S T R AT E G Y

F O R M U L AT I O N :
E N V I R O N M E N TA L
SCANNING / EXTENAL
AUDIT
LESSON 5
 • Is the process of conducting research through survey,
observation and other methods and gathering and
analyzing information for the organization.
Purpose of environmental scanning.
• The strategic manager will be aware of the market
structure characterized by:
1. Market concentration – the degree by which a
A. E N V I R O N M E N TAL small number of companies
S C AN N I N G
2. Entry barriers – the difficulties and challenges by
potential new entrants which are entering the
market.
3. Product differentiation – the degree by which a
company can distinguish its product or service to
other players in the market as valued by customer.
 a. Political factors – describes the processes and
actions of the government bodies that can influence
the decisions and behavior of the firms.
b. Economic factors – are largely macroeconomics,
affecting economy-wide phenomena that can affect
the firm’s strategy.
c. Socio-cultural factors – captures the society’s
PESTEL norms and values.
ANALYSIS d. Technological factors – capture the application of
knowledge to create new processes and products.
e. Ecological factors – concern with broad
environmental issues such as natural environment,
global warning and sustainable economic growth
f. Legal factors – captures the official outcomes of
the political processes as manifested in laws,
mandates, relations and court decision.
 • The Porter’s five forces model helps in assessing
where the power lies in a business situation. It is a
PORTER business strategy tool that helps in analyzing the
attractiveness in an industry structure. It is a
DIAMOND framework that identifies five forces that determine the
profit potentials of an industry and shape’s a firm
competitive strategy.
 THREAT
OF
ENTRY

PORTER BARGAINING
POWER INDUSTRY
BARGAINING
POWER
OR RIVALRY
DIAMOND SUPPLIERS
OF BUYERS

THREAT
OF
SUBSTITUTES
 a. Threat of substitute products – means how easily
your customer can switch to your competitor's
product.
The threat of substitute is high when:
PORTER 1. There are many substitute products available
DIAMOND 2. Customers can easily find the product or service that
you’re offering at the same or less price
3. Quality of the competitor's product is better
4. Substitute product is by a company earning high
profits so can reduce prices to the lowest level
 b. Threat of new entrants – a new entry of a
competitor into your market also weakens your
power.
The threat of new entrants is high when:
PORTER 1. Capital requirement to start a business is minimal

DIAMOND 2. Few economies of scale are in place

3. Customers can easily switch (low switching cost)
4. Your key technology is not hard to acquire or isn’t
protected well
5. Your product is not differentiated
 c. Bargaining power of suppliers – describe how
strong is the positon of the seller.
Suppliers are more powerful when:
PORTER 1. Suppliers are concentrated and well organized

DIAMOND 2. A few substitute products are available to supplies

3. Their product is most effective or unique
4. Switching cost, from one supplier to another is high
5. You are not an important customer to the supplier
 d. Bargaining power of buyers – describes how
much control the buyers must drive down your
products price.
Buyers have bargaining power when:
1. Few buyers chasing too many goods (demand is low
PORTER supply is high)
2. Buyers purchases in bulk quantities
DIAMOND 3. Product is not differentiated
4. Buyers are price sensitive
5. Shopping cost is low
6. Buyers are price sensitive
7. Credible threat of integration
 e. Industry rivalry – means the intensity of
competition among the existing competitors in the
market.
Industry rivalry is high when:

PORTER 1. The number of small or equal competitors and less

when there’s a clear market leader
DIAMOND 2. Customer have low switching costs
3. Industry is growing
4. Exit barriers are high and rivals stay to compete
5. Fixed costs are high resulting huge production and
reduction in prices
 STRATEGY
FORMULATION:
COMPETITIVE
INTELLIGENCE
B. COMPETITIVE INTELLIGENCE

• The act of gathering, analyzing and distributing vast information coined as

intelligence that would help the firm compete in the market.
Competitive intelligence works in the following areas:
1. Assessment of strategies
2. Perception of competitors strategies
3. Effective for current operations
4. Capabilities of competitors
5. Long term market prospects
 Approaches competitive intelligence
1. Strategic Intelligence – understanding the
competitive prospects and goals
B. COMPETITIVE 2. Tactical Intelligence – a small scale intelligence
INTELLIGENCE and operational in the short-run
3. Counterintelligence – knowing how to defend
company secrets
 STRATEGY
FORMULATION:
INTERNAL
AUDIT
 • An internal audit / assessment is focused on
identifying and evaluating a firm’s strength and
weaknesses in the functional areas of the firm.

INTERNAL Purpose of Internal audit

1. Provides an opportunity to understand how their
AUDIT jobs, departments and division fit into the whole
organization
2. Internal audit is an excellent vehicle for improving
the process of communication
 Tools for Internal audit
1. Resource based view – an approach to competitive
advantage contends that internal resources are
more important for a firm than external factors in
achieving and sustaining competitive advantage.
INTERNAL • Classification of Resources
AUDIT A. Tangible resources
1. Physical resources
2. Financial resources
3. Organizational resources
4. Technological resources
 B. Intangible resources
1. Human resources
2. Innovation and capacity
INTERNAL 3. Reputation
AUDIT • Characteristics of Resources
1. Rare
2. Hard to imitate
3. Not easily substitutable
 Tools for Internal audit
2. Value chain analysis – a process whereby a firm
determines the cost associated with organizational
activities from purchasing raw materials to
manufacturing and marketing the products.
INTERNAL Primary activities – the activities in a firm of those
AUDIT involved in the physical creation of the product,
marketing and transfer to the buyer.
Support activities – the activities in a firm that assist
the firm as a whole by providing infrastructure or inputs
that allow the primary activities to take place on an on-
going basis.
 Tools for Internal audit
3. Benchmarking – an analytical tool used to
determine whether a firm’s value chain activities are
INTERNAL competitive compared to their rivals and thus
AUDIT conducive to winning the marketplace. It entails
measuring the cost of value chain activities across
an industry to determine the best practices among
competing firms.
 S T R AT E G Y
F O R M U L AT I O N :
S W O T AN ALY S I S
 • Is a way to analyze competitive position of the firm.
SWOT matrix assess both the internal and external
aspects of the business. It is a framework of auditing
the firm and its environment. This is a framework that
allows managers to synthesize insights obtain from
the environmental analysis.
STRENGTHS – a resource advantage relative to
SWOT competitors and the needs of the market a firm serves or
expect to serve
ANALYSIS WEAKNESS – a limitation or deficiencies in one or more
resources or competencies relative to competitors that
impeded a firm’s effective performance
OPPORTUNITY – a major favorable situation in a firm’s
environment
THREATS – a major unfavorable situation in a firm’s
environment
 HELPFUL HARMFUL
STRENGTHS WEAKNESSES
1. Experience, knowledge, accreditation, certification 1. Gap in experience, knowledge, information
INTERNAL

2. Unique characteristics 2. Financial aspects

3. Geographical advantage, location 3. Loss of key staff, low morale
4. Placement service with companies 4. Not enough undergraduate program
5. Affordable tuition fee 5. Decline in enrolment
6. Up-to-date facilities and infrastructure 6. Inadequate library facilities
OPPORTUNITIES THREATS
EXTERNAL

1. Diversification of sources of revenue 1. Technological changes that affect future growth

2. Partnership with international university 2. No public funding
3. Off-campus study and exchange program 3. Growing competition of schools in the area
4. Use of distance education, flexible teaming 4. Experienced staff/instructors leaving for better work

SWOT Example SWOT

ANALYSIS