Scanning & Sensing the Business Environment

Context

The fundamental purpose of strategic management is to establish and sustain a tight strategic ‘fit’ among the following three elements: (i) the business environment; (ii) the company’s strategy; (iii) the company’s capabilities. An inability to achieve fit between any two of these factors will almost certainly result in poor performance and/or failure.

The correct starting place when endeavouring to form this required strategic fit is the business environment. This is because the internal capabilities and the strategy are within the control of the company whereas the external environment is almost totally outside the control of the company. Changes in the business environment lead to changes in market Key Success Factors (KSFs) i.e. “the things that market conditions dictate that any company must be able to do in order to succeed in competitive markets”.

Since the environment is not directly controllable, the company must continually research, analyse, understand and predict business environment dynamics so as to preserve the fit of its strategy and capabilities to the external market conditions.

The competitive landscape and strategy creation emerge from the way that a company interprets its business environment. Assessment of this environment’s complexity and the determination of appropriate responses to the continuity and change dynamics it generates requires that the company sustains itself as an open learning system, acquiring, interpreting and processing information at all organizational levels and across all functions. This intangible but essential capability for creative environmental assessment conveys a key organizational strength, a strategic asset which demands that business leaders facilitate a continuous process of learning and action.

In sum: primacy in strategy creation and organizational design must be given to the understanding of Market Environments and it is worthy of note that strategy doesn’t exist, or isn’t created, in a vacuum. We should also be aware that the commonly prescribed strategy question ‘Where are we now?’, captured, for example, in a traditional SWOT analysis, should not be considered in isolation of the related question ‘How did we come to be where we are now?’ An organization’s history, including its structural and cultural baggage, very often conflicts with the response to a third question, ‘Where do we want/need to be in the future?’ The answer to the fourth question, ‘How do we get there?’ is the logical outcome of the analyses undertaken in the previous three.

The Parable of the Boiled Frog

This fable is often told to demonstrate the terminal impact of failing to see the cumulative effects of the gradual processes involved in business environment change. A frog is conditioned by nature to be responsive to sudden environment changes (single events). Place one in a pan of boiling water and its instinct will impel it to clamber out. Place the amphibian in a pan of water at room temperature, turn up the heat and witness a transformation from contentment to death. The frog becomes impervious to its surroundings and the latter’s shift from being favourable (warmth) to hostile (intense heat). The parable is used to describe the demise of both companies and industries, a textbook example of the latter being the inability of the Swiss Watch industry to perceive the threat of new entrants (Japanese companies) or innovative substitutes (quartz), the latter now widely known as disruptive technologies. Contemporary examples include Nokia, Yahoo, Toys ‘R’ Us, Blackberry and even the mighty Intel, who completely misunderstood the impact of smartphones on their core technologies (realised threat) and failed to see the future of 5G communications (missed opportunity).

Indicative Content

    • Identifying key macro business environment factors, including:
      # Political
      # Economic
      # Social
      # Technological
      # Ecological
      # Legal
      # Cultural
      # Environmental
    • Identifying key micro business environment factors:
      # Customers
      # Direct competitors
      # New industry entrants, using similar technologies but offering better and/or cheaper products
      # Disruptive technologies
      # Disruptive business processes
      # Suppliers and their relative negotiating power
      # Regulators: local and global
    • Determining which factors to include, which to exclude and which to add for a specific business unit
    • Determining whether each factor is an opportunity and/or a threat
    • Determining the nature of change on three dimensions:
      # immediacy (how soon)
      # intensity (how big)
      # impact (on the specific business unit)
    • Identifying strategic priorities
    • Creating externally-driven strategic action plans

Learning Outcomes

After participating in this event participants will:

    • Understand the principles of the ‘outside-in’ business strategy perspective
    • Have the competencies to develop a comprehensive strategic audit
    • Have the capability to determine strategic priorities
    • Have the confidence to propose externally-driven strategic plans
    • Apply the principles of business environment scanning and sensing using proven frameworks, methodologies, processes and tools

 


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All content © Colin Edward Egan, 2021