Analyzing the External

Environment of the firm

How should managers become
environmentally aware?


Environmental
scanning
Competitive
intelligence
Environmental
monitoring
Forecasts
Forecasting: the development of reasonable projections about
the direction, scope, speed, and intensity of the environmental
change, it is done be 3 steps:
Environmental scanning
Surveillance( observation) of a firms external environment to predict environmental changes
and detect changes already under way.

Environmental monitoring
A firms analysis of the external environment that tracks the evolution of the environmental
trends, sequences of events or streams of activities.

Competitive intelligence
A firms activities of collecting and interpreting data on competitors, defining and
understanding industry , and identifying competitors strengths and weaknesses.

Globalization
The dual trends of :
- Increasing international exchange of goods, money, information and ideas
- Increasing similarities between countries of laws, rules, norms, values and income levels.



How should managers become
environmentally aware?
Environmental forecasting
the development of reasonable projections about the
direction, scope, speed, and intensity of the environmental
change.
Scenario analysis
an in depth approach to environmental forecasting that
involves experts detailed assessments of societal trends,
economics, politics, technology, or other dimensions of the
external environment.
SWOT analysis
A framework or analyzing a companys internal and
external environment and that stands for strengths,
weaknesses, opportunities and threats.
General environment

General environment
factors external to an industry and usually beyond a firms control that affect a firms
strategy.
Demographic segment
Sociocultural segment
Political legal segment
technological segment
Economic segment
Global segment
General
Environment
General environment
Demographic segment of the general environment
genetic an observable characteristics of a population
including the levels and growth of age, density, sex, race,
ethnicity, education, geographic region and income.

Sociocultural segment of the general environment
the values, beliefs, and lifestyle of a society.

Political and legal segment of the general environment
how a society creates and exercises power including rules ,
laws, and taxation politics.
General environment
Technological segment of the general environment
innovation and state of knowledge in industrial arts, engineering,
applied sciences and pure science and their interaction with society.

Economics segment of the general environment
characteristics of the economy including national income and
monetary conditions.

Global segment of the general environment
Influences from foreign countries including foreign market
opportunities foreign-based competition, and expanded capital
markets.

The competitive environment
The competitive environment
Factors that pertain to an industry and affect a firms
strategies.

Porters five forces model of industry competition
1. The threat of new entrants
2. The bargaining power of buyers
3. The bargaining power of suppliers
4. The threat of substitute products and services
5. The intensity of rivalry among competitors in an
industry

Porters five forces model of industry competition

The threat of new entrants
The Possibility that the profits of established firms in
the industry may be eroded by new competitors
The bargaining power of buyers
the threat that buyers may face down prices bargain
for higher quality or more services and play
competitors against each other.
The bargaining power of suppliers
the threat that suppliers may rise prices or reduce the
quality of purchased goods and services.

Porters five forces model of industry competition
The threat of substitute products and services
the threat of limiting the potential returns of an
industry by placing a ceiling on the prices that
firms in that industry can profitably charge
without loosing too many customers to
substitute products.
The intensity of rivalry among competitors in an
industry
the threat that customers will switch their
business to competitors within the industry


Customers
Supplier
company Substitutes Complements
Transactions
Transactions
interaction
interaction
Complements
Products or services that have an impact on
the value of a firms products or services
Strategic groups
Clusters of firms that share similar strategies