CHAPTER3
ANALYSING THE ENVIRONMENT
– BASICS
Factors Influencing The
Organization
EXPLORING THE COMPETITIVE
ENVIRONMENT
Why studying the competitive environment is
important?
•In strategy, the environment means everything
and everyone outside the organization:
competitors, customers, government, etc.
• Sustainablecompetitive advantage is an advantage over
competitors that cannot easily be copied.
• Second,most organizations will perceive opportunities that
might be explored and threats that need to be contained
DIFFICULTIES…..
PROACTIVE & REACTIVE APPROACH
● There are difficulties in studying the
environment: the use to which the
analysis will be put; uncertainty in the
topic; coping with the wide range of
environmental influences.
● Environmental analysis can be used
to provide a proactive strategy outcome
or highlight a reactive strategic
situation that will need to be monitored.
Assessment of Environmental Basics
• Environmental analysis can usefully begin with a basic
assessment of the
• market definition and size,
• the market growth and
• the market share.
• Market definition is important because it will determine the size
and scope of the strategic opportunity. Market definition will be
defined by a consideration of customers and the availability of
substitute products.
• Market growth is commonly estimated early in any strategic
analysis because of its importance with regard to the growth
objectives of an organization.
• A basic estimate of market share can be used to estimate
whether an organization has a significant share of a market as
a starting point in exploring the strategic implications.
[Link] OF
TURBULENCE IN THE
ENVIRONMENT
• The environmental forces surrounding the organization can be
assessed according to two main measures:
• Changeability – the degree to which the environment is likely to
change. For example, there is low changeability in the liquid milk
market and high changeability in the various internet markets.
• Predictability – the degree with which such changes can be
predicted. For example, changes can be predicted with some
certainty in the mobile telephone market but remain largely
unknown in Science/Fashion.
• If the level of turbulence is high – called hyper-competition
• When events are particularly uncertain and prone to sudden and
significant change, corporate strategy needs to become more
flexible and organize its procedures to cope with the situation
3. PESTEL ANALYSIS
SCENARIO-BASED
ANALYSIS
•Ascenario is a picture of a possible future
environment for the organization, whose
strategic implications can then be
investigated. It is less concerned with
prediction and more involved with developing
different perspectives on the future.
•The aim is to stimulate new strategic thought
about the possible consequences of events,
rather than make an accurate prediction of
the future.
4. GROWTH CHARACTERISTICS
•Growth characteristics can be explored using the industry
life cycle concept.
•Markets are divided into a series of development stages:
introduction, growth, maturity and decline.
•Inaddition, the maturity stage may be subject to the
cyclical variations associated with general economic or
other factors over which the company has little control.
•Different stages of the life cycle demand different
corporate strategies.
•The early stages probably require greater investment in
R&D and marketing to develop and explain the product.
• The later stages should be more profitable on a
conventional view of the life cycle.
•However, there is an argument that takes a more
unconventional stance: it suggests that it is during the
mature phase that investment should increase in order to
restore growth.
5. KEY FACTORS FOR
SUCCESS IN AN
INDUSTRY(KSF)
•The key success factors (KSF) are those
resources, skills and attributes of the
organizations in the industry that are
essential to deliver success in the market
place.
• Success often means profitability, but may
take on a broader meaning in some public
service or non-profit-making organizations.
6. ANALYSING THE COMPETITIVE
INDUSTRY ENVIRONMENT –
THE CONTRIBUTION OF PORTER
7. ANALYSIS OF
COOPERATIVE FACTORS
IN THE INDUSTRY
THE FOUR LINKS MODEL
• Informal co-operative links and networks are the
range of contacts that arise from organizations
joining together informally for a common purpose.
Formal co-operative linkages are usually bound by
some form of legal contract – examples include
alliances and joint ventures. Complementors are
those companies whose products add more value to
the products of the base organization than they
would derive from their own products by themselves.
Government links and networks concern the
relationships that exist between national and
international governments and organizations,
including those concerning tax, legislation and
formal government purchasing.
8. In-Depth Analysis of
Immediate Competitors
COMPETITOR PROFILE
• Competitor profiling is an essential first step in
analyzing immediate competitors. It will seek to
identify the strategic resources of rivals.
● More generally, it will explore the objectives,
resources, past performance, current products and
services, and present strategies of at least one
competitor.
● Competitor profiling should be regarded as an
ongoing task. Its emergent nature is particularly
important in fast-moving markets
9. ANALYSING THE
CUSTOMER AND MARKET
SEGMENTATION
1 identification of the
customer and the
market;
2 market
segmentation and its
strategic implications;
3 the role of
customer service and
quality
Customer and Market Identification
• In identifying markets, it is important to identify the customer
base sufficiently broadly. A useful distinction can be drawn
between the immediate customer base and a wider franchise
based on product substitution.
• immediate customer base – for example, those travelling on
railways; and
• wider customer franchise – for example, those travelling by public
transport, including railways, aircraft and buses.
• it is important to develop strategies that identify customers
and competitors. Ultimately, if the market environment is
incorrectly defined, then competitors may creep up and steal
customers without the company realising it until it is too late.
• It is also important to explore future customers as well as the
current customer base.
Market Segmentation
• Shift from Mass marketing to targeted marketing
mass marketing – where one product is sold to all
targeted marketing – where the seller identifies market segments,
selects one or more of these and then develops products or
services targeted specially at the segment.
Market segmentation is the identification of specific parts of a
market and the development of different market offerings that will
be attractive to those segments
• Segmentation is important element of any market
analysis.
• Some segments may be more profitable and attractive than
others. For example, large segments may have low profit margins
but their size may make them attractive, even at these levels of
profitability. e.g Alto Vs Vitara
●Some segments may have more competition than others. For
example, a specialist segment may have only a limited number of
competitors.
●Some segments may be growing faster and offer more
development opportunities than others.
CONCLUSION