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External Environmental Analysis

External Environmental Analysis. A continuous process which includes. Scanning: Identifying early signals of environmental changes and trends Monitoring: Detecting meaning through ongoing observations of environmental changes and trends

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External Environmental Analysis

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  1. External Environmental Analysis A continuous process which includes • Scanning:Identifying early signals of environmental changes and trends • Monitoring: Detecting meaning through ongoing observations of environmental changes and trends • Forecasting: Developing projections of anticipated outcomes based on monitored changes and trends • Assessing: Determining the timing and importance of environmental changes and trends for firms’ strategies and their management

  2. External Environmental Analysis Analysis of macro/general environment Analysis of task environment Analysis of competitor environment The External Environment The External Environment Strategic Intent Strategic Mission

  3. Three Component Relationship of the Firm to the Business Environment • Deterministic - Regulatory, legal and market structures taken as givens • Probabilistic – Areas where the firm has the ability to increase its odds of success. • Random – Uncontrollable and uncertain elements from which the firm can attempt to protect itself

  4. AN ORGANIZATION’S ENVIRONMENT Task Environment Raw Materials Sector Suppliers, Manufacturers, Real Estate Industry Sector Competitors, Industry size and Characteristics, Related Industries Human Resources Sector Socio-Cultural sector Labor Market, Employment Agencies, Universities, Training Schools, Employees in Other Companies, Unionization Age, Values, Beliefs, Education, Religion, Work Ethic, Urban vs. Rural, Birth Rate DOMAIN Financial Resources Sector Government Sector City, State, Federal Laws and Regulations, Taxes, Services, Court System, Political Processes Stock Markets, Banks, Savings and Loans, Private Investors ORGANIZATION Market Sector Economic Conditions Sector Technology Sector Customers, Clients, Potential Users of Products and Services Techniques of Production, Science, Research Centers, Automation, New Materials Recession, Unemployment Rate, Inflation rate, Rate of Investment, Economics, Growth Macro Environment

  5. Organizational uncertainty Complex + Stable = LOW MODERATE UNCERTAINTY 1. Large number of external elements 2. Elements remain the same or change slowly or relatively predictably Examples: Universities, hospitals, insurance companies Simple + Stable = LOW UNCERTAINTY 1. Small number of external elements 2. Elements remain the same or change slowly or relatively predictably Examples: Soft drink bottlers, beer distributors, container manufacturers, local utilities Stable Uncertainty Simple + Unstable = HIGH MODERATE UNCERTAINTY 1. Small number of external elements 2. Elements change frequently, more unpredictably and reactively Examples: Fashion clothing, music industry, toy manufacturers Complex + Unstable = HIGH UNCERTAINTY 1. Large number of external elements 2. Elements change frequently, more unpredictably and reactively Examples: American airlines, oil companies, electronic firms, aerospace firms, personal computers Unstable Simple Complex

  6. Enactment of different parts of the environment ( Selection of the boundary) Standard operating proceduresWorking capital • Standard operating procedures Working Capital Raw materials inventory WIP inventory Maintenance programs Excess capacity Project scheduling Labor scheduling Finished Goods Inventory Negotiated lead times Monopsony - captive suppliers, futures contracts Monopoly Technical core Interconnections, i.e. interlocking boards, vertical integration, etc. Boundary spanning activities, i.e. marketing, purchasing, etc. Administrative Level ORGANIZATIONAL RESPONSES TO ENVIRONMENTAL UNCERTAINTY

  7. Key Steps in an External Analysis • Determine which questions you are trying to answer. • What do you want to know? • Why do you need to know it? • Determine the Scope and Scale of the Analysis. • What is the appropriate level of analysis? • What trends do you need to investigate? • What segments are involved? • How would classify the issues? • How important are they to the firm?

  8. Key Steps Continued. • Determine information needs • What types and amounts of information are needed? • Where is that information located? • How can you get the required information? • How can we get the data to the people that need it? • Understanding the Data • What do the data mean? • How might the data benefit the firm? • What threats do the data represent? • How can you use the data to your firm’s advantage?

  9. Questions to Ask in an Industry Analysis • What are the sources of uncertainty? • What are the relevant macroeconomic conditions? • What are relevant “rules of the game?” • How do the various environmental sectors affect this industry? • Who are the key competitors? • What are their SWOT? • What are their resource positions? • Who are the key suppliers?

  10. More questions • How is the market segmented? • What are the price points? • How does growth occur? • Are substitutes present? • Who are the key customers? • What are their utilities?

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