Environmental analysis

Definition
Evaluation of the possible or probable effects of external
forces and conditions on an organization's survival and
growth strategies.
Environmental analysis is a strategic tool. It is a process
to identify all the external and internal elements, which
can affect the organizations performance. The analysis
entails assessing the level of threat or opportunity the
factors might present. These evaluations are later
translated into the decision-making process. The analysis
helps align strategies with the firms environment.
Our market is facing changes every day. Many new things
develop over time and the whole scenario can alter in
only a few seconds. There are some factors that are
beyond your control. But, you can control a lot of these
things.
Businesses are greatly influenced by their environment.
All the situational factors which determine day to day
circumstances impact firms. So, businesses must
constantly analyze the trade environment and the
market.
There are many strategic analysis tools that a firm can
use, but some are more common. The most used detailed
analysis of the environment is the PESTLE analysis. This is
a birds eye view of the business conduct. Managers and

strategy builders use this analysis to find where their

market currently. It also helps foresee where the
organization will be in the future.
PESTLE analysis consists of various factors that affect the
business environment. Each letter in the acronym
signifies a set of factors. These factors can affect every
industry directly or indirectly.
The letters in PESTLE, also called PESTEL, denote the
following things:
Political factors
Economic factors
Social factors
Technological factors
Legal factors
Environmental factor
Often, managers choose to learn about political,
economic, social and technological factors only. In that
case, they conduct the PEST analysis. PEST is also an
environmental analysis. It is a shorter version of
PESTLE analysis. STEP, STEEP, STEEPLE, STEEPLED,
STEPJE and LEPEST: All of these are acronyms for the
same set of factors. Some of them gauge additional
factors like ethical and demographical factors.

I will discuss the 6 most commonly assessed factors in

environmental analysis.
P for Political factors
The political factors take the countrys current political
situation. It also reads the global political conditions
effect on the country and business. When conducting this
step, ask questions like What kind of government
leadership is impacting decisions of the firm?
Some political factors that you can study are:
Government policies
Taxes laws and tariff
Stability of government
Entry mode regulations
E for Economic factors
Economic factors involve all the determinants of the
economy and its state. These are factors that can
conclude the direction in which the economy might move.
So, businesses analyze this factor based on the
environment. It helps to set up strategies in line with
changes.
I have listed some determinants you can assess to know
how economic factors are affecting your business below:
The inflation rate

 The interest rate

Disposable income of buyers
Credit accessibility
Unemployment rates
The monetary or fiscal policies
The foreign exchange rate
S for Social factors
Countries vary from each other. Every country has a
distinctive mindset. These attitudes have an impact on
the businesses. The social factors might ultimately affect
the sales of products and services.
Some of the social factors you should study are:
The cultural implications
The gender and connected demographics
The social lifestyles
The domestic structures
Educational levels
Distribution of Wealth
T for Technological factors
Technology is advancing continuously. The advancement
is
greatly
influencing
businesses.
Performing

environmental analysis on these factors will help you stay

up to date with the changes. Technology alters every
minute. This is why companies must stay connected all
the time. Firms should integrate when needed.
Technological factors will help you know how the
consumers react to various trends.
Firms can use these factors for their benefit:
New discoveries
Rate of technological obsolescence
Rate of technological advances
Innovative technological platforms
L for Legal factors
Legislative changes take place from time to time. Many of
these changes affect the business environment. If a
regulatory body sets up a regulation for industries, for
example, that law would impact industries and business
in that economy. So, businesses should also analyze the
legal developments in respective environments.
I have mentioned some legal factors you need to be
aware of:
Product regulations
Employment regulations
Competitive regulations

 Patent infringements
Health and safety regulations
E for Environmental factors
The location influences business trades. Changes in
climatic changes can affect the trade. The consumer
reactions to particular offering can also be an issue. This
most often affects agri-businesses.
Some environmental factors you can study are:
Geographical location
The climate and weather
Waste disposal laws
Energy consumption regulation
Peoples attitude towards the environment
There are many external factors other than the ones
mentioned above. None of these factors are independent.
They rely on each other.
If you are wondering how you can conduct environmental
analysis, here are 5 simple steps you could follow:
1. Understand all the environmental factors before
moving to the next step.
2. Collect all the relevant information.
3. Identify the opportunities for your organization.

4. Recognize the threats your company faces.

5. The final step is to take action.
It is true that industry factors have an impact on the
company performance. Environmental analysis is
essential to determine what role certain factors play in
your business. PEST or PESTLE analysis allows businesses
to take a look at the external factors. Many organizations
use these tools to project the growth of their company
effectively.
The analyses provide a good look at factors like revenue,
profitability, and corporate success. If you want to take
the right decisions for your firm, employ environmental
analysis. The analysis you should conduct depends on the
nature of your company.
Definition
A process for identifying all external and internal
elements that can affect the performance of the
organization and evaluating the level of threat or
opportunity they present. Opportunity and threat
assessments are then incorporated into decision making
process in order to better align strategies with the
organization's environment.
environmental analysis
Dictionary of Marketing Terms for: environmental analysis
study of all external factors that may affect a company or
its marketing plan. Environmental analysis is a basic

marketing function used to help marketers identify trends

or outside forces that may impact upon the success or
failure of a particular product. Marketers will look at the
economy, political situation, cultural forces, social
conditions, competitors, and legal and ecological factors
when effecting an environmental analysis.

Steps in Environmental Analysis

Environment analysis is managerial decision making
based on the assessment of opportunities and threats in
the
environment.
The
step
in
environmental
analysis
are
:
1)Scanning :It involves information gathering for
assessing the nature of the environment in terms of
uncertainly,complexity and dynamism it :
Identifies early signs of future environmental
changes.They are indicated by trends and events.
Detects changes
happening.

already

underway.They

are

2)Monitoring :It involves tracking environmental trends

and events.It is auditing of environment.The likely impact

of environmental influences
business
performance

are

on
identified.

3)Forecasting :This step forecast what is likely to

happen.It lays out of path for anticipated changes. This
step provides:
Key force at work in the environment.They can be
politicalegal,economic,social cultural,technological.
Understanding of the nature of key influences and
drivers of change.
Projection of future alternative paths available.
4)assessment :This step identifies key opportunities and
threats.The competitive position of business analyzed in
terms of how the organization stands in relation to other
organizations.competing
for
some
resources
of
customers.
Opportunities is a favorable condition which creates
risks and weakens the competitive position.

 Threat
is
an
unfavourable
condition
which
strengthens organization's competitive position of
the organization.
Environmental analysis identifies competitive position of
a
business
organization.
Factors affecting the competitive position are :
Competitors :Current and positional competitive and
their objectives and strategics.
Strategic groups:Other firms in the industry following
similar competitive approaches.
Market
factors
:Customer
needs,market
segments,market power,market share and growth.
Market attractiveness :The degree
attractiveness for the products.

of

market

ENVIRONMENT SCANNING
Environmental scanning is one of the essential
component of the global environmental analysis.
Environmental monitoring, environmental forecasting and
environmental assessment complete the global
environmental analysis. The global environment refers to
the macro environment which comprises industries,
markets, companies, clients and competitors.
Consequently, there exist corresponding analyses on the
micro-level. Suppliers, customers and competitors

representing the micro environment of a company are

analyzed within the industry analysis.[1]
Environmental scanning can be defined as the study and
interpretation of the political, economic, social and
technological events and trends which influence a
business, an industry or even a total market.[2] The
factors which need to be considered for environmental
scanning are events, trends, issues and expectations of
the different interest groups. Issues are often forerunners
of trend breaks. A trend break could be a value shift in
society, a technological innovation that might be
permanent or a paradigm change. Issues are less deepseated and can be 'a temporary short-lived reaction to a
social phenomenon'.[3] A trend can be defined as an
environmental phenomenon that has adopted a
structural character.
Definition
Careful monitoring of an organization's internal and
external environments for detecting early signs of
opportunities and threats that may influence its current
and future plans. In comparison, surveillance is confined
to a specific objective or a narrow sector.
Organizational environment consists of both external and
internal factors. Environment must be scanned so as to
determine development and forecasts of factors that will
influence organizational success. Environmental
scanning refers to possession and utilization of
information about occasions, patterns, trends, and

relationships within an organizations internal and

external environment. It helps the managers to decide
the future path of the organization. Scanning must
identify the threats and opportunities existing in the
environment. While strategy formulation, an organization
must take advantage of the opportunities and minimize
the threats. A threat for one organization may be an
opportunity for another.
Internal analysis of the environment is the first step
of environment scanning. Organizations should observe
the internal organizational environment. This includes
employee interaction with other employees, employee
interaction with management, manager interaction with
other managers, and management interaction with
shareholders, access to natural resources, brand
awareness, organizational structure, main staff,
operational potential, etc. Also, discussions, interviews,
and surveys can be used to assess the internal
environment. Analysis of internal environment helps in
identifying strengths and weaknesses of an organization.
As business becomes more competitive, and there are
rapid changes in the external environment, information
from external environment adds crucial elements to the
effectiveness of long-term plans. As environment is
dynamic, it becomes essential to identify competitors
moves and actions. Organizations have also to update the
core competencies and internal environment as per
external environment. Environmental factors are infinite,
hence, organization should be agile and vigile to accept
and adjust to the environmental changes. For instance Monitoring might indicate that an original forecast of the
prices of the raw materials that are involved in the

product are no more credible, which could imply the

requirement for more focused scanning, forecasting and
analysis to create a more trustworthy prediction about
the input costs. In a similar manner, there can be
changes in factors such as competitors activities,
technology, market tastes and preferences.
While in external analysis, three correlated
environment should be studied and analyzed
immediate / industry environment
national environment
broader socio-economic environment / macroenvironment
Examining the industry environment needs an
appraisal of the competitive structure of the
organizations industry, including the competitive position
of a particular organization and its main rivals. Also, an
assessment of the nature, stage, dynamics and history of
the industry is essential. It also implies evaluating the
effect of globalization on competition within the industry.
Analyzing the national environment needs an appraisal
of whether the national framework helps in achieving
competitive advantage in the globalized environment.
Analysis of macro-environment includes exploring
macro-economic, social, government, legal, technological
and international factors that may influence the
environment. The analysis of organizations external
environment reveals opportunities and threats for an
organization.

Strategic managers must not only recognize the present

state of the environment and their industry but also be
able to predict its future positions.
Process of environmental scanning
1)Identify relevant forces in the environment :Information
is gathered about the following forces.
External
forces,consisting
of
political
legal,economic,social cultural,technological factors.
Internal
forces,consisting
of
technological,human,financial
and
information
resources,organizational
competencies,and
stakeholders expectations.
2)Determine sources of information :They are determine
by top management.They can be :
Spaying and surveillance of a legal and ethical
nature.
Personal
experiences
managers,employees,salesperson.

of

External
sources
such
as
banks,competitors,suppliers,customers,government.
Special studies by exports,consultant's,researchers.
Meetings,conferences,committees,speeches,intervie
ws.
Newspapers,journals,reports,books.

 Television and radio.

Trade and industry publications.
Government and university publication.
Internal sources such as files,database,documents.
Internet,website,and databases.
Environmental monitoring
Describes the processes and activities that need to take
place to characterise and monitor the quality of the
environment. Environmental monitoring is used in the
preparation of environmental impact assessments, as
well as in many circumstances in which human activities
carry a risk of harmful effects on the natural environment.
All monitoring strategies and programmes have reasons
and justifications which are often designed to establish
the current status of an environment or to establish
trends in environmental parameters. In all cases the
results of monitoring will be reviewed, analysed
statistically and published. The design of a monitoring
programme must therefore have regard to the final use of
the data before monitoring starts.
What is PESTLE Analysis? A Tool for Business Analysis
What is PESTLE Analysis? PESTLE analysis, which is
sometimes referred as PEST analysis, is a concept in
marketing principles. Moreover, this concept is used as a
tool by companies to track the environment theyre
operating in or are planning to launch a new
project/product/service etc.

PESTLE is a mnemonic which in its expanded form

denotes P for Political, E for Economic, S for Social, T for
Technological, L for Legal and E for Environmental. It
gives a birds eye view of the whole environment from
many different angles that one wants to check and keep a
track of while contemplating on a certain idea/plan.
The framework has undergone certain alterations, as
gurus of Marketing have added certain things like an E for
Ethics to instill the element of demographics while
utilizing the framework while researching the market.
There are certain questions that one needs to ask while
conducting this analysis, which give them an idea of
what things to keep in mind. They are:
What is the political situation of the country and how
can it affect the industry?
What are the prevalent economic factors?
How much importance does culture has in the market
and what are its determinants?
What technological innovations are likely to pop up
and affect the market structure?
Are there any current legislations that regulate the
industry or can there be any change in the
legislations for the industry?
What are
industry?

the

environmental

concerns

for

the

All the aspects of this technique are crucial for any

industry a business might be in. More than just
understanding the market, this framework represents one
of the vertebras of the backbone of strategic
management that not only defines what a company
should do, but also accounts for an organizations goals
and the strategies stringed to them.
It may be so, that the importance of each of the factors
may be different to different kinds of industries, but it is
imperative to any strategy a company wants to develop
that they conduct the PESTLE analysis as it forms a
much more comprehensive version of the SWOT
analysis.
It is very critical for one to understand the complete
depth of each of the letters of the PESTLE. It is as below:
1. Political: These factors determine the extent to
which a government may influence the economy or a
certain industry. [For example] a government may
impose a new tax or duty due to which entire
revenue generating structures of organizations might
change. Political factors include tax policies, Fiscal
policy, trade tariffs etc. that a government may levy
around the fiscal year and it may affect the business
environment (economic environment) to a great
extent.
2. Economic: These factors are determinants of an
economys performance that directly impacts a
company and have resonating long term effects. [For
example] a rise in the inflation rate of any economy

would affect the way companies price their products

and services. Adding to that, it would affect the
purchasing power of a consumer and change
demand/supply models for that economy. Economic
factors include inflation rate, interest rates, foreign
exchange rates, economic growth patterns etc. It
also accounts for the FDI (foreign direct investment)
depending on certain specific industries whore
undergoing this analysis.
3. Social:
These factors scrutinize the social
environment of the market, and gauge determinants
like cultural trends, demographics, population
analytics etc. An example for this can be buying
trends for Western countries like the US where there
is high demand during the Holiday season.
4. Technological: These factors pertain to innovations
in technology that may affect the operations of the
industry and the market favorably or unfavorably.
This refers to automation, research and development
and the amount of technological awareness that a
market possesses.
5. Legal: These factors have both external and internal
sides. There are certain laws that affect the business
environment in a certain country while there are
certain policies that companies maintain for
themselves. Legal analysis takes into account both of
these angles and then charts out the strategies in
light of these legislations. For example, consumer
laws, safety standards, labor laws etc.
6. Environmental: These factors include all those that
influence or are determined by the surrounding

environment. This aspect of the PESTLE is crucial for

certain industries particularly for example tourism,
farming, agriculture etc. Factors of a business
environmental analysis include but are not limited to
climate, weather, geographical location, global
changes in climate, environmental offsets etc.
There are many templates available for companies to
conduct PESTLE analysis. Many organizations have
provided information regarding their PESTLE analysis as
case studies available on the Internet.

PEST & PESTEL Analysis

Definition
1. PEST analysis an analysis of the political,
economic, social and technological factors in the
external environment of an organization, which can
affect its activities and performance.[1]
2. PESTEL model involves the collection and
portrayal of information about external factors which
have, or may have, an impact on business.[2]
Understanding the tool
PEST or PESTEL analysis is a simple and effective tool
used in situation analysis to identify the key external
(macro environment level) forces that might affect an
organization. These forces can create both opportunities

and threats for an organization. Therefore, the aim of

doing PEST is to:
find out the current external factors affecting an
organization;
identify the external factors that may change in the
future;
to exploit the changes (opportunities) or defend
against them (threats) better than competitors would
do.
The outcome of PEST is an understanding of the overall
picture surrounding the company.
Figure 1. Macro environment forces affecting a firm (PEST
forces including legal, environmental, ethical and
demographic forces)

PEST analysis is also done to assess the potential of a

new market. The general rule is that the more negative
forces are affecting that market the harder it is to do
business in it. The difficulties that will have to be dealt
with significantly reduce profit potential and the firm can
simply decide not to engage in any activity in that
market.
PEST variations
PEST analysis is the most general version of all PEST
variations created. It is a very dynamic tool as new
components can be easily added to it in order to focus on
one or another critical force affecting an organization.
Although following variations are more detailed analysis
than simple PEST, the additional components are just the
extensions of the same PEST factors. The analysis
probably has more variations than any other strategy
tool:
STEP = PEST in more positive approach.
PESTEL = PEST + Environmental + Legal
PESTELI = PESTEL + Industry analysis
STEEP = PEST + Ethical
SLEPT = PEST + Legal
STEEPLE = PEST + Environmental + Legal + Ethical
STEEPLED = STEEPLE + Demographic
PESTLIED = PEST + Legal + International +
Environmental + Demographic
LONGPEST = Local + National + Global factors + PEST
Using the tool

The process of carrying out PEST analysis should involve

as many managers as possible to get the best results. It
includes the following steps:
Step 1. Gathering information about political,
economic, social and technological changes + any
other factor(s).
Step 2. Identifying which of the PEST factors
represent opportunities or threats.
Gathering PEST, PESTEL and STEEPLED information
In order to perform PEST (or any other variation of it)
managers have to gather as much relevant information
as possible about the firms external environment.
Nowadays, most information can be found on the internet
relatively easy, fast and with little cost. When the analysis
is done for the first time the process may take a little
longer and as a beginner you may find yourself asking
What changes do I exactly look for in politics, economic,
society and technology? The following templates might
be useful when gathering information for PEST, PESTEL
and STEEPLED analysis.
NOTE: PEST covers all macro environment forces
affecting an organization. Therefore, when doing PESTEL
or STEEPLED analysis, legal, environmental, ethical and
demographic factors may overlap with PEST factors.
Figure 2. PEST analysis template

PEST analysis template

Political factors
Government stability and
likely changes
Bureaucracy
Corruption level
Tax policy (rates and
incentives)
Freedom of press
Regulation/de-regulation
Trade control
Import restrictions (quality
and quantity)
Tariffs
Competition regulation
Government involvement
in trade unions and
agreements
Environmental Law
Education Law

Economic factors
Growth rates
Inflation rate
Interest rates
Exchange rates
Unemployment
trends
Labor costs
Stage of business
cycle
Credit availability
Trade flows and
patterns
Level of consumers
disposable income
Monetary policies
Fiscal policies
Price fluctuations
Stock market trends

PEST analysis template

Anti-trust law
Discrimination law
Copyright, patents /
Intellectual property law
Consumer protection and
e-commerce
Employment law

Weather
Climate change

Health and safety law

Data protection law
Laws regulating
environment pollution
Socio-cultural factors
Health consciousness
Education level
Attitudes toward imported
goods and services
Attitudes toward work,
leisure, career and
retirement
Attitudes toward product

Technological factors
Basic infrastructure
level
Rate of technological
change
Spending on research
& development
Technology incentives
Legislation regarding

PEST analysis template

quality and customer
service
Attitudes toward saving
and investing
Emphasis on safety
Lifestyles
Buying habits
Religion and beliefs
Attitudes toward green
or ecological products
Attitudes toward and
support for renewable
energy
Population growth rate
Immigration and
emigration rates
Age distribution and life
expectancy rates
Sex distribution
Average disposable
income level

technology
Technology level in
your industry
Communication
infrastructure
Access to newest
technology
Internet
infrastructure and
penetration

PEST analysis template

Social classes
Family size and structure
Minorities
Figure 3. PESTEL analysis template
PESTEL analysis template
Political

Economic

Socio-cultural

Technological

Environmental
(ecological)

Legal

Weather

Anti-trust law

Climate change

Discrimination law

Laws regulating
environment pollution

Copyright, patents /
Intellectual property
law

Air and water pollution

Recycling

Consumer protection
and e-commerce

Waste management

Employment law

Attitudes toward green

PESTEL analysis template

or ecological products
Endangered species

Health and safety law

Attitudes toward and

support for renewable
energy

Data Protection

Figure 4. STEEPLED analysis template

STEEPLED analysis template
Political

Economic

Socio-cultural

Technological

Environmental (ecological)

Legal

Ethical

Demographic

Ethical advertising and sales

practices

Population growth
rate

Accepted accounting,
management and marketing
standards

Immigration and
emigration rates

Attitude towards
counterfeiting and breaking
patents

Age distribution
and life
expectancy rates

STEEPLED analysis template

Sex distribution

Ethical recruiting practices

and employment standards
(not using children to
produce goods)

Average
disposable income
level
Social classes
Family size and
structure
Minorities

Identifying opportunities and threats

Gathering information is just a first important step in
doing PEST analysis. Once it is done, the information has
to be evaluated. There are many factors changing in the
external environment but not all of them are affecting or
might affect an organization. Therefore, it is essential to
identify which PEST factors represent the opportunities or
threats for an organization and list only those factors in
PEST analysis. This allows focusing on the most important
changes that might have an impact on the company.
PEST analysis example
The following table shows PEST analysis example. It lists
opportunities and threats that are affecting a firm in its
macro environment.

PEST analysis example

Political
Government has
passed legislation
which requires further
reductions of CO2, HC
and NC emissions for
vehicles until 2015
New political forces,
which are against tax
reductions, may be
elected in the next
years elections
Import restrictions will
increase in 2013
Government is
increasing its funding
to specific industry
Government is easing
regulations for
employment
Increasing tensions
between our
government and our
major export
partners government

Economic
GDP will grow by 3% in
2013
Availability of credit for
businesses will slightly
grow or remain
unchanged in 2013. The
same applies for the cost
of credit in the 1 half of
the year
Unemployment is
expected to decrease to
7%
Inflation will fall to 3% or
2% in 2013
Corporate tax rate will
decrease by 2% next year
to 23%
Dollar exchange rates are
expected to decrease
compared to euro
Disposable income level
will decrease
Metal and oil prices will
increase by 5% and 6%

PEST analysis example

respectively in 2013
Socio-cultural

Technological

Positive attitude
towards green
vehicles
Number of individuals
and companies
buying through the
Internet is 67% and
45% respectively and
is expected to grow
Immigration is
increasing
Increasing attitude
toward jobs with
shorter work hours
People tend to buy
more domestic rather
than foreign products
People change their
eating habits and now
tend to eat healthier
food
Strategic group mapping

New machinery that could

reduce production costs
by 20% is in development
Countrys major telecom
company announced its
plans to expand its
internet infrastructure and
install new optic fiber
cables
Driverless cars may be
introduced in the near
future
New type of table will
be introduced into the
market next year

Strategic group mapping is a technique for looking at

your position in your sector, field or market. Hunt coined
the term strategic group in 1972 when he noticed subgroups of businesses with similar characteristics in the
same market. Michael Porter then expanded the concept
in the 1980s. There are a number of benefits to strategic
group mapping:
It can help you identify who your direct and indirect
competitors (or possible partners) are
It can illustrate how easy it might be to move from
one strategic group to another
It may help identify future opportunities or strategic
problems
It ensures you take your customers or beneficiaries
views into account when developing or assessing
your strategy
Purpose
The purpose of strategic group mapping is to make sure
you take the needs or wants of your
customers/beneficiaries into account. It encourages you
to ask different questions about your future strategy,
relationships with other businesses in your sector and
your understanding of the people who ultimately benefit
from your products or services.
Strategic group
From Wikipedia, the free encyclopedia

A strategic group is a concept used in strategic

management that groups companies within an industry
that have similar business models or similar combinations
of strategies. For example, the restaurant industry can be
divided into several strategic groups including fast-food
and fine-dining based on variables such as preparation
time, pricing, and presentation. The number of groups
within an industry and their composition depends on the
dimensions used to define the groups. Strategic
management professors and consultants often make use
of a two dimensional grid to position firms along an
industry's two most important dimensions in order to
distinguish direct rivals (those with similar strategies or
business models) from indirect rivals. Strategy is the
direction and scope of an organization over the long term
which achieves advantages for the organization while
business model refers to how the firm will generate
revenues or make money.
Hunt (1972) coined the term strategic group while
conducting an analysis of the appliance industry after he
discovered a higher degree of competitive rivalry than
suggested by industry concentration ratios. He attributed
this to the existence of subgroups within the industry that
competed along different dimensions making tacit
collusion more difficult. These asymmetrical strategic
groups caused the industry to have more rapid
innovation, lower prices, higher quality and lower
profitability than traditional economic models would
predict.
Michael Porter (1980) developed the concept and applied
it within his overall system of strategic analysis. He
explained strategic groups in terms of what he called
"mobility barriers". These are similar to the entry barriers

that exist in industries, except they apply to groups within

an industry. Because of these mobility barriers a company
can get drawn into one strategic group or another.
Strategic groups are not to be confused with Porter's
generic strategies which are internal strategies and do
not reflect the diversity of strategic styles within an
industry.
Originally, the analysis of intra-industry variations in the
competitive behaviour and performance of firms was
based primarily on the use of secondary financial and
accounting data. The study of strategic groups from a
cognitive perspective, however, has gained prominence
during the past years (Hodgkinson 1997).
Strategic Group Analysis
Strategic Group Analysis (SGA) aims to identify
organizations with similar strategic characteristics,
following similar strategies or competing on similar bases.
Such groups can usually be identified using two or
perhaps three sets of characteristics as the bases of
competition.
Examples of the SGA:
Extent of product (or service) diversity.
Extent of geographic coverage.
Number of market segments served.
Distribution channels used.
Extent of branding.

 Marketing effort.
Degree of vertical integration.
Product (or service) quality.
Pricing policy.
Use of Strategic Group Analysis This analysis is useful
in several ways:
Helps identify who the most direct competitors are
and on what basis they compete.
Raises the question of how likely or possible it is for
another organization to move from one strategic
group to another.
Strategic Group mapping might also be used to
identify opportunities.
Can also help identify strategic problems.
Strategic Group Mapping
A strategic group is a concept used in strategic
management that groups companies within an industry
that have similar business models or similar combinations
of strategies. For example, the restaurant industry can be
divided into several strategic groups including fast-food
and fine-dining based on variables such as preparation
time, pricing, and presentation.
You can see in the "Retail" example below that the firms
are categorized across two criteria: Price/Quality and
Geographic Coverage. However, there can be

numerous criteria over which firms can be

measured...

Extent of product (or service) diversity.

Extent of geographic coverage.

Number of market segments served.

Distribution channels used.

Extent of branding.

Marketing effort.

Degree of vertical integration.

Product (or service) quality.

Pricing policy.

Strategic Group Analysis is useful in several ways:

Helps identify who the most direct competitors

are and on what basis they compete.

Raises the question of how likely or possible it

is for another organization to move from one
strategic group to another.

Strategic Group mapping might also be used to

identify opportunities.

Can also help identify strategic problems.

INDUSTRY
1.The manufacturing or technically productive enterprises
in a particular field, country, region, or economy viewed
collectively, or one of these individually. A single industry
is often named after its principal product; for example,
the auto industry. For statistical purposes, industries are
categorized generally according a uniform classification
code such as Standard Industrial Classification (SIC).
2.Any general business activity or commercial enterprise
that can be isolated from others, such as the tourist
industry or the entertainment industry.
DEFINITION of 'Industry'
A classification that refers to a group of companies that
are related in terms of their primary business activities. In
modern economies, there are dozens of different industry
classifications, which are typically grouped into larger
categories called sectors.
Individual companies are generally classified into
industries based on their largest sources of revenue. For
example, an automobile manufacturer might have a small
financing division that contributes 10% to overall
revenues, but the company will still be universally
classified as an auto maker for attribution purposes.

strategic alliance
A strategic alliance is an agreement between two or
more parties to pursue a set of agreed upon objectives
needed while remaining independent organizations. This

form of cooperation lies between mergers and

acquisitions and organic growth. Strategic alliances
occures when two or more organizations join together to
pursue mutual benefits.
Partners may provide the strategic alliance with resources
such as products, distribution channels, manufacturing
capability, project funding, capital equipment, knowledge,
expertise, or intellectual property. The alliance is a
cooperation or collaboration which aims for a synergy
where each partner hopes that the benefits from the
alliance will be greater than those from individual efforts.
The alliance often involves technology transfer (access to
knowledge and expertise), economic specialization,[1]
shared expenses and shared risk.

Advantages
For companies there are many reasons to enter a
Strategic Alliance:
Shared risk: The partnerships allow the involved
companies to offset their market exposure. Strategic
Alliances probably work best if the companies
portfolio complement each other, but do not directly
compete.
Shared knowledge: Sharing skills (distribution,
marketing, management), brands, market
knowledge, technical know-how and assets leads to

synergistic effects, which result in pool of resources

which is more valuable than the separated single
resources in the particular company.
Opportunities for growth: Using the partners
distribution networks in combination with taking
advantage of a good brand image can help a
company to grow faster than it would on its own.
The organic growth of a company might often not be
sufficient enough to satisfy the strategic
requirements of a company, that means that a firm
often cannot grow and extend itself fast enough
without expertise and support from partners
Speed to market: Speed to market is an essential
success factor In nowadays competitive markets and
the right partner can help to distinctly improve this.
Complexity: As complexity increases, it is more and
more difficult to manage all requirements and
challenges a company has to face, so pooling of
expertise and knowledge can help to best serve
customers.
Costs: Partnerships can help to lower costs,
especially in non-profit areas like
Research&Development.
Access to resources: Partners in a Strategic
Alliance can help each other by giving access to
resources, (personnel, finances, technology) which
enable the partner to produce its products in a
higher quality or more cost efficient way.

 Access to target markets: Sometimes,

collaboration with a local partner is the only way to
enter a specific market. Especially developing
countries want to avoid that their resources are
exploited, which makes it hard for foreign companies
to enter these markets alone.
Economies of Scale: When companies pool their
resources and enable each other to access
manufacturing capabilities, economies of scale can
be achieved. Cooperating with appropriate strategies
also allows smaller enterprises to work together and
to compete against large competitors.
Further advantages
Access to new technology, intellectual property
rights,
Create critical mass, common standards, new
businesses,
Diversification,
Improve agility, R&D, material flow, speed to market,
Reduce administrative costs, R&D costs, cycle time
Allowing each partner to concentrate on their
competitive advantage.
Learning from partners and developing competencies
that may be more widely exploited elsewhere.

 To reduce political risk while entering into a new

market
Disadvantages
Disadvantages of strategic alliances include:[2][10][11]
Sharing: In a Strategic Alliance the partners must
share resources and profits and often skills and
know-how. This can be critical if business secrets are
included in this knowledge. Agreements can protect
these secrets but the partner might not be willing to
stick to such an agreement.
Creating a Competitor: The partner in a Strategic
Alliance might become a competitor one day, if it
profited enough from the alliance and grew enough
to end the partnership and then is able to operate on
its own in the same market segment.
Opportunity Costs: Focusing and committing is
necessary to run a Strategic Alliance successfully but
might discourage from taking other opportunities,
which might be benefitial as well.
Uneven Alliances: When the decision powers are
distributed very uneven, the weaker partner might
be forced to act according to the will of the more
powerful partners even if it is actually not willing to
do so.
Foreign confiscation: If a company is engaged in a
foreign country, there is the risk that the government
of this country might try to seize this local business
so that the domestic company can have all the
market on its own.

 Risk of losing control over proprietary information,

especially regarding complex transactions requiring
extensive coordination and intensive information
sharing.
Coordination difficulties due to informal cooperation
settings and highly costly dispute resolution.
Success factors
The success of any alliance very much depends on how
effective the capabilities of the involved enterprises are
matched and weather the full commitment of each
partner to the alliance is achieved. There is no
partnership without trade-offs, but the benefits of it must
preponderate the disadvantages, because alliances are
made to fill gaps in each otherscapabilities and
capacities. Poor alignment of objectives, performance
metrics, and a clash of corporate cultures can weaken
and constrain the effectiveness of the alliance
effectiveness. Some key factors that have to be
considered to be able to manage a successful alliance
include:[12][13][14]
Understanding: The cooperating companies need a
clear understanding of the potential partners
resources and interests and this understanding
should be the base of set the alliance goals.
No time pressure: During negotiations time
pressure must not have an influence on the outcome
of the process. Managers need time to establish a
working relationship with each other, develop a time

plan, set milestones, and design communication

channels.
Limited alliances: Some incompatibilities between
enterprises might not be avoidable, so the number of
alliances should be limited to a necessary amount,
which enables the companies to achieve their goals.
Good connection: Negotiations need experienced
managers. The managers from large firms need to be
connected very well so they have the possibility to
integrate different departments and business areas
over internal borders, and they need legitimations
and support from the top management.
Creation of trust and goodwill: The best basis for
a profit-yielding cooperation between enterprises is
the creation of trust and goodwill, because it
increases tolerance, intensity and openness of
communication and makes the common work easier.
Further it leads to equal and satisfied partners.
Intense Relationship: Intensifying the partnership
leads to the fact that partners get to know each
other better, each other's interests and operating
styles and increases trust.

Examples of Successful Strategic Alliances

by Je' Czaja, Demand Media
Successful strategic alliances must be mutually
beneficial.
Strategic alliances are partnerships in which two or more
companies work together to achieve objectives that are
mutually beneficial. Companies may share resources,
information, capabilities and risks to achieve this.
According to Producer's eSource, a common reason for
entering into a strategic alliance is to obtain the
advantage of another company's innovations without
having to invest in new research and development. While
companies have used acquisition to accomplish some of
these goals in the past, forming a strategic alliance is
more cost-effective.
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growthink.com/BusinessPlanTemplate
Starbucks
According to Rebecca Larson, assistant Professor of
Business at Liberty University, Starbucks partnered with
Barnes and Nobles bookstores in 1993 to provide inhouse coffee shops, benefiting both retailers. In 1996,
Starbucks partnered with Pepsico to bottle, distribute and
sell the popular coffee-based drink, Frappacino. A
Starbucks-United Airlines alliance has resulted in their
coffee being offered on flights with the Starbucks logo on
the cups and a partnership with Kraft foods has resulted
in Starbucks coffee being marketed in grocery stores. In
2006, Starbucks formed an alliance with the NAACP, the
sole purpose of which was to advance the company's and
the NAACP's goals of social and economic justice.
Apple
According to "An Overview of Strategic Alliances," Apple
has partnered with Sony, Motorola, Phillips, and AT&T in
the past. Apple has also partnered more recently with
Clearwell in order to jointly develop Clearwell's EDiscovery platform for the Apple iPad. E-Discovery is used
by enterprises and legal entities to obtain documents and
information in a "legally defensible" manner, according to
a 2010 press release.
Related Reading: Examples of Strategic Change
Hewlett Packard and Disney

Hewlett-Packard and Disney have a long-standing

alliance, starting back in 1938, when Disney purchased
eight oscillators to use in the sound design of Fantasia
from HP founders Bill Hewlett and Dave Packard. When
Disney wanted to develop a virtual attraction called
Mission: SPACE, Disney Imagineers and HP engineers
relied on HP's IT architecture, servers and workstations to
create Disney's most technologically advanced attraction.
Eli Lilly
Pharmaceutical giant Eli Lilly has been forming alliances
for nearly a century, according to its brochure, Power in
Partnerships, and was the first in their industry to
establish an office devoted to alliance management. Lilly
currently has over one hundred partnerships around the
world devoted to discovery, development, and marketing.
For example, Lilly partners with the Belgium-based
company Galapagos to develop treatments for
osteoporosis. Lilly also partners with Canada's BioMS
medical group in a licensing and development agreement
for a novel treatment for multiple sclerosis. In Japan, Lilly
is partnering with Kyowa Hakko Kogyo Co., Ltd., to bring a
targeted cancer treatment to market. Lilly will have the
exclusive license to develop and sell the product
worldwide except in Japan, and the two companies will
share rights in certain Asian countries.