MARKETING MATERIAL
Theoretical Frameworks Sociocultural Postmaterialism Demography Technology
Economic Micro-Economics Political Law Consumerism Multiple Publics
Mergers & Acquisitions Environmental Analysis (Scanning) Modes of Scanning
Sources Scanning Processes Weak Signals Competition Industry Type
Overcapacity Competitive Research Desk Research Win/Loss Reports
Competitors' Response Competitive Strategy Power Diamond Leaders & Followers
9443 MARKETING Chapter 13
- The External Environment
Introduction
In recent years the horizons of `marketing' have been expanded to
encompass the wider environment. It has been recognized that, at
least in the longer term, the survival of organizations is very
dependent upon that environment. A number of theoretical
frameworks have been put forward, but the simplest and most
widely used is STEP (Sociocultural, Technological, Economic,
Political); this is the framework adopted in this chapter. Thus,
the sociocultural domain of the environment is explored; with
particular reference to the main `drivers for change', especially
`postmaterialism'. The technological, economic and political
domains are similarly investigated; with particular reference to
mergers and acquisitions, and the `multiple publics' which an
organization faces. The latter part of the first half, though, is
devoted to environmental analysis in general, and to `scanning'
in particular (especially for `weak signals').
The second half of the chapter is devoted to the element of the
environment that has the most immediate impact, and one which
dominated management activities in the 1980s --competitive
strategy. Following the widely accepted frameworks developed by
Michael Porter, this initially concentrates on the competitive
features of different industry types, and in particular the entry
barriers to them. The main part, however, revolves around
competitive responses and strategies, especially between leaders
and followers.
Pfeffer and Salancik - 1 - make the following comment:
The key to organizational survival is the ability to acquire and
maintain resources. This problem would be simplified if
organizations were in complete control of all the components
necessary for their operation. However, no organization is
completely self-contained. Organizations are embedded in an
environment composed of other organizations. They depend on those
organizations for the many resources they themselves require.
Organizations are linked to environments by federations,
associations, customer-supplier relationships, competitive
relationships and a socio-legal apparatus defining and
controlling the nature and limits of those relationships.
They add:
Despite the importance of the environment for organizations,
relatively little attention has been focused there.
They also quote the results of a survey by Lieberson and
O'Connor - 2 - of 167 companies in which `... the
administrative impact (the effect of the company management) was
dwarfed by the impact of the organization's industry and the
stable characteristics of the given organization ...'.
In essence, this research showed that - most organizations were
more susceptible to the impact of their external environment than
to the actions of their own management - . Their bottom-line
profits were more dependent upon the vagaries of external events
than upon how well their internal operations were managed. In
recent years, indeed, this impact has become more unpredictable.
Most organizations, however, seem (at least formally) to ignore
this dimension of their business. If they are well managed, they
devote immense efforts to optimizing the internal factors which
are within their control; but they barely notice what is
happening outside, and make little attempt to formally manage
that side of their activities, except for some marketing
responses. Yet a survey by Greenfeld - et al - ., - 4 - of
200 CEOs in Baltimore, showed that the average CEO spent 27 per
cent of his or her time dealing with external matters (figure
4.2). A major element of that outside environment is indeed made
up from the factors which are now grouped under the global
heading of `marketing'. Beyond this, however, there is a whole
range of social and political factors which may have even greater
impact. Not least is the impact of government regulation, which
may make or break whole sectors of industry.
Douglas Brownlie - 5 - summarizes the position when he states
three `premises':
`the determinants of success are dictated by the business
environment'
`the firm's response to environmental change represents a
fundamental choice'
`a knowledge of the business environment must precede the
acquisition of any degree of control over it'
Philip Kotler - 6 - approaches the subject from a different
direction, adding a further two Ps, `power' and `public
relations' to create ` - Megamarketing - ':
1. - Power - . The megamarketer must often win the support of
influential industry officials, legislators, and government
bureaucrats to enter and operate in the target market ... Thus
the megamarketer needs political skills and a political strategy.
The company must identify the people with the power to open the
gate. It must determine the right mix of incentives to offer...
2. - Public Relations - . Whereas power is a push strategy,
public relations is a pull strategy. Public opinion takes longer
to cultivate, but when energized it can help pull a company into
the market... Before entering a market, companies must understand
the community's beliefs, attitudes and values. After entry they
need to play the role of good citizen by contributing to public
causes, sponsoring civic and cultural events, and working
effectively with the media...
We shall look at these activities later in this chapter.
AUDIT 4.1
What external factors, other than marketing, have a significant
impact on your organization? What social pressures are applied to
it, and what legislation constrains it? What industry factors
determine its profitability?
As is frequently the case in marketing, a number of alternative
frameworks for studying this wider environment are offered, the
most conventional of which describes it in terms of an
` - onion - ':
This is a useful approach, since it distinguishes between three
different degrees of interaction:
- Organization (or internal environment) - . This includes
those activities, contained totally - within - the
organization itself, which make up the daily life of most
organizations.
- Marketing environment - . This is the area of the external
environment which has the most immediate impact on organizations,
and is generally recognized by them (and is the subject of much
of this book).
- External environment - . This is often not recognized as a
force impinging on organizations; and yet, as we have seen, it
may well contain the - major - factors which determine the
performance of that organization.
There is, however, no agreed terminology for the various
components of the environment.
These external factors are most often grouped as the - STEP -
factors (Social, Technological, Economic and Political). They can
have dramatic effects on organizations. The (political) results
of legislation, for example, determine the boundaries of the
actions of most organizations, and yet they are often `taken as
read', and are a relatively unnoticed element of organizational
performance.
For most of the rest of this section, covering the main `domains'
of the external environment, we shall follow this simple STEP
approach. This offers the easiest way to break a very complex
subject down into manageable pieces. It is, however, an arbitrary
approach, which does not necessarily do justice to the complexity
of the factors involved, and may even hide some of the more
important interactions.
We shall, accordingly, look at each of these four factors
separately; even though they normally act in combination. In each
case we will not just look at the techniques involved, but will
also explore the key `facts' that distinguish that `domain'. In
particular, we shall look at the main `drivers' for change.
Cultural traditions are not easily overturned, but over the years
they can change quite significantly --without the organizations
involved noticing. Over the 1970s and 1980s, for example, the
role of woman in society --and, in particular, woman's role at
work --changed dramatically; and this was of considerable
significance to those supplying services to women. No longer
could they assume that the average woman was the stereotypical
housewife. The women's magazine industry, as one example, was
changed out of all recognition.
Over the past two decades there have been major changes in a
number of areas of the overall sociocultural environment. The
`Information Revolution' has begun to have a measurable impact on
the patterns of employment; with economists pointing to a degree
of `structural unemployment' caused by its progress. It is
arguable, indeed, that the social effects of this particular
`revolution' have barely been felt as yet, and that it will
dominate many of the changes in society over the coming two
decades.
Related to this particular `technological' driver, there have
been a number of predictions made about how society will change.
One of the earlier ones, and also one of the most influential,
was that by Daniel Bell, - 7 - concerning the development of
the - post-industrial society - :
The concept of the post-industrial society is a large
generalization. Its meaning can be more easily understood if one
specifies five dimensions, or components, of the term:
1. Economic sector: the change from a goods-producing to a
service economy;
2. Occupational distribution: the pre-eminence of the
professional and technical class;
3. Axial principle: the centrality of theoretical knowledge as
the source of innovation and of policy formulation for the
society;
4. Future orientation: the control of technology and
technological assessment;
5. Decision making: the creation of a new `intellectual
technology'.
As with many such `forecasts', the pace of change has been slower
than Daniel Bell expected. However, Bell recognized that his
`forecast' was based as much on hope and desire as on rational
projection. In the context of his fifth element, for instance, he
added:
The goal of the new intellectual technology is neither more or
less to realize a social alchemist's dream, the dream of
`ordering' the mass of society... That this dream --as utopian,
in its way, as the dreams of a perfect `commonwealth' --has
faltered is laid, on the part of its believers, to the known
human resistance to rationality.
From the point of view of the marketer, perhaps the most
important predicted change is that from a materialist society to
a post-materialist one. Inglehart and Appel - 10 - explain the
driving force behind this:
Some of the most basic values that motivate the publics of
Western societies have been changing gradually but steadily
during recent decades. Through a process of intergenerational and
population replacement, `Materialist' values, emphasizing
economic and physical security, have been giving way to
`Post-Materialist' values, that place greater emphasis on such
goals as self-expression and belonging...
Elizabeth Nelson, - 11 - following a similar post-materialist
theme, plots the results from a number of European countries on a
multidimensional map (figure 4.4). As she explains:
The trends at the top are the dynamic trends which are going to
operate increasingly in the 1990s. The ones at the bottom are the
older, 1940s and 1950s trends and those in the middle are two of
the protest trends of the 1960s and 1970s.
It is only fair to report that `post-materialism' is taking
longer to arrive than its most ardent supporters would wish.
Some changes are, however, totally predictable. The most obvious,
and possibly the most important, are those resulting from
demography. The `baby boom' of the 1960s, and the subsequent
dramatic decline in birth rates, have produced very different
cohorts of population; with accompanying (totally predictable)
changes in earnings and consumption. As a result, demography is
emerging as one of the major `sciences' of the 1990s.
Daniel Bell, - 12 - again, summarized the key elements:
Demographic forecasting --population statistics are the
foundation of most economic and social analysis --is a curious
mixture of indeterminacy and a modified closed system. The number
of children born in any particular time is subject to changes in
values, the fluctuation of economic conditions, and the like. But
once a given number are born we can predict from actuarial
tables, with a high degree of probability, the numbers that will
survive, and the rate of the cohort's diminution over time. From
this one can estimate such social needs as education, health and
so on...
You would be well advised to develop, or acquire, up-to-date
demographic analyses relating to your own organization's specific
needs. But, as an indication of some of the global trends which
should be watched, a particularly interesting table developed by
Geoffrey Hobbs - 13 - is shown (table 4.2). This shows rapidly
increasing domination, in population terms, by the less-developed
world. The same demo-graphic driver, however, results in ageing populations across almost all Western countries. For example, the US figures are as given in figure 4.5. The impact of these demographic changes is translated by Hugues de Jouvenel - 14 - into the related social
expenditure needs (figure 4.6).
(Fig 4.5 near hear)
(Fig 4.6 near hear)
AUDIT 4.2
How is the change to the post-industrial society, in particular
the IT revolution, affecting your customers? How is it affecting
your own organization?
How may post-materialism affect your customer set, and what they
want from your organization?
What demographic changes will have significant impacts upon the
make-up of this customer set? How will it affect your own
organization's supply of labour?
The impact of changing technology is also a major factor in the
development of the external environment. The `Information
Revolution' already mentioned is just one example of changes
driven by technology.
The direct impact of new technology on organizations may be
obvious. Even then, `marketing myopia' - 15 - --where they are
so involved in short-term problems that they cannot see wider
perspectives which will determine the future --may blind them to
the obvious. Less apparent, though, are the social or
`structural' changes generated by such new technology. The
`Information Revolution' is having its wider impact, for one
example, by allowing much smaller organizations to achieve
`economies of scale'. In the larger organizations it is having a
different effect by encouraging horizontal communications (via
electronic mail) to take over from the traditional vertical
(hierarchical) organization; and in the process is creating new
structures which are close to those of Japanese companies.
Peter Senker identifies four main `drivers' in the field of
technology:
information technology
new materials
environmental issues
biotechnology
AUDIT 4.3
What are the main technological changes and `drivers' facing your
customers? What are those which will affect your own
organization's products/services and processes?
Some of the `theory' of marketing is also shared with other
academic disciplines --or at least appears to be! Thus, although
the `market' is clearly at the heart of marketing, it has also
become central to economic theory; and, indeed, to the basic
philosophies of `capitalism'. The way in which each of these two
disciplines approaches the concept of the market could not,
however, be more different.
The population in general, and the business community in
particular, have uncritically accepted the basic tentets of
economics as the given fundamentals of business life. Put simply,
it is widely believed that economic theory accurately describes
what happens in the wider business world. As we shall see, the
reality (at least as described by marketing theory --and, even
more clearly, by marketing practice) is often very different.
In the earliest days there was very little practical difference
between economics and any theory of business management; or of
`marketing' as then practised, in a society which had few
surpluses to exchange. Adam Smith - 18 - wrote his justifiably
renowned - Wealth of Nations - as a treatise to be studied as
much by businessmen as by government.
Even in the Victorian period, `neoclassical' economics, as
developed by Alfred Marshall - 19 - for example, was still
spending much of its time trying to describe practical business
processes, albeit in more scientific terms. The `laws of supply
and demand', which now lie at the heart of modern micro-
economics, represented a practical attempt to describe how prices
were set at a time when almost all major markets were commodity
markets, and the one variable which the seller could control was
price.
At that time the political debate, led by Karl Marx, - 20 -
revolved around the ownership of the capital involved (and hence,
most importantly, ownership of the profit), together with the
associated division of wealth and income. `Capitalism' was about
just that --about who owned the capital. It too, in its own
perverse way, was firmly based on conventional economic theory.
Even so, business economics, or the related `micro-economics',
remained closely linked to actual business activities through the
first half of the twentieth century.
Economists, however, increasingly focused on the need to create a
body of theory which would justify their claim that economics was
a legitimate academic discipline. At this time `macro-economics',
that element which described the factors pertaining to the
economy as a whole (and was clearly the responsibility of
government rather than business), was split off as a separate
subject --particularly after the pioneering work of Lord
Keynes - 21 - became generally accepted --to become the part
of economics which received the most publicity.
The debate about whether the government should control demand or
supply was won, in the 1970s, by the latter view (now espoused by
many governments).
Over the same period, the political basis of capitalism has also
shifted. As described above, the key factor had been seen to be
the ownership of capital; the prime need was for `profit' to
stimulate the `entrepreneur' to innovate, and improve business
efficiency. Indeed, it had previously been widely believed that
the strength of the capitalist West derived from that profit
motive, which by itself led to enterprises almost automatically
being better managed; for the good of all involved.
Unfortunately, by the 1970s, after the development of the global
money markets, and after Kenneth Galbraith's very influential
teachings, - 22 - it had become clear that, at least in terms
of routine operations, ownership of capital had largely become
divorced from the management of most large organizations.
The political theme then became that of the `market'. The great
benefit of `capitalism', it thus emerged, was that the `market'
was the best (and only `natural') mechanism for allocating
resources; for deciding how demand could be met. `The discipline
of the market' or the `virtue of market-led economies', then
became the central theme of `capitalist' governments; and is now
espoused almost as enthusiastically by the governments of the
former communist bloc.
Modern micro-economics experiences no theoretical problem in
describing the activities of the ` - perfect firm - '. This
`ideal' organization is involved in perfect competition, where
price is the one dominant factor (and this, above all, is the
element manipulated in the many economic equations which are used
to describe that firm). All decisions are taken rationally, based
upon maximization of monetary outcomes (profit), where all the
relationships are exactly known; and can be plotted upon
definitive graphs.
Even here, R. H. Coase - 23 - points out in connection with
commodity exchanges and stock markets:
It is not without significance that these exchanges, often used
by economists as examples of a perfect market and perfect
competition, are markets which are highly regulated (and this
quite apart from any government regulation that there may be). It
suggests, I think correctly, that for anything approaching
perfect competition to exist, an intricate system of rules and
regulations would normally be needed ...
This - transaction cost - approach explores the relationships
between economic theory and business management, by looking at
the difference in `transaction costs' between the alternatives
considered, as the reason for the logical choice made. This field
of theory has, in particular, concentrated upon business
structure --including the `make' or `buy in' decision. Here it
argues, with some success, that the firm's decision as to whether
to `make' a component itself or buy it from a supplier is (or at
least should be) taken on `cost' grounds (though the definition
of `cost' here is more complex than normal).
Whatever the approach, micro-economics finds considerable
difficulty in dealing with ` - imperfect competition - ', since
no generally agreed model for representing this state of affairs
has yet emerged. Worst of all, particularly in the current
climate of uncertainty, it cannot easily handle the `fuzzy'
relationships which do not fit neatly into the exact equations.
Finally, as Kenneth Galbraith - 24 - and others have so
succinctly observed, management decision-making is often anything
but rational; and is frequently not designed to achieve the
simple monetary outcomes which are the staple diet of economics
--and instead reflect rather more complex motivations. Even in
the context of small business, the example beloved of economic
theoreticians, Colin Gray - 25 - observes:
Although the entrepreneur has long been recognized as an
interesting character in the economic landscape, classical
economic theory has virtually ignored the importance of the
owner-manager's personality on the firm's economic behaviour.
Indeed ... economic `agents' or `actors' are treated in
classical economics as abstractions rather than individuals.
Marketing, which has grown as a business function over this
period (while economics has waned, in terms of its comparable use
as a business management tool), thrives on precisely these
elements, which are the stuff of real business life. Thus, the
aim of every brand manager is to make competition ever
- more - imperfect (aiming for the `ideal' brand which holds a
monopoly over its customers, who will stridently demand Carlsberg
beer and reject any alternatives). In this environment the
`intangible' (and often seemingly irrational) needs and wants of
the customer predominate. The tools of marketing are frequently
the `creative' tools which address the `fuzzy' areas; of
formulating the most attractive product or service, and of
developing the most effective promotions. Having to compete on
price, as the micro-economists would ideally wish for, is usually
seen as defeat by such marketers.
Thus, there are many disadvantages to adopting the pure economic
view-point. These will become clear as the advantages of the
`competing' marketing viewpoint are developed throughout this
book. On the other hand, there still remain some clear advantages
to investigating such an economic perspective. In particular,
economics has benefited from almost a century of concentrated
academic activity; developing a rigorous, logical, framework. It
is the rigidity of thinking imposed by this framework which has
often now detached it from real life. But the very strength of
this body of academic theory means that economics can offer a
useful reference framework with which to compare many marketing
decisions.
ACTIVITY 4.1
This `activity' is a repeat of that included in the first
chapter. Again, I will test your appreciation of the
relationship between marketing and economics. The question to be
answered (once more, I should add, without a great deal of
research) is: How would - you - define `the discipline of the
market'?
Is it something remote and impersonal, which does not directly
affect your life; one of those grand phrases which you read in
the newspapers, but which seem to have no bearing on everyday
life? Or do you automatically think of a political explanation,
in terms perhaps of the traditional confrontation between right
and left? Or do you think of economics --and, possibly, rather
esoteric theory? Or is it something which impacts - directly -
upon your business life?
AUDIT 4.4
What are the main economic forces facing your customers? What are
those which will affect your organization's products/services and
ways of doing business?
The boundaries within which organizations can operate are
frequently set by legislation; from the ingredients they can
legally put into their products to the buildings that their
employees are allowed to work in. Indeed, our research[1] shows that 'regulation' is generally seen to be the most important element deciding the long-term future of organisations - to the extent that more than half of them report this as the single most important such element affecting their external environment. But political actions have a wider impact. Pressure groups campaign directly to change legislation, but also work indirectly to change the public's buying habits.
Organizations themselves may well join pressure groups, to force
government to protect their entrenched positions, and are often
very successful; to the extent that, for example, the UK's
Ministry of Agriculture which is, as part of its role, supposed
to look after consumers' interests has been accused of being
simply the mouthpiece of the farming industry.
It might be thought that only the larger organizations are the
direct targets of pressure groups or have the resources to be
involved in pressure groups themselves; but it is just as
important that the smaller organizations understand the
political machinations which are taking place around them, and
which have a major, albeit relatively unseen, impact.
On the other hand, there may be stronger forces at work. The
Strategic Planning Society, - 27 - for instance, reported
that:
People are increasingly questioning the relevance of many
established institutions. Some examples:
antipathy towards political parties
decline in organized religion
decline in trade union membership
an overriding concern by the business community that education
lacks employment and social dimensions ...
In the context of the US political scene, Fahey and
Narayman - 28 - identified a number of significant political
changes:
Rise in the number of interest groups ... there is a group for
every cause ...
Rise in the activism of interest groups ... many groups are
expert at getting access to the media ...
Escalation of single interest groups ... many of the interest
groups that have appeared on the political horizon in the last
two decades are dedicated to a single issue or cause ... These
groups are not easily distracted from their goals ...
Rise in the diversity of issues in the political arena ... an
increasingly broader array of issues now find their way into the
political process ...
More intensive and protracted political conflict ... many more
conflicts among more groups now dot the landscape ...
Greater potential for interest groups to affect the political
process ... It is increasingly easy for interest groups to
impact the political system ...
Defending an organization against pressure groups requires skill
and tact. Most important of all, it requires a sound
understanding of their viewpoint; and, to be most effective, as
sympathetic an approach to them as possible. It is rarely
possible to defeat such groups headon without incurring heavy
costs, but it may be much more realistic to divert them --to
solutions which are attractive to them, and are also preferable
to your own organization.
At the other end of the spectrum, in using membership of a
pressure group (an industry association, say) to gain advantage,
skill is once again needed; to steer them in the direction which
is advantageous to the organization. A discussion of techniques which might be used to handle some of
these activities is included in the section on `Public relations'
in chapter 10.
Most aspects of marketing transactions will be covered by one or
other form of legislation; not least that of contract law. The
marketing manager or sales manager, then, must be well aware of
those aspects that most directly affect them; and this will vary
from industry to industry, and from country to country. The
chemicals industry, for instance, is driven by legislation on
safety, whereas financial services providers in the UK look to
the Financial Services Act. Most managers, however, should at
least understand exactly what their own contract means; and, even
more importantly, what the implications are when others insist
that their own contractual terms are followed instead.
The laws which affect your business need to be handled expertly,
by specialists, for two main reasons:
specificity --there is a vast array of laws, only some of which
affect individual industries or organizations in specific
countries
currency --more importantly, laws change, often quite rapidly
The recent worldwide move to `deregulation', for example, has had
major implications for organizations in areas as diverse as
financial services and airline operation; both of which have
seen, as a result, a significant number of their members go to
the wall. Make sure that you invest in the best possible legal
advice.
The pressure group which has had the most direct impact on
organizations in recent years has been that of the consumer
movement; to which can now be added the environmental lobby and
the green movement. The motivation of these movements has been
sincere, no matter how annoying they may have been to the
producers that they have targeted. They have aimed to benefit the
consumer --high ideals, which are in stark contrast with those
of some of the rather more self-interested industrial pressure
groups.
(Fig 4.8 near here)
These movements are often closer to the average consumer than the
supplier. What they urge often makes very good marketing sense;
and their views are often a sound guide to what future
legislation may bring. In this vein, Wills - et al - . - 30 -
suggest that recognition of the consumer rights shown in figure
4.8 would ensure that a more satisfactory relationship would be
built up between organization and customer.
A concept which has recently emerged is that there are a number
of different groups which can claim an interest or `stake'
(Gareth Morgan - 31 - actually refers to them as `multiple
stakeholders') in the organization. Using a now more usual
terminology, Lusch and Lusch - 32 - define the `public' of an
organization as `any group which has an actual or potential
interest or impact on an organization's ability to achieve its
objectives'. They also identify a number of major `publics':
(Fig 4.9 near here)
To this list Kotler - 33 - would add some `important pressure
groups' --citizen action publics, local publics and government
publics --together with the related media publics.
Traditionally, especially in the view of economists, only the
owners (the `stockholders' in the above list) have been
legitimately entitled to an interest in what the organization
does. More recently it has been recognized that employees'
interests should also be taken into account.
The relationship between the stakeholders is complex, and it may
be helpful to `map' them. Rowe - et al - ., - 34 - for
example, illustrate the stakeholders of Polaroid as shown in
figure 4.9.
The power of the financial stakeholders should not, however, be
under-estimated. It is often seen in its most active form (at
least by the defenders) when acquisitions or mergers take place
(not infrequently on an `unfriendly' basis). The rationale for
mergers and acquisitions is not always financial. It is, indeed,
often for reasons related to marketing; in the diplomatic terms
which accompany such manoeuvres, `to obtain some synergy from
complementary marketing assets', or in more forthright terms, `to
try and increase monopolistic control over customers'.
Pfeffer and Salancik - 39 - describe this in terms of
`controlling interdependence':
We argue that merger is a mechanism used by organizations to
restructure their environmental interdependence in order to
stabilize critical exchanges ... There are alternative theories
of merger, including those that hypothesize that mergers are
undertaken to increase profits or to achieve economies of scale
... the available data do not support these other two
interpretations...
Perhaps this effect is even more apparent in the strategic
`alliances' between various organizations, which do not result in
any form of shared ownership, but which all the same result in
formal links between them (usually in the guise of licensing,
joint ventures or co-marketing). Devlin and Bleackley, - 40 -
for instance, illustrate the complex web of alliances in the
telecommunications industry (figure 4.15).
Perhaps the best advice is to know your competitors (in the
broadest sense), since this is frequently the direction from
which such moves emerge. Later in this chapter you will see how
this may be achieved.
(Fig 4.15 near here)
AUDIT 4.5
What pressure groups are attempting to influence the future of
your organization? How? What problems and what opportunities do
they pose?
On the other hand, to what pressure groups does your organization
belong in order to further its various causes? How effective are
they?
What regulation, and legislation, critically controls your
organization's activities? How is it likely to change? How does
consumerism affect this?
To what publics and stakeholders is your organization generally
answerable? What are their needs? Are these in conflict? How may
any conflict be resolved?
How exposed is your organization to merger and acquisition
activity? How does it, or will it, defend itself against this?
Environmental Analysis (`Scanning')
The first step in addressing the wider, `external' environment is
that of discovering what threats and opportunities it holds for
the organization. Thisis environmental analysis. The steps in this process are illustrated by Johnson and Scholes - 46 - (figure 4.16). The heart of
this process has been called - scanning - . This is a term which is much used by marketing experts, but which has been rarely defined --
and even less frequently employed in practice.
'Scanning' is a very wide-ranging activity. In its broadest
sense it encompasses all those activities which the organization
uses, formally and informally, to keep abreast of those changes
in the external environment which will affect its future. At its widest it can include all the factual (news and documentary) material to be seen on
television or read in the newspapers and periodicals! Here the
simplest advice must be to maintain the maximum exposure to the
widest range of these media; certainly not relying on just one
newspaper (even the - Wall Street Journal - or the - Financial Times - ), which will almost inevitably be biased in one way or another, but taking a balanced range of these.
Some of the activities which need to be considered include the
following.
Francis Joseph Aguilar - 49 - distinguishes four modes
of scanning:
- Undirected Viewing - is defined as general exposure to
information where the viewer has no specific purpose in mind with
the possible exception of exploration. This mode is characterized
by the viewer's general unawareness as to what issues might be
raised. The sources of information are many and varied, the
amounts are relatively great, and the screening is generally
coarse ... alerting the businessman to the fact that
- something - has changed ...
- Conditioned Viewing - , scanning is defined as directed
exposure, not involving active search scanning, to a more or less
clearly identified area or type of information ... the viewer is
sensitive to the particular kinds of data and is ready to assess
their significance ...
- Informal Search - , scanning is defined as a relatively
limited and unstructured effort to obtain specific information
for a specific purpose ... the information is actively sought.
- Formal Search - , scanning refers to a deliberate effort ...
to seek specific information ...
He goes on to add the warning that:
Scanning is costly; information is boundless. In practice an
organization can attend to only a small fraction of the
information that keeps pouring in upon it from its environment.
The rules of scanning must be framed with reference to the
economics of this activity, and costs must be weighed against
benefits.
Of these processes it is the first, `undirected viewing', which
potentially represents the major expenditure of resource, but
also the most important benefits in terms of long-term survival
(although it is also the most neglected by many organizations).
Unfortunately, undirected viewing is the most difficult to
control. thus Fahey and Narayman - 50 - also describe its
complexity and inherent difficulties:
Scanning is the - most ill-structured - and ambiguous
environmental analysis activity. The potentially relevant data
are essentially unlimited. The data are inherently scattered,
vague, and imprecise, and data sources are many and varied.
Moreover, a common feature of scanning is that - early
signals - show up in unexpected places. Thus, - the purview of
the search must be broad - , but no guidelines exist as to where
the search should be focused. In short, the noise level in
scanning is likely to be high.
Even on a limited scale, however, these resource demands imply
the necessity of a team approach. One of the most interesting
suggestions for handling this came from an organization which
asked - all - its employees to clip - any - news item they
felt might be relevant to the future of the organization. All of
these clippings were then `scanned' by the environmental analysis
group. When a pattern emerged, of a phenomenon being reported
across a number of such sources, it was reasoned that these
particular `weak signals' possibly indicated an important
underlying trend, and it was thereafter tracked in more detail.
John Naisbitt - 51 - extends the scope of the analysis, with
his statement, `The most reliable way to anticipate the future is
by understanding.' He also puts the process of scanning the media
into a more `academic', historical context:
We learn about this society through a method called `content
analysis', which has its roots in World War II. During that war
intelligence experts sought to find a method for obtaining the
kinds of information on enemy nations that public opinion polls
would have normally provided. Under the leadership of Paul
Lazarfel and Harold Lasswell ... it was decided we would do an
analysis of the content of the German newspapers ... Although
this method of monitoring public behaviour and events continues
to be the choice of the intelligence community --the United
States annually spends millions of dollars doing newspaper
content analysis in various parts of the world --it has rarely
been employed commercially.
He adds that the greatest strength of such analysis comes about
because:
For economic reasons the amount of space devoted to news in a
newspaper does not change significantly over time. So, when
something new is introduced something else or a combination of
things must be omitted. The news-reporting process is a forced
choice in a closed system. In this forced-choice situation,
societies add new preoccupations and forget old ones. In keeping
track of the ones that are added and the ones that are given up,
we are in a sense measuring the changing - share of the
market - that competing societal concerns demand.
He is probably correct in assuming that this degree of
sophistication is employed nowhere outside of the intelligence
services, but scanning might include the use of regular opinion
surveys (most probably shared `omnibus' surveys). Another
approach is to take regular reports from consultancies which
specialize in this field, such as the Henley Centre for
Forecasting. An active industry association might also provide
good support.
Continuous scanning, probably mainly of the mass media, is thus
one of the most important, externally oriented, activities
undertaken by any organization.
Perhaps the most important ingredient, however, is an
- attitude - , particularly on the part of the management most
directly involved. Douglas Brownlie, - 53 - again, suggests:
Management attitudes have a vital role to play in creating an
organizational climate that enables the firm, not only to operate
what should in effect be an - open window of perception - on
the past, present and prospective business scene, but also to act
upon the insight it provides.
Possibly the simplest, and best, advice is to cultivate a deep,
on-going, curiosity about that external world; coupled with an
ability to recognize which - signals - , from amongst the mass
of data which every new day brings, are relevant --and important
--to the future of the organization. This philosophy should
ideally be shared by others in your organization because, as a
survey by Francis Joseph Aguilar - 54 - showed, 23 per cent of
the information about the external environment was gained from
subordinates (whereas superiors and meetings only provided 9 per
cent).
The ultimate incentive for investing the necessary time and
resources in these processes is a realization of just how
important these activities may be to preserving the long-term
future of the organization.
There has been a considerable amount of largely academic
discussion about `weak signals', small pieces of information
which signal important changes which are as yet unrecognized. The
comment has concentrated upon retrospective analysis. Thus, for
example, the `signals' that Japanese manufacturers were coming to
dominate certain industries (the motorcycle industry, for
instance) are, once you look for them, quite obvious; and yet
they were totally overlooked by the existing suppliers in these
markets.
The problem, which most of these academics tend not to address,
is that while it is easy to see these patterns with the benefit
of hindsight, it proves very difficult indeed to detect them in
advance.
Joseph Martino - 55 - suggests that the key is to look for
`patterns' (a - sequence - of signals). Two errors can be
made. The first, and most likely, is to miss the signals
altogether. The second, at the opposite extreme, is to find a
pattern which is not really there: `The human mind has an amazing
facility for finding patterns in what is really nothing but
random noise.' In the field of business, he suggests that the
movements of key experts or management (or changes in management
structure) may offer a useful, early, insight into competitive
developments at least.
Joseph Martino also suggests that one way of trapping weak
signals is to set `thresholds' (for instance, that a senior
politician has to become involved with an issue or that a journal
considers it worth an editorial comment), above which signals are
then tracked. It has to be recognized, however, that setting any
such `thresholds' requires considerable expertise.
Perhaps the most important advice, all too often neglected in
practice, is that the suspected weak signals - must - then be
tracked.
AUDIT 4.6
What `scanning' does your organization systematically undertake?
If (as is likely) the answer is `none', why not?
What `scanning' does it undertake informally? What is it missing?
What has it missed in the past?
What `weak signals' can you detect in your current environment,
in terms of factors which will significantly affect your
organization? What should be done about these?
AUDIT 4.7
In overall terms, which of the four main external factors
(sociocultural, technological, economic and political) have the
most impact on your organization? How does your organization
react?
Competition is a major factor in most markets, and hence in most
marketing activities. As was pointed out in chapter 1,
`competition' is at the centre of the Japanese definition of
marketing. Even in the West it is a major determinant of product
(and service) sales performance. The marketer must know,
therefore, what his offering's relative performance is --on all
fronts.
Led by Michael Porter, - 56 - the marketing developments of the
1980s (and indeed those of overall corporate strategy) were
dominated by competitive policy. This focus remedied the previous
neglect of the subject; but there has been a degree of over-
reaction, to the extent that for some companies competitive
policy is now seen as more important than all other aspects of
marketing --including the customer.
The first level of understanding of the competitive environment
is that of the `industry' (in its broadest sense, be it frozen
foods or health service provision) within which the organization
operates. The industry is defined as a group of firms (or
organizations) which offer a product (or service) which are near
substitutes for each other: in economic terms, these `products'
have a `high cross-elasticity of demand'.
The `character' of that industry will often largely determine the
competitive activities taking place within it; and the profits of
most of the participants. Some of the factors which may
contribute to this overall `character' are:
Size of market
Number or organizations
Concentration or fragmentation
Product differentiation
Economies of scale
Investment and legislative barriers
Overcapacity
Age of market
Rate of change
Susceptibility to external factors
This appears to be a formidable list, but not all of the factors
apply equally to all industries. In any case, you will see that
many of these factors behave in exactly the way that you might