It is important for all enterprises to secure competitive advantages in the market to succeed in their venture. Thus, to be an active player in the market, each enterprise needs to focus on monitoring the external environment and securing competitive intelligence.
The external environment refers to the factors contributing outside the control of an enterprise that can impact its success. Analyzing and understanding the external environment is vital to identify its threats and opportunities. Competitive intelligence helps in getting information about competitors and evaluates the strengths and weaknesses of competitors to develop a winning strategy.
External Business Environment Monitoring
Environmental monitoring results in adapting to changes in the external environment. It is a process of collecting and analyzing the customer’s needs, wants /preferences, and analyzing the new emerging trends in order to forecast mast performance in the coming months.
The market forecast plays a vital role in environmental monitoring. Forecasting helps enterprises to prepare for and respond to the changes in external environment trends, and shifts in consumer behavior which are difficult to predict and control. The external environment trend can be economic, technological, behavioral, demographic, and sociocultural factors. Multiple scenario analysis in forecasting helps to identify how trends affect the market and profits of an enterprise.
Timely collection and analysis of competitive intelligence help to avoid surprises for an enterprise. Good industry analysis involves the evaluation of key factors that define a specific industry and helps enterprises to make informed decisions about their strategy and operations. While doing an industry analysis, it is important to review the market presence and strategies of immediate competitors. It will give adequate input to assess the industry.
Conducting a good industry analysis and identifying strategic groups within an industry helps an enterprise to understand the competitors, marketing opportunities, profitability, and evaluation of their performance. Generally, the strategic group consists of firms with similar competitive approaches and positions in the market. The identification of strategic groups within an industry enables the competitive structure of the industry to be redefined to compare strategies of various competitors for similarities and difference
Porter’s Five-Forces Model of Industry analysis is a quick mode to assess the competitive environment of an industry. It analyzes the competitive forces in an industry and assesses the attractiveness and potential profitability of the industry or market. The five forces in the model are:
- The threat of new entrants: It is an easy entry for new competitors into the market. Factors such as capital and barriers contribute to the entry of new entrants.
- The threat of substitutes: The optional availability of products and services which can meet consumer needs. The greater the number and quality of substitutes, the greater the threat.
- Bargaining power of suppliers: It is the power suppliers hold in bargaining the price and quality of the product. Suppliers are powerful when there is no competition from substitute products and there are only a few competitors in the market.
- Bargaining power of buyers: It is the power buyers have over the companies in the industry. Factors that can impact are the size of buyers and the importance of products or services of the buyers.
- Rivalry among existing competitors: It is the level of competition among existing companies in the market. This includes the number of competitors, marketing strategies, pricing strategies, competitive advantages, advertising battles, increased customer services, and warranty.
The internet and digital technologies have a significant impact on competitive forces in various industries. For example, in the retail industry, digital influence has led to the emergence of online market players such as amazon, flip kart, etc. Amazon disrupted the traditional way of selling. Amazon’s online platform allows reach wider customers than traditional retail stores, and it also has special features like one click, home delivery, etc. This pressurized traditional retail stores to adapt their business model to compete with online retailing. Through this many traditional retailers have opted for Omni channel business to increase profits and acquire customers.
Thus, it is good to analyze the external environment and collect market intelligence to secure a competitive advantage for an enterprise to succeed in the market. Understanding key components of the external environment and conducting industry analysis help identify potential competitive advantages and implement suitable strategies to enhance Competitive advantage in the market.
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