Strategy-Concept 03

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Chapter 3Environmental Scanning and

Industry Analysis


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Chapter 3Wheelen/Hunger

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External Environment

External Strategic Factors

Factors influencing the choice:

Personal values of managers Functional experience of managers

Success of current strategies

Strategic myopia Willingness to reject unfamiliar as well as

negative information


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Issues Priority Matrix Identify likely trends:

Societal and task environments Strategic environmental issues

Assess probability of trends occurring Low to High

Ascertain likely impact of trends on thecorporation Low to High


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Issues Priority Matrix

HighPriority

High

Priority

High

Priority

MediumPriority

Medium

Priority

Medium

Priority

Probable Impact on Corporation

Low

Priority

LowPriority

Low

Priority

LowMediumHigh

Probability

ofOccurre

nce


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External Strategic Factors

Defined:

Key env ironmental trends that are

judged to have bo th a med ium to h igh

probabi li ty of occurrence and a

medium to high probabi li ty of impacton the corporation.


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Industry Analysis

Industry

A g roup o f fi rms produc ing a simi lar

product or serv ice, such as sof t dr inks

or f inanc ial services.


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Industry Analysis


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Industry Analysis

Porters approach:

Assess the six fo rces --

Threat of new entrants Rivalry among existing firms

Threat of substitute products

Bargaining power of buyers

Bargaining power of suppliers

Relative power of other stakeholders


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Industry Analysis

Threat of New Entrants --

Barriers to entry: Economies of Scale

Product Differentiation

Capital Requirements

Switching Costs

Access to Distribution Channels

Cost Disadvantages Independent of Size

Government Policy


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Industry Analysis

Rivalry Among Existing Firms --

Intense rivalry related to: Number of competitors

Rate of Industry Growth

Produce or Service Characteristics

Amount of Fixed Costs

Capacity

Height of Exit Barriers

Diversity of Rivals


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Industry Analysis

Threat of Substitute Products/Services

Substitute Products:

Those products that appear to be

di f ferent but can sat isfy the same need as

ano ther product. To the extent that

sw itching cos ts are low , subst i tutes can

have a stro ng effect on an industry .


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Industry Analysis

Bargaining Power of Buyers --

Buyer is powerful when: Buyer purchases large proportion of sellers products

Buyer has the potential to integrate backward

Alternative suppliers are plentiful

Changing suppliers costs very little

Purchased product represents a high percentage of abuyers costs

Buyer earns low profits

Purchased product is unimportant to the final quality orprice of a buyers products


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Industry Analysis

Bargaining Power of Suppliers --

Supplier is powerful when:

Supplier industry is dominated by a few companies butsells to many

Its product is unique and/or has high switching costs

Substitutes are not readily available

Suppliers are able to integrate forward and competedirectly with present customers

Purchasing industry buys only a small portion of thesuppliers goods.


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Industry Analysis

Industry Evolution

Fragmented IndustryNo firm has large market share and each f irm

serves on ly a small piece of the total market in

competi t ion wi th o thers.

Consolidated IndustryDom inated by a few large f i rms , each of w hich

struggles to di f ferent iate its produc ts from the

compet i t ion.


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Industry Analysis

Strategic Groups

Defined:

A set of bus iness uni ts or f i rms that

pu rsue sim i lar strategies withsim i lar resources.


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Industry Analysis

Strategic Types

Defined:

Category of f i rm s based on a common

strategic o r ientat ion and a combinat ion o f

stru ctu re, cu l ture, and pro cesses

cons istent wi th that strategy .


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Industry Analysis

Strategic Types

Catego r ized by one of fou r general strategic

or ientat ions:

Defenders

Companies with a limited product line;focus on improving efficiency of current

operations


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Industry Analysis

Strategic Types (continued)

Prospectors:Companies with fairly broad product

lines; focus on product innovation

and market opportunities.


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Industry Analysis

Strategic Types (continued)

Analyzers:Corporations that operate in at least

two different product-market areas

one stable and one variable.


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Industry Analysis

Strategic Types (concluded)

Reactors:Corporations that lack a consistent

strategy-structure-culture

relationship.

I d M i


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Industry Matrix

Key Success

Factors Weight

Company A

Rating

Company A

Weighted Score

Company B

Rating

Company B

Weighted Score

1 2 3 4 5 6

Total 1.00

Source:T. L. Wheelen and J. D. Hunger, Industry Matrix. Copyright 2001 by Wheelen and Hunger Associates. Reprinted bypermission.


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External Factor Analysis Summary (EFAS)

External

Factors Weight Rating

Weighted

Score Comments

1 2 3 4 5

1.00

Opportunities

Threats

Total Weighted Score

Notes: 1. List opportunities and threats (510) in column 1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not Important) in Column 2based on that factors probable impact on the companys strategic position. The total weights must sum to 1.00. 3. Rate each factor from 5 (Outstanding)to 1 (Poor) in Column 3 based on the companys response to that factor. 4. Multiply each factors weight times its rating to obtain each factorsweighted score in Column 4. 5. Use Column 5 (comments) for rationale used for each factor. 6. Add the weighted scores to obtain the total weightedscore for the company in Column 4. This tells how well the company is responding to the strategic factors in its external environment.Source:T. L. Wheelen and J. D. Hunger, External Strategic Factors Analysis Summary (EFAS). Copyright 1991 by Wheelen and Hunger Associates.Reprinted by permission.


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External Factor Analysis Summary (EFAS)

Maytag Example

External Factors Weight Rating

Weighted

Score Comments

1.00

Opportunities

Economic integration of

European Community

Demographics favor qualityappliances

Economic development of Asia

Opening of Eastern Europe

Trend to Super Stores

Threats

Increasing government regulations

Strong U.S. competition

Whirlpool and Electrolux strong

globally

New product advances

Japanese appliance companies

Total Scores

.20

.10

.05

.05

.10

.10

.10

.15

.05

.10

4

5

1

2

2

4

4

3

1

2

.80

.50

.05

.10

.20

.40

.40

.45

.05

.20

Acquisition of

Hoover

Maytag quality

Low Maytag presence

Will take time

Maytag weak in this

channel

Well positioned

Well positioned

Hoover weak globally

Questionable

Only Asian presence is

Australia3.15

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