Case Study on "External Environmental Analysis"

Case Study 4 pages (1182 words) Sources: 5

[EXCERPT] . . . .

Smuckers SWOT

Smuckers has a relatively unfavorable operating environment. This is a function of high threat of substitutes, high threat of new entrants and limited pricing power. The company has opportunities to tap into growing markets however, such as organics. With its financial strength, distribution capabilities and its strong brands, Smuckers can exploit this opportunity in the coming years. The company could also take advantage of M&a activity, following on the heels of the successful Folgers acquisition.

There are a number of models that can help management to understand the firm's operating environment. The Five Forces analysis helps to determine how favorable an industry is in which to operate and why. The PEST analysis explains the different factors in the external environment that act upon a company. The SWOT analysis delves into the company's strengths and weaknesses, and matches them up against the opportunities and threats in the environment. Ultimately, these tools are used to derive strategy insight, and at the conclusion of this report will be recommendations for possible paths that Smuckers can take in light of the external environmental analysis.

Five Forces

In the grocery manufacturing and marketing industry, the power of suppliers is relatively low. Volume is important to suppliers and there is low differentiation of inputs. Suppliers lack concentration relative to a large buyer like Smuckers. Buyers bargaining power is moderate. Buyers are typically price takers, but brand identity is critical to gaining power over buyers. There is some price sensitivity among buyers. There are substitutes available for

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most products Smuckers sells.

There are low barriers to entry, although at the Smuckers level economies of scale play a role in cost containment that is difficult for smaller players to match. Access to inputs is high, however, the learning curve low and the capital requirements not especially strenuous. There is a high threat of substitutes. Groceries can be substituted with other products or with restaurants. Nobody needs to eat a Smuckers product. The degree of rivalry within the industry varies by product. In some categories, rivalry can be intense among major players. Most segments are mature and there are low switching costs. With slow industry growth and intermittent overcapacity, rivalries can flare up from time to time. Overall, the industry is moderately unfavorable. A strong brand can help a company succeed, but the high likelihood of substitution and only moderate pricing power contribute to an often-challenging environment.

PEST and SWOT

The political environment is favorable for Smuckers. There is limited political interference. As long as production facilities pass inspection there is little regulatory concern for Smuckers. Smuckers is not subject to stringent rules regarding cross-border shipping and has used plants in Canada to serve North America in the past. The economic environment has proven favorable in recent years. The economic downturn had people trading down their food. Smuckers -- the Folgers brand in particular -- were beneficiaries of this (2009 Smuckers Annual Report). An uptick in the economy threatens to take business away from Smuckers, however, especially in minor luxuries like coffee and jam where there is considerable high-end competition.

The social environment is moderately favorable for Smuckers. The company has a good reputation for its products. A minor movement away from processed food has yet to take hold in the mainstream, though it does represent a threat to Smuckers in some markets. The technological environment is moderately favorable for Smuckers. Technological advances can aid in lowering production costs for a company like Smuckers. There is little demonstrated use for emerging media in the marketing of grocery staples.… READ MORE

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Quoted Instructions for "External Environmental Analysis" Assignment:

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The objective for this case is to complete an external analysis for Smuckers, using the Porter 5-Forces Model and a PEST Analysis. Ulimately, this analysis will lead to some conclusions about opportunities and threats facing the company. (SWOT analysis)

For some background information on SWOT analysis, please review the following:

SWOT analysis: Lesson. (2009). http://marketingteacher.com/Lessons/lesson_swot.htm

Zahorsky, D. (2009). A business owner*****s secret weapon: SWOT analysis. Small Business Information. Web site: http://sbinformation.about.com/cs/bestpractices/a/swot.htm

So you will want to limit your analysis to the identification and evaluation of one or two key items in each element of the two models, as described in the background readings for this module.

Step One: Determine the scope of your analysis (entire company, selected business division?) and find the appropriate NAICS code.

Step Two: Using the sources you identified in the SLP, collect some data to support an industry analysis of each of the 5 Forces in Porter*****'s Model.

Step Three: Using the sources you identified in the SLP, collect some data to support an analysis of each of the 4 elements in the PEST analysis. When considering economic data, use the most current data you can find.

Step Four: In a 4-5 page paper, write up the results of your external analysis, leading to conclusions about the opportunities and threats facing Smuckers as revealed by your research. The data you report from the 5 Forces and PEST analysis must be properly cited through intext citations and a reference list, or footnotes.

Case Expectations:

Consider the Case as a formal business report that you are developing for the Board of Directors and CEO as Smuckers*****' company consultant. This is a professional document.

Executive summary

Introduction

Main Body

Conclusion

BACKGROUND READING

SWOT Analysis

SWOT stands for: Strengths, Weaknesses, Opportunities, and Threats. The first two relate to an analysis of the internal organization (module 3), and the latter two to analysis of the external environment (module 2).

The purpose of an external analysis is to scan the outside environment for factors which might open up new opportunities for the business - or present threats to survival. Then company managers and executives can formulate plans to take advantage of the opportunities and ward off or respond to potential threats.

In this class, we will be using two different models that approach the external environment from two different perspectives:

1. Industry environment - Porter*****'s Five Forces Model

2. Macroenvironment - PEST Analysis

Industry-level Environment

Porter*****'s Model of Five Forces is one of the most versatile frameworks to analyze the industry external environment. Employed by a variety of academics and business practitioners for over 3 decades, the Five Forces Model has proved its usefulness in a variety of arenas. The Porter model helps the user get a handle on the competitive and market characteristics of a specific industry. The factors covered by the Five Forces Model are:

Threat of new entrants

Bargaining power of suppliers

Bargaining power of customers

Availability of substitutes

Degree of rivalry among competitors

Macro-level Environment

While the Porter analysis looks at the conditions in a specific industry, thePEST analysis looks at factors that affect the greater business environment. The factors addressed by this model include:

Political (including regulatory)

Economic

Socio-cultural

Technical

REQUIRED MATERIALS:

Comeford, R., & Callaghan, D. Environmental, industry, and internal analysis. Retrieved from University of Rhode Island. Web site: http://www.cba.uri.edu/Faculty/Comerford/Text/Chapter2.html

Connelley, D. (2005). Strategy for the External Environment. Power Point Presentation.

Key forces in the external environment. (2009). Retrieved from The International Development Research Centre. Web site: http://www.idrc.ca/en/ev-28364-201-1-DO_TOPIC.html

PEST analysis (2009). Retrieved from Value Based Management. Web site: http://www.valuebasedmanagement.net/methods_PEST_analysis.html

Porter*****s Five Forces: A model for industry analysis. (2007). Retrieved from QuickMBA. Web site: http://www.quickmba.com/strategy/porter.shtml

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1. External Environmental Analysis [Internet]. A1-TermPaper.com. 2010 [cited 3 July 2024]. Available from: https://www.a1-termpaper.com/topics/essay/smuckers-swot/95069

1. External Environmental Analysis. A1-TermPaper.com. https://www.a1-termpaper.com/topics/essay/smuckers-swot/95069. Published 2010. Accessed July 3, 2024.