Strategic Planning: Environmental Scanning

Dr. Clive Vlieland-Boddy FCA FCCA MBA

I think you should be more explicit here in step two.

 How

can you govern a country which has 246 varieties of cheese?

-- Charles De Gaulle

 The

nicest thing about not planning is that failure comes as a complete surprise, and is not preceded by a period of worry and depression.
-- John Perton

STRATEGIC MANAGEMENT: CONCEPT

Ongoing process , evaluates and

controls the business and the

industries in which the company is involved.

Assesses its competitors and sets goals and strategies to meet all existing and potential competitors.

Reassesses each strategy regularly.

MISSION AND OBJECTIVES

Describes the company's business vision: unchanging values and purpose of the firm,

forward-looking visionary goals that guide the

pursuit of future opportunities.

Define measurable financial and strategic objectives:

Financial objectives involve measures such

as sales targets and earnings growth. Strategic objectives are related to the firm's business position, and may include measures such as market share and reputation.

Environmental Scanning

Common part of strategic analysis There are internal elements & external elements All interrelate

Tools/Methods of Analysis Results Interpretation

TOOLS AND METHODS

SWOT Strenghts, Weaknesses, Opportunities and Threats Analysis Economic Development Scenarios Other Tools

SWOT

External Marketing Environment

External Environment is not controllable
Demographics
Social Change Ever-Changing Marketplace Economic Conditions

Product Distribution Promotion Price Competition

Target Market
Political & Legal Factors

Environmental Scanning

Technology

SWOT Framework

SWOT analysis

Popular method used for summarising of the innovation analysis results;

Provides an overview of regional strengths and weaknesses as well as opportunities and threats the region is currently facing or may face in the future.

ENVIRONMENTAL SCAN
The environmental scan includes the following components:

Internal analysis of the firm

SWOT Analysis

Analysis of the firm's industry

Porter's five forces

External macro-environment

PEST Analysis

Definitions: Strengths (S)

An organizational resource or capability May be used to advance the organizations / programs interests

Definitions: Weaknesses (W)

The absence of certain strengths or capabilities that are needed to move the organization forward

Internal factors

A STRENGTH is a is a resource or capacity of the region that it can take advantage of to improve its innovation system and competitiveness, e.g.

Access to well-educated labour force; Good communication and infrastructure; Diversified regional economic structure; Well-functioning public services; Etc.

Internal factors

WEAKNESS is a limitation, fault or defect in the region that will keep it from improving the innovation system, e.g.

Limited number of start ups in the region; Peripheral location and low population density; High degree of long-term unemployment; Lack of cooperation between companies; Etc.

Strengths & Weaknesses

May be identified by asking questions:

Why does we do well? What do we do less well? In what areas are we healthy & robust? In what areas are we weak or struggling?

Strengths & Weaknesses

May be identified by asking questions:

What might someone looking at our industry in general point out as unique or distinctive either positive or negative about us? What resources can we call upon? How do these resources compare with our needs?

Definitions: Opportunities (O)

Chances for growth or positive change in direction revealed by changes or trends in the external environment

Definitions: Threats (T)

Changes or trends in the external environment May also reveal a treat to overcome or challenge to meet Threats are sometimes described as Traps

External factors

OPPORTUNITY is a favourable situation in the region's environment, e.g.

Availability of EU funds and programmes; New markets through increased internationalisation; New educational opportunities; Cross-border cooperation; Global increase for demand in tourism services; Etc.

External factors

THREAT is an unfavourable situation in the region's environment that may potentially damage the strategy, e.g.

Increasing of energy prices; Termination of regional development funding; Decrease of population; Emigration of high-qualified labour force; Etc.

Opportunities & Threats

Are identified by looking beyond the boundaries of the organization Questions might include the following:

What are the external trends that will affect us? How? What is changing in our communities that will affect us? How?

Opportunities & Threats

Questions might include the following:

What are the the needs in the external environment that could be met us? Do any of our weaknesses make us particularly vulnerable to a changing environment?

SWOT Design

One SWOT strategy for the whole region; or A set of SWOT strategies

Relevant if different views of the actors involved in the SWOT process; E.g. a regional economic strength may be regarded as a weakness from environmental point of view; May be structured along different sectors (economic, environmental, social, etc) or target groups (companies, public agencies, R&D sector, etc).

STRATEGIC MANAGEMENT: MODEL

Scan External Environment National Global Identify Strategic Factors Opportunities Threats Implementing Strategy via Changes in: Structure Human resources Information & control systems

Evaluate Current: Mission Goals Grand Strategy SWOT

Define New: Mission Goals Grand Strategy

Identify Strategic: Corporate Business Functional

Scan Internal Environment Core Competence Synergy Value Creation

Identify Strategic Factors Strengths

Weaknesses

STRATEGIC MANAGEMENT: SWOT ANALYSIS

A scan of the internal and external environment is

an important part of the strategic planning process.

Environmental factors internal to the firm usually can be classified as strengths (S) or weaknesses (W),

and those external to the firm can be classified as

opportunities (O) or threats (T).

The SWOT analysis provides information that is helpful in matching the firm's resources and capabilities to the competitive environment in which it operates

SWOT Analysis Main Steps

Strenghts 1 2 3 Weaknesses 1 2 3 OW Actions OxWx OxWx OxWx

Scaning of Regional Environment

Analysis of Strenghts and Weaknesss

Analysis of Opportunities and Threats

Opportunities 1 2 3

OS Actions OxSx OxSx OxSx

Threats 1 2 3

TS Actions TxSx TxSx TxSx

TW Actions TxWx TxWx TxWx

SWOT Matrix

Strengths

STRATEGIC MANAGEMENT: SWOT ANALYSIS

Weaknesses

Patents Strong brand names Good reputation among customers

Lack of patent protection A weak brand name Poor reputation among customers

Cost advantages from proprietary know-how

High cost structure Lack of access to the best natural resources

Exclusive access to high grade natural resources

Lack of access to key distribution channels

Favorable access to distribution networks

STRATEGIC MANAGEMENT: SWOT ANALYSIS

Opportunities

Threats

An unfulfilled customer
need

Shifts in consumer tastes

away from the firm's products

Arrival of new technologies Loosening of regulations Removal of international trade barriers

Emergence of substitute
products New regulations Increased trade barriers

STRATEGIC MANAGEMENT: SWOT MATRIX

To develop strategies that take into account the SWOT profile, a matrix of these factors can be constructed.

S-O strategies pursue opportunities that are a good fit

to the company's strengths.

W-O strategies overcome weaknesses to pursue opportunities.

S-T strategies identify ways that the firm can use its
strengths to reduce its vulnerability to external threats.

W-T strategies establish a defensive plan to prevent the firm's weaknesses from making it highly

susceptible to external threats.

Using SWOT as a Basis for Regional Development Strategy

The strategy shall define priorities and actions that Build on STRENGTHS; Eliminate WEAKNESSES; Exploit OPPORTUNITIES; Mitigate the effect of THREATS.

SWOT Golden Rules

Be realistic about the strengths and weakness of your region when conducting the SWOT; Avoid general SWOT! It should always be specific; Distinguish between where your region is today and where it could be in the future; Keep your SWOT short and simple.

Development Scenarios

Development Scenarios
An alternative to SWOT analysis Development scenarios are not predictions or forecasts of the future! They intend to explore a number of wideranging possible futures and access their implications for the region and its main actors

Development Scenarios Main Steps

Identification of Regional Drivers and Regional Issues

Assessment of Regional Drivers and Dependency Analysis

Elaboration of Dependency Matrix

Development Scenario 1

Development Scenario 2

Development Scenario 3

Development Scenario 4

Scenarios Design

High Dominance

Elaboration of a DEPENDENCY MATRIX

Regional Leadership Environmental Technologies Globalisation Entrepreneurship Gaps in the skills base Gateway to the Sky Importance of flexible businesses R&D base

Medium Dominance

Importance of Knowledge And service Sector Gateways to the sea specialists

Network Society

Importance of knowledge

Business composition & Lifecycle Surface transport &Connectivity

Low Dominance

Quality of Life

Polarisation Homes not Houses

Low dependency

Medium Dependency

High Dependency

Using Scenarios as a Basis for Regional Development Strategy

Definition of OPPORTUNITIES and THREATS for the region under each of the scenarios; Selection of number of STRATEGIC THREATS and STRATEGIC OPPORTUNITIES from all scenarios; Finally definition of STRATEGIC PRIORITIES and ACTIONS based on the above strategic risks and preferences;

Stages of your RIS project

06/05 Stage 0 05/06 Stage 1 04/07 Stage 2
Definition and selection of pilot actions Preparing for Monitoring

01/08

Need analysi s Detailed elaboration of the work program

Networ k analysi s

Interpretation & discussion of analyses results; Consensus building

Definition of strategic priorities and actions

Your Regional Innovation Strategy

Coordinatio n Offer analysi s

SWOT and Synthesis

Porters 5 Forces

PORTERS FIVE FORCES

Threat of substitute products Potential new entrants Rivalry among competitors Bargaining power of buyers

Bargaining power of suppliers

PEST or PESTEL

PEST ANALYSIS
scan of the in external macrofirm environment which the operates can be expressed in terms of the following factors:

Political Economic Social Technological

Some add Environmental and Legal to extend

PEST to PESTEL

PEST ANALYSIS
Political Factors

Economic Factors

Tax policy Employment laws Environmental regulations Trade restrictions and tariffs Political stability

Economic growth Interest rates Exchange rates Inflation rate

Social Factors

Technological Factors

Health consciousness Population growth rate

R&D activity Automation Technology incentives Rate of technological change

Age distribution
Career attitudes Emphasis on safety

FORMULATIONwellStrategy formulation is vital to the

being of a company or organization.

A leadership skill

A process that leaders use to focus

for positioning the firm

Iterative Assess, decide, act, and review Leaders determine how much to

stretch

How to create the benefits for customers

PESTEL

E is for Environmental and L is for Legal

Strategic Issues

HIERARCHICAL LEVELS
Strategy can be formulated on three different levels:

Corporate level: Company's overall direction in terms of its general attitude towards growth and management of its various business and product lines.

Directional strategy Portfolio analysis Parenting strategy

and it

Business unit level: It usually occurs at the business unit or product level in the specific industry or marketing segment served by that business unit.

emphasizes improvement of the competitive position of a corporation's products or services

Functional or departmental level

It is the approach taken by a functional area to achieve corporate and business unit objectives and strategies by maximizing resource productivity

SIX SUPPORTING FACTORS

1. 2. 3. 4. 5. 6.

Action Planning Organization Structure Human Resources The Annual Business Plan Monitoring and Control Linkage.

STRATEGY EVALUATION
The implementation of the strategy must be monitored and adjustments made as needed.

Evaluation and control consists of the following steps:

Define parameters to be measured Define target values for those parameters Perform measurements

Compare measured results to the pre-defined

standard

Make necessary changes

Evaluation Criteria:

Suitability
Feasibility Acceptability

SUITABILITY
Suitability deals with the overall rationale of the strategy. The key point to consider is whether the strategy would address the key strategic issues underlined by the organization's strategic position. Does it make economic sense? Would the organization obtain economies of scale, economies of scope or experience economy? Would it be suitable in terms of environment and capabilities? Tools that can be used to evaluate suitability include: Ranking strategic options Decision trees What-if analysis

FEASIBILITYthe resources required to Feasibility is concerned with

implement the strategy are available, can be developed or obtained. Resources include funding, people, time and information. Tools that can be used to evaluate feasibility include:
Break-even Resource

analysis

deployment analysis

Cash

flow analysis and forecasting

STRATEGY EVALUATION: ACCEPTABILITY

Acceptability is concerned with the expectations of the identified stakeholders (mainly shareholders, employees and customers) with the expected performance outcomes. Return deals with the benefits expected by the stakeholders (financial and non-financial). Risk deals with the probability and consequences of failure of a strategy (financial and non-financial). Stakeholder reactions deals with anticipating the likely reaction of stakeholders.

Tools that can be used to evaluate acceptability include:

what-if analysis stakeholder mapping

STRATEGIC MANAGEMENT: GENERAL APPROACHES

In general terms, there are two main approaches, which are opposite but complement each other in some ways, to strategic management: The Industrial Organizational Approach

Based on economic theory deals with issues like competitive rivalry, resource allocation, economies of scale Assumptions rationality, self disciplined behavior, profit maximization

The sociological approach

Deals primarily with human interactions Assumptions bounded rationality, satisfying behavior, profit sub-optimality. An example of a company that currently operates this way is Google

Strategic management techniques can be viewed as bottom-up, top-down, or collaborative processes.

STRATEGIC MANAGEMENT: LIMITATIONS

Stifle creativity, especially if it is rigidly enforced. When a strategy becomes internalized into a corporate culture, it can lead to group think Can cause an organization to define itself too narrowly.

In 2000, Gary Hamel coined the term strategic convergence

Explain the limited scope of the strategies being used by rivals in greatly differing circumstances. Strategies converge more than they should, because the more successful ones are imitated by firms that do not understand that the

strategic process involves designing a custom strategy for the

specifics of each situation.

Other Issues

Social ForcesThe Poverty of Time

A lack of time to do anything but work, commute to work, handle family situations, do housework, shop, eat, sleep...

An environmental scan of todays marketplace

SOCIAL FORCES- Demographics

The World Population at a Glance 6.4 billion
Growth in developing nations Shift of age structure of populations Rising income levels and living standards

Implications?

ECONOMIC FORCES -Economy

Macroeconomic Conditions

Inflation-rise in prices without rise in wages Recession-drop in income, production and employment

Microeconomic Conditions

Consumer Income
Gross Income 100% of earnings Disposable Income-85% of earnings Discretionary Income-15% of earnings

Technological Factors

New technology is a weapon against inflation and recession U.S. excels at basic research Japan excels at applied research Information technology and the Internet have increased productivity

COMPETITIVE FORCES -Competition

Demographics

Demographics describes a population according to selected characteristics such as age, gender, ethnicity, income, and occupation.

Baby Boomers

Baby boomers is the generation of children born between 1946 and 1964.

Generation X

Generation X includes the 15% of the U.S. population born between 1965 and 1976.

Generation Y

Generation Y includes the 72 million Americans born between 1977 and 1994.

THANK YOU