcut rrew engineersworking rn a
pr"d;.;r;;; ."mpetitors'ideasat protessionar
meetings;someone
1l
.1a

,:]
i:
-"-:*'.- :ii:r'r.
 IHRIE INV|RONMINTAL
CHAPTIR AND
SIA}|NI}iG AltALYSI
INDUSTRY S

from the purchasingdepartment,speakingwith supplier-representatives' personnel,may aisouncover

)f
valuablebits of information about a competitor. A study of product innovation found that 77o/oof
o
all product innovationsin the scientificinstrumentsand 67% in semiconductors and printed circuit
boardswereinitiatedby the customerin the form of inquiriesand complaints.2sln these industries,
)'
the salesforce and sen'icedepartmentsmust be especiallyvigilant.
Competitive intelligence is a formai program of gatheringinformation on a company'scompeti-
Indian companieshad fuily developedcompetitiveintelligenceprograms.
very fer,r,
tors.Until recently',
In contrast,all |apanesecorporationsinvoived in internationalbusinessand most iargeEuropean
companieshaveactiveintelligenceprograms.2eThis situation is changing,however.Competitiveintel-
;S
iigenceis nou-one of the fastestgrou'ingfieldswithin strategicmanagement.30Most corporationsrely
e
on outsideorganizationsto providethernwith environmentaldata.Firms suchasA. C. NielsenCo.
providesubscribers ivith bimonthly dataon brand share,retailprices,percentages ofstoresstocking
an item, and percentages ofstock-outstores.Strategists canusethis datato spotregionaland national
I
u trelds aswell asto assess rnarketshare.Information on marketconditions,governmerlt regulations,
competitors,and nert productscanbe bought from "informatior.r brokers"suchasIndia Infoline.com.
tt lr4an,vbusinesscorporationshaveestablished their own in-houselibrariesand computerizedinfor-
mation systemsto deal with the growing massof availableinformation.
Somecompanies,however,chooseto use industrial espionageor other intelligence--gathering
'r techniqr,resto gettheir information straightfrom their competitors.Accordingto the AmericanSociety
d of Ildustrial Securitl.,thereweremore than 1,I 00 documentedincidentsof illegaleconomicespionage
c tn 1997alone.3lUsing current or former competitors'employeesanciby usingprivatecontractors,
some firms attempt to stealtrade secrets,technology,businessplans,and pricing strategies.For
exanple,Avon Productshired private investigators to retrievefrom a public dunpster docutnents
(someof them shredded)that Mary Kay Corporatior.rhad throv,,narr'a)'. EvenProcter& Gamble,
which defendsitselflike a fortress from information leaks, is vulnerable.A competitor wasableto learn
the prcciselaunch dateof a concentrated laundry detergent in Europe when one of its peoplevisited
the factory.rvhere was being made.
n.rachit.rery Simply asking a fcw questions about what a certain
machinedid, whon-rit rvasfor, and when it would be delivered was all that was necessary'

:s
I" Forecosting
h
Elvirolmental scanningprovidesreasonablyhard dataon the prescntsituationand current trends,
but iltuition and luck are neededto predict accuratelyif thesetrendsu'ill continue.The resulting
forecastsare,horvever,usuallybasedon a set of assumptionstl.ratmay or may not be valid.

,s
DANGEROF ASSUMPTIONS
causeof forecastingerrors.Nevertheless
Faultyunderl,vingassumptionsarethe rnostfrequet.rt many
j successis basedon
managerswho formulateand implementstrategicplansrarelyconsider that their
-o a seriesof assumptions.Many long-rangeplans are simply based on projections of the current
situation.
rl One exampleof what can happen nhen a corporate strategyrestson the very questionable
assumptionthat the future u'ill simply be an extensionof the presentis that of Tupperware,the
compaly that originatedair-tight, easy-to-useplasticfood storagecontainers.Much of the company's
success had beenbasedon Tupperwarepartiesin the 1950swhen housewives gatheredin eachother's
homes to socializeand play gameswhile the local Tupperwarelady demonstratedand sold new
products.Managementassumedduring the following decadesthat Tupperwarepartieswould continue
s Leing an excellentdistributionchannel.Its faith in this assumptionblindedit to informatjon about
v Ameiica'schanginglifestyle(two-careerfamilies)and its likeiy impact on sales.Evenin the i 990s,rvhen
a Tupperwareexecutivesrealizedthat their salesforecastswereno longer justified, they were unable to
i*piolr" their forecastingtechniquesuntil they changedtheir assumptionthat the best way to sell
 i
',t THEENVIROI,I'\IINT
TWO STANNING
E';
'
68 PART
ft.',
other competitors'who chose
party. consequently'Rubbermaidand
l'

luppern,are rvasat a Tupper\,!'are

tomarkettheircorrtainersingroceryanddiscountStolescontinuedtogrowattheexpenseof
TuPPerrnare'i:

U S E F U LF O R E C A S T I NTG
ECHNIQUES
critics'A study
situations.Eachhasits proponentsand
various techniquesareusedto fbrecastfuture the most widely
revealedtrend extrapolation to^be
of nearly500of the world,sr".g.ri."rp"rution, or frequentl1"33Simply
usethis techniqueeitheroccisionally
practicedlbrm of forecasting-over70%
stated,extrapolationistheextenslonofpresenttrendsinto t h e f u t u r eTime-series
. I t r e s t s o n methods
theassum are
ptiontlrat
u"j tltongt' slowly in the sl-rortr-un'
the world is reasonabll'to""st"''t the future' The
oil-ristoricale'entsforu'ardinto
approaches of this tvpe; they att.mpt io .n"y i'"tit' of patternsor relation-
a historicaitrend is basedon a series
basicpr-oble']with extrapol"tioni, that
shipsamtlrrgsomallydifferentvariablestlratachar.rgeinanvonecandrasticallyajtertlrefuture
c ] i r e c t r o n o f t h e t r e n d . A s a r u l e o f t l r u n l b ' t h e f r - r r t h e r b a prediction'
cl<intotlrepasiyoucanfindre]evantdata
suppor-tingthe trend' the mo.re. confidenceyou can havein the
ur. ulru r'rry.pt-rpuiar forecastingtech
I.lrainstorming, expert oprn,u.,.,a statisticalmodeling u'ith
approacl.r ,.qrii.ing slmply the presenceof people
,iques. tsrainstorrningis a 'or]quantitative 'the i'r'ithout
io Ut p"ait*d' basicgroit"tl rule is to proposeideas
sornekn.u,ledgeof the situatior-r to build on previousideasuntil a
Ideas''tend
first r].rentaily screeningthem. No criticismis allolved.
is a good techniqueto user,vit]'r operatingmanagersw]l.o
consellsusis reachecl.T.l-ris },]:.T:]:'?:.1
oplnron IS a
"number crunching" techniques'Expert
in "gut feel" than in more qual.rtitative
areaaiten'rptto forecastlikely developmcnts'
nor.rquantitative techniquein *,r'riir,.*p.rts in a particulat
dgeable.person(s) 10constluctProbablefuture
riri. t1p. or:iorecast is baseaor, ,ir. utitity of u t r-rowle irr
applicationis theDelphi technique
dcr,elopnrents l-rase d on the interactionof key variabies.orre assessments are
expertsir.ra"p.nJ.ntlyassess rhelikelihoodscifspecifiedevent::lhese
u4richscparated agreencnt is re ached' statistical
tuning until an
combi'rec1 and sent back to each expert for fine least explanatory factors
thnt utt.rrtpt,to dlsc.vercausal or at
modeling is a quantitatir" ,..f-,,-rif,rl are regressior.t analysis and
Examplesof statisticalmodcling
tl.ratlinhtn,o or rnoretlme serrestogetl.rcr. trends,.statistical modeling' iike
u.ry.rr.f,.,lfor graspinghistoric
otherecrrometricmerhods.elth.;gh change' the accuracv
data.As th. puttt*t of reiationsl'rips
tre'd extrapolatio',is basedur.rhirinri.ui
o f t h e f o r e c a s t d e t e r - i o r a t e s . o t i r e r l b r c c a s t i n g t e c h n i q u e s , s u cas
h a s c r o s senrployed
- i n t p n c t tools.
analysis(c/A)and
havencltestablished themselves successfully regularl,v
trelld.inlpactatla|ysis(?.IA), trend extrapola-
r.nost*,idel,vusedforecastingtechnique-after
scenario writing appears,o i-,.ir.'" of differentlikel-vfutures
,..nu.los are focusecldesciiptions
tior.r.Originatedby Royal D..itchit,.it, description of somefuture
j ti.rusmay be n-t"rtlya *ritten
pr.r.r',r. in a narrativefashion.The "tnu'iu
State,llliermsofkeyvariablesandissues'oritmaybegeneratedirrcombinationwithotherforecasting
tttfll::"rtry
of a particularindustry'slike\'future' ll:l :
scenario is a forecasreddescription tn a
the probabie oift'ttttt societalforceson key groups
scenarlois deveiopedby analyzing lTPutt '
opetatt as foliows'34
particularindustiy' The processmay
the societal variables globa11y'
1. E";t;; ;o";Uit 'hiftt it' (for example'potential
2. Ide'tify uncertainties in .u.h of the six forcesoithe task envi'onment
entlants,competitors,likelysubstitutes,buyers,suppliers,anclotherkeystakelrolders).
about future trends'
3. M;k; ; 'ungt of plausibleassumptions consistentscenarios'
4. combine assun-rptions about individualtrendsinto internaliv
S . A t ' i f " t f t e i n d u s t r y s i t u a t i o n t h a t w o u l d p r e v a i l u n d e r e ascenario'
chscenario'
advantage under each
6. Determinethe sourcesof competitive
eachscenarto'
7' Predictcompetitors'behaviorunder a stronglmpact on
that are either most iikely to occur or most likely to have
8. selectthe scenarios
thefutureofthecompany.Usethesescenariosinstrategyfornrulation.

" "-:-"**{
 THREIINVIRONMENTAT
iHAPTIR AND
STANNING 5
ANATYSI
Il']DUSTRY

SE

of I of ExternolFoctors-EFAS
Synthesis
After strategicmanagershavescannedthe societaland taskenvironmentsand identifieda number of
likel,vexternalfactorsfor their particularcorporation,the,vmay u,antto reflnetheir anaiysisof these
factorsusinga forl-r suchasthat eir.enin Table 3-4. The EFAS(ExternalFactorsAnalysisSummary)
-1..
Tableis one\\.ayto organizetl.reexternalfactorsinto the generallyacceptedcategories of opportunities
iv asu'ell asto analyzeholv weli a particularcomPany's
and tl.rreats management (rating) is responding
l--
to tliesespecificfactorsin light of the perceivedirnportance(weight)of these factors to the company'
u, 'iable complete the following steps:
To generatean EFAS for the companybcing anall'zed'
re
. I n C o l u m n 1 ( E x t e r l a lF a c t o r s )l ,i s t t h e 8 t o 1 0m o s ti m p o r t a n to p p o r t u n i t i eas n dt h r ea t sf a c i n g

n- thc con.rpanl'.
. ln Column 2 (\\Ieight),assisna weie|t to eachfactor from 1.0 (lr'{osthnportant) to 0'0 (Not
re
Importalt) basedon that factor'sprobableimpact on a particr"rlar comPan)/'s currellt strategic
ta
positicrn. The higlier-the rveight, the mor.e it.nportant is this factor to the cut rent and futuresuccess
h of thecor.npani'.(Allweightsmustsumto l . 0 r e g a r d l e s s o f t h e n u m b e r o f f a c t ors.)
. I n C o l u m n 3 ( R a r i n g )a, s s i g ta. r a t i n gt o e a c hf a c t o rf r c l m5 . 0 ( O u t s t a n d i n gt )o 1 . 0 ( P o o r ) b a s e d
rh
on manaqement's current responseto that particularfactor.Eachrating is a judgn.renton hot{
ut
well the cgnp3ny'smanagementis curreltll'dealing rvith eacl-r specificexternalfactor.
.a
rh (APL) os
T o b l e 3 - 4 E x l e r n o i F o c l o r A n o l y s i s S u m m o r y ( E F A S ) :A s i o n P o i n t s L i m i i e d
Exomple (Selectionof Strotegic F o c t o r s ) *
L5-

re
Weighted
in Score Comments
Externai Factors Weight Rating
re
al
rS 0pportunities
0l Boom in constructior,industry .60 Consohdationin decorativesegment
rd
02 Demographicsf-avormass ,18 Flnd user ah'areness
customization
a1' .30 Low APL pl'esence AsIa
03 Economic develoirmentof
rci
Asia and India
ls. 04 Growth in rr.rralIndian nrarket .05 | l.s .13 Exterior and econornYsegments
a- 05 Prornisingauto and rvhite .15 | 3.0 Alliancesrequlred
es goorlsindustry
r€
Threats
'i
Ti LiberalGovernmeutpolicies .o5 | 1.5 .13 Well positioned
T 2 S t r o n gc l r i n c e s c o i l p e t i ti r r r t .15 i 4.0 .60 \Vell positioned
T3 ICI and Bergerstrong globalh' .15 | i.0 .4) APL rveakcornparitivelY
't
.05 t.5 3 Questionable
T 4 N c w I ' r o J u c t. r d v a n e c s i
T5 Strict environmental laws .10 | 3.0 .30 Non-tariff barriers
worid over
al Total Scores 1.00 3.27

Notes:
1 . L i s t o p p o r t u n i t i e sa n d t h r e a t s ( 8 - 1 0 ) i n c o l u m n l .
2. Weight each factor fron ,l.0 (N{ost lmportant) to 0.0 (Not lmportant) in Column 2 based on that factor's p r o b a b l e i n p a c t o n
t h e c o m p a n v ' ss t r a t e g i cp o s i t i o n . T h e t o t a l w e i g h t s m u s t s u m t o 1 . 0 0 .
3 . R a t e e a c h f a c t o r f r o r l 5 . 0 ( O u r s t a n d i n g ) t o 1 . 0 ( P o o r ) i n C o l u m n 3 b a s e d o n t h e c o n p a n y ' s r e s P o n s e1 0 that factor.
4. Multiplv each factor's weight times its rating to obtain each factor's 'n'eighted score in Coiumn 4.
5. Use Column 5 (comments) for rationale used for each factor.
6 . A d d t h e i n d i v i d u a l w e i g h r e d s c o r e s t o o b t a i n t h e t o t a l w e i g h t e d s c o r e f o r t h e c o m p a n y i n C o l u m n 4 . T h i s tells how well the
c o m p a n y i s r e s p o n d i n g t o t h e s t r a t e g i cf a c t o r s i n i t s e x t e r n a l e n v i r o n m e n t '
*The
most important external factors art i d e n t i f i e d i n t h e E F A S t a b l e a s s h o w n h e r e .
,-r
$r'.. O S T A N NTI N
i l IG
INVIRONIiINT
t"i ' In Column 4 (WeightedScore),multipii'the
u'eightin Column 2 for eachfactortimes its raring
in Column 3 to obtain eachfactor'sweightedscore.This resultsin a weightedscorefor eachfactor
ranging from 5.0 (Outstanding)to 1.0 (poor) u,ith 3.0 as average.
' In Column 5 (Comments),note whv
a particularfactorwasselected and/or how its weieht and
rating wereestimated.

Finalll', add the individual weighted scoresfor all the externaliactorsin Column 4 to determrne
the total weightedscorefor that particularcompany.The total weightedscore indicateshow well
a
particularcompanYis respondingto current and expectedfactorsin its externalenvironment.
The
scorecan be used to comparethat firrn to other firms in its industry. The total weighted scorefor
an
averagefirm in an industry is alu'ays3.0.
As an exatnpleof this procedure,Table 3-4 includesa number of externalfactorsfor Asian paints
Limited ivith corresirondinsrt'eights,ratings,and weighte<l scores provided.This tableis appropriatc
for I995be{oreMaytagqoldits Europeanan<iAustralian operations.Note that l{aytag'stotal weight
is 3.15, meaningthat the corporationwasslightlyaboveaverage in the majorho,r-,.uppliun.eindustry
a t t h a tl i r n e .

j lmpoctof the Internelon Environmentol

Sconningond
lltr^l
InousTry
Anotysts
The I nternethaschangedthe way t he strategislengages in environmentalscanning.It providesthe
quickestmeansto obtain data on almost any subject.A recentjoint study o,f77 companies
by the
American Productivity & Quality Centerand the Societyof CompetitiveIntelligenceprofessionals
revealsthat 73o/oof the firms ranked the Internet asbeing usedto 2 'lgreat"or;u..y great" extent.
Other mentionedsourcesof information were competiroroffering.s &products (6i%),industry
experts(62%),personalindustrycontacts (600/o),onlinedakbases(SSVa,marketresearch(55%),
and the salesforce (54%).3sAlthough the scopeand quality of Internet information is increasing
geonletrically, it is alsolitteredwith "noise,"misinformation,anrl utter nonsense. For e*umple,I
nrunb,erof corporate Web sitesare sendingunwanted to speciallyconstructedbogn. W.b
f{uests
sites!16
Unlike the library, the Internet lacksthe tight bibliographic control standardsthat exist in the
print world. Thereis no ISBN or DeweyDecimalSystemto identifir,search,and retrievea documenl
Many Web documents lack the name of the author and the date of publication. A Web page
providing useful information may be accessibleon the Web one day uni gon. the nextl
Unlrappy
ex-employees,far-out environmentalists.and prank-prone hackerscreat. W.l, ,it., to attack
and
discredit an otherwise reputable corporation. Rumors with no basi.sjn fact are spread via
chat
rooms and personal Web sites.This createsa seriousproblem for the researcher.How can
one
evaiuatethe information found on the Internet?
A basicrule in intelligencegathcringis that beforea pieceof information caube usedin any reDort
o r b r i c f i n g , i t m u $ f i r s t b e e v a l u a t e d i n t w o w a yFsi.r s t , t h e s o u r c e o f t h e i n f o r m a t i o n s h o u l d b e j u d g e d
in,termsof itstruthfuln-es.s and reliability.How irustworthy is the ,t,rr..t Ho* *"ff .""-. ,"**-.i*
rely upon it for truthful and correct information? One approachis to rank the reliability
of the
rour:..::.u sc{1 from A (extremelyreliable), B (reliablei, c (unknown reliability), D
rpr"u"try
unreliable),to E (very questionablereliability). The reliability ofa sourcecan bejudgedo1 the
basis
of the author's credentials,the organization sponsoringthe information, and'pasi performance,
other factors. Sccotd,the informationor rlatasiould bejudgedin termi of iislikelihoodof
lmong
beingto.rrec.t. The correctnlss e data may be rankedon a scalefrom I (correct),2 (probably
9f f
correct)'3 (unknown), 4 (doubtful), to 5 (erlren-rely doubtful).The correctness of a pjeceof data
or information can be judged on the basisof its agreementwith otherbits oIseparatelvobtained
information or with a generaltrend supportedby previousdata.For everypieceof information
found on the Internet, list not only the Web addressof the Web page,but jso the evaluation
of
 IHAPTLR
THRIEiIiVIROt{fiIINTAL AIiDINDUSTRY
STANI.iING ANALYSIS
/ I

the information frorn Al (good stuff) to E5 (bad doodoo). Information found through library
:atrng
researchin sourcessuch as Moody'sIndtrstrials,Standarddn Poor's,ar ValucLitrc can generallybe
factor
evaluatedas having a reliabilityof A. Tbe correctncss of the datacan still rangeanpvherefront 1
to 5, but in most instancesis tikely to be either 1 or 2, but probabiy no worse than 3 or 4. Other
rt and
sourcesmay be less-reliable I
Sites such as those hosted by the Director General, Commercial lntelligence and Statistics
-mine (DGCIS)(www.dgciskol.nic.in)orDirectorGeneralof ForeignTiade(DGFT) (rww.dgftcom.nic.in)
weil a are extremelyreliable.Company sponsoredWeb sitesaregenerallyrelial-rle'br.rt are not the placeto
:. The go for trade secrets,strategicpians,or proprietary infonnation. For one thing, manl'firrns think
tor an
of their Web sitesprimarily in terms of rnarketing,and they provide little dataasidefrom product
descriptionsancldistribution channels.Other conr.panies providethcir latestfinanciaistatements
)aints Web
and linl<sto other useful sites.Nerertheless, some conUrnnis5 in rery competitiv€ industries
rriale may install .softwareon their \\reb site to ascertain a visitor's \\'eb address.\risitors from a
r e i a h' t' competitor'sdomain name are thus screenedbeforetl.reyare allowedto access certain\Veb sites.
"t-
Iustn' They rna1,not be allon'edbeyondthe product information pageor thcy may be sent to a bogus
Web site containing nrisinformation. CiscoSysLerns, fcrrexample,uscsits Web site to sendvisitors
from other hjgh-tech firms to a special\d/eb pageaskingif theywould like to applyfrrr a job at Ciscol
Time searchingthe lnternet can be savedby using searchengines-\{eb sitesthat searchthe
Internet for narnesand products typed in by the user.The searcilenginesrrost usedby competitive
intelligence professionals are AltaVista (500/o),Yahoo! (75o/o),and Lycos (15%). Otirers are
-:---- WebCrawler(7.5o/o), Sr,r'itchboard (5%), and Metacrawler(5ol').17
(7-5o/o),lnfoseel<
Although information about publiclylield corporationsis widely availairle,it is much harder to
;,the
'the obtain information or:rprivatelyheld companies.For a comparisonof the qpe of information
generallyavailableon publicly and privatell'heldcompanies,seelhe
nals
availableon the lnternet.
ent. $f:lInternet Issue feature for competitor infonnation
stry
vo), fn ' r'
l
cino lf rolecTlons
le, a
. F r o m l g g - 1 t o 2 0 1 0 , t h c n u m b e r o f p c o p l e l i v i n g i n p o v e r t ) / r v i l l i n c r c a s e 1 l ' o n r 3 . 7 b i l l i o n t o - 1 . 9b i l i i o n
//eb
. F r o m 1 9 9 4 t o 2 0 1 0 , t h e a v e r a g e n u n r b e r o f c h i l d r e n p r ' r w o n r a n u ' i l l d c c r c a s cf r o u r - l . l t r ) l . ; . r '

the
ent.
Bge
Discussion
ppv
1. Discuss how a developn.rent in a corporation's socielal H o u ' c a n a d e c i s i o n m a l < e ri d e n l i f t ' s t r a t e g i c l a c t o r s i n t h e
and
environment can affect the corporation through ils task corporation's erternal international environncnt?
:hat
environment. C)ompareand contrast trend extrapolation ltith the writ-
one ing of scenarios as forecasting techniclues.
2. According to Porter, u'hat determines the lcvel of com-
petitive intensity in an industr,v?
)ort 3. According to Porter's discussion of industry analvsis, i-s
tged Pepsi-Cola a substitute for Coca-Cola?
;her
the
rbly iStrotegicProctice
asis
:ICe, What are the forces driving industry competition in the to upstarts
Ailllnes, Allianct'and A.ir India havelost Lrusiness
dof airline industry? Readthe following paragraphs.UsingPorter's like ]et Airrvaysand Air Sahara.It appearedthat almost any-
rbl,v approach to industry analysis,evaluateeach of the six forces one could buy a few used planesto servethe smallercities.
Iata to ascertainwhat drives the level of competitiveintensityin Econony plai'ers like Air Deccan and l(ing Fisher have aiso
ned this industry. enteredthe narket. It hasled to a major price n'ar among the
ion RecentlyIndia has deregulatedits airline industry. Since playersalso.I{ail and bus transportationhavestartedtaking a
being deregulated,long establishedPSU airiines suchasIndian back seat.The competitivepressurehasalsoresultedin dor,r'n
rof
7=:-
STANNING
TilI INViROIiMINT
Wi*r;;i,',,
#. r'
tiy-,r*,
fi:f"i*7'. Lr,;r,,',1tr,
COMPETITOR
INFORMATION
A V A I L A B LOEN T H E
INTER NET

Likelihood of Finding Data on the

Type of Information Likelihood of Finding Data on the
Net for Publicly Held Company
Net for Privately Held Company
Total Annual Saies
\/ery high
Very low
S . r l r ' sa o c l P r o l j r r h i l i L ) .b 1 .p . o c i u c r
Verr low
Line or Distribution Channel Very low

M a r k e { S i z e s. i n S e g r n e n r so f
Depends on the marker: High
llrterest for Same as for pubJiclv held
large companies, lorv for small
"nichc" firms
'1-i."L,
i" Marketirrg, 1'echnologv,
Sameas aboye
Distliburion Sameas for publicly held

Priccs, Inciuding the Lurlesr prices

\ 7 c r yl o n
to llest Custornc-rs Very low

l\Irrk.'ting Slr.rtcgy
S o m e i n f o r r n a r i o n a v a i l a b l ef r o m
t' r a
" "d.e E v e n l e s s t h a n f o r p u b l i c l v h e l d
a r t i c l c sa n d , n u t y r f , . p o r r r , ; ; ; "
:ncomplete and dated

Salesanri 'Iechuical Literaturc on

Strons .Uheliiood, but oftcn
Prod ricts
ilcomplcte; less chancc fr:r detaileci
t c c h n i c a li n f o r . l n a t i o l r

i-\umbcr of Ernployecs \4rorking

on Highly Lrnlikell.
{-crtain l)rod.cts or in Partlcuiat IJighly unlii<ely
l
l)epartments

Compensation Levels
Top managsrngnt generally available;
Will not be found
uthers unlikelv

Arairabrc
r-,1.:..,^1".1':cles
a1d ressrikery
;::::fi,::";::i,ftf:;0,"*_ industry reports;at best,may be
thanfor pubricry
herd
incompleteand dated

Feedbackon Firm's Own products I

WiIl not be found; Iook for I,
arrdservices ' ,Sameas for publiclv held
ira.p.;a."i'J;;;;;";;, :

:-"........-
*^'"d from c' F'lein' "overcoming'Net Disease,"'
cpmpetitiveIntelligencnMagaTine(July-Septernbe
ll;i:' r 1999))
 IHAPTIR
TIiRiE EI.iVIRONMENIAT
SiANNINO
AND AN
AtYS
INDUSTRY IS

sizingthe HR in in the PSUsand reducedcostsbI instituting region. For example,the Dutch KLM Airline acquired half
a cap on travel agent commissions.Tra'r'elagenciesrverelivid interest in the Lr.SNorthu'est Airlines in order to obtain not
at this cut in their livelihood,but they neededthe airlines' onll'LI.S.destinations,but alsoNorthr'r'est's Asiantravel routes,
businessin order to offer customersa total travel package. thus making it one of the few global airlines.
G1obal1yit seemedas though every natior-thad to have its Costs u'ere stiil relativelyhigh for all of the u.orld's major
or,r'nairline for national prestige,Thesestate-ou'nedairlines airlinesbecauseofthe high costofnew airpianes.Justone ne\\'
were expensive,but the governlnentssubsidizedthem u.ith jet plane costsan)'$,herefrom $25 million to $I00 mil1ion.
money and supporting regulations.For exanrple,a foreign Bv 2004,only iivo airplanemanufacturers providedalmostall
airhnewasnormally allou'edto fl1'onl,vinto one of a countr)"s of the largecommercialarrliners:Boeingand Airbus. Major
airports, forcing travelersto su'itchto the national airline to airlinesrn'ere forcedto purchasenervplanesbecausethel'wcre
manr'
go to other cities.l)urine thc I98()sand 1990s,hor,r'cvcr, morc.fuelefficient,safcr,and easierto maintain.Airlines tl-rat
countriesbeganprivatizingtheir airlinesase.overnnents tried cl-ioseto sta)'\\'itb an older llcet of planeshad to deal u'ith
to improvetheir budgcts.'ibbe l'iablein an incrcasinglygiobal higher fuel and maintcnancecosts-factors tl-ra1 often ntade
industrl', national or regional airlines werc forced 1o ftrrn.t i t c h e a p c rt o b u v n e w p l a n e s .
alliancesand evenpurchasean airlir-rein anotl'rercountrl/ or

l. Ilvaluateeacb of the forccs currentJl'driving conrprtiti()ni n t h c a i r l i n ei n d u s t r r ' :

Threat of Nerv llntrantsHigh, I\'1eciium,or Lo*'?
Rivalry Among ExistingFirms High, lr4edium,or l-or'r'7
Threat of Substitutes High, N4ediunr,or Lorr'?
Pou'erof Buyers/I)istributors I{igh, lvlediun-r,or Lou'?
Bargair-ring
BareainingPor'r'erof Suppliers High, lt'lcdium,or Lon'-(
RelativePou'erof Other Stakeholders High, lv{edium,or Low?
Such as
Which of these forces is changing? \\rhat w'ill this rnean to the ovcrall level of competitive intensitv in the airlinc industry
in the future? \\/ould you invest or look for a job ir, this industry?

Key
b r a i n s t o r m i n g( p . 6 B ) e x t r a p o l a t i o n( p - t r E ) n c \ \ 'e n t r a n t s( p . 6 l )
cannibalize(p. (r.1) f r a g m e n l e di n d u s t r y( p . 6 1 ) purcirasingporr'erparitl' (Pi)P)
comp.etitiveintelligence(p. 67) g l o b a li n d u s l q ,( p { , 1 ) ( p .s 5 )
c o m p l e m e n t o r( p . 6 l i ) hvpcrconrpetition(p. tr4) r e p a t r i a t i o no f p r o l i t s ( p . 5 i )
consolidated i n d u s t r v( p . 6 1 ) i n d u s t r v( p . 6 1 ) s c e n a r i ow r i t i n g ( p . 6 8 )
D e l p h i t e c h n i q u e( p . 6 E ) industry analvsis(p. 50) s o c i e t ael n v i r o n m c n t( p . 5 2 )
EFASTable (p. 69) i n , l r r r l r r -n r . r t r i x i D nf,l s t a t i s t i c aml o d c l i n g( p . 6 8 )
e n t r yb a r r i e r ( p . 5 B ) i n d u s t r ys c e n a r i o( p . 6 8 ) s t r a t e g ig c r o u p( p . 6 2 )
environmentalscanning(p. 50) i s s u c sp r i o r i t v m a t r i x ( p . 5 6 ) strategicm1'opia(p. 56)
en'r'ironmentaluncertainty (p. 50) lley success f:ictors(p. 65) strateqictype (p. 63)
exit barriers (p. 59) r n u l t i d o m e s t iicn d u s t r , v( p . 6 i ) s u b s l i t u t ep r o d u c l s( p . , 5 9 )
'e"vr n' _c 'r 't r "n_n_i n' _i n- n, r ' "f n
', 6R\ nultinational cor"poralion(N,INC)(p lask enr.ironment(p. 50)
externalstrategicfactors (p. 56) 5l) Tiiad (p. sa)
tnggclpoinl (p. 55)

N otes
l . M . A n a n d , " T h e M o v i n g D e s i g n L i n e , " B r . s i n c s s\ { o r l d ( 1 4 4 . W - E . H a i a l , " T h e T o p 1 0 E m e r g : i n gT e c h n o l o g i e s , S " pecial
F e b r u a r v , 2 0 0 5 )p, p - 3 4 3 5 . R c p o r t ( ' r \ r o r l d F u I u r e S o c i e t \ . ,2 0 0 0 ) .
2 . J . B . T h o m a - s ,S . t r 4 . C l a r k , a n d D A . G i o i a , " S t r a t e g i t : 5 . F . D o b b i r a n d T . I . D o r v d , " H o r v P o l i c y S i - r a p eC s onrpeti-
S e n s e m a k i n ga n d O r g a n i z a t i o n a l P e r f o r m a n c e :L i n k a g e s t i o n : E a r l y R a j l r o a d F o u n d i n g s i n l v { a s s a c h u s e t t sAl 'd n t i n -
A m o n g S c a n n i n g , I n t e r p r e t a t i o n ,A c t i o n , O u t c o m e s , "A c a d - c c i c r t c eQ u a r t e r l l ' ( S e p t e m b e r1 9 9 7 ) , p p . 5 0 1 - 5 2 9 .
i s t r c r t i t ,S
enty of Management Journal (April 1993), pp. 239-270; I. A. 6 . J . G r e c o , " M e e t G e n e r a t i o n Y , " F o r e c a s t( M a y / l u n e , 1 9 9 6 ) ,
'Can
Smith, "strategies for Start-Ups," Long Range Planning p p - 4 8 - 5 4 ; J . F l e t c h e r , ' A G e n e r a t i o nA s k s : the Boom
,|4,
(Deremher l9q8). nn 857-872. L a s t ? '" 1 4 ' n l lS t r e c tJ o u r n L : L( llu n e 1996),p. B10.
'Alone
3. P. Lasserre and J. Probert, "Competing on the Pacific Rtm: 7. i n A m e r r c a , "F u t u r i s t ( S e p t e m b e r - O c t o b e 1r 9 9 5 ) ,
High Risks and High Returns," Long Range Planning tAprtl pp. s6-57.
r99a), pp. 12-3s.

1i:,i :iT:T.r..:.;i1i?. 1LrTTiTTTtrIt:lTl1::.r:1

l7-

1." 74 PART
PARI
T|ryOSIA|INING
THIENVIRONMINI

8 . " P o p u l a t i o n G r o w t h S l o w i n g a s N a t i o n A g e s , , '( A m e s , I A )
2-3.A. Fiegenbaum and H. Thomas, ..Strategic Groups
D a i l y T t " i b u n e( M a r c h 1 4 , 1 9 9 6 ) , p . A 7 . as Ref_
' A f t e r . erence Groups: Theory, Modeling and Ernpirical Examina_
9. L. M. Grossman, Demographic Shift, Atlanta X4all t i o n o f I n d u s t r y a n d C o m p e t i t i v e S t r a t e g , . z , 'S , trategic
Restyles Itself as Blach Shopping Center,,,Wall Sneet
Journal M a t l a g e m c n tl o t t r n a l ( S e p t e m b e r1 9 9 5 ) , p p . 4 6 1 _ 4 2 6 ;
(February 26, 1992),p. ts'1. H. R.
G r e v e ," M a n a g e r i a iC o g n i t i o n a n d t h e M i m e t i c A d o p t i o n
10. J. Naisbitt, Megatrends Asra (Neu' york: Simon & Schuster, 'strategic of
lvlarket Positions: Mrhat you See Is l{&at you Do,,,
1996),p, 79.
I t ( a n a g e m e nJt o u r n a l ( O c t o b e r l 9 9 g ) , p p . 9 6 7 _ 9 g g ,
I1. K. Ohmae, "The Triad \\'orld View,,' lournal of Business
24. R. E. l\{iles and C. C. Snou,, Organizational Strategy,
S t r n t e g ; ' ( S p r i n gl 9 B 7 ) , p p . S * 1 9 . Struc-
t u r c , a n d P r o c e s s( N e u , \ b r k : M c G r a n , _ H i l l , l 9 7 g l .
1 2 . B . K . I 3 o y d a n d J . F u l k , " E x e c u t i v eS c a n n i n ga n d p e r c e j v e d
2-s.R. A. i)'Aveni, Hypercornltetition(New york: -Ihe Free press,
L J n c e r t a i n r y :A M u l t i d i n r e n s i o n a l M o d e l , , , J o u r n a l o f M a n -
l99a), pp. xiii-xjr'.
a g c n i t t l tV , o l . 2 2 , N o . 1 ( 1 9 9 6 ) ,p p . l _ 2 1 .
26. C. \\r. Hofer and D. Schendel,Stratcgy Fortnulutiort: Analyti_
1 3 . I t . . { . L } c t 1 i sa n d C . K . p r a h a l a d , , , l - h e D o n . r i n a n tL o g i c
c u l C s 7 1 5 . . p(7S5r , p a u i , M N : W e s t p u b l i s h i n g C o . , t o 1 6 1 ,
R e l r o s p e c l j v ea n d E x t e n s i o n , "S t r a r e g i c M a : r a e e m e n t O.
|our_ 77.
n a l ( J a n u a r y 1 9 9 5 ) , p p . 5 - t 1 t J . t r . 4 .S r o f f o r d a n d C . \ \ r . F .
27. "Information C)r,erload,"Journal of IJusinessSrrutcg_r, ()anu-
B a d e n - F u l l c r ," C r e a t r n g C o r p s 1 2 1 cE , n t r e p r e n e u r s h i p ,S' .l r a
a r I F e b r u a r yl 9 9 i i ) , p . 1 .
I t g r cA l o t l n { c n t u t Jt t : u n t u !( s e p t e n l b e 1 r 9 9 1 ) ,p p . 5 2 i _ 5 3 6 ;
l. 2 8 . E . \ ' t r n F i t p p j c , S r r e r csc o f l n n o y a t i o n 0 , j er v y o r k :
l \ ' 1 . B e , v c r ,I , . C h a l t o p a d h v a r . ,E . G e o r g e, \ \ ' . I . . j . G l i c k . D . Oxlord
t , n i v c r s i t , vp r e s s ,l 9 g 8 ) , p . 4 .
P u q l i e s c ," ' l ' h c 5 c l e l i t . e f t - r c c p 1 i i t rr o f l \ . i a n l q e r sR e r . i s i t e d , , , 2 9 . L . I i a l r a n c r - C , o n t p et i t i v c I n t c l l i g c n c t i N n i , \ b r k : , S i m o n
A t t t r l c n t l a . [ L 4 a n t t g c m c r t! to u n i , i l ( ) u n e 1 9 9 7 ) , p p _ 7 ] 6 _ 7 3 1. &
S c h u s t e r I, 9 9 6 ) .
l - 1 . I ' 1 .I . A n r o f f , " s t r a r e g i r :X 4 a n a , g c t . n ci nr r ta l { j s t o r i c a l l ) e i s p e c _
3 0 . S . N , i . S b a k e r a n d M . p . G e n r b i c I , . i l,l , a r . l i o o r ;
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