MGMT 4000 Chapter 4: MGMT 4000 Chapter 4
12 Nov 2018
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MGMT*4000 Alex Kremer Chapter 4
ENVIRONMENTAL SCANNING &
INDUSTRY ANALYSIS
ASPECTS OF ENVIRONMENTAL SCANNING • • •
• Long-term success is determined by cohesion with external environmental factors
• Uncertainty in the environment grows for organizations every year
Environmental Uncertainty: The degree of complexity plus the degree of change that exists in an
organization’s environment
• Technology and the globalization of industry are major factors in this growing complexity
• Research has found a positive relationship between environmental scanning and profits
Environmental Scanning: The monitoring, evaluation, and dissemination of information from the
external and internal environments to key people within the corporation
IDENTIFYING EXTERNAL ENVIRONMENTAL VARIABLES
Natural Environment: That part of the external environment that includes physical resources, wildlife,
and climate that are an inherent part of existence on Earth
Societal Environment: Economic, technological, political-legal, and sociocultural environmental forces
that do not directly touch on the short-run activities of an organization but influence its long-run
decisions
Economic Forces: Those that regulate the exchange of materials, money, energy, and
information
Technological Forces: Those that generate problem-solving inventions
Political-Legal Forces: Those that allocate power and provide constraining and protecting laws
and regulations
Sociocultural Forces: Those that regulate the values, mores, and customs of society
Task Environment: The part of the business environment that includes the elements or groups that
directly affect the corporation and, in turn, are affected by it
Industry Analysis: An in-depth examination of key factors within a corporation’s task environment
SCANNING THE NATURAL ENVIRONMENT
• Pollution and exploitation used to be considered externalities until regulation was passed and
public perception shifted against the offending companies
• Sustainability is good for all parties, but is also linked to future profits & understanding demand
MGMT*4000 Alex Kremer Chapter 4
STRATEGIC IMPORTANCE OF THE EXTERNAL ENVIRONMENT • • •
THE S.T.E.E.P ANALYSIS
STEEP Analysis: An approach to scanning the societal environment that examines socio-cultural,
technological, economic, ecological, and political-legal forces. Also called PESTEL analysis
S Sociocultural Ex. Lifestyle, activism, age distribution, population growth, health care
T Technological Ex. Patent protection, internet availability, hacking activity, new goods
E Economic Ex. GDP trends, interest rates, inflation, unemployment, currencies
E Ecological Ex. Reuse, environmental laws, global warming impacts, pollution
P Political-legal Ex. Antitrust laws, immigration laws, tax laws, foreign trade laws
8 SOCIOCULTURAL TRENDS AFFECTING THE WORLD
1. Increased environmental awareness
2. Increased health consciousness
3. Expanding seniors market
4. Impact of millennials
5. Declining mass market
6. Changing pace and location of life
7. Changing household composition
8. Increased diversity of workforces
6 TECHNOLOGICAL TRENDS AFFECTING THE WORLD
1. Genetically altered organisms
2. Smart, mobile robots
3. Virtual personal assistants
4. Precision farming
5. Alternative energy sources
6. Portable information devices &
electronic networking
4 ECONOMIC TRENDS AFFECTING THE WORLD
1. Fluctuating oil prices
2. Conservative economies due to financial crises
3. Rapid economic development of BRIC (Brazil/Russia/India/China) countries
4. Eastern Europe has become a major supplier to EU countries
6 ECOLOGICAL TRENDS AFFECTING THE WORLD
1. Regulatory risk (cost savings & expenses to meet regulatory requirements)
2. Supply chain risk (higher energy costs and tougher traversal of routes)
3. Product and technology risk (sustainability can be a prerequisite to better profits)
4. Litigation risk (lawsuits stemming from environmental damage)
5. Reputational risk (negative perceptions surrounding ignorance of issues)
6. Physical risk (direct risk posed by climate change)
POLITICAL-LEGAL TRENDS AFFECTING THE WORLD
1. Antitrust laws impeding strategic growth and acquisition
2. High levels of taxation and tax evasion
3. Red tape around the world continues to stagnate growth and stamp out competition
4. WTO trade and tariff regulation to avoid favouritism among trading countries
MGMT*4000 Alex Kremer Chapter 4
INTERNATIONAL SOCIETAL CONSIDERATIONS
Multinational Corporation (MNC): A company that has significant assets and activities in multiple
countries
• STEEP variables trade between and across borders, so strategic management must be flexible
• Western countries have less productive workers (limits and laws), so manufacturing is moved
• When expanding, STEEP factors that align with domestic ones are good strengths to have
SCANNING THE TASK ENVIRONMENT
• The best scanning occurs when multiple business functions work together to compile data
IDENTIFYING EXTERNAL STRATEGIC FACTORS
• Firms best at avoiding surprises had integrated systems of planning, budgeting, and review
• Choosing which variables to track is important; there are too many to follow
Strategic Myopia: The willingness to reject unfamiliar as well as negative information
