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General environment

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Aruna Betageri
Aruna Betageri

This document discusses environmental scanning and analyzing a company's external environment. It identifies key factors in the social, economic, political, and technological environment that companies should monitor. These include economic indicators, social trends, government regulations, and technological advances. The document also discusses tools for environmental scanning like PEST analysis and analyzing competitors, suppliers, markets and other forces in the external task environment. It emphasizes the importance of continuously scanning the external environment to identify opportunities and threats and ensuring the long term success of the company.

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Module:II General Environment By: D.Goutam
Environmental Scanning: Environmental Scanning is monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the corporation uses this tool to avoid strategic surprises and ensure its long-term health.
Identifying External Environmental Variable: In understanding environmental scanning, strategic managers must first be aware of the many variables within in a corporation's social and task environments. The social environment includes general forces that do not directly touch on the short-run activities of the organization but that can, often do, influence its long-run decisions
Socio Environment: Economic Factors: EF That regulate the exchange of materials, money, energy, and information Social Factors: SF that regulate the values, morels, and customs of society Political Factors: PF that allocate power & provide constraining & protecting laws and regulations Technological Factors: TF that generate problem solving inventions
Sources of information include: Internet Libraries (corporate, university, public) Suppliers Distributors Customers Competition
Economic Variables: GDP Trends Inflation rates Interest Rates Money Supply Unemployment Levels Wage/ price control Devaluation/Revaluation Energy Availability and cost Disposable Income Discretionary Income
Major impact on: Products Services Markets customers
Social Factors Present in the external environment: Beliefs & Values, Attitudes & Opinions, Lifestyles changes Career expectations, Consumer Activision, Rte of family formation, Growth rate of population, Age distribution of population, Regional Shifts in population Life expectation Birth rates Developed from: Cultural conditioning Demographic Religion Education Ethnic conditioning.
Political Variables Political constraints on firms: Antitrust regulations Environmental protection laws Tax Laws Special Incentives Foreign Trade Regulation Attitude towards foreign companies Laws on hiring and promotion Stability of Goveronment
Technological Variables: Changes in the technological part of the social environment can also have a great impact on multiple industries. Ex: Improvements in computer microprocessor have not only led to the widespread use of home computers, but also to better automobile engine performance in terms of power & fuel economy through the use of microprocessor
Variables : Total Govt. spending for R&D Total Industry spending for R&D Focus of technological efforts Patent protection New Products Productivity improvements through automation Internet availability Telecommunication infrastructure
Internet changes the nature of opportunities and threats Alters life cycle of products Increases speed of distribution Creates new products and services Eases limitations of geographic markets Alters economies of scale Changes entry barriers
Example of the Impact of Wireless Technology Airline-Many airlines now offer wireless technology in flight Banking- VISA sends text msg. alerts after unusual transactions. Health Care- Patients use mobile devices to monitor their own health, such as calories consumed.
Some Important Variables in International Societal Environment: Economic Economic Development Per capita income Climate GDP trends Monitory and fiscal policies Unemployment level Currency convertibility Wage levels Nature of competition Membership in regional economic association
Technological: Regulation on technology transfer Energy availability/cost Natural resource availability Transportation network Skill level of workforce Patent trade mark protection Internet availability Telecommunication infrastructure
Political-Legal: Form of Govt. Political Ideology Tax laws Stability of Govt. Govt. attitude towards foreign companies Regulations on foreign ownership of assets Strength of opposition group Trade regulations Protectionist sentiment Foreign policies Terrorist activity Legal system
Socio-Culture: Customs, Norms, Values Languages Demographic Life expectations Social institutions Status symbol Lifestyle Religious believes Attitude towards foreigner Literacy level Human rights Environmentalism
Task environment A corporation's scanning of the environment will include analysis of all the relevant elements in the task environment These analysis take the firm of individual reports written by various people in different parts of the firm.
Ex; Procter & Gamble People from each of the brand management teams work with key people from the sales and market research departments to research & write a competitive Activity Report each quarter on each of the product categories in which P&G competes. People in purchase also writes reports and send it to P&G---Summarize---Top Level Mgnt---Decision Making process
Scanning the external Environment Analysis of societal Environment (PEST) Interest Group Analysis Supplier Analysis Competitor Analysis Market Analysis Community Analysis Govt. Analysis Selection of Strategic Factor Opportuniti es Treats
Identifying External Strategic Factor: This willingness to reject unfamiliar as well as negative information is called myopia (changing the direction) . If a firm needs to change its strategy, it might not be gathering the appropriate external information to change strategies successfully. One way to identify and analyze developments in external environment is to use the issues Priority Matrix
Issues Priority Matrix Probable impact on Corporation High Medium Low Hi g h M e di u m L o w Medium Priority Low Priority Low Priority High Priority High Priority Low Priority Medium Priority High Priority Medium Priority P ro ba bil ity of O cc ur a nc e
Competitive Forces Collection and evaluation of information on competitors is essential for successful strategy formulation Competition in virtually all industries can be described as intense.
Competitive Forces Identifying rival firms Strengths Weaknesses Capabilities Opportunities Threats Objectives Strategies
Competitive Forces Key Questions About Competitors: Their strengths Their weaknesses Their objectives and strategies Their responses to all external variables (e.g. social, political, demographic, etc.) Their vulnerability to our alternative strategies
Conti. Our vulnerability to successful strategic counterattack Our product and service positioning relative to competitors Entry and exit of firms in the industry Key factors for our current position in industry
Conti.. Sales and profit rankings of competitors over time Nature of supplier and distributor relationships The threat of substitute products or services
Competitive Intelligence Programs: Systematic and ethical process for gathering and analyzing information about the competitions activities and general business trends to further a business own goals.
Industry Environment Harvard professor Michael E. Porter propelled the concept of industry environment into the foreground of strategic thought and business planning. The cornerstone of Porters work first appeared in the Harvard Business Review, in which he explains the five forces that shape competition in an industry. Porters well-defined analytic framework helps strategic managers to link remote factors to their effects on a firms operating environment.
Competitive Forces Shape Strategy The essence of strategy formulation is coping with competition. Intense competition in an industry is neither coincidence nor bad luck. Competition in an industry is rooted in its underlying economics, and competitive forces exist that go well beyond the established combatants in a particular industry. The corporate strategists goal is to find a position in the industry where his or her company can best defend itself against these forces or can influence them in its favor.
Forces Driving Industry Competition
Contending Forces Threat of Entry Economies of Scale Product Differentiation Capital Requirements Cost Disadvantages Independent of Size Access to Distribution Channels Government Policy
Powerful Suppliers A supplier group is powerful if: It is dominated by a few companies and is more concentrated than the industry it sells to Its product is unique or at least differentiated, or if it has built-up switching costs It is not obliged to contend with other products for sale to the industry It poses a credible threat of integrating forward into the industrys business The industry is not an important customer of the supplier group
Powerful Buyers A buyer group is powerful if: It is concentrated or purchases in large volumes The products it purchases from the industry are standard The products it purchases from the industry form a component of its product and represent a significant fraction of its cost It earns low profits The industrys product is unimportant to the quality of the buyers products or services The industrys product does not save the buyer money The buyers pose a credible threat of integrating backward
Substitute Products By placing a ceiling on the prices it can charge, substitute products or services limit the potential of an industry Substitutes not only limit profits in normal times but also reduce the bonanza an industry can reap in boom times Substitute products that deserve the most attention strategically are those that are subject to trends improving their price-performance trade-off with the industrys product or produced by industries earning high profits
Competing for Position Intense rivalry occurs when: Competitors are numerous or are roughly equal Industry growth is slow, precipitating fights for market share that involve expansion The product or service lacks differentiation or switching costs Fixed costs are high or the product is perishable, creating strong temptation to cut prices Capacity normally is augmented in large increments Exit barriers are high Rivals are diverse in strategy, origin, and personality
Industry Analysis & Competitive Analysis An industry is a collection of firms that offer similar products or services. Structural attributes are the enduring characteristics that give an industry its distinctive character. Concentration refers to the extent to which industry sales are dominated by only a few firms. Barriers to entry are the obstacles that a firm must overcome to enter an industry.
Competitive Analysis 1. How do other firms define the scope of their market? 2. How similar are the benefits the customers derive from the products and services that other firms offer? The more similar the benefits of products or services, the higher the level of substitutability between them. 3. How committed are other firms to the industry?
Industry Matrix: Key success factors: KSF are those variables that can affect significantly the overall competitive positions of all companies within any particular industry. They typically very from industry to industry and are crucial to determining a companys ability to succeed within that industry (Usually determined by economic and technological characteristics of the industry) Ex: Wal-Mart- Strong Distribution Channel Key Success factor- Industry Strategic factor - Company
Industry Matrix: Key Success Factors Weight Co. A Rating Co. A Weighted Score Co. B Rating Co. B Weighted Score 1 2 3 4 5 6 Total 1
1.Column List the 8-10 factors that appear to determine current and expected success in the industry 2. Column From 1 most important to 0.0 Not important 3. Column Examine the particular company within the industry Ex: 5- Outstanding, 4-above avg., 3-evg, 2- Below evrg., 1- poor
4. Column (Multiple of column 2and 3) 5. Column (as like column 3) 6. Column (column 2nad 5)
Thank You
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General environment

  • 2. Environmental Scanning: Environmental Scanning is monitoring, evaluating, and disseminating of information from the external and internal environments to key people within the corporation uses this tool to avoid strategic surprises and ensure its long-term health.
  • 3. Identifying External Environmental Variable: In understanding environmental scanning, strategic managers must first be aware of the many variables within in a corporation's social and task environments. The social environment includes general forces that do not directly touch on the short-run activities of the organization but that can, often do, influence its long-run decisions
  • 4. Socio Environment: Economic Factors: EF That regulate the exchange of materials, money, energy, and information Social Factors: SF that regulate the values, morels, and customs of society Political Factors: PF that allocate power & provide constraining & protecting laws and regulations Technological Factors: TF that generate problem solving inventions
  • 5. Sources of information include: Internet Libraries (corporate, university, public) Suppliers Distributors Customers Competition
  • 6. Economic Variables: GDP Trends Inflation rates Interest Rates Money Supply Unemployment Levels Wage/ price control Devaluation/Revaluation Energy Availability and cost Disposable Income Discretionary Income
  • 7. Major impact on: Products Services Markets customers
  • 8. Social Factors Present in the external environment: Beliefs & Values, Attitudes & Opinions, Lifestyles changes Career expectations, Consumer Activision, Rte of family formation, Growth rate of population, Age distribution of population, Regional Shifts in population Life expectation Birth rates Developed from: Cultural conditioning Demographic Religion Education Ethnic conditioning.
  • 9. Political Variables Political constraints on firms: Antitrust regulations Environmental protection laws Tax Laws Special Incentives Foreign Trade Regulation Attitude towards foreign companies Laws on hiring and promotion Stability of Goveronment
  • 10. Technological Variables: Changes in the technological part of the social environment can also have a great impact on multiple industries. Ex: Improvements in computer microprocessor have not only led to the widespread use of home computers, but also to better automobile engine performance in terms of power & fuel economy through the use of microprocessor
  • 11. Variables : Total Govt. spending for R&D Total Industry spending for R&D Focus of technological efforts Patent protection New Products Productivity improvements through automation Internet availability Telecommunication infrastructure
  • 12. Internet changes the nature of opportunities and threats Alters life cycle of products Increases speed of distribution Creates new products and services Eases limitations of geographic markets Alters economies of scale Changes entry barriers
  • 13. Example of the Impact of Wireless Technology Airline-Many airlines now offer wireless technology in flight Banking- VISA sends text msg. alerts after unusual transactions. Health Care- Patients use mobile devices to monitor their own health, such as calories consumed.
  • 14. Some Important Variables in International Societal Environment: Economic Economic Development Per capita income Climate GDP trends Monitory and fiscal policies Unemployment level Currency convertibility Wage levels Nature of competition Membership in regional economic association
  • 15. Technological: Regulation on technology transfer Energy availability/cost Natural resource availability Transportation network Skill level of workforce Patent trade mark protection Internet availability Telecommunication infrastructure
  • 16. Political-Legal: Form of Govt. Political Ideology Tax laws Stability of Govt. Govt. attitude towards foreign companies Regulations on foreign ownership of assets Strength of opposition group Trade regulations Protectionist sentiment Foreign policies Terrorist activity Legal system
  • 17. Socio-Culture: Customs, Norms, Values Languages Demographic Life expectations Social institutions Status symbol Lifestyle Religious believes Attitude towards foreigner Literacy level Human rights Environmentalism
  • 18. Task environment A corporation's scanning of the environment will include analysis of all the relevant elements in the task environment These analysis take the firm of individual reports written by various people in different parts of the firm.
  • 19. Ex; Procter & Gamble People from each of the brand management teams work with key people from the sales and market research departments to research & write a competitive Activity Report each quarter on each of the product categories in which P&G competes. People in purchase also writes reports and send it to P&G---Summarize---Top Level Mgnt---Decision Making process
  • 20. Scanning the external Environment Analysis of societal Environment (PEST) Interest Group Analysis Supplier Analysis Competitor Analysis Market Analysis Community Analysis Govt. Analysis Selection of Strategic Factor Opportuniti es Treats
  • 21. Identifying External Strategic Factor: This willingness to reject unfamiliar as well as negative information is called myopia (changing the direction) . If a firm needs to change its strategy, it might not be gathering the appropriate external information to change strategies successfully. One way to identify and analyze developments in external environment is to use the issues Priority Matrix
  • 22. Issues Priority Matrix Probable impact on Corporation High Medium Low Hi g h M e di u m L o w Medium Priority Low Priority Low Priority High Priority High Priority Low Priority Medium Priority High Priority Medium Priority P ro ba bil ity of O cc ur a nc e
  • 23. Competitive Forces Collection and evaluation of information on competitors is essential for successful strategy formulation Competition in virtually all industries can be described as intense.
  • 24. Competitive Forces Identifying rival firms Strengths Weaknesses Capabilities Opportunities Threats Objectives Strategies
  • 25. Competitive Forces Key Questions About Competitors: Their strengths Their weaknesses Their objectives and strategies Their responses to all external variables (e.g. social, political, demographic, etc.) Their vulnerability to our alternative strategies
  • 26. Conti. Our vulnerability to successful strategic counterattack Our product and service positioning relative to competitors Entry and exit of firms in the industry Key factors for our current position in industry
  • 27. Conti.. Sales and profit rankings of competitors over time Nature of supplier and distributor relationships The threat of substitute products or services
  • 28. Competitive Intelligence Programs: Systematic and ethical process for gathering and analyzing information about the competitions activities and general business trends to further a business own goals.
  • 29. Industry Environment Harvard professor Michael E. Porter propelled the concept of industry environment into the foreground of strategic thought and business planning. The cornerstone of Porters work first appeared in the Harvard Business Review, in which he explains the five forces that shape competition in an industry. Porters well-defined analytic framework helps strategic managers to link remote factors to their effects on a firms operating environment.
  • 30. Competitive Forces Shape Strategy The essence of strategy formulation is coping with competition. Intense competition in an industry is neither coincidence nor bad luck. Competition in an industry is rooted in its underlying economics, and competitive forces exist that go well beyond the established combatants in a particular industry. The corporate strategists goal is to find a position in the industry where his or her company can best defend itself against these forces or can influence them in its favor.
  • 31. Forces Driving Industry Competition
  • 32. Contending Forces Threat of Entry Economies of Scale Product Differentiation Capital Requirements Cost Disadvantages Independent of Size Access to Distribution Channels Government Policy
  • 33. Powerful Suppliers A supplier group is powerful if: It is dominated by a few companies and is more concentrated than the industry it sells to Its product is unique or at least differentiated, or if it has built-up switching costs It is not obliged to contend with other products for sale to the industry It poses a credible threat of integrating forward into the industrys business The industry is not an important customer of the supplier group
  • 34. Powerful Buyers A buyer group is powerful if: It is concentrated or purchases in large volumes The products it purchases from the industry are standard The products it purchases from the industry form a component of its product and represent a significant fraction of its cost It earns low profits The industrys product is unimportant to the quality of the buyers products or services The industrys product does not save the buyer money The buyers pose a credible threat of integrating backward
  • 35. Substitute Products By placing a ceiling on the prices it can charge, substitute products or services limit the potential of an industry Substitutes not only limit profits in normal times but also reduce the bonanza an industry can reap in boom times Substitute products that deserve the most attention strategically are those that are subject to trends improving their price-performance trade-off with the industrys product or produced by industries earning high profits
  • 36. Competing for Position Intense rivalry occurs when: Competitors are numerous or are roughly equal Industry growth is slow, precipitating fights for market share that involve expansion The product or service lacks differentiation or switching costs Fixed costs are high or the product is perishable, creating strong temptation to cut prices Capacity normally is augmented in large increments Exit barriers are high Rivals are diverse in strategy, origin, and personality
  • 37. Industry Analysis & Competitive Analysis An industry is a collection of firms that offer similar products or services. Structural attributes are the enduring characteristics that give an industry its distinctive character. Concentration refers to the extent to which industry sales are dominated by only a few firms. Barriers to entry are the obstacles that a firm must overcome to enter an industry.
  • 38. Competitive Analysis 1. How do other firms define the scope of their market? 2. How similar are the benefits the customers derive from the products and services that other firms offer? The more similar the benefits of products or services, the higher the level of substitutability between them. 3. How committed are other firms to the industry?
  • 39. Industry Matrix: Key success factors: KSF are those variables that can affect significantly the overall competitive positions of all companies within any particular industry. They typically very from industry to industry and are crucial to determining a companys ability to succeed within that industry (Usually determined by economic and technological characteristics of the industry) Ex: Wal-Mart- Strong Distribution Channel Key Success factor- Industry Strategic factor - Company
  • 40. Industry Matrix: Key Success Factors Weight Co. A Rating Co. A Weighted Score Co. B Rating Co. B Weighted Score 1 2 3 4 5 6 Total 1
  • 41. 1.Column List the 8-10 factors that appear to determine current and expected success in the industry 2. Column From 1 most important to 0.0 Not important 3. Column Examine the particular company within the industry Ex: 5- Outstanding, 4-above avg., 3-evg, 2- Below evrg., 1- poor
  • 42. 4. Column (Multiple of column 2and 3) 5. Column (as like column 3) 6. Column (column 2nad 5)
  • 44. ?