STRATEGIC MANAGEMENT Module 2 ENVIRONMENTAL SCANNING Weok 45 Introduction ‘Achanging environment can help as wells hurt a compary. Many pioneering companies have gone out of business because of their failure to adapt to environmental change of, With new technologies being discovered every year, markets change and products must ctange with them. In this chapter, we wil lean how ‘environmental uncertainty is a threat to strategic managers becauso it hampers their Learning Objectives: Discuss environmental scanning: 1. Economic forces that regulate the exchange of materials, money, energy, and information, 2. Technological forces that generate problem-solving inventions, ‘STRATEGIC MANAGEMENT 3. Poltical-logal forces that allocate power and provide constairing and protocting 4, Sociocultural forces that regulate the values, mores, and customs of society. indusiry but of lesser importance to firms in other industies. Tablo24 ‘Some Important Variables in the Societal EnvironmentSTRATEGIC MANAGEMENT ‘STRATEGIC MANAGEMENT ‘mortgage rates. Because higher mortgage rats increase the cost of buying a house, the 2. Growing health consciousness: Concems about personal health fuel the trend ‘demand for new and used houses tends 3 1ease, people over age 55 wil 4 1978 and 1904 to the baby 2 large as the baby boom 7. Changing household composition: Single-person households, especially those Of single women wih children, could ¢90n become the most common household Eight current sociocultural trends are transforming North Amorica and the rast of the wort 1. Increasing envi I awareness: Recycing and conservation are becoming mre than slogans, 15 16STRATEGIC MANAGEMENT ‘STRATEGIC MANAGEMENT PORTER'S APPROACH TO INDUSTRY ANALYSIS. force can be regarded as a threat because it contrast, can be viewed a8 an opportunity reater profs. Inthe shot run, these forces ites. Inthe long run, however, it may be possible logy, to change the strength of one or more of ‘act as constraints on a company's, ‘a company, through its choic the forces tothe company’s adv isting compotitors. An entry barrier is an ry to enter an industry microprocessors, for exemple, gave ew rival Product differentiation: Corporations such as Procter & Gamble and General Mila, which manufacture products such as Tide and Cheerios, create high entry barriers through ther high levels of advertising and promotion, The need to invest huge Switching costs: Once a software program such as Excel or Word becomes established in an office, offce managers are very reluctant to switch to a new program because ofthe high taining co gz g 3 : z g 5 ge for space on ther shelves and give proity 10 the estabished firms who can pay for the advertising needed to generate high customer demand. ‘+ Cost disadvantages independent of si ‘anew product earns sufcient market share to be accepted as the stan hat type of product, the maker has akey advantage, Government policy: Governments can limit entry into an industry through licensing requirements by restricing access to raw m: such as oiling sites in protected arcas. Rivalry Among Existing Firms In most industies, corporations are mutually dopandent. A competitive move by one firm can be expected to have a noticeable effect on its competitors and thus may caretlly to make sure that they match any move by anather frm with an equal countermove. Rate of industry growth: Any slowing in passonger trafic tends to set off price wars inthe aiine industry because the only path to growth isto take sales away from a compettor.STRATEGIC MANAGEMENT ‘STRATEGIC MANAGEMENT lanes on a schedule, ight, they offer cheap 3 profits ands thus very sensitive to costs and service diferences cory stores have very smal product is unimportant val or price of a buyer's Capacity: Ifthe only way a manufacturer can increase capacity is in a large products or services and thus can be easily substituied without affecting the final product adversely (lor example, electric wire bought or use in lamps) Bargaining Power of Suppli ‘Suppliers can affect an industy through their ability to raise prices or reduce the {quality of purchased goods and services. A supplier or supplier group is powerful if some ofthe following factors apply example, electric) ‘© Suppliers are able to integrate forward and compete cirectly with their present customers (for example, a microprocessor producer such as Intel can make PCs) Shareholders, ang comolemertors. (CATEGORIZING INTERNATIONAL INDUSTRIES. [According to Porter, world industies vary on a continuum from mutidomestc to global (see Figure 2.3). Mukidomestic industries are specific 1o each county oF groun of Providing an incentive to shop around for a lower price (for example, gasoline purchased for resale by convenience stores makes up half ther total cost)STRATEGIC MANAGEMENT Phrase, “Think globally but act locally” M06 he spect sina parca county. Figure 2.3 Continuum of International industries STRATEGIC TYPES. tensity within a particular industy or statecic for predictive purposes. A Combination of structure, culture, and processes consistent wih that strategy These general types have the following characteristics: ‘* Defenders are companies witha limited product ficiency of their exsting operations. Ths costo innovate in new areas, ‘* Prospectors are companies with fay broad product lines that focus on product that focus on improving the makes them unlikely to a ‘STRATEGIC MANAGEMENT ‘© Analyzers are corporations that operate in atleast two diferent product market 3784s, one Sable and one varadle. n he stable areas, efficiency is emphasized. long. Consequentiy, the level of competitive intensiy is increasing in most industries. COMPETITIVE INTELLIGENCE Competitive intelligence i a formal program of gathering information on a company's Competiors. Often called business intoligence, itis one ol the fastest growing ‘elds within strategic management. Research indicates that there is a stiong association ‘between corporate performance and competitive intligence actives, Sources of Competitive Intelligence + Information brokers + Internet + Industrial espionage + Investigator services ‘SWOT ANALYSIS Stratogy formulation, otto 10 as strategic planning or long-range planning,