Page 70 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Strategic Management

Notes Buyers, suppliers, new entrants and substitute products are all competitive forces. The state of
competition in an industry is shaped by these forces. The collective strength of these forces
determines the ultimate profit potential of an industry. It ranges from intense in certain industries
to mild in certain industries.
Whatever their collective strength, the corporate strategist’s goal is to find a position in the
industry where his or her company can best defend itself against these forces or can influence
them in its favour. The strategist must delve below the surface and analyze the underlying
sources of competition. Knowledge of these underlying sources of competition helps:
1. To provide the groundwork for a strategic agenda.
2. To highlight the competitive strengths and weaknesses of the company.

3. To animate the positioning of the company in its industry.
4. To clarify the areas where strategic changes may yield the greatest payoff and
5. To highlight the sources of greatest significance, either as opportunity or thereat.
Understanding these sources will also help in considering areas for diversification.
The strongest competitive forces determine the profitability of an industry; so, competitive
analysis is of crucial importance in strategy formulation.

4.5 Environmental Scanning

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. Strategists need to analyze a variety of
different components of the external environment, identify “Key Players” within those domains,
and be very cognizant of both threats and opportunities within the environment. It is from such
an analysis that managers can make decisions on whether to react to, ignore, or try to influence
or anticipate future opportunities and threats discovered. The main purpose of environmental
scanning is therefore to find out the correct “fit” between the firm and its environment, so that
managers can formulate strategies to take advantage of the opportunities and avoid or reduce
the impact of threats.

4.5.1 Features of Environmental Analysis

In the context of a changing environment, the process of environmental analysis is very well
comparable to the functions of radar. From this analogy, it is possible to derive three important
features of the process of environmental analysis (Ian Wilson).

Holistic Exercise

Environmental analysis is a holistic exercise in the sense that it must comprise a total view of the
environment rather than a piecemeal view of trends. It is a process of looking at the forest,
rather than the trees.

Continuous Activity

The analysis of environment must be a continuous process rather than a one – shot deal. Strategists
must keep on tracking shifts in the overall pattern of trends and carry out detailed studies to
keep a close watch on major trends.

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