Chapter 2Analyzing the external environment of the firm
IntroductionGary Hamel & C. K. Prahalad-“everymanager carries aroundin his or herhead a set of biases, assumptions, and presupposition about the structureof the relevant‘industry’,about how one makes money in the industry,about who the competition is andisn’t,about who the customers are andaren’tand so on.Peter Drucker labeled these interrelated sets of assumptions the‘theoryofthe business.’Whenmanagement’sassumptions, premises, or beliefs are incorrect or wheninternal inconsistencies among them render the overall‘theoryof thebusiness’invalid.
Creating the environmentally aware organization•Scanning, monitoring, and gathering competitive intelligence-used to develop forecasts.
Environmental Scanning•Involvessurveillanceofafirm’sexternalenvironmenttopredictenvironmentalchanges and detect changes already underway.•Helps to identify critical trends and eventsbefore changes develop a discernible patternand before competitors recognize them.•Leading firms in an industry can also be a keyindicator of emerging trends.
Environmental monitoring•Firms analysis of the eternal environment thattracks the evolution of environmental trends,sequences of events, or streams of activities.•Monitoringenablesfirmstoevaluatehowdramaticallyenvironmentaltrendsarechanging the competitive landscape.•Helps to determine afirm’sstrategic directionand resource allocation.
Competitive intelligence•Afirmsactivitiesofcollectingandinterpretingdataoncompetitors, defining and understanding the industry, andidentifying competitors strength and weaknesses.•Collecting data on competitors and interpreting such data.•Helpstoanticipatingcompetitorsmovesanddecreasingresponse time.•Executives must be careful to avoid spending so much timeand effort tracking the actions of traditional competitors thatthey ignore new competitors.
Environmental forecasting•The development of plausible projections about the direction,scope speed, and intensity of environmental change.•Its purpose is to predict change.•It asks:Howlongwillittakeanewtechnologytoreachthemarketplace? Will the present social concern about an issueresult in new legislation?Scenario analysis is a more in depth approach to forecasting thatinvolves expertsdetailed assessments of societal trends,economics, politics, technology, or other dimensions of theexternal environment.