Accounting - Environmental Scan EU

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    Strategic Planning:

    EnvironmentalScanning

    Dr. Clive Vlieland-Boddy

    FCA FCCA MBA

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    I think you should be more explicithere in step two.

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    How can you govern a

    country which has 246varieties of cheese?

    -- Charles De Gaulle

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    The nicest thing about not

    planning is that failure comes as a

    complete surprise, and is notpreceded by a period of worry anddepression.

    -- John Perton

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    STRATEGIC MANAGEMENT: CONCEPT

    Ongoing process , evaluates and

    controls the business and the

    industries in which the company

    is involved.

    Assesses its competitors and

    sets goals and strategies to meet

    all existing and potential

    competitors.

    Reassesses each strategy

    regularly.

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    MISSION AND OBJECTIVES

    Describes the company's business vision:unchanging values and purpose of the firm,

    forward-looking visionary goals that guide the

    pursuit of future opportunities.

    Define measurable financial and strategic

    objectives:

    Financial objectives involve measures such

    as sales targets and earnings growth.

    Strategic objectives are related to the firm's

    business position, and may include measures

    such as market share and reputation.

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    Environmental Scanning

    Common part of strategic analysis

    There are internal elements & external

    elements All interrelate

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    Tools/Methods of AnalysisResults Interpretation

    TOOLS ANDMETHODS

    SWOT

    Strenghts,

    Weaknesses,Opportunities andThreats Analysis

    Economic

    DevelopmentScenarios

    OtherTools

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    SWOT

    E t l M k ti

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    External MarketingEnvironment

    Demographics

    SocialChange

    Economic

    Conditions

    Political &Legal Factors

    Technology

    Competition

    EnvironmentalScanning

    Target Market

    ProductDistributionPromotion

    Price

    External Environmentis not controllable

    Ever-ChangingMarketplace

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    SWOT Framework

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    SWOT analysis

    Popular method used for summarising ofthe innovation analysis results;

    Provides an overview of regionalstrengths and weaknesses as well asopportunities and threats the region iscurrently facing or may face in the future.

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    ENVIRONMENTAL SCAN

    The environmental scan includes the following components:

    Internal analysis of the firm

    SWOT Analysis Analysis of the firm's industry

    Porter's five forces External macro-environment

    PEST Analysis

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    Definitions: Strengths (S)

    An organizational resource or capability

    May be used to advance the organizations /

    programs interests

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    Definitions: Weaknesses (W)

    The absence of certain strengths orcapabilities that are needed to move theorganization forward

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    Internal factors

    A STRENGTH is a is a resource orcapacity of the region that it can takeadvantage of to improve its innovation

    system and competitiveness, e.g. Access to well-educated labour force;

    Good communication and infrastructure;

    Diversified regional economic structure; Well-functioning public services;

    Etc.

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    Internal factors

    WEAKNESS is a limitation, fault or defectin the region that will keep it fromimproving the innovation system, e.g.

    Limited number of start ups in the region;

    Peripheral location and low population density;

    High degree of long-term unemployment; Lack of cooperation between companies;

    Etc.

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    Strengths & Weaknesses

    May be identified by asking questions:

    Why does we do well?

    What do we do less well?

    In what areas are we healthy & robust?

    In what areas are we weak or struggling?

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    Strengths & Weaknesses

    May be identified by asking questions:

    What might someone looking at our industry ingeneral point out as unique or distinctive either

    positive ornegative about us?

    What resources can we call upon?

    How do these resources compare with ourneeds?

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    Definitions: Opportunities (O)

    Chances for growth or positive change indirection revealed by changes or trends in theexternalenvironment

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    Definitions: Threats (T)

    Changes or trends in the externalenvironment

    May also reveal a treat to overcome orchallenge to meet

    Threats are sometimes described as

    Traps

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    External factors

    OPPORTUNITY is a favourable situation inthe region's environment, e.g.

    Availability of EU funds and programmes; New markets through increased

    internationalisation;

    New educational opportunities;

    Cross-border cooperation;

    Global increase for demand in tourism services;

    Etc.

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    External factors

    THREAT is an unfavourable situation inthe region's environment that maypotentially damage the strategy, e.g.

    Increasing of energy prices;

    Termination of regional development funding;

    Decrease of population; Emigration of high-qualified labour force;

    Etc.

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    Opportunities & Threats

    Are identified by looking beyond theboundaries of the organization

    Questions might include the following:

    What are the external trends that will affect us?How?

    What is changing in our communities that will

    affect us? How?

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    Opportunities & Threats

    Questions might include the following:

    What are the the needs in the externalenvironment that could be met us?

    Do any of our weaknesses make us particularlyvulnerable to a changing environment?

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    SWOT Design

    One SWOT strategy for the whole region;or

    A set of SWOT strategies Relevant if different views of the actors involved

    in the SWOT process;

    E.g. a regional economic strength may beregarded as a weakness from environmental

    point of view; May be structured along different sectors

    (economic, environmental, social, etc) or targetgroups (companies, public agencies, R&D

    sector, etc).

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    Identify

    Strategic

    Factors

    Strengths

    Weaknesses

    Scan Internal

    Environment

    Core

    Competence

    Synergy

    Value

    Creation

    Identify

    Strategic:

    Corporate

    Business

    Functional

    Define New:

    Mission

    Goals

    Grand Strategy

    Evaluate Current:Mission

    Goals

    Grand

    Strategy

    Scan ExternalEnvironment

    National

    GlobalOpportunities

    Threats

    IdentifyStrategic

    Factors

    SWOT

    ImplementingStrategy via Changes

    in:

    Structure

    Human resources

    Information &

    control systems

    STRATEGIC MANAGEMENT: MODEL

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    A scan of the internal and external environment is

    an important part of the strategic planning process.

    Environmental factors internal to the firm usually can

    be classified as strengths (S) or weaknesses (W),and those external to the firm can be classified as

    opportunities (O) or threats (T). The SWOT analysis provides information that is

    helpful in matching the firm's resources and

    capabilities to the competitive environment in which

    it operates

    STRATEGIC MANAGEMENT:

    SWOT ANALYSIS

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    SWOT Analysis Main Steps

    SWOT Matrix

    Strenghts

    123

    Weaknesses

    123

    Opportunities123

    Threats123

    OS ActionsOxSxOxSxOxSx

    OW ActionsOxWx

    OxWx

    OxWx

    TS Actions

    TxSxTxSxTxSx

    TW Actions

    TxWxTxWxTxWx

    Scaning ofRegional

    Environment

    Analysis ofStrenghts

    andWeaknesss

    Analysis ofOpportunities

    andThreats

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    STRATEGIC MANAGEMENT: SWOT ANALYSISStrengths

    Patents

    Strong brand names

    Good reputation among

    customers

    Cost advantages from

    proprietary know-how

    Exclusive access to high grade

    natural resources

    Favorable access to distribution

    networks

    Weaknesses

    Lack of patent protection

    A weak brand name

    Poor reputation among

    customers

    High cost structure

    Lack of access to the best

    natural resources

    Lack of access to key

    distribution channels

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    STRATEGIC MANAGEMENT: SWOT ANALYSIS

    pportunities An unfulfilled customer

    need

    Arrival of new technologies

    Loosening of regulations

    Removal of international

    trade barriers

    Threats Shifts in consumer tastes

    away from the firm's

    products

    Emergence of substitute

    products

    New regulations

    Increased trade barriers

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    STRATEGIC MANAGEMENT: SWOT MATRIX

    To develop strategies that take into account the SWOT

    profile, a matrix of these factors can be constructed.

    S-O strategies pursue opportunities that are a good fitto the company's strengths.

    W-O strategies overcome weaknesses to pursueopportunities.

    S-T strategies identify ways that the firm can use itsstrengths to reduce its vulnerability to external threats.

    W-T strategies establish a defensive plan to preventthe firm's weaknesses from making it highlysusceptible to external threats.

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    Using SWOT as a Basis forRegional Development Strategy

    The strategy shall define priorities and actionsthat

    Build on STRENGTHS;

    Eliminate WEAKNESSES;

    Exploit OPPORTUNITIES;

    Mitigate the effect of THREATS.

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    SWOT Golden Rules

    Be realistic about the strengths andweakness of your region whenconducting the SWOT;

    Avoid general SWOT! It should always bespecific;

    Distinguish between where your region is

    today and where it could be in the future; Keep your SWOT short and simple.

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    DevelopmentScenarios

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    Development Scenarios

    An alternative to SWOT analysis

    Development scenarios are not predictionsor forecasts of the future!

    They intend to explore a number of wide-ranging possible futures and access theirimplications for the region and its main

    actors

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    Development Scenarios MainSteps

    Identificationof RegionalDrivers and

    RegionalIssues

    Assessmentof RegionalDrivers andDependency

    Analysis

    Elaborationof

    DependencyMatrix

    DevelopmentScenario 1

    DevelopmentScenario 2

    DevelopmentScenario 3

    DevelopmentScenario 4

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    Scenarios Design

    Elaboration of a DEPENDENCY MATRIXHigh Dominance Regional Leadership Environmental Technologies Entrepreneurship

    Globalisation Gaps in the skills base

    Gateway to the Sky Importance of flexiblebusinesses

    R&D base

    Medium Dominance Importance of Knowledge Network SocietyAnd service Sector

    Gateways to the sea Importance of knowledgespecialists

    Business composition &Lifecycle

    Surface transport

    &Connectivity

    Low Dominance Quality of Life Polarisation

    Homes not Houses

    Low dependency Medium Dependency High Dependency

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    Using Scenarios as a Basis forRegional Development Strategy

    Definition of OPPORTUNITIES andTHREATS for the region under each of the

    scenarios; Selection of number of STRATEGIC

    THREATS and STRATEGICOPPORTUNITIES from all scenarios;

    Finally definition of STRATEGICPRIORITIES and ACTIONS based on theabove strategic risks and preferences;

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    Stages of your RIS project

    Stage 1Stage 0 Stage 2

    Needanalysis

    Offeranalysis

    Networkanalysis

    SWOTandSynthesis

    Coordination

    Detailedelabora-

    tion

    of theworkprogram

    Definitionof

    strategicpriorities

    andactions

    Definitionand

    selectionofpilot

    actions

    Preparingfor

    Monitoring

    Interpretation& discussionof analyses

    results;

    Consensusbuilding

    06/05 05/06 04/07 01/08

    Your

    Regional

    Innovation

    Strategy

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    Porters 5 Forces

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    PORTERS FIVE FORCES

    Potential new entrants

    Bargaining power of buyers

    Bargaining power of suppliers

    Threat of substitute products

    Rivalry among competitors

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    PEST or PESTEL

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    PEST ANALYSISA scan of the external macro-

    environment in which the firm

    operates can be expressed in terms

    of the following factors:

    Political Economic Social Technological

    Some add Environmental and Legal to extend PEST to PESTEL

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    PEST ANALYSISPolitical Factors

    Tax policy Employment laws

    Environmental regulations

    Trade restrictions and tariffs

    Political stability

    Economic Factors

    Economic growth

    Interest rates

    Exchange rates

    Inflation rate

    Social Factors

    Health consciousness

    Population growth rate

    Age distribution

    Career attitudes

    Emphasis on safety

    Technological Factors

    R&D activity

    Automation

    Technology incentives

    Rate of technological change

    FORMULATION

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    FORMULATIONStrategy formulation is vital to the well-

    being of a company or organization.

    A leadership skill

    A process that leaders use to focus

    for positioning the firm

    Iterative

    Assess, decide, act, and review

    Leaders determine how much to

    stretch

    How to create the benefits for

    customers

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    PESTEL

    E is for Environmental and

    L is for Legal

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    Strategic Issues

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    HIERARCHICAL LEVELSStrategy can be formulated on three different levels:

    Corporate level: Company's overall direction in terms of its general attitude towards growthand management of its various business and product lines.

    Directional strategy

    Portfolio analysis

    Parenting strategy

    Business unit level: It usually occurs at the business unit or product level and itemphasizes improvement of the competitive position of a corporation's products or services

    in the specific industry or marketing segment served by that business unit.

    Functional or departmental level

    It is the approach taken by a functional area to achieve corporate and

    business unit objectives and strategies by maximizing resource productivity

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    SIX SUPPORTING FACTORS1. Action Planning

    2. Organization Structure

    3. Human Resources

    4. The Annual Business Plan

    5. Monitoring and Control

    6. Linkage.

    STRATEGY EVALUATION

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    STRATEGY EVALUATION

    The implementation of the strategy must be monitored

    and adjustments made as needed.

    Evaluation and control consists of the following steps:

    Define parameters to be measured

    Define target values for those parameters

    Perform measurements

    Compare measured results to the pre-defined

    standard

    Make necessary changes

    Evaluation Criteria:

    Suitability

    Feasibility

    Acceptability

    SUITABILITY

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    Suitability deals with the overall rationale of the strategy. The

    key point to consider is whether the strategy would address thekey strategic issues underlined by the organization's strategic

    position.

    Does it make economic sense?

    Would the organization obtain economies of scale, economies

    of scope or experience economy?

    Would it be suitable in terms of environment and capabilities?

    Tools that can be used to evaluate suitability include:

    Ranking strategic optionsDecision treesWhat-if analysis

    SUITABILITY

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    Feasibility is concerned with the resources required to

    implement the strategy are available, can be developed or

    obtained.

    Resources include funding, people, time and information.

    Tools that can be used to evaluate feasibility include:

    Break-even analysis

    Resource deployment analysis

    Cash flow analysis and forecasting

    FEASIBILITY

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    Acceptability is concerned with the expectations of the identified

    stakeholders (mainly shareholders, employees and customers) with

    the expected performance outcomes.

    Return deals with the benefits expected by the stakeholders(financial and non-financial).

    Risk deals with the probability and consequences of failure of astrategy (financial and non-financial).

    Stakeholder reactions deals with anticipating the likely reaction ofstakeholders.Tools that can be used to evaluate acceptability include:

    what-if analysisstakeholder mapping

    STRATEGY EVALUATION: ACCEPTABILITY

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    STRATEGIC MANAGEMENT: GENERAL APPROACHES

    In general terms, there are two main approaches, which are opposite but complement each

    other in some ways, to strategic management:

    The Industrial Organizational Approach

    Based on economic theory deals with issues like competitive rivalry, resource

    allocation, economies of scale Assumptions rationality, self disciplined behavior, profit maximization

    The sociological approach

    Deals primarily with human interactions

    Assumptions bounded rationality, satisfying behavior, profit sub-optimality. An

    example of a company that currently operates this way is Google

    Strategic management techniques can be viewed as bottom-up, top-down, or collaborative

    processes.

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    STRATEGIC MANAGEMENT: LIMITATIONS

    Stifle creativity, especially if it is rigidly enforced. When a strategy becomes internalized into a corporate culture, it can

    lead to group think

    Can cause an organization to define itself too narrowly.

    In 2000, Gary Hamel coined the term strategic convergence Explain the limited scope of the strategies being used by rivals in

    greatly differing circumstances.

    Strategies converge more than they should, because the more

    successful ones are imitated by firms that do not understand that thestrategic process involves designing a custom strategy for the

    specifics of each situation.

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    Other Issues

    Social Forces

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    A lack of time to doanything but work, commute

    to work, handle family

    situations, do housework,shop, eat, sleep...

    Social Forces-The Poverty of Time

    A i t l f t d k t l

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    An environmental scan of todays marketplace

    SOCIAL FORCES Demographics

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    SOCIAL FORCES- Demographics

    Implications?

    The World Population at a Glance

    6.4 billion

    Growth in developing nations

    Shift of age structure of populations

    Rising income levels and living standards

    ECONOMIC FORCES E

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    ECONOMIC FORCES -Economy

    Macroeconomic Conditions Inflation-rise in prices without rise in wages

    Recession-drop in income, production and employment

    Microeconomic Conditions

    Consumer Income

    Gross Income100% of earnings

    Disposable Income-85% of earnings

    Discretionary Income-15% of earnings

    Technological Factors

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    New technology is a weapon against inflationand recession

    U.S. excels at basic research

    Japan excels at applied research

    Information technology and the Internet haveincreased productivity

    Technological Factors

    COMPETITIVE FORCES C titi

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    COMPETITIVE FORCES -Competition

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    Demographics

    Demographics describes apopulation according to selected

    characteristics such as age,gender, ethnicity, income, and

    occupation.

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    Baby Boomers

    Baby boomers is the generation ofchildren born between 1946 and 1964.

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    Generation X

    Generation X includes the 15% of theU.S. population born between 1965 and

    1976.

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    Generation Y

    Generation Y includes the 72 millionAmericans born between 1977 and 1994.

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    THANK

    YOU