Our Lady of the Pillar College – San Manuel, Inc.

District 3, San Manuel, Isabela

COLLEGE OF ACCOUNTANCY

ENVIRONMENTAL SCANNING
Strategic Management
MGT – 02

ENVIRONMENTAL SCANNING
It is the process of conducting research through surveys, observation and other methods and gathering
and analyzing information for the organization. The external environment has two parts:

1. Task Environment. It consists of those aspects of the organization that affect the company itself.
These factors are the stakeholders such as community, creditors, suppliers, customers, competitors
and other organizations.

2. Social Environment. It includes political, legal, economic, sociocultural and technological aspects.

MARKET STRUCTURE
The role of the market structure is that managers would be able to predict market outcomes through the
extent of competition in the market. There are three important structural features of the market which
should be considered by any organization.

1. Market Concentration. It is the degree by which a small number of companies dominate a

particular market. It explains a number of companies which are competing in the market. It then
predicts for new entries on how to enter the market. It also provides decisions on what to expect
and whether it is possible to enter the market at this time or in a particular period or season.

2. Entry Barriers. These refer to the difficulties and challenges by potential new entrants which are
entering the market. New companies should be ready to face the barriers that existing firms would
pose in the chosen industry. It is crucial to anticipate these challenges because existing players
would not take it sitting down and make any moves to avoid any company that would rival and
challenge their existence.

3. Product Differentiation. It refers to the degree by which a company is able to distinguish its product
or service to other players in the market as valued by consumers. It is the uniqueness of the features
in a particular brand or service. It is the ability to innovate and develop a certain position, totally
distinct from other brands.

Generally, the more concentrated the number of players is, the higher the entry barriers. Since there are
only few players in the market, they would not want a potential new company to enter the market which
may grab a significant market share.

Also, the more concentrated the market, the greater the product differentiation because each player
will go out of its way to maintain the market share and make its product or service offerings more unique
and different.

CATEGORIES OF MARKET STRUCTURE

Based on market concentration, Bain and Qualls categorized the following market structure based on
the number of sellers in the market.

a. Atomistic. There are many small sellers with a low level of interaction to one another. There is an
absence of economies of scale because firms are so numerous and they cannot set their own
prices. It is tantamount to perfect competition. Usually, there are low profits for the suppliers and
low prices for consumers.

b. Oligopolistic. Few large sellers have a high level of interaction with one another. Usually, players
in the oligopolistic competition can set their own prices and competition is somewhat fierce. Most
of the industries in the Philippines aside from the oil industry are under oligopolistic competition.

c. Monopoly. There is one seller who dominates the market. The company can dictate its own price.

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TYPES OF MARKET ENTRY
a. Ease of Entry. There are no difficulties in entering the market. New entrants will not have difficulty
in entering the market. There are minimal barriers to entry and if there are, they are manageable.

b. Moderately Difficult Entry. There are barriers but not too difficult for sellers to monopolize the
market. However, it may be difficult to enter the market. Sellers may monopolize the market.

c. Blockaded Entry. There are barriers that are too high which potential players cannot enter. The
present companies monopolize the prices. It is very difficult to enter the market. More often not,
existing companies would make it difficult for new players to enter the market.

CHARACTERISTICS OF PRODUCT DIFFERENTIATION

a. Homogenous Products. There are products that are highly identical. The characteristics of the
product are not differentiated from one supplier to another. The wet market is usually the popular
place for many homogeneous products like sat, fish vegetables, fruits, meat, and poultry, among
others.

b. Differentiated Products. There are products differentiated by design, quality, branding, etc. They
have certain features which differentiate them from one another. These are branded products
with distinctions on features, design and quality. Their unique characteristics connote a certain
price.

THE FIVE FORCES MODEL

1. Power of Buyers. An organization should not underestimate the power of buyers to drive prices
down. If buyers feel that it will take a high price on the part of the organization if it loses one major
buyer, they can put the organization in a very alarming position and feel that they can dictate
their own terms or negotiate for low prices, putting the pressure and sometime making deals with
threats of switching to another company.

2. Rivalry of Competitors. It is very important to understand the strengths of the competitors. It is good
to know how capable they are, how many they are and how attractive their products or services
are. From there, a company can also determine its own strengths. If a company realizes that it has
something more to offer that other companies, then this particular company has the potential to
make it.

3. Power of Suppliers. A company should realize that suppliers can easily drive up their prices. They
can easily put control in a particular organization depending on how important or crucial the
materials are to the company. Suppliers can size up an organization and put some pressure on it
driven by the number of suppliers in each key input and the uniqueness of the product or service.
If a company has few suppliers and when they feel that the company needs them, more power
is gained by suppliers.

4. Threat of Substitutes. If a company is not greatly affected by its rival competitors, a company’s
strength may still be affected when customers find something different from another product or
service offerings. One of the threats wight now is the power of outsourcing. Outsourcing a process
to a third party becomes a threat for a company which offers for example manpower, software
or technology.

5. Threat of New Entrants. If it is easy for a new company to enter the industry where the company is
in, then the latter’s power can be affected. In addition, if a new player is equally competitive and
there are no durable barriers to enter in the market, then a company can weaken its position in
the market.

COMPETITIVE INTELLIGENCE
It is the act of gathering, analyzing and distributing vast information coined as intelligence about anything
that would help competing in the market. It is more concerned with doing the right thing that doing the
thing right.

One of the benefits of competitive intelligence is that it identifies the company’s possible risks before the
company makes and important decision. On the other hand, opportunities are identified for the
company to better manage its resources and make necessary allotments and priorities for possible new
product or service offerings.

Competitive intelligence works on the performance of the following areas: assessment of strategies,
perception of competitor strategies, effectiveness of current operations, capabilities of competitors and
long-term market prospects.

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In short, there is a great deal of work to be able to practice competitive intelligence. The assessment of
current operations while looking at long-term market prospects makes it important for a company to have
some knowledge about how competitors behave in the marketplace.

These areas operate in three approaches:

1. Strategic Intelligence. It is being able to understand the competitors’ future prospects and goals.
This also includes the competitors’ major customers and suppliers.

2. Tactical Intelligence. It is a small-scale intelligence and operational in the short run. This includes
the competitors’ term of sale, pricing policies and plans. Information gathered is usually used by
middle-level managers.

3. Counter Intelligence. It is knowing how to defend company secrets. Competitors are equally
interested in the company’s secrets. Therefore, it has to ensure that company secrets are not
divulged in the wrong places. The company should not underestimate revelations of employees
who are fired.

SWOT ANALYSIS
It is a basic straightforward model in environmental scanning which helps the company in identifying the
following key elements:

1. Strengths. The company evaluates its own strengths in terms of its own capabilities. It focuses on
the firm’s internal environment as well as its ability in interacting and dealing with customers.

2. Weaknesses. To be customer focused, the company minimizes actions that drive the customers
away. As it identifies its weaknesses, they are minimizes and eventually avoided.

3. Opportunities. The company takes advantage of the possible opportunities that may further gain
a strong foothold in the market. Opportunities are continuously identified.

4. Threats. The company is keen in looking at possible threats and arresting them before they
become obvious.

In order to be successful, a SWOT analysis takes note of the changes in the economic, political/legal,
competitive and sociocultural environment. The trends in the modern economy certainly should not be
taken for granted. The lifestyles of people have changed, thereby changing the sociocultural
environment into something high-tech. The internet is a rich source of vast information and has changed
the way of life of people all over the world. Various events in the global scene, all the environmental
threats have pushed businessmen to make a paradigm shift on the way they do business. All these are
taken into consideration in SWOT analysis.

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CASE ANALYSIS #1

Porter’s Five Forces Model

The class will be divided into five groups. Each group will be assigned with one of the following industries
and make an analysis using the Porter’s Five Forces Model.

1. Telecommunications industry.

2. Automotive industry.

3. Bottled juices and soft drinks industry.

4. Laundry detergents industry.

5. Shampoo industry.

CASE ANALYSIS #2

Competitive Intelligence/ SWOT Analysis

As a group, use competitive intelligence to come up with strategies to improve or enhance further the
enrollment standing of OLPC-SMI. Make additional researches on competitive intelligence as you do this
activity.

In addition, make a SWOT analysis to help OLPC-SMI in identifying its four key elements: strengths,
weaknesses, opportunities and threats.

CASE ANALYSIS #3

Ben Chan and Bench

Read the short article and answer the questions after the article. Additional research can be done on Mr.
Chan and Bench.

Ben Chan is the founder of a large clothing chain, Bench under Suyen Corporation. Known for being
hardworking and innovative, Ben Chan has expanded his clothing chain in the international markets.

The word “bench” which means “long seat”, now connotes a different meaning in the business world.
The word Bench stands for a clothing store offering fashionable clothes.

Coming from a family of entrepreneurs (his father, Chan Lib put up Liwayway Marketing and his brother
expanded it), Ben Chan established Dimensione, a modern furniture store and Finale, an art gallery.

In 1987, Chan started a T-shop in SM department stores in Manila. This marked the beginning of Bench.

Aside from Dimensione, Suyen Corporation has diversified to Fix Salon for hair salon services and Human
for the hip-hop conscious market.

By 1994, Bench opened its first fashion store in Al-Khobar, Saudi Arabia, then followed by another store in
Shanghai, China. Another one was built in Kuwait. In 2007, Bench had established stores in Eagle Rock,
Los Angeles; Riyadh, Saudi Arabia; Bahrain; Guangzhou, Xian; and Dubai. The primary location, however,
is still China with 27 company stores and 19 franchises.

QUESTIONS FOR ANALYSIS

1. How did Ben Chan make a difference in clothing/apparel through Bench?

2. What makes Bench click?

3. In your own analysis, how has Ben Chan scanned the environment where Bench operates?

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