Conducting Environment Analysis
Step 1: Focus the Environment Analysis
The initial challenge in environment analysis is to find and focus on the major forces that will affect the success of your strategic proposal; this begins by establishing the rough boundaries of the targeted environment (the industry or market segment). These boundaries represent what we call the relevant environment for the strategic proposal. Within this limited environment, you will need to establish a time horizon for analysis and to isolate the specific forces of demand, supply, competition, and government policy.
Focus is critical to understanding the prospects of a strategy. Three tools will be useful in achieving a focused and properly timed environment analysis: a) your assessment of the performance of the business b) the strategic proposal itself c) the profit model underlying the business and the specific proposal
To define the right time horizon, there are three factors that will help: a) the pace of change in competitive and other industry forces b) the flexibility of the strategic commitment under consideration c) the time required to implement the new strategy
Refer to the text for a detailed description of the above tools.
Minimizing the Risks of Focus
a) Macroenvironment Scanning
If your focus is too specific, you might miss the emergence of a new market opportunity. Also, if you concentrate overly on a particular time horizon, you may get blind sighted by events that lie just beyond the limit. The risks of focus can be reduced by ensuring your analysis is accompanied by continuous macroenvironment scanning.
b) Identifying Market Intrusions
A second way to minimize the risks of focus is to keep your eyes open for newcomers into your industry.
A third hedge against the risks of focus is to ensure that the analytic process stays open – that you are prepared to incorporate new information and to double back or recycle your work as the need arises. Recycling breaks the momentum of a proposal and may require substantial analysis.
Step 2: Test the Strategy-Environment Linkage
Step 3: Forecast Performance
The goals incorporated in the strategic proposal provide a useful reference point for the performance forecast. Work systematically through the strategic goals for each proposal (ex. Revenue, cost, return, and investment goals) and use what you have learned about the environment to draw conclusions about the likelihood of achieving them.
Step 4: Rank Against Other Proposals
Summary: This chapter has presented the basic steps for