I.

Environmental Scanning and Industry Analysis

Environmental Scanning
 MONITORING
 EVALUATING
 DISSEMINATING OF INFORMATION
EXTERNAL ENVIRONMENT
1. TASK - Elements or groups that directly affect the corporation
 Government
 Local Community
 Suppliers
2. SOCIETAL - General forces that do not directly touch the short-term activities of the organization
but rather, the long run
Industry Analysis
An in-depth examination of key factors within a corporations environment
SOCIETAL ENVIRONMENT
 ECONOMIC FORCES - Regulate the exchange of materials, money, energy, and information
 TECHNICAL FORCES - Generate problem-solving inventions
 POLITICAL-LEGAL FORCES - Allocate power and provide constraining and protecting laws and
regulations
 SOCIOCULTURAL FORCES - Regulate the values, mores, and customs of the society
INTERNATIONAL SOCIETAL CONSIDERATIONS
Differences in societal environment strongly affect the ways in which a multinational corporation conducts
marketing, financial, manufacturing and other functional activities.
Scan the particular country environment in question for opportunities and threats, and compare these with
its own organizational strengths and weaknesses.
Triad – three developed markets of Japan, North America, and Western Europe
Developing Nations – identify the triggering point when demand for a product or services is ready to boom.

II. IDENTIFYING EXTERNAL STRATEGIC FACTORS

STRATEGIC MYOPIA - Willingness to reject unfamiliar as well as negative information.
EXTERNAL STRATEGIC FACTOR
 Judged to have a both medium to high probability of occurrence and a medium to high probability of
impact on the corporation.
 Help managers to decide which environmental trends should be merely scanned and which should
be monitored.
MARKKET STRUCTURE
STRUCTURAL FEATURES OF MARKET
 Market Concentration - Degree by which a small number of companies dominate a particular
market
 Entry Barriers - Difficulties and challenges by potential new entrants which are entering the
market.
  Product Differentiation - able to distinguish its product or service to other players in the
market.
Based on the number of sellers in the market.
 Atomistic - There are many small sellers with a low level of interaction to one another.
 Oligopolistic - Few large sellers have a high level of interaction with one another.
 Monopoly - There is one seller who dominates the market.

Two categories of product differentiation:

 Homogenous Products - Products that are highly identical. Product’s characteristics are not
differentiated from one supplier to another.
 Differentiated Products - Products that are differentiated by design, quality, branding, among
others.
Ease of market entry, there are three subtypes:
 Ease of entry - No difficulties in entering the market.
 Moderately Difficult Entry - There are barriers but not too difficult for sellers to monopolize the
market.
 Blockaded Entry - There are barriers that are too high, which potential players cannot enter.

III. Industry Analysis: Analyzing the Task Environment

Industry - It is group of firms producing a similar product or service, such as soft drinks or financial services.
Michael Eugene Porter - is an American academic known for his theories on economics, business strategy,
and social causes.

Porter’s five forces model is an analysis tool that uses five industry forces to determine the intensity of
competition in an industry and its profitability level.
Power of Buyers
 Buyers have the power to demand lower price or higher product quality from industry producers when
their bargaining power is strong.
  Lower price means lower revenues for the producer, while higher quality products usually raise
production costs.
 Buyers exert strong bargaining power when:
1. Buying in large quantities or control many; 2. Only few buyers exist;
2. Switching costs to other supplier are low;
3. They threaten to backward integrate;
4. There are many substitutes; and
5. Buyers are price sensitive.

Rivalry of Competitors - This force is the major determinant on how competitive and profitable an industry is.
In competitive industry, firms have to compete aggressively for a market share, which results in low profits.
 Rivalry among competitors is intense when:
1. There are many competitors;
2. Exit barriers are high;
3. Industry of growth is slow or negative;
4. Products are not differentiated and can be easily substituted;
5. Competitors are of equal size;
6. Low customer loyalty.
Power of suppliers
 Strong bargaining power allows suppliers to sell higher priced or low quality raw materials to their
buyers. This directly affects the buying firms’ profits because it has to pay more for materials.
 Suppliers have strong bargaining power when:
1. There are few suppliers but many buyers;
2. Suppliers are large and threaten to forward integrate;
3. Few substitute raw materials exist;
4. Suppliers hold scarce resources; and
5. Cost of switching raw materials is especially high.
Threat of substitutes - This force is especially threatening when buyers can easily find substitute products
with attractive prices or better quality and when buyers can switch from one product or service to another with
little cost. For example, to switch from coffee to tea doesn’t cost anything, unlike switching from car to bicycle.
Threat of new entrants – This force determines how easy (or not) it is to enter a particular industry. If an
industry is profitable and there are few barriers to enter, rivalry soon intensifies. When more organizations
compete for the same market share, profits start to fall.
 Threat of new entrants is high when:
1. Low amount of capital;
2. Existing companies can do little to retaliate;
3. Existing firms do not possess patents, trademarks or do not have established brand reputation;
4. There is no government regulation;
5. There is low customer loyalty;
6. Products are nearly identical;
7. Economies of scale can be easily achieved.

IV. Competitive Intelligence

Competitive Intelligence - act of gathering, analyzing and distributing vast information, coined as intelligence
about anything that would help competing in the market
 Benefits- identifies the company’s possible risks before the company makes an important decision
  To gain competitive advantage
MAJOR AREAS
1. ASSESSMENT OF STRATEGIES
2. PERCEPTION OF COMPETITOR STRATEGIES
3. EFFECTIVENESS OF CURRENT OPERATIONS
4. CAPABILITIES OF COMPETITORS
5. LONG-TERM MARKET PROSPECTS
STRATEGIC INTELLIGENCE - Being able to understand the competitors future prospects and goals
 Competitors’ major customers and suppliers
TACTICAL INTELLIGENCE - small scale intelligence and operational in the short run.
 Competitors’ term of sale, pricing policies and plans
 Used by middle-level managers
COUNTER INTELLIGENCE - Knowing how to defend company secrets
SWOT ANALYSIS
 It forces managers to consider both internal and external factors simultaneously.
 Its emphasis on identifying opportunities and threats makes firms act proactively rather than reactively
 It raises awareness about the role of strategy in creating a match between the environmental conditions
and the firm’s internal strengths and weaknesses
 Its conceptual simplicity is achieved without sacrificing analytical rigor

1. STRENGTHS
 Capabilities
 Internal environment
 Ability in attracting and dealing with customers
 Build on strengths

2. WEAKNESSES
 To be customer focused, the company minimizes actions that drive the customers away
 Minimized and eventually avoided
 Remedy weaknesses or work around them

3. OPPORTUNITIES
 Gain a strong foothold in the market
 Continuously identified
 Take advantage of opportunities presented by the environment

4. THREATS
 The company is keen in looking at possible threats and arresting them before they become obvious
 Protect the firm from threats
 V. Strategy formulation
Vision/mission statements
1. MISSION
 Summarizes the purpose or the reason for the company’s existence.
 Identifies the market where the company wants to compete.
 Explains the company’s philosophy.
2. VISION
 What the company wants to become in the future.
 Answers the question: “Where do we want to go?”

Formulating competitive strategies

 Means building sustainable competitive advantage.
The five power p’s
 Position – is the advantage that an organization gains in the hands of the consumers.
 Power – a company should enjoy power over its competitors; a competitive advantage.
 Pace – the right time for a strategy to work.
 Potential – is the probability of the success element of a particular strategy.
 Performance – is the effective implementation of a particular strategy.

PORTER’S GENERIC STRATEGIES

Michael Porter developed three basic competitive approaches in strategic management:
Cost Approach – it concentrates on keeping cost low; employed by Chinese businessmen and fondly called
as “tubong lugaw”
Differentiation Approach – the company makes its products or services unique and distinct; customer is
willing to buy at a higher price.
Focus Approach – specializing or concentrating in a particular market segment.

The two power strategies

1. Horizontal Integration
 The strategy of the company to expand its business into different products that are similar to current
lines.
2. Vertical Integration has subtypes
 Forward integration – a strategy of a company to control the direct distribution of its products.
 Backward integration – a strategy of a company to purchase the suppliers to reduce dependency.
Adaptive methods
Miles and Snow created three approaches of creating a competitive strategy:
1. Prospector Approach. This is based on innovation and at the same time exploration of new market
opportunities.
2. Defender Approach. It is based on making vast improvements in its present products or services.
3. Analyzer Approach. It is based on making attempts to copy and thereby make improvements in the
success of a product or service.
Essentials of potential strategies
  Transferability. The product or service can be transformed into something highly valued by customers.

VI. Essentials of Potential strategies

Essentials of Potential strategies
 Transferability - Product or service can be transformed into something highly valued by customers.
 Competitive Dominance - Product or service is better than the capabilities of competitors.
 Uniqueness - The product or service cannot easily be copied by competitors.
 Substitutability - Product or service cannot be replaced through substitution by competitors.
 Durability - The product or service does not deteriorate or depreciate quickly.
Growth Strategies
 Diversification - development of new products for new market.
 Market Development - Development of new market for existing products and services.
 Product Development - Development of new products to existing market.
 Market Penetration - Desire to achieve greater percentage of the market share through the company’s
existing products in existing markets.
Balanced Scorecard - System that measures the organization’s progress in accomplishing its strategic
objectives. Strategic planning system that is now used extensively by different types of organization worldwide.
Four Implementing Strategies: Four Basic Process:
1. Developing a clear-cut strategy 1. Financial Perspective
2. Communicating the strategic 2. Customer Perspective
objectives
3. Planning strategies 3. Business Process Perspective
4. Monitoring strategic implementation 4. Learning and Growth Perspective