env scanning
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SWOT Analysis
The overall evaluation of a companys strengths,weaknesses, opportunities & threats is called SWOTanalysis.
External Environment (Opportunity & Threat analysis)
A business unit has to monitor key macro environmentforces & micro environment actors.
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A marketing opportunity is an area of buyer need &interest in which there is a high probability that acompany can profitably satisfy need.
There are three main sources of market opportunities.
1 to supply something that is in short supply, it requireslittle marketing talent as the need is obvious.
2 to supply an existing product or service in a superiorway. The improvements can be found by carryingconsumer research.
3 to develop a new product or service
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Consider the examples:
1 company can make buying process more convenientor efficient.
2 company can meet the need for more information &advice
3 company can customize a product or service that wasformerly offered in a standard form.
4 company can introduce new capability
5 company may be able to deliver the product or
service faster.6 company may be able to develop the product at much
lower price.
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Market Opportunity Analysis (MOA) - is used todetermine the attractiveness & probability of success.
Opportunity matrixSuccess Probability
High Low
Attractiveness
1 2
3 4
1 Best marketing opportunities
2 & 3 these opportunitiesshould be monitored in theevent that any improvement inattractiveness & successprobability takes pace
4 opportunities too minor toconsider
High
Low
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An environmental threat is a challenge posed by anunfavorable trend or development that would lead, in theabsence of defensive marketing action, to lower sales or
profit.Threat Matrix
Probability of occurrence
High Low
Seriousness
1 2
3 4
1 Company needs contingency
plans to make changes beforeor during the threat
2 & 3 monitored carefully in theevent that they grow moreserious.
4 can be ignored
High
Low
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SWOT AnalysisStrength Weakness
Opportunity Threat
CONVERT
CONVERT
M
A
T
C
H
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Internal Environment (Strength & weakness) Analysis
Each business needs to evaluate its strength &weaknesses. It does so by looking the importance ofparticular strength/weakness & companysperformance in that.
The big question is whether the business should limititself to those opportunities where it posses requiredstrengths or whether it should consider opportunitieswhere it might have to acquire or develop certainstrengths
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The Competitive Environment
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Porters 5 Forces Framework Industry Analysis
RIVALRY AMONG FIRMS
B
UYERS
SUPPLIE
RS
NEW ENTRANTS
SUBSTITUTES
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The Tool
Analysis to assess the attractiveness of anindustry based on the strengths of fivecompetitive forces
S W O T: Company specific
THE FIVE FORCES: Industry specific
THE FIVE FORCES: Help a decision
i. To enter an industry
ii. To strengthen current position
iii. To exit an industry
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Entry Barriers
i. Economies of scale
ii. Capital costs
iii. Switching costsiv. Access to distribution channels
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Bargaining Power Of Buyers
How Buyers Can Affect An Industry:
i. Ability to force down prices
ii. Bargain for higher product quality or betterservice
iii. Play competitors against each other
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Bargaining Power Of Buyers
Buyers are powerful if:
i. Buyer purchases in large proportion
ii. Buyer integrates backward
iii. Product is standard
iv. Low cost of changing supplier
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Bargaining Power Of Suppliers
How They Do It
i. Raise prices
ii. Reduce quality
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Bargaining Power Of Suppliers
A supplier group is powerful if:
i. Supplier industry is dominated by a few,
but it sells to many
ii. Product or service is unique or it has builtup switching costs
iii. Substitutes are not readily availableiv. Suppliers are able to integrate forward
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Threat Of Substitutes
i. Competition is not only from new entrants butfrom products meeting similar needs
ii. Substitutes limit potential returns with the help of
price ceilingsiii. Customers can easily switch
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Rivalry Amongst Firms is related to many factorsincluding:
i. Numerous Or Equally Balanced Competitors
ii. Absence Of Differentiation
iii. Low Switching Costsiv. High Exit Barriers
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OTHER CONCEPTS DEVELOPED
Co-opetition
Competitive behavior that combines competition withcooperation
Strategic GroupsA group of firms in an industry, which are following thesame or similar strategy
Mobility BarriersFactors that prevent the movement of organizationsfrom one strategic group to another
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STEEP Analysis is technique used for externalenvironmental analysis. It includes factor:
Socio-cultural
Technological
Economic
EcologicalPolitical-legal
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PESTEL Analysis
Political
Economic
Sociocultural
Technological
EcologicalLegal
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The Internal Environment
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Internal Scanning
often referred to as organizational analysis, isconcerned with identifying and developing anorganizations resources & competencies.
Resources
i. are an organizations assets & are thus buildingblock of the organization.
ii. They may be tangible or intangible.
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Capabilities
i. refer to a corporations ability to exploit itsresources.
ii. They consists of business processes routines thatmanage the interaction among the resources to turninputs into outputs.
iii. A capability is functionally based & is resident in a
particular function.
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Competency is a cross-functional integration &coordination of capabilities.
Core competency is a collection of competencies thatcrosses divisional boundaries, is widespread withinthe corporation, & is something that the corporationcan do exceeding well.
Distinctive competency is core competency superior tothat of competition.
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VRIO framework to evaluate a firms competencies.
Value Does it provide customer value & competitiveadvantage
Rareness Do no other competitors possess it
Imitability Is it costly for others to imitate
Organization Is the firm organized to exploit theresource
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Determining the sustainability of an Advantage
Two characteristics determine sustainability of a firmsdistinctive competencies:
i. Durability
ii.
Imitability
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Porters value chain -
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Scanning Functional Resources & Capabilities
Basic Organizational Structure
i. Simple structure
ii. Functional structure
iii. Divisional structureiv. SBUs
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Scanning Functional Resources & Capabilities
Corporate Culture: The company way
It is the collection of beliefs, expectations, and valueslearned and shared by a corporations members andtransmitted from one generation of employees toanother.
The culture includes the dominant orientation of thecompany such as, R&D at HP, innovation at Google,or product quality at BMW.
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Strategic Marketing Issues
i. Segmentation & positioning
ii. Marketing mix
iii. Brand & corporate reputation
Strategic Financial Issues
i. Financial leverage
ii. Capital budgeting
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Strategic HRM Issues
Increasing use of teams
Quality of work life & human diversity
Synthesis of Internal Factors
IFAS (Internal Factor Analysis Summary)
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Strategy Formulation
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Corporate Level Strategy
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Corporate strategy deals with three key issues facingthe corporation as a whole
i. The firms overall orientation toward growth,stability or retrenchment (directional strategy)
ii. The industries or markets in which the firmcompetes through its products or business units
(portfolio analysis)iii. The manner in which management coordinates
activities and transfer resources and cultivatescapabilities among product lines & business units
(parenting strategy)
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Directional strategy A corporations directionalstrategy is composed of three general orientations(also called grand strategies):
i. Growth strategies expand the company activities
ii. Stability strategies make no change to companyscorporate activities
iii. Retrenchment strategies reduce the companyslevel of activities
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Growth Strategies
Three options are available
1 identify opportunities within current business intensive opportunities
2 identify opportunities to build or acquire businessesrelated to current businesses integrative
3 identify opportunities unrelated to current business -diversification
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Growth Strategies
Intensive Growth Integrative Growth Diversification Growth
Conglomerate
Synergistic
Concentric Horizontal
MarketPenetration
MarketDevelopment
ProductDevelopment
BackwardIntegration
ForwardIntegration
HorizontalIntegration
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Ansoff Growth Matrix (Product market Expansion Grid)
Current Products New Products
Current
Markets
MarketPenetration
ProductDevelopment
NewMarkets
MarketDevelopment
Diversification
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Intensive Growth
Market Penetration Increase sales to the current customers Convert non-users into users
Market Development By adding new channels of distribution expanding
consumer reach By entering new market segments By entering new geographical markets
Product Development Expand product mix for the existing
market/customers
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SBU Level Strategy
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Porters Generic Strategies
Cost LeadershipAppeals to broad targetmarket, produce products inlarge volumes, and keepprices low
DifferentiationOffer products that have abroad appeal and also haveunique features to justifyhigher prices
Focus (Costbased): Serves narrowmarket segment (s) and keepthe prices low
Focus(Differentiationbased): Targets narrowmarket segment (s) and offerproducts that have uniqueappeal
COMPETITIVE ADVANTAGE
Lower cost Differentiation
COMPETITIVE
SCOPE
BroadTarget
NarrowTarget
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Portfolio Analysis
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Resource Allocation to SBUs andStrategic Models
BCG Matrix
GE Multifactor Portfolio Matrix
Arthur D Little Model
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BCG MatrixSTARS
Modest + or Cash Flow
QUESTION MARKS(Problem Children)
Large Negative Cash Flow
(Usually new SBUs)
CASH COWS
Large Positive Cash Flow
DOGS(Cash Traps)
Modest + or Cash Flow
MARKET
GROWT
H
RATE
RELATIVE MARKET SHARE
10 1 0.1
0
10
20
High
Low
High Low
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BCGs Strategic OptionsSBUClassification SBU Characteristics Strategy ExampleDogs
(Low share, lowgrowth)
Generates low profits or losses.Consumes more management time.
Divest selloff, liquidate
Sahara Airlines
Question Marks(Low share,high growth)
Requires lot of cash for fastgrowth. Continue investing in theSBU or withdraw from market.
Build /Harvest /Divest
Sabeer Batiasold Hotmailto Microsoft
Stars
High share,high growth)
Generates large amount of cash.Competitors attack on SBU.
BuildIncreasemarket share
Intel investsheavily inPentium
Cash Cows
(High share,low growth)
Generates considerable amount ofcash. Enjoy economies of scale &higher profit margins
Hold /HarvestPreservemarket share
Roohafza,
Vicks,
Lux
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GE Multi Factor Portfolio MatrixProtect position/ Invest heavily
Invest to Build Buildselectively /Protect
Build selectively Selectivelymanage forEarnings
Limitedexpansion /Harvest
Protect and
Refocus
Manage for
Earnings
Divest
BUSINESS STRENGTH
Strong Medium Weak
High
Medium
Low
MARKETATTRACTIVENESS
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Arthur D. Little (ADL) Model
EMBRYONIC GROWTH MATURE AGEING
DOMINANT Grow fast. Buildbarriers. Actoffensively
Grow fast. Aim forcost leadership.Defend position. Actoffensively
Defend position.Increase theimportance ofcost.
Defend position.Focus. Considerwithdrawal
STRONG Grow fast.Differentiate
Lower costs.Differentiate. Attacksmall firms
Lower costs.Differentiate.Focus
Harvest
FAVOURABLE Grow fast.Differentiate
Focus.Defend.Differentiate.
Focus.Differentiate. Hitsmaller firms
Harvest
TENABLE Grow with theindustry. Focus Hold on or withdraw.Niche. Aim forgrowth
Niche. Hold on.Withdraw Withdraw
WEAK Search for aniche. Attemptto catch othermarkets
Niche or withdraw Withdraw Withdraw
Stage of Industry Maturity
Competitive
Position
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Profit Impact of Market Strategy (PIMS)
Developed by Strategic Planning Institute (SPI) Maintains data about industry characteristics,
competitive position, resource allocation, strategic movesand operating results
The data are analyzed considering most likely changes
in future and then options can be assessed regardingpresent strategies and other alternatives. PIMS shows strong relation between market share &
profitability: high market share companies earn higherROI.
Also data shows that higher quality products tend to bemore profitable than competitors. PIMS also suggests that lower costs have a positive
impact on profitability.
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3 Core Elements of BusinessStrategy
Business
Strategy
Product-marketInvestmentDecisions
Product-market scope
Investment intensity
Resource allocationover business units
Functional AreaStrategies
Product
Price
Place
Promotion, etc.
Basis ofSustainableCompetitive
AdvantageAssets /Competencies
Synergies