External Environment What the Firm Might Do

Internal Environment What the Firm Can Do

The environment composed of a wide variety of influences & these are dynamic in nature. Manager everyday has to face a new challenge because of these influences. Following are some examples of challenges faced by todays manager.
stagnation of many markets market fragmentation growing product parity product proliferation shorter product life cycles downward price pressures increasing sales force costs changes in distribution increasingly frequent niche attacks by competitors increased customer sophistication & demands erosion of traditional bases of competitive advantage increased emphasis upon environmental & green issues increasingly global nature of many markets

This difficulty in coping with the environment can be viewed under two headings: understanding the extent to which the environment affects strategy. understanding the ways in which environmental pressures can be related to the capabilities of the organization. Marketing strategy must be developed after detailed understanding of the environment. know what to look for know how to look

audit of environmental influences

assessments of the nature of the environment

identification of the key environmental forces

identification of the competitive position

identification of principal opportunities & threats

strategic position

 how uncertain is the environment? what are the sources of this uncertainty? how should this uncertainty be dealt with? credible probabilities to possible outcomes cannot be assigned. levels of uncertainty are directly attributable to the extent to which environmental conditions are dynamic or complex. dynamism is due largely to the rates and frequency of change.
complexity is the result of the diversity and interconnection of environmental influences

degree of complexity low simple simple + stable = low uncertainty a small number of external elements, with these elements being similar. elements remain the same or change only slowly. simple + unstable = high - moderate uncertainty a small number of external elements, and elements are similar. elements change frequently and unpredictably high complex complex + stable = low - moderate uncertainty a large number of external elements, and elements are dissimilar. elements remain the same or change slowly

degree of environmental changes high stable low stable

complex + unstable = high uncertainty large numbers of external elements, and elements are dissimilar elements change frequently and unpredictably.

immediacy low high

monitor events carefully

monitor events and assess the likelihood of changes that will cause them to have a greater impact on the organization.

impact
monitor events and assess their potential impact upon the organization. Develop the contingency strategy needed to manage each potential event effectively.

low

analyze events in detail and develop and implement the strategy needed to manage them effectively so that either the opportunity is maximized or the threat is minimized.

high

micro-environment is made up of those elements that are closest to the company and that exert the greatest and most direct influence over its ability to deal with its markets.
macro-environment consists of the rather broader set of forces that have a bearing upon the company, including economic, demographic, technological, political, legal, social and cultural factors.

the term is used to describe the fact that there are often only limited periods when the fit between the key requirements of a market and the particular competences of a firm competing in that market is at an optimum.

to ignore what is happening and accept the consequences of strategic drift and wear-out. to respond quickly or slowly, but largely reactively. to try to predict the nature of the changes and then manage them proactively.

stage 1 : the initial shock when managers recognize the mismatch between the environmental demands and the organizations marketing behavior. stage 2 : rejection of the significance of the changes taking place and a (temporary) retreat from reality. stage 3 : gradual recognition of the significance of market change. stage 4 : acceptance of the need to change the strategy and patterns of marketing behavior in possibly fundamental ways. stage 5 : a commitment to the future and adaptation to the new reality stage 6 : creativity and risk-taking that leads to a very different market profile.

recognizing this allows us to identify five types of manager: those who make it happen those who think they make it happen those who watch it happen those who wonder what happened those who fail to realize that anything has happened appreciation stage - considering the wider implications of the economic, technological, social and political factors.
analysis stage - which involves finding, compiling and examining environmental data. application stage - in which real attempts are made to monitor the environment, assess the implications for change and incorporate staff evaluations into strategy and plans.

irregular systems predominate in companies with a poorly developed planning culture.

focus is upon responding to environmentally generated crises.

net effect of this is that emphasis is simply placed upon finding solutions to short term problems with little real attention being paid to identifying and assessing the likely impact of future environmental changes

Periodic models more systematic, resource intensive and sophisticated than irregular systems. the environment is reviewed regularly and a longer-term perspective is developed. continuous models represent a further development and involve focusing upon the business environment generally and upon the long term as opposed to short-term and specific issues.

continuous environmental analysis is based: the determinants of success are dictated by the business environment. the firms response to environmental change represents a fundamental strategic choice. a knowledge of the business environment must precede the acquisition of any degree of control over it.

First market opportunity must be analyzed and second the companys ability to take advantage of these opportunities and cope with threats must be assessed.
under the first heading, there are four basic building blocks:

customers must be analyzed to determine how the market can be segmented and what are there requirements. competitors must be identified and their individual strategies understood
environmental trends (social, economic, political, technological) affecting the market must be isolated and forecasted. market characteristics in terms of the evolution of supply and demand and their interaction must be understood.