Module 3 - The External Environment Analysis

Strategic
Planning
Module 3:
The External Environment Analysis
Environmental Scanning: SWOT Analysis
• A survey of the organization’s strengths, weaknesses,

opportunities and threats
• Can integrate information regarding external environment and

organization’s capabilities
• Requires analytical input from a diverse group of core

business areas
• Input must be brutally honest, creative, thorough, and

comprehensive
2
SWOT Analysis
3
Key SWOT
Questions
4
Macro-Environmental Influences
• Macro-Environment
– The environment external to the organization, its operations and its
industry.
– Macro-environmental factors strongly influence the strategy an
organization must adopt to compete successfully within its markets
and remain profitable
– The organization has little to no influence over these factors
– The most important element of the macro environment is the
direction in which it is trending
– One of the best tools for considering trends in the macro environment
is the PESTEL analysis
5
External Environment - PESTLE
6
PESTLE Elements
• Political
– Taxation, minimum wages, export incentives, gov’t stability
• Economic
– Capital, labor, resources
• Social
– Tends against unhealthy activities, wealth, demographic trends
• Technology
– Disruptive Technology: technology that appear with little warning and
has a significant impact on how business is conducted in an industry
– Obsolescence of technology, development of new technology to
maintain competitiveness
7
PESTLE Elements
• Legal
– Closely related to political conditions
– Results of political decisions (laws and legislation)
– Impacts labor requirements, regulatory compliance (environmental,
financial, safety and health, product standards, etc.)
– Licensing, permits, tariffs, import/export requirements, fines
• Environment
– Carbon footprint, compliance, ethics, corporate social responsibility,
customer demands regarding environmental impact of corporations
8
Competitive Intelligence
• The process of collecting and analyzing information about

competitors’ strengths and weaknesses in a legal and ethical
manner to enhance business decision-making
• Competitive intelligence activities can be basically grouped
into two main types:
– Tactical - shorter-term and seeks to provide input into issues such as
capturing market share or increasing revenues
– Strategic - focuses on longer-term issues such as key risks and
opportunities facing the enterprise
Competitive intelligence is different from corporate or industrial
espionage, which use illegal and unethical methods to gain an unfair
competitive advantage
The Competitive Intelligence Process
Define User Identify & implement winning

Needs & counter strategy
Resources
Anticipate competitive
Collect actions; evaluate impact
Understand goals, tactics and

strategy
Analyze
Monitor competitor actions

Disseminate
Intelligence
1. The company must determine its key intelligence needs

2. Collect, analyze and disseminate the intelligence by monitoring the
competition, understanding its goals, strategy and tactics.
3. Anticipate its actions and understand the expected impact of those actions
4. Implement counter strategies
Why Competitive Intelligence?
• Playing the Game Better:

– Focus on existing competitors/strategic position
– Leverage value chain strengths
– Incrementally improve existing strategies and tactics
• Playing the Game Differently:

– New market opportunities
– New customers
– Develop / leverage new value chain strengths
– Formulate new strategies and tactics
Micro External Environment Analysis
• Defined as the conditions in the organization’s industry, or,

the environment immediately surrounding the organization.
• Micro external environmental conditions result from:
– The behaviors of other organizations in the industry
– The suppliers to the industry
– The customers of the industry
– Organizations attempting to enter the industry
• Micro external environment is best considered by examining
Porter’s five forces model
12
Porter’s Five Forces Model
• Represents all the significant micro external environmental

factors in a framework convenient for analysis
• The attractiveness of an industry is determined by five

sources of competitive pressure:
– Three horizontal elements: competition from substitutes, competition
from entrants and competition from established rivals
– Two vertical elements: the power of suppliers and the power of
customers.
13
Porter’s Five Forces of Competition Framework
Threat from substitute products
Bargaining power Rivalry among Bargaining power

of suppliers competing firms of consumers
Threat of entry of new competitors
14
1. Competition from Substitutes
• The customer’s perception of the value of a product or service

can depend on the availability of substitute products
• The existence of close substitutes enables customers to easily

switch on the basis of differentiating factors, including price
(i.e. online bookstores vs. bookshops)
• The more complex the product or service, the more difficult

to determine differentiation factors
15
2. Threat of Entry
• Expanding companies are attracted to industries that can
provide a good ROI and have low barriers to entry (overly
competitive or highly regulated)
• Established organizations often try to create barriers to avoid
the threat of new entrants
B
A
R
New Established
R
Competitor I
Industry
Entry E
Incumbent
R
S
16
Barriers to Entry
17
3. Methods of Rivalry Among Competitors
Similar product, service Competition for markets

or value to your market with dissimilar products
(Ford vs. GM) Direct Indirect or services
(Pizza shop competes with
Competition Competition fried chicken shop)
Ability to overcome entry

Compete for same
customers, but offer
Potential barriers and develop
Substitutes synergies with your industry
different functionality Competitors (Microsoft/Nokia smart phones)
(Tea vs. coffee, margarine
vs. butter)
18
4. Bargaining Power of Customers
Organizations Deal with Two Types of Markets:
Markets for Outputs

Selling goods or services to customers (distributors,
customers or other manufacturers)
Customers’ influence dependent upon importance
of products to them & their bargaining power
Markets for Inputs

Purchasing raw materials, components
and financial & labor services.
19
5. Bargaining Power of Suppliers
• The power balance between organization and supplier is

similar to the relationship between organization and customer
• The organization becomes the customer and the producer of
the inputs it requires are the suppliers
• Some small groups of suppliers may form cartels or
cooperatives to increase their bargaining strength
• Suppliers use leverage such as threats to raise prices or
reduce quantity or quality of goods they supply
20
Complements: A Missing Force in Porter
• Complementary products that enhance or add value to

existing products
• Level of value is determined by the relationship between the
provider of the principal product or service and the providers
of the complements
• Examples include software complements by a separate
manufacturer that is utilized by Microsoft Windows OS;
Microsoft Windows is the complementary proprietary OS of
most computer manufacturers.
21
Ansoff Approach to Competitive Strategy
Competitive
Position
Competitive
Strategy
Portfolio
Posture
©Allan Gardner, 2018 All Right Reserved 22

Ansoff’s Competitive Position
• Organization’s expertise
& execution by all core
functions
Capability
Strategic
Strategy
Investment
• Growth direction
• Market position
Ansoff’s • Organization strategy,
Competitive capabilities and facilities
• Differentiation
Strategy
Components
23

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Strategic

• A survey of the organization’s strengths, weaknesses,

• Can integrate information regarding external environment and

• Requires analytical input from a diverse group of core

• Input must be brutally honest, creative, thorough, and

• The process of collecting and analyzing information about

Define User Identify & implement winning

Understand goals, tactics and

Monitor competitor actions

1. The company must determine its key intelligence needs

• Playing the Game Better:

• Playing the Game Differently:

• Defined as the conditions in the organization’s industry, or,

• Represents all the significant micro external environmental

• The attractiveness of an industry is determined by five

Threat from substitute products

Bargaining power Rivalry among Bargaining power

Threat of entry of new competitors

• The customer’s perception of the value of a product or service

• The existence of close substitutes enables customers to easily

• The more complex the product or service, the more difficult

Similar product, service Competition for markets

Ability to overcome entry

Markets for Outputs

Markets for Inputs

• The power balance between organization and supplier is

• Complementary products that enhance or add value to

©Allan Gardner, 2018 All Right Reserved 22

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