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Environmental Scanning
Environmental scanning analyzes information about every sector of the external environment that can help management to plan for the organization's future. Scanning covers not only competitors, suppliers, and customers, but also includes technology, economic conditions, political and regulatory environment, and social and demographic trends.
Scope
Environmental scanning usually refers to the macro environment. It can also include industry and competitor analysis, consumer analysis, product analysis and the company's internal environment.
industry environment market internal environment suppliers inputs competitors transformation process the organisation outputs customers
regulatory and professional groups Technological and ecoenvironmental forces social and legal forces
General Economy
Macro economics (fiscal & monetary policy, GDP, NI) Govt. Regulation (Labor laws, exit policy, minimum wages, EXIM policy) Political (Govt. stability, ideology, liberalization)
Industry
Competitors Suppliers Products/Services Technology
Markets
Customers Demographics Socio-cultural factors (Consumer tastes & styles)
Industry Analysis
Overview
An industry is a group of firms producing products that are close substitutes. Porter and others believe that compared to the overall external environment, the industry environment often has a more profound effect on
a companys competitiveness an industrys profit potential.
Industry Forces
The long-term return on invested capital within a given industry is a function of five competitive forces.
Suppliers
Rivalry among existing firms
Buyers
Threat of substitutes
Substitute products
Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)
Many companies often find it difficult to identify new industry entrants (i.e., new competitors). New entrants are threats to established corporations. The extent of the threat depends on
Existing barriers to entry The combined reaction/retaliation from existing competitors.
Substitute products are those products that appear to be different but can satisfy the same need as another product. Substitutes limit the potential returns of an industry by placing a ceiling on the prices that firms in that industry can profitably charge. Substitute products that deserve the most attention are those that
Are subject to trends improving their price/performance value relative to an industrys product or Are produced by industries earning high profits.
Differentiating a product along dimensions that customers value (e.g., price, quality, or service) reduces a substitutes attractiveness.
Suppliers can affect an industry through their ability to raise prices or reduce the quality of purchased goods and services. A supplier group will be powerful in the following circumstances:
The supplier group is dominated by a few companies and is more concentrated than the industry it sells to. The supplier group is not obliged to contend with substitute products for sale to the industry. The industry is not an important customer of the supplier group. The suppliers product is an important input to the buyers business. The supplier groups products are differentiated or it has built up switching costs. The supplier group poses a credible threat of forward integration.
Rivalry among existing competitors takes the form of jockeying for position. Firms use tactics like
Price competition Advertising battles Product introductions Increased customer service or warranties.
Rivalry occurs when competitors sense the pressure or act on an opportunity to improve their position. Often, rivalry is based on price, quality, and innovation.
high entry barriers suppliers with little bargaining power buyers with little bargaining power few competitive threats from product substitutes relatively moderate rivalry among competing firms.