ENVIRONMENTAL SCANNING

UNIT 1 - Strategic management

Environmental scanning
● the monitoring, evaluating and disseminating of information - from the external and internal
environments - to key people within the corporation
● purpose - identify strategic factors that will assist in the analysis of the strategic decisions
● Simplest way to represent outcomes - SWOT

SWOT Approach
S - Strengths
W - Weaknesses
O - Opportunities
T - Threats
● External environment - O & T - opportunities and threats - outside the company's control
● Internal environment - S & W - strengths and weaknesses - within the company's control

Strategy Formulation
● process of investigation, analysis and decision making
● provides the company with the criteria for attaining competitive advantage
● Includes -
○ defining the competitive advantages of the business
○ identifying weaknesses
○ crafting the corporate mission
○ specifying achievable objectives
○ setting the policy guidelines

Mission
● the purpose or reason for the organisation's existence
● announces what the company is providing to society - product, service, a combination of both
● defines what sets the company apart from other firms of its type
● Mission describes what the firm is now. Vision describes what the firm wants to become.
○ it is preferable to merge both in your mission statement
● May be broad or narrow
○ broad - keeps the company from limiting itself - fails to clearly identify factors
○ narrow - provide direction and value to the organisation
● Example (TATA) - to improve the quality of life of the communities we serve globally through long-
term stakeholder value creation based on leadership with trust.

Objective
● end result of planned activity
● tells employees what is to be accomplished and when, with apt metrics
● should result in the fulfilment of the mission
● should be action-oriented (begin with "to...")
● Some areas with respect to which objectives may be set include -
○ profitability
○ efficiency
○ utilisation of resources
○ reputation
○ market leadership
○ tech development
● Example - to increase the firm's profitability in 2017 by 10% over 2016

Strategy
● a strategy of a business forms a comprehensive master approach that states how a
business will achieve its objectives and mission
● it maximises competitive advantage and minimizes competitive disadvantage
● the typical larger business addresses 3 types of strategy: corporate, business and functional
● corporate strategies -
○ it describes a company's overall direction in terms of growth and the management of
various businesses
○ they generally fit within the three main categories of stability, growth or retrenchment

mind map of corporate strategies (click on the link to see the full mind map)

● business strategies -
○ it usually occurs at the business unit or production level
 ○ it emphasises on improvement of the competitive position of a corporations products or
services in the specific industry or market segment served by that business unit
○ they fir within 2 main categories - competitive and cooperative strategies
■ competitive strategies help giving you an extra edge over your competitors
■ cooperative strategies may be used to provide a competitive advantage in situations
where the cooperating entities are not in direct competition from customers

functional strategies -

○ it is the approach taken by a functional area to achieve corporate and business unit
objectives and strategies by maximising resource productivity
○ it is concerned with developing and nurturing a distinctive competence to provide a
company or business unit with competitive advantage

Business firms use all 3 strategies simultaneously in the following hierarchy

● Corporate
● Business
● Functional
 Policy
● A policy is a broad guideline for decision-making that links the formulation of a strategy with its
implementation
● companies use policies to make sure that employees throughout the organisation make decisions
and take actions that support the corporation's mission objectives and study
● policies provide clear guidance to managers throughout the organisations

Strategy implementation
● It is also sometimes referred to as operational strategy
● Strategy implementation is a process by which strategies and policies are put into action through
the development of programs, budgets and procedures
● The process might involve changes within the overall structure and/or management system of the
entire organisation
● The implementation of strategy is typically conducted by middle and lower level managers with
review by top management

Tactics/programs
● A program or a tactic is a statement of the activities or steps needed to support a strategy
● In practice, a program is a collection of tactics where a tactic is an individual action taken by the
organization as an element of the effort to accomplish a plan.
● It makes a strategy action-oriented
● This may involve restructuring the company, changing the internal culture or beginning a new
research project

Identifying external environmental variables

 ● The natural environment includes physical resources, wildlife and climate that are an inherent part
of existence on earth
○ A business must scan its natural environment that might previosuly have been taken for
granted
○ Management must scan the natural environment not just for possible strategic factors but
also include in its strategic decision making processes the impact of its activities on the
natural environment
○ Research reveals that scanning the environment for issues is positively related to the firm’s
performance because it helps management identify opportunities to fulfill future market
demand
● The societal environment is mankind’s social system that includes general forces that do not
directly touch on the short run activities but can influence its long term decisions. These include -
○ Economic forces - regulate the exchange of materials, money, energy and information
○ Technological forces - generate problem solving inventions
○ Political and legal forces - allocate power and protecting laws and regulations
○ Socio-cultural environment - regulate the values, morals and customs of the company
● The task environment includes those elements or groups that directly affect a corporation and in
turn are affected by it
○ These include governments, local communities, suppliers, customers, creditors, employees,
○ The task environement is typically focussed on the industry in which the company operates

STEEP Analysis (PESTEL)

● Steep analysis is basically the scanning of the socio-cultural, technological, economic, ecological
and political environment of the company
● Trends in any one area may be very important to firms in one industry but of lesser importance to
firms in another industry
● It is also known as the PESTEL Analysis

Socio-cultural Technological Economic Ecological Political-legal

Lifestyle changes Patent protection Gdp trends NGOs Immigration laws

Growth rate of Internet availability Interest rates Pollution impacts Tax laws
population

Life expectancies Telecom infra Inflation rates Environment laws Stability of govt

Pension plans Hacking activity Unemployment pollution Outsourcing laws

Age distribution Spending (R&D) Wage controls recycling

● Eight current socio-cultural trends that are impacting business are -

○ Increasing environmental awareness
 ○ Growing health consciousness
○ Expanding seniors market
○ Impact impact of millennials
○ Declining mass market
○ Changing pace and location of life
○ Changing household composition
○ Increasing diversity of workforce

Porter’s 5 forces industry analysis

● It is a tool used to analyse the task environment of an organization
● A high force is a threat whereas a low force is treated as an opportunity
● In the short run the forces are constant. However in the long run these forces can be changed
through proper strategy

● The 5 forces analysed under the tool are -

○ The threat of new entrants -
■ New entrants are a threat to an established corporation
■ The threat of entry depends upon the entry barriers and the reaction of the existing
players to the new entrance
■ Stronger the barriers, lower is the threat from new entrants
■ Some examples of barriers are -
● Economies of scale
● Product differentiation
● Capital requirements
● Switching costs
● Distribution channels
● Government policy
○ Rivalry among existing firms -
■ According to porter, intense rivalry may be related to the presence of various factors
like -
● Number of competitors
● Rate of industry growth
● Product or service characteristics
● Amount of fixed costs
● Capacity
● Height of exit barriers
● Diversity of rivals
○ Threat of substitutes -
■ A substitute is a product which is different but satisfies the same want as another
product
 ■ Effective substitutes are limiting factors for a product
■ If switching costs are low, substitutes are a very big threat
○ Bargaining power of buyers
■ Buyers affect an industry by their power to force down the prices, bargain for higher
quality or play competitors against each other
■ The group of buyers is powerful if the following (or few of them) hold true -
● A buyer buys a very large quantity
● He has the potential to integrate backwards (produce the product by himself)
● There are many other suppliers in the market
● The product being purchased is unimportant to the buyers final product
● Switching cost is low
● The purchased product is a large part of his total costs hence acting as an
incentive to buy at a cheaper rate
● A buyer earns low profits and is thus very sensitive to costs
○ Bargaining power of suppliers
■ Suppliers can affect an industry by their ability to raise prices or reduce quality
■ The supplier group is strong if -
● There are very few suppliers in the industry
● The product/service is unique
● Substitutes are not readily available
● Suppliers are able to integrate forward (produce the final product)
VRIO Framework
● It is a resource based approach to organisational analysis
● The VRIO framework is a strategic management tool used to assess the internal resources and
capabilities of a company. The acronym stands for Value, Rarity, Imitability, and Organization.
● Here's what each of the elements of VRIO framework means:
○ Value: This refers to the degree to which a company's resources and capabilities can create
value for the organization. In other words, does the resource or capability help the company
to improve its performance, increase revenue, or reduce costs?
○ Rarity: This refers to how unique the resource or capability is compared to those of other
companies in the industry. If the resource is rare or difficult to replicate, then it gives the
company a competitive advantage.
○ Imitability: This refers to how easy it is for other companies to imitate or replicate the
resource or capability. If it is easy for competitors to copy, then it is not as valuable as a
resource or capability that is difficult to imitate.
○ Organization: This refers to how well the company is organized to leverage its resources and
capabilities for competitive advantage. Does the company have the right processes,
structures, and systems in place to effectively use its resources and capabilities?
● Using the VRIO framework, a company can analyze its internal resources and capabilities and
determine which ones are most valuable and rare, and therefore provide a sustainable competitive
advantage. By leveraging these resources and capabilities, a company can improve its
performance and create value for its stakeholders.
● Example - VRIO analysis for Nykaa -

Core and distinctive competencies

● A competency is a cross-functional integration and coordination of capabilities
 ● A core competency is a collection of competencies that crosses divisional boundaries, is
widespread within the organization and is something that the organization can do exceptionally
well
● A distinctive competency is when the unique resources and core competencies are superior to
those of the competition
○ There are 4 ways to gain a distinctive advantage -
■ It may be an asset endowment like a patent
■ It may be acquired from someone else
■ It may be shared with someone
■ It may be carefully built and accumulated over time within the company

Business models
● A business model is a company’s way of making money
● It includes the key structural and operational characteristics of the company
● A business model is composed of 5 elements -
○ Who it serves
○ What it provides
○ How it makes money
○ How it differentiates and sustains competitive advantage
○ How it provides its product/service
● Some of the many possible business models are -
○ Customer solutions model
■ A consulting model
○ Profit pyramid model
■ Get customers to buy-in at a lo priced, low margin entry point
■ Later move them up to high priced, high margin products where the company makes
its money
○ Multicomponent system / installed base model
■ The product is a system, not just one product, with one component providing the most
profits
○ Advertising model
■ Offer basic product free to make money from advertisements
○ Switchboard model
■ A firm acts as an intermediary to connect buyers to sellers

○ Time model
■ Product r&d and speed are the keys to success in the time model
■ By the time others catch up you are way ahead
 ■ First mover advantage
○ Efficiency model
■ A company waits until a product becomes standarised and then enters the market at
a low price low margin approach that appeals to the mass market
○ Blockbuster model
■ The focus is on few products with high potential pay offs especially if they can be
protected with patents
○ Profit multiplier model
■ The idea of this model is to make a concept that may or may not make money on its
own but through synergy can spin off many profitable products (example - disney
theme parks)
○ Entrepreneurial model
■ A company offers specialised products/services to market niches that are too small to
be worthwhile to large competition but have the potential to grow quickly
○ De facto industry standard model
■ Offers products for free or at a very low price till product becomes a standard in the
market

Product life cycle

● It is a graph showing time plotted against the sales of a product as it moves from the introduction
through growth and maturity to decline
● Its used by marketing managers to discuss the marketing mix of a particular product or group of
products