Page 79 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Unit 4: External Assessment

He dismissed the possibility of expanding Scooters beyond a pizza delivery company, Notes
saying the market held sufficient room for expansion without having to acquire brands
not related to pizzas.
The group has an association with fast-food chain Nando's that affords a cross-subsidization
on menu and sites.
Gonzaga also dismissed the possibility of listing Scooters on either the JSE Securities
Exchange or the Alt-X, saying the group financed expansions via its franchisees.

Scooters currently has a 5% share of the pizza market, but Gonzaga aimed to boost that
tenfold within five years.

Source: Business Day (Electronic Edition), 27 February 2004.

4.6 Summary

External assessment is a step where a firm identifies opportunities that could benefit it and
threats that it should avoid.

It involves monitoring, evaluating, and disseminating of information from the external
and internal environments to key people within the corporation.
The nature and degree of competition in an industry hinge on five forces, viz. the threat of
new entrants, the bargaining power of customers, the bargaining power of suppliers, the
threat of substitute products or services and the jockeying among current contestants.

To establish a strategic agenda for dealing with these contending currents and to grow
despite them, a company must understand how they work in its industry and how they
affect the company in its particular situation.

The process of conducting external environment assessment starts with collating
information and intelligence on factors affecting the external environment.
Industry analysis is a tool that facilitates a company's understanding of its position relative
to other companies that produce similar products or services.
Environmental analysis or scanning is the process of monitoring the events and evaluating
trends in the external environment, to identify both present and future opportunities and
threats that may influence the firm's ability to reach its goals.

4.7 Keywords

Competition: Rivalry between two or more parties to achieve a similar goal.
Environment: The totality of surrounding conditions.

Environmental Scanning: Process of gathering, analyzing, and dispensing information for tactical
or strategic purposes.
Fragmented Industries: Consists of a large number of small or medium-sized companies, none
of which is in a position to determine industry price.
Porters Five Forces: Named after Michael E. Porter, this model identifies and analyzes 5
competitive forces that shape every industry, and helps determine an industry's weaknesses and
strengths.
Switching Costs: One-time costs that a customer has to bear to switch from one product to
another.

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