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Chapter 5

Chapter 5 Notes.docx

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Pat Lemieux

Chapter 5: Environment Analysis: The Strategy-Environment Linkage Conducting Environment Analysis Step 1: Focus the Environment Analysis The initial challenge in environment analysis is to find and focus on the major forces that will affect the success of your strategic proposal; this begins by establishing the rough boundaries of the targeted environment (the industry or market segment). These boundaries represent what we call the relevant environment for the strategic proposal. Within this limited environment, you will need to establish a time horizon for analysis and to isolate the specific forces of demand, supply, competition, and government policy. Focus is critical to understanding the prospects of a strategy. Three tools will be useful in achieving a focused and properly timed environment analysis: a) your assessment of the performance of the business b) the strategic proposal itself c) the profit model underlying the business and the specific proposal To define the right time horizon, there are three factors that will help: a) the pace of change in competitive and other industry forces b) the flexibility of the strategic commitment under consideration c) the time required to implement the new strategy Refer to the text for a detailed description of the above tools. Minimizing the Risks of Focus a) Macroenvironment Scanning If your focus is too specific, you might miss the emergence of a new market opportunity. Also, if you concentrate overly on a particular time horizon, you may get blind sighted by events that lie just beyond the limit. The risks of focus can be reduced by ensuring your analysis is accompanied by continuous macroenvironment scanning. b) Identifying Market Intrusions A second way to minimize the risks of focus is to keep your eyes open for newcomers into your industry. c) Recycling A third hedge against the risks of focus is to ensure that the analytic process stays open – that you are prepared to incorporate new information and to double back or recycle
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