Environmental Scanning & Monitoring

Techniques
Environmental scanning is a concept from business
management by which businesses gather information from the
environment, to better achieve a sustainable competitive
advantage.

To sustain competitive advantage the company must also

respond to the information gathered from environmental
scanning by altering its strategies and plans when the need
arises.
Environmental Scanning & Monitoring-
Techniques

SWOT

PEST Techniques QUEST

Industry Analysis Competitor Analysis

SWOT
(Strength-Weakness-Opportunity-Threat)

Identification of threats and Opportunities in the

environment (External) and strengths and
Weaknesses of the firm (Internal) is the
cornerstone of business policy formulation; it is
these factors which determine the course of
action to ensure the survival and growth of the
firm.
SWOT Analysis
 The SWOT analysis is an extremely useful tool for
understanding and decision-making for all sorts of situations
in business and organizations. SWOT is an acronym for
Strengths, Weaknesses, Opportunities, Threats.

 SWOT analysis came from the research conducted at

Stanford Research Institute from 1960-1970. The background
to SWOT stemmed from the need to find out why corporate
planning failed. The research was funded by the fortune 500
companies to find out what could be done about this failure.
The Research Team were Marion Dosher, Dr Otis
Benepe, Albert Humphrey, Robert Stewart, Birger Lie.
SWOT: Studying Internal & External
Environment
The aim of any SWOT analysis is to identify the key
internal and external factors that are important to
achieving the objective. SWOT analysis groups key
pieces of information into two main categories:

 Internal factors – The strengths and weaknesses

internal to the organization.
 External factors – The opportunities and threats
presented by the external environment.
Examples of SWOTs
 Strengths and Weaknesses
 Resources: financial, intellectual, location
 Cost advantages from proprietary know-how
 Creativity / ability to develop new products
 Valuable intangible assets: intellectual capital
 Competitive capabilities
 Big campus selection
 Opportunities and Threats
 Takeovers
 Market Trends
 Economic condition
 Mergers
 Joint ventures
 Strategic alliances
 Expectations of stakeholders
 Technology
 Public expectations
 Competitors and competitive actions
 Poor Public Relations Development
 Criticism (Editorial)
 Global Markets
 Environmental conditions
 Uses of SWOT Analysis

 Corporate planning

 Set objectives – defining what the organisation is intending to do

 Environmental scanning
 Internal appraisals of the organisations SWOT, this needs to include an
assessment of the present situation as well as a portfolio of
products/services and an analysis of the product/service life cycle
Analysis of existing strategies, this should determine
relevance from the results of an internal/external appraisal.
This may include gap analysis (compare its actual
performance with its potential performance which will look at
environmental factors)

Strategic Issues defined – key factors in the development of

a corporate plan which needs to be addressed by the
organisation

Develop new/revised strategies – revised analysis of

strategic issues may mean the objectives need to change
 Establish critical success factors – the achievement of
objectives and strategy implementation

 Preparation of operational, resource, projects plans for

strategy implementation

 Monitoring results – mapping against plans, taking

corrective action which may mean amending
objectives/strategies.
Also;
Use SWOT analysis for business
planning, strategic planning, competitor
evaluation, marketing, business and
product development and research
reports.
 PEST Analysis

A scan of the external macro-environment in which the firm operates can

be expressed in terms of the following factors:

•Political
•Economic
•Social
•Technological
The acronym PEST (or sometimes rearranged as "STEP") is used to
describe a framework for the analysis of these macroenvironmental
factors. A PEST analysis fits into an overall environmental scan as shown
in the following diagram:

Environmental Scan

/ \

External Analysis Internal Analysis

/ \

Macroenvironment
Microenvironment

P.E.S.T.
 Political Factors
Political factors include government regulations and
legal issues and define both formal and informal rules
under which the firm must operate. Some examples
include:
•tax policy
•employment laws
•environmental regulations
•trade restrictions and tariffs
•political stability
 Economic Factors

Economic factors affect the purchasing power of potential

customers and the firm's cost of capital. The following are
examples of factors in the macroeconomy:
•economic growth
•interest rates
•exchange rates
•inflation rate
 Social Factors
Social factors include the demographic and cultural aspects
of the external macroenvironment. These factors affect
customer needs and the size of potential markets. Some
social factors include:
•health consciousness
•population growth rate
•age distribution
•career attitudes
•emphasis on safety
 Technological Factors
Technological factors can lower barriers to entry, reduce minimum
efficient production levels, and influence outsourcing decisions.
Some technological factors include:
•R&D activity
•automation
•technology incentives
•rate of technological change
Industry Analysis
 An industry is a group of firms producing a similar
product or service
 An examination of the important stakeholders’
group in a particular corporation’s task
environment is a part of industry analysis
Porter’s approach to Industry Analysis

 A corporation is most concerned with the intensity

of competition within its industry
 The level of this intensity is determined by basic
competitive forces
 In scanning its industry, the corporation must
assess the importance to its success of each of
the six forces
Forces Driving Industry Competition
Potential
Entrants

Threat
of New
Entrants
Relative
Power
of Unions,
Governments,
etc. Industry
Other Competitors Bargaining
Stakeholders Power
of Buyers
Buyers
Suppliers Rivalry Among
Bargaining Existing Firms
Power
of Suppliers

Threat of
Substitute
Products
or Services

Substitutes
Threat of New Entrants:
Some Barriers to Entry
 Economies of Scale
 Product Differentiation
 Capital Requirements
 Switching Costs
 Access to Distribution Channels
 Cost Disadvantages Independent of Size
 Government Policy
 Expected Retaliation
Properties of Entry Barriers
 Entry barriers can and do change as the
conditions change
 Entry barriers can change for reasons inside the
firm : impact of the firm’s strategic decisions
 Some firms may possess resources or skills
which allow them to overcome entry barriers into
an industry more cheaply than most other firms
Rivalry Among Existing Firms
Intense Rivalry is Related To:
 Number of Competitors: numerous or equally
balanced competitors
 Rate of Industry Growth: slow industry growth
 Product or Service Characteristics: Lack of
differentiation or switching costs
 Amount of Fixed Costs : high fixed or storage
costs
 High fixed or storage costs
 Lack of differentiation or switching costs
 Capacity augmented in large increments (leading
to overcapacity and price cuttings)
 Diverse competitors
 High strategic stakes
 High exit barriers (specialized assets, fixed costs
of exit, strategic interrelationships, emotional
barriers, government and social restrictions)
Shifting Rivalry
 The factors that determine the intensity of
competitive rivalry can and do change
 As an industry matures, its growth rate
declines, resulting in intensified rivalry, declining
profits
 An acquisition can introduce a different
personality to an industry
 Focusing selling efforts on the fastest growing
segments can reduce the impact of industry
rivalry
Entry Barriers and Exit Barriers
 When entry barriers are high and exit barriers are
low, entry will be deterred, and unsuccessful
competitors will leave the industry
 When both entry and exit barriers are high, profit
potential is high, but is usually accompanied by
more risks, and unsuccessful firms will fight to
stay
 The worst case is when entry barriers are low
and exit barriers are high (overcapacity, poor
profitability)
Pressure from Substitute Products
 Substitutes limit the potential return of an
industry by placing a ceiling on the prices firms in
the industry can profitably charge
 Identifying substitute is searching for other
products that can perform the same function as
the product of the industry
 The impact of substitutes can be summarized as
the industry’s overall elasticity of demand
Bargaining Power of Buyers
 Buyers compete by forcing down
prices, bargaining for higher quality or more
services, and playing competitors against each
other
 A buyer’s group is powerful if:
1. It purchases large volumes relative to seller sales
2. The products it purchases from the industry
represent a significant fraction of the buyer’s cost
of purchase (shop for good price)
3. The products it purchases from the industry are
standard or undifferentiated
4. It faces few switching costs
5. It earns low profits (thus sensitive to costs)
6. Buyers pose a credible threat of backward integration
7. The industry’s product is unimportant to the quality of
the buyer’s products or services
8. The buyer has full information
Bargaining Power of Suppliers
 Suppliers can exert bargaining power over participants in
an industry by threatening to raise prices or reduce the
quality of purchased goods and services
 A supplier group is powerful if:
1. It is dominated by a few companies
2. It is not obliged to contend with other substitute products
for sale to the industry
3. The industry is not an important customer
4. The supplier’s product is an important input to the
buyer’s business
5. The supplier’s group products are differentiated
or it has built up switching costs
6. The supplier group poses a credible threat of
forward integration
7. Labor must be considered as a supplier that
exerts great power in many industries
Government as a force in industry
competition
 Government role as supplier and buyer can be
influenced by political factors
 Government regulations can set limits on the
behavior of firms as suppliers or buyers
 Government can affect the position of an industry
with substitutes through regulations, subsidies, or
other means
 Government can affect rivalry among competitors
by influencing industry growth
10 questions to monitor competitors for
strategic planning
1. Why do your competitors exist? to make profits or to
support another unit?
2. Where do they add customer value? Higher
quality, lower price, credit terms, better service?
3. Which of your customers are the competition most
interested in? best customers or the ones you don’t
want?
4. What is their cost base and liquidity?
5. Are they less exposed with their suppliers than your
firm?
6. What do they intend to do in the future? Target your
market segments? Growing?
7. How will their activities affect your strategies? Should
you adjust your plans and operations?
8. How much better than your competitor do you need
to be in order to win customers?
9. Will new competitors appear over the next few
years?
10. If you were a customer, would you choose your
product over those offered by your competitors?