West, Ford & Ibrahim: Strategic Marketing 2e, Chapter 3

ChapterSummaries
Chapter3EnvironmentalandInternalAnalysis:MarketingInformationand
Intelligence

Introduction
The strategic marketing management process (SMM) involves, arguably in a linear way, three
stages/areas strategic analysis, strategic choice and strategy implementation. Johnson and Scholes
(2005) described the three stages of the process as follows. Strategic analysis is concerned with
understanding the strategic position of the organisation in terms of its external environment, internal
resources and competencies, and the expectations and influence of stakeholders. Strategic choice
involves understanding the underlying bases guiding future strategy, and generating strategic options
forevaluationandselectingfromamongthem.Strategyimplementationisthetranslationofstrategy
into organisational action through organisational structure and design, resource planning, and the
managementofstrategicchange.Thischapterdiscussesingreaterdetailsthefirststageofthestrategic
marketingmanagement(SMM)processforstrategydevelopment,whichisstrategicanalysis.

TheMarketingEnvironmentanditsComponents
The firms marketing environment involves two distinct levels, the internal environment, consisting of
variables within the organisation but not usually within the longrun control of top management, and
the external environment consisting of variables outside the organisation and not typically within the
shortrun control of top management. The external environment is further divided into two sub
environments: (A) the macro, general or remote environment, and (B) the micro, competitive or
industry environment. The macro environment includes general forces that do not directly touch on
the shortrun activities of the organisation but that can, and often do, influence its longrun strategic
decisions. These variables generally affect, but in different ways, every single organisation in the
marketing environment regardless of the industrial sector in which the organisation operates. The
microorcompetitiveenvironmentincludesthoseforcesorgroupsthatdirectlyaffect,andareaffected
by,anorganisationsmajoroperations.Anorganisationscompetitiveenvironmentisoftenreferredto
astheindustryorthemarketinwhichtheorganisationcompetes.

StrategicAnalysisoftheExternalMarketingEnvironment
Tobesuccessfulovertimeanorganisationmustbeintunewithitsexternalenvironment.Theremustbe
astrategicfitbetweenwhattheenvironmentwantsandwhattheorganisationhastooffer,aswellas
betweenwhattheorganisationneedsandwhattheenvironmentcanprovide.Asteptowardsachieving
suchastrategicfitisscanningandanalysingthevariablesandforcesthatexistinthetwolevelsofthe
externalenvironment.Environmentalscanningistheprocessofcollectinginformationabouttheforces
in the environment. Scanning involves observation, perusal of secondary sources, such as business,
trade,government,andgeneralinterestpublications,andmarketingresearch.Environmentalanalysis
isthe processofassessingandinterpretingtheinformationgathered throughmarketintelligenceand
environmentalscanning.Thepotentialoutputofscanningandanalysingtheexternalenvironmentisthe
identificationofopportunitiesandthreats,bothpresentandpotential,whichfacetheorganisation.

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West, Ford & Ibrahim: Strategic Marketing 2e, Chapter 3

Therolemarketingcanplayinenvironmentalscanningreliesonthespecificactivitiesofmarketresearch
andmarketingaudit.Marketingauditinvolvesaformalreviewoftheorganisationsproducts,markets,
customers, and forces and trends in the external environment. The potential output of scanning and
analysingtheexternalenvironmentistheidentificationofopportunitiesandthreats,bothpresentand
potential,whichfacetheorganisation.

Themacroenvironment
The most notable analytical model for analysing the macro environment is the PEST framework
(political/legal,economic,sociocultural,andtechnological).Inrespondingtothevariablesinthemacro
environmental, organisations may accept environmental forces as uncontrollable and remain passive
andreactivetowardsthisenvironment,or,iftheybelievethatenvironmentalforcescanbeshaped,they
may adopt a more proactive direction. In order to examine the macro environment, Wheelen and
Hunger (2004) noted that managers should adopt a systematic approach that enables them to assess
the possible impact of each variable and estimate how future developments of these variables may
affectthefirmsoperationinthemarket.

Themicrocompetitiveenvironment
Many analytical models and frameworks have been suggested for analysing the micro industry
environmentinwhichanyorganisationoperates.Inalinearmodel,Cravens(1994)focusesonthemost
importantelementsthatshouldbeexaminedwhenanalysingtheindustryenvironment.Suchelements
areidentifiedbyAaker(2005)asindustrysize,growth,competitivestructure,coststructure,channels,
trends, and key success factors. Another approach for analysing the competitive environment is to
categorisethevariouscompetitorswithintheindustryintostrategicgroups.Strategicgroupanalysisis
essentialforidentifyingthegroupofcompanieswithwhichthe organisationwillcompete.Astrategic
groupcanbedefinedasagroupoffirmspursuingthesameorasimilarstrategywithsimilarresources.
Portersfiveforcesmodelisthemostnotablemodelforanalysingthemicrocompetitiveenvironment,
which takes full account of the competitive forces that shape the industry structure. According to
Portersview(1980)thestateof competitioninan industry dependsonfive basiccompetitiveforces,
thecollectivestrengthoftheseforcesdeterminingtheultimateprofitpotentialoftheindustryandthe
abilityoffirmsinanindustrytoearnratesofreturnoninvestmentinexcessofthecostofcapital.

Another central aspect of strategic analysis is perceptive competitor analysis. The objectives of
undertaking competitor analysis are twofold. First, a company may have to develop a profile of the
natureandsuccessofthelikelystrategychangeseachcompetitorinthemarketmightmake.Secondly,
thecompanymayalsohavetoanticipateothercompetitorsprobableresponsetotherangeoffeasible
strategic moves other firms could initiate and each competitors probable reaction to the array of
industry changes and broader environmental shifts that might occur. Competitor analysis is necessary
foracompanytosurvive,grow,andtostaycompetitive.Thesetofactivitiesthatorganisationsmight
undertakewhenanalysingcompetitorsare:
identifyingthecompanyscompetitors
understandingcompetitorsobjectives
identifyingcompetitorsstrategies
assessingcompetitorsstrengthsandweaknesses
estimatingcompetitorsreactions
selectingcompetitorstoattackandthosetoavoid

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Competitiveintelligence
Inordertoundertakecompetitoranalysis,acompanyneedstogatherrelevantinformationthatshould
be collected, organised, interpreted, disseminated, and used in a systematic way. This process is
normally called competitive intelligence. The marketing intelligence system first identifies the vital
typesofcompetitiveinformationandthebestsourcesofthisinformation.Thesystemthencontinuously
collectsthedatafromthefield.Theinformationshouldbecheckedforvalidityandreliabilitybeforekey
informationiscommunicatedtorelevantdecisionmakers.

StrategicAnalysisoftheInternalEnvironment
Internalanalysisaimstoprovideadetailedunderstandingofthoseaspectsoftheorganisationthatare
of strategic importance. Although the external information and analysis are essential to success, they
are not sufficient unless they are accompanied by a thorough analysis of the organisations internal
environment.Theinternalappraisalhasapivotalroleinformulatingmarketingstrategiesandplanswith
which a firm can trace its success. The key output of analysing the internal environment is the
identificationofstrengthsandweaknessesthatexistwithintheorganisationscultureandstructure.

There are various models/approaches that can be used for analysing the firms international
environment. One of the simplest approaches for analysing an organisations internal environment is
functional analysis. A companys skills and resources can be organised into a competence profile
accordingtothetypicalbusinessfunctionsofmarketing,finance,R&D,andproductions,amongothers.
The firms resources include not only the financial and physical resources in each functional area but
alsotheabilityofpeopleineachareatoformulateandimplementthenecessaryfunctionalobjectives,
strategies, and policies. Another simple approach to understand the internal environment of an
organisationistheanalysisofitsperformance.Therearemanywaystoevaluatetheperformanceofa
businessthemostnotableclassicalworkbeingdoneinrelationtothisapproachisthePIMSprogram
(Profit Impact of Market Strategy). While financial measures are common, other nonfinancial
performance measures can also provide better understanding of longterm business health. Several
nonfinancial measures can be suggested such as market standing, product value, management
development, and productivity. Kaplan and Norton (1992, 1996) introduced a comprehensive method
thatmeasuresandevaluatesacompanysperformance,namelythebalancedscorecard.Thismethod
recognises four perspectives by which to integrate the financial and nonfinancial measures of a
companys performance: the financial perspective, the customer perspective, the internal business
perspective,andtheinnovationandlearningperspective.

Theresourcebasedviewisawellknownapproachforstrategydevelopmentwhichrecognisestherole
ofthefirmsresourcesasthefoundationformarketingstrategy formulation. Thisapproachillustrates
howafirmsresourcesandcapabilitiescancreateacompetitiveadvantage,whichwillbethebasefor
theorganisationsstrategicdirectionsinitstargetmarket.Portersvaluechain(1985)isanotherwayfor
examining the nature and extent of the synergies, if any, among the internal activities of a firm.
According to Porter, every firm is a collection of activities that are performed to design, produce,
promote,deliver,andsupportitsproductsinthemarket.Theprincipalideaofavaluechainisthatitisa
systematicwayofexaminingalltheactivitiesafirmperformsandhowtheyinteracttodifferentiatea
firmsvaluechainfromitscompetitorsvaluechains.Thisdifferentiationisrecognisedasakeysourceof
competitiveadvantage.

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West, Ford & Ibrahim: Strategic Marketing 2e, Chapter 3

StrategicFitTheConclusionofExternalandInternalStrategicAnalysis
In any model of strategy development a successful strategy arises from a firms strategic analysis of
emerging opportunities and threats in the external environment while taking into account the firms
internalstrengthsandweaknesses.Forthispurpose,theorganisationsstrategicanalysisoftheremote
and competitive environments can be concluded by developing what is known as an environmental
impact matrix in which major opportunities and threats are identified, and their the potential impact
are assessed and weighted. Similar to the conclusion of the organisations strategic analysis of the
externalenvironment,theanalysisoftheorganisationsinternalenvironmentcanalsobeconcludedby
developing what is known as a strategic capability profile in which the potential strengths and
weaknessesoftheorganisationalresourcesandcapabilitiesareidentified,assessed,andweighted.

SWOTanalysis(lookingatstrengths,weaknesses,opportunities, andthreats) isusuallysuggestedasa

systematic way on integrating internal analysis and external analysis to find a strategic fit between
what the environment wants and what the organisation has to offer, as well as between what the
organisation needs and what the environment can provide. Although SWOT analysis is a particularly
wellknown model and frequently used in strategic analysis, it has been subject to several criticisms
becauseofitsapparentlimitations.OneoftheprincipalcriticismsofSWOTisthattheapplicationofthis
tool has generally become of no real value in practice. Another criticism made by Weihrich (1982), is
that,having conductedtheanalysis,managersfrequentlyfailtoidentifythe strategic choicesthatthe
outcomes demand. Weihrich (1982) proposed a SWOT (TOWS) matrix which, while making use of the
same inputs as the SWOT matrix, recognises them and integrates them more fully into the strategic
managementprocess.

Conclusion
The formulation of marketing strategy is the development of longrange plans for the effective
management of the major factors and key trends in the organisations marketing environment.
Therefore, development of a marketing strategy should be based on a thorough understanding and
effective use of environmental opportunities and threats while taking into account the organisations
strengths and weaknesses. Increasing environmental uncertainty coupled with increasing pressure on
organisations to create and sustain a distinctive competency means that the scanning and analysis of
theinternalandexternalenvironmentalwillbecomeanimportantpartofeverymarketersjob.

Summary
Thischapterdiscussedingreaterdetailsthefirstpartofthestrategicmarketingmanagementprocess,
namely strategic analysis. Strategic analysis is concerned with understanding the strategic position of
theorganisationintermsofitsexternalenvironment,itsinternalresourcesandcompetencies,andthe
expectations and influence of stakeholders. Strategic analysis is central for any development of
marketingstrategy,andwithoutitmanagerscouldbemisguidedandthestrategyformulatedmightnot
be in tune with the key trends in the organisations marketing environment. For proper conduct of
strategicanalysisdifferentsetsofmarketinformationandcompetitiveintelligenceshouldbegathered.
Therelevantvariablesandforcesintheorganisationsmarketingenvironmentshouldalsobescanned
and analysed. Such an analysis aims not only to identify the possible opportunities and threats in the
externalenvironmentbutalsotheorganisationsinternalstrengthsandweaknesses.

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