Meeting 3 4 Environmental Scanning and Industry Analysis

Meeting 3 & 4 Environmental Scanning and Industry Analysis “If you're not faster than your competitor, you’re in a tenuous position, and if you’re only half as fast, you’re terminal. ” —George Salk— “The idea is to concentrate our strength against our competitor’s relative weakness. ” —Bruce Henderson—

Strategy, environment, capabilities and key stakeholders Key Stakeholders Macro- and industry environment Business strategy Organisation al Capabilities

External Assessment External Strategic-Management Audit Environmental scanning • Industry analysis • • Focuses on identifying & evaluating immediate control of the firm • Aimed at identifying key variables that offer actionable responses What does it focus? • What should a manager do? • events beyond the

Key Stakeholders External Stakeholders Customers Special. Interest Groups Unions Internal Stakeholders Employees Creditors Board of Directors Investors Managem ent Suppliers Governme nt General Public

Key stakeholders or shareholders? n Value-based management theory u u n shareholders only key stakeholders aim is to maximise value for shareholders Behavioural theory of the firm u u variety of stakeholders varying degrees of power key stakeholders have strategic power different types of key stakeholders create different strategies

Stakeholder Expectations Key Stakeholders CEO Possible Expectations • Short term profits • Prestige • Growth • Personal power over a large empire Dominant Shareholders Key Customer Local Government R&D Manager 6

Key External Forces n Economic forces n Regulate exchange of materials, money, energy and information t What could be the factors? n Social, cultural, demographic, & environ’t forces Regulate values, mores, and customs of society t What could be the factors? t What do they impact on? t n Political, governmental, & legal forces u n Technological force u n Allocate power; provide laws and regulations Generate problem-solving inventions Task Environment (Competitive forces) u Elements or groups that directly affect a corporation and are affected by it

External Assessment (Cont’d) Key External Factors: Important to achieving long-term objectives n Measurable n Applicable to all competing firms n Hierarchical n Key External Factors? Process of External Audit?

International Societal Environments

Scanning the Task Environment

Identifying External Strategic Factors: Issues Priority Matrix

Industry Analysis: Analyzing the Task Environment

Porter’s Approach to Industry Analysis • How to identify rival firms • How to identify Threat of New Entrants • Rivalry Among Existing Firms – • What are the characteristics of most competitive firms? •

Industry Analysis (EFE /EFA) External Factor Evaluation Matrix Summarize & evaluate: Economic Demographic Governmental Social Environmental Technological Cultural Political Competitive

Industry Analysis (EFE) (Cont’d) Five-Step process: n List key external factors (10 -20) Ø Opportunities & threats n Assign weight to each (0 to 1. 0) n Sum of all weights = 1. 0 Assign 1 -4 rating to each factor Ø Ø n Multiply each factor’s weight by its rating Ø n Produces a weighted score Sum the weighted scores for each Ø n Firm’s current strategies response to the factor Determines the total weighted score for the organization. Highest possible weighted score for the organization is 4. 0; the lowest, 1. 0. Average = 2. 5

UST—Key External Factors Weight Rating Weighted score Global markets untapped . 15 1 . 15 Increased demand . 05 3 . 15 Astronomical Internet growth . 05 1 . 05 Pinkerton leader in discount market . 15 4 . 60 More social pressure to quit smoking . 10 3 . 30 Legislation against the tobacco industry . 10 2 . 20 Production limits on tobacco . 05 3 . 15 Smokeless market SE region U. S. . 05 2 . 10 Bad media exposure from FDA . 10 2 . 20 Clinton Administration . 20 1 . 20 Opportunities Threats TOTAL 1. 00 2. 10

Industry Analysis (CPM) Competitive Profile Matrix n Identifies firm’s major competitors and their strengths & weaknesses in relation to a sample firm’s strategic position

(CPM) Critical Success Factor Avon L’Oreal P&G Weight Rating Score Advertising 0. 20 Product Quality 0. 10 Price Competition 0. 10 Management 0. 10 Financial Position 0. 15 Customer Loyalty 0. 10 Global Expansion 0. 20 Market Share 0. 05 Total 1. 00 1 4 3 4 4 1 0. 20 0. 40 0. 30 0. 40 0. 60 0. 40 0. 80 0. 05 3. 15 4 4 3 3 3 4 2 4 0. 80 3 0. 60 0. 40 3 0. 30 4 0. 40 0. 30 3 0. 30 0. 45 3 0. 45 0. 40 2 0. 20 0. 40 2 0. 40 0. 20 3 0. 15 3. 25 2. 80

Forecasting Techniques – – – Extrapolation Brainstorming Expert opinion Delphi technique Statistical modeling Scenario writing 19

International Risk Assessment Continuum of International Industries

Strategic Groups

Strategic Types General Types – • Defenders • Prospectors • Analyzers • Reactors

Creating value n Value is the net benefit to the purchaser/user of the product or service u n may include social, psychological/emotional benefits The Value Chain u u u firms can be seen as a chain of activities that creates value for customers not all activities create value firms need to discover which specific activities and processes create value for customers

The Value Chain

The value proposition n An assessment of the benefits that are valued by a particular customer group for a particular product. u u n The benefits customers desire and will pay for the value customers place on those benefits This leads to three questions: u u u What does the customer want? Can we make or provide what the customer wants? Can we make it at a price the customer is willing to pay?

Identifying and analysing existing business strategy n n Business strategy is: ‘the long-term purpose and positioning of the organisation within its industry’ and should address these questions: u u u Does the organisation plan to grow? What products and services does it plan to produce? What customer and geographic markets does it plan to service? What generic strategy does it plan to follow to position itself uniquely against competitors? What position does it plan to hold in the future?

Identifying current business strategy n Vision statement u a short and succinct statement that identifies the long-term strategic purpose of the organisation t memorable and inspiring t future oriented t enduring t organisation specific (not applicable to rivals) t a mental picture of the organisation in the future

Identifying current business strategy n Mission statement u good mission statements establish what the organisation plans to do, which if performed well, will lead to profit as an outcome t operationalises the vision statement t focuses on the current business t what are we doing now, which over the longer term, will lead us to achieving our vision?

Identifying current business strategy n Strategic Intent (Hamel & Prahalad) u a long term obsession with winning at all levels of the organisation t similar to a vision statement but much more ambitious t focuses on the long-term future t where we see the organisation in 10 to 20 years

Identifying current business strategy n Core Purpose (Collins and Porras) u n the organisation’s reason for being, it captures the soul of the organisation t includes the concept of core values t is unchanging, but inspires change What does a business strategy look like?

Relating current and future business strategy n Attention to internal and external ‘fit’ diverts attention away from the future u n organisations remain locked into short-term strategies because they are concentrating on current conditions Short term goals and objectives divert attention away from the future u focus on annual budgets, current financial performance and short-term milestones inhibits development and implementation of long-term strategy

Dynamic strategy: The roles of innovation and learning n Strategy is dynamic u u n the environment continuously changes competitors are constantly improving leading organisations must continually improve to maintain position aspiring organisations must continually improve to out-perform the leaders Two dynamic capabilities u u innovation learning

Dynamic strategy: The roles of innovation and learning n Innovative organisations differ from conventional organisations in these ways u u u do not take industry conditions as a given do not let competitors set the parameters of their strategic thinking seek commonalities between what different customers value, seeking mass markets, not segments seek the set of resources and capabilities required to best deliver value to customers think in terms of total solutions for customers

Dynamic strategy: The roles of innovation and learning n Learning organisations innovation is about creating something new, or using existing resources in a new way u to be innovative, learning must occur at individual and organisational levels u Peter Senge argues that organisations need to: t improve their processes of thinking, communicating and leading t improve their systems and procedures, to enable them to implement and manage change u

Relationship between values, culture and business strategy n There is an important relationship between values, culture and strategy u u n values are important in developing, implementing and constraining strategy culture and strategy must be consistent culture and values may need to change to support strategy may be difficult to implement if the values of the organisation are at odds with the planned strategy Evidence of the value of a planned business strategy?

Communicating business strategy u u To be effective, strategy must be communicated to, and understood by people in the organisation To be effectively understood and accepted, strategy should; t t t provide inspiration in the form of a worthwhile, relevant goal link individual tasks and organisational initiatives guide individuals in day-to-day trade-off decisions create discretion for the individual by loosening constraints and generating new options facilitate communication by establishing a common language