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Chapter 2

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York University
Administrative Studies
ADMS 4900
Kelly Thomson

Jan.16/14 Lecture 2 Chapter 2 – Analyzing the External Environment of the Firm Creating the Environmentally Aware Organization Scanning, Monitoring, Competitive Intelligence, Forecasting and Scenario Analysis 1. environmental scanning enhance environmental awareness to predict environmental changes and detect changes already underway ~ alert of critical trends before competitors can define definite pattern 2. environmental monitoring tracks evolution of environmental trends, sequences of events or activities ~ should look at trends with suppliers and with their demographics 3. competitive intelligence helps define and understand industry as well as identify rivals’ strengths and weaknesses ~ anticipate competitors moves ~ competitive intelligence is information, a tool, a means to deliver reasonable assessments, a way of life (a process) 4. environmental forecasting developmental plausible projections about the direction, scope, speed and intensity of environmental change ~ purpose is to predict change ~ extreme sides, prediction is black and white or completely unpredictable 5. scenario analysis draws on range of disciplines and interests, among them economics, psychology, sociology, and demographics ~ helps to understand how trends and forecast could upset unpredictable events 1. SWOT Analysis - strengths, weaknesses, opportunities, and threats - allow to analyze firm’s internal (strengths and weaknesses) and external environments (opportunities and threats) - reply on this to stimulate self-reflection and group discussions to improve firms position - strategy cannot be cast the net too narrowly and don’t focus too much on one moment in time - not used to forecast of achieve competitive advantage 2. The General Environment 1. demographic/psychographic - root of many changes - psychographics relates to the attitudes and interests, can capture the difference between groups 2. sociocultural culture - influences the values, beliefs and lifestyle of society - impact attitudes about entrepreneurship and start up activities of firms 3. political/legal - regulations industries must comply with - environmental regulations, occupational health and safety, immigration policies etc. 4. technological - development in technology lead to new products and services and improve how they are produced and delivered to end user - innovation can create new industries 5. economic - affects all industries - interest rates, unemployment rates, CPI, GDP, disposable income 6. global - globalization allows industries to expand and reach larger potential markets and access to broader base of factors of production (raw materials, labour, skilled managers) - exchange rates, global trade The Competitive Environment 3. Porter’s Five-Forces Model of Industry Competition - affects firm’s ability to compete in given markets - determine profit potential for particular industry - assess overall attractiveness of industry, whether firm should remain/exit - increasing/decreasing resource commitments - how to improve competitive position 1. threat of new entrants - possibility that profits of established firms may be eroded by new competitors - economies of scale spreading cost of production and other business activities over a large number of units produced ~ new entrants are at a cost disadvantage - product differentiation strong brand identification and customer loyalty - capital requirements invest large financial resources to compete creates barrier - switching costs one-time costs that buyer faces when switching from one supplier to another (specialized equipment, non-standa
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