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Summary Strategic Management Chapter 4: Environmental Scanning and Industry Analysis
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A summary of Chapter 4 of the book Strategic Management and Business Policy.
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Chapter 4: Environmentalscanning and Industry Analysis
There must be a strategic fit between what the environment wants and what the
corporation has to offer, as well as between what the corporation needs and what the
environment can provide.
Environmental uncertainty = the degree of complexity plus the degree of change that exists
in an organization’s external environment.
Environmental uncertainty is a threat to strategic managers because it hampers their ability
to develop long-range plans and to make strategic decisions to keep the corporation in
equilibrium with its external environment.
Environmental uncertainty is an opportunity because it creates a new playing field in which
creativity and innovation can play a major part in strategic decisions.
Environmental Scanning
Environmental scanning is an overarching term encompassing the monitoring, evaluation,
and dissemination of information relevant to the organizational development of strategy.
Identifying external environmental variables
In undertaking environmental scanning, strategic managers must first be aware of the many
variables within a corporation’s natural, societal, and task environments.
The natural environment includes physical resources, wildlife, and climate that are an
inherent part of existence on Earth.
The societal environment is mankind’s social system that includes general forces that do not
directly touch on the short-run activities of the organization, but that can influence its long-
term decisions. These factors affect multiple industries and are as follows:
- Economic forces that regulate the exchange of materials, money, energy, and
information.
- Technological forces that generate problem-solving inventions.
- Political-legal forces that allocate power and provide constraining and protecting laws
and regulations.
- Sociocultural forces that regulate the values, mores, and customs of society.
Task environment includes those elements or groups that directly affect a corporation and
are affected by it.
- Industry analysis refers to an in-depth examination of key factors within a
corporation’s task environment.
Scanning the natural environment
Global warming means that aspects of the natural environment, such as sea level, weather,
and climate, are becoming increasingly uncertain and difficult to predict.
Carbon footprint is the amount of greenhouse gases it is emitting into the air.
It helps management identify opportunities to fulfil future market demand based upon
environmentally friendly products or processes.
Scanning the societal environment: STEEP Analysis
Repatriation of profits is the transfer of profits from a foreign subsidiary to a corporation’s
headquarters.
STEEP Analysis: Monitoring Trends in the Societal and Natural Environments.
, STEEP Analysis is the scanning of Sociocultural, Technological, Economic, Ecological, and
Political-legal environmental forces.
Demographic trends are part of the sociocultural aspect of the societal environment.
Eight current sociocultural trends are transforming North America and the rest of the world:
1. Increasing environmental awareness
2. Growing health consciousness
3. Expanding seniors market
4. Impact of Millennials (1977-1992)
5. Declining mass market
6. Changing pace and location of life
7. Changing household composition
8. Increasing diversity of workforce and markets
Heavy immigration from developing to developed nations is increasing the number of
minorities in all developed countries and forcing an acceptance of the value of diversity in
races, religions, and lifestyles.
Changes in the technological part of the societal environment can also have a great impact
on multiple industries.
A number of technological breakthroughs that are already having a significant impact on
many industries:
- Portable information devices and electronic networking
- Alternative energy sources
- Precision farming
- Virtual personal assistants
- Genetically altered organisms
- Smart, mobile robots
Trends in the economic part of the societal environment can have an obvious impact on
business activity. BRIC countries
Trends in the ecological part of the environment have been accelerating at a pace that is
difficult to stay up with. This element is focused upon the natural environment and its
consideration/impacts upon the operation of a business.
The effects of climate change on companies can be grouped into six categories of risks:
- Regulatory Risk
- Supply Chain Risk
- Product and Technology Risk
- Litigation Risk
- Reputational Risk
- Physical risk
Trends in the political-legal part of the societal environment have a significant impact not
only on the level of competition within an industry but also on which strategies might be
successful.
International Societal Considerations
Each country or group of countries in which a company operates presents a unique societal
environment with a different set of sociocultural, technological, economic, ecological, and
political-legal variables for the company to face. must be very flexible.
Differences in societal environments strongly affect the ways in which a multinational
corporation (MNC), a company with significant assets and activities in multiple countries,
conducts its marketing, financial, manufacturing, and other functional activities.
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