Both internal and external environments can have a significant impact on innovation; with reference to an innovating firm’s relationship to the market, its competitors, and industry practices. One of the main drivers of innovation is the change in the market environment surrounding the organization.
Fluctuation and change in these environments can make innovation related decision-making uncertain and ambiguous. Consequently, organisations must systematically scan both its internal and external environments to inform their innovation endeavours. External scanning may consist of “Searching, filtering and evaluating potential opportunities from outside the organization, including related and emerging technologies, new markets and services, which can be exploited by applying or combining with existing competencies” (Tidd, et al., 2005).

In order to be able to respond to these changes with innovative products, services and methodologies, one must continually scan this environment. There are various sources of information available in the market, all of which can be scanned in various ways. The following list provides a non-exhaustive overview of the sources one can tap in the Market Scanning activity in a PaCS environment:

• Participation in governmental organizations;
• Governmental reports;
• Law and Regulations;

• Demographical reports;
• Newspapers and websites;
• Privacy abuses;

• Economic reports;
• Economical newspapers and websites;
• Needs of customers;
• Product analysis of competitors;

• Security breaches;
• Participation in industry consortiums;
• Industry reports;
• Technology working groups;
• Conferences;
• Scientific publications;

• Legal reports;

• Participation in environmental working groups;
• Environmental reports.

The scanning and understanding of the market are described in more detail in the market supporting theme



The commercialisation objective underpins and drives innovation activities, and for Fleischer and Bensoussan (2007) business success begins with clarity about the business environment and market and industry competition. The field of business and competitive intelligence offers a wealth of insights, knowledge, tools and methodologies (Table 1) for defining, gathering, analysing information about the internal and external environment, products, customers and competitors to support management, innovation, and strategic decision making. Organizations use competitive intelligence to compare themselves to other organizations ("competitive benchmarking"), to identify risks and opportunities in their markets, and to pressure-test their plans against market response s to inform subsequent decision making.

Table 1 Macro-Strategy Analysis Tools

Tool Purpose Components Illustration Further Reading
Audit of an organisation's environmental influences with the purpose of using this information to guide strategic decision-making. Six categories/ cues to focus analyses:
  • Political
  • Economic
  • Sociological
  • Technological
  • Legal
  • Environmental

Morrison, M. (2013)Strategic business diagnostic tools: theory and practice. CreateSpace Independent Publishing.

Grundy, T. (2006) Rethinking and reinventing Michael Porter's five forces model.Strategic Change. Vol 15, No 5, August. pp. 213-229.

Porter 5 Forces
Analyse level of competition within an industry andbusiness strategy development.

Five fundamental competitive forces:

  • (Threat of)Entry of competitors
  • (Threat of) substitutes
  • Bargaining power of buyers
  • Bargaining power of suppliers
  • Rivalry among the existing players




Porter, M.E. (2008) The Five Competitive Forces That Shape StrategyHarvard business Review, January 2008.


9 Forces Analysis

Identify major forces that will influence an industry’s profit and competitive potential.

Combines PESTEL and 5 Forces to provide a holistic perspective to firm and market competitiveness.

Focuses on 3 levels of environment:

  • General
  • Operating
  • Internal




Fleischer and Bensoussan (2007), Business and Competitive Analysis, FT Press.
Value Chain Analysis Identify a firm's core competencies and distinguish which activities that drive competitive advantage.

9 focal areas spanning primary support activities

Primary activities:

1.inbound logistics


3.outbound logistics and sales


Support activities:

6.firm infrastructure

7.human resource management development 9.procurement


Fleischer and Bensoussan (2007), Business and Competitive Analysis, FT Press.

Porter, Michael E. (1985). Competitive Advantage: Creating and Sustaining Superior Performance. New York.: Simon and Schuster

Driving Forces Analysis Means of understanding and accounting for change at the industry level.

Identify the relevant Driving forces

Assess the impact they will have on the industry


Fleischer and Bensoussan (2007), Business and Competitive Analysis, FT Press.

McKinsey 7S Assessing and monitoring changes within an organisation Interrelationships between seven elements: structure, strategy, systems, skills, style, staff and shared values.  mckinsey75 Waterman et al. (1980), “Structure is Not Organisation, Business Horizons, pp.14-26
SERVO Analysis


management tool used to build and test a firm’s strategic

decisions and initiatives

Examine the interactions and relationships among

five critical elements to test the degree of fit

  • Strategy,
  • Environment,
  • Resources,
  • Values,
  • Organization




Fleisher and Bensoussan (2007) Chapter 9
McKinsey Matrix Strategic portfolio analysis matrix  for SBUs Matrix mapping Industry Attractiveness with Business Unit Strength to inform innovation investment and resourcing





Fleischer and Bensoussan (2007), Business and Competitive Analysis, FT Press.


At the environmental level, PESTEL offer insights to the wider environmental factors (political, economic, sociological, technological, legal and environmental) influencing and affecting the industry as a whole, while Porters 5 forces focuses on the level of competition and rivalry external to the firm. PESTEL is in effect an audit of organisations influencers which need to be taken account of in terms of informing strategic decision- making. Porters 5 Forces model is utilised to determine the competitive intensity and subsequent attractiveness of a given market. The combination of both approaches into the 9 Forces model provides a comprehensive, holistic view of the industry forces, through integrating both macro and micro levels of external factors that can affect the firm’s competitive positioning and performance. Driving Forces Analysis is a method for exploring forces outside the firm (external factors) that trigger the change in terms of industry structure and participants, competitive environment and strategy within organizations. Sound analysis of an industry’s driving forces is a prerequisite to effective strategy making; it has practical strategy-making value and is basic to the task of thinking strategically about where the industry is headed and how to prepare for the changes. Driving forces analysis has two steps: identifying what the driving forces are and assessing the impact they will have on the industry. The impacts are accordingly ranked and assessed in terms of solution development.

Turning to the internal environment, the McKinsey 7S Framework (Waterman, et al., 1980) offers a management model for assessing and monitoring changes within an organisation across seven elements: structure, strategy, systems, skills, style, staff and shared values. In practical terms the model can be used to identify how the organizational elements are interrelated and what needs to be realigned to improve performance, or to maintain alignment (and performance) during innovation endeavours. The VRIO method (Barney & Hesterly, 2010) is an additional tool used to analyse attributes that firm’s resources must possess in order to become a source of sustained competitive advantage. These attributes include: Valuable, Rare, imperfectly Imitable and Non-substitutable. The Value Chain Analysis Framework represents the chain of activities that a firm performs in the delivery or their product or service to the market (Porter, 1985). The value chain concept adopts a process view of organisations, depicting the organisation as a series of systems with input, transformational and output processes with value added at each stage. The end purpose of value chain analysis is to identify which activities an organisation performs (primary and/or support) result in competitive advantages or disadvantages (which in turn can be improved upon), which activities are the most valuable (i.e. are the source of cost or differentiation advantage) to the firm and which ones could be improved to provide competitive advantage. Through looking into internal activities, the analysis reveals where a firm’s competitive advantages or disadvantages are. The firm that competes through either price or other differentiation advantage will try to perform its activities better than competitors would do. The value-chain concept has been extended beyond individual firms. It can apply to whole supply chains and distribution networks, given the vertically integrated nature of individual firms into larger supply chains.

In terms of strategic competitive advantage and positioning, the Boston Consulting Group (BCG) Matrix degree of market share and market growth and helps identify where best to use resources to maximize profit from a product management perspective. While most relevant as a product portfolio analysis and management tool, the BCG matrix provides relevance to macro analysis and competitive positioning as it provides a schematic for highlighting innovation lifecycle considerations in that a one-size fits all market approach is unadvisable given the fluctuations in market share and market growth on businesses by using four categories: dogs (low growth, low market share), cash cows (low growth, high market share), question marks (high growth, low market share) and stars (high growth, high market share). Advancing upon the BCG model, The GE/McKinsey Matrix is a nine-cell (3 by 3) matrix used to perform business portfolio analysis within the strategic planning process. The GE/McKinsey matrix maps firms Strategic Business Units (SBUs) relative to its attractive positioning within the industry. The vertical axis of the grid represents industry attractiveness (calculated in terms of growth rate, market size, rivalry, global opportunities, and macro environmental factors) and the horizontal axis represents the strength of the business units (calculated in terms of market share, market growth, brand equity, channels, capacity and profit margins).

Within the strategy theme, the SERVO Analysis (Strategy, Environment, Resources, Values, Organization) framework model is a diagnostic management tool used to build and test a firm’s strategic decisions and initiatives. Reflecting the dynamics of markets in terms of innovation decision making, The Ansoff Product Market Matrix, is an additional tool which can be deployed in terms of informing innovation strategies in terms of market growth and discovery. Strategy combinations transcending, market penetration, market development, product development and diversification objectives can be applied for both for new or existing products, and in new or existing market. Country risk assessment (CRA) has relevance to innovators who decide to enter and or invest in different geographical market, as it deals with how a firm assesses and navigate the risks involved in making investments in a foreign country and can be can be segmented into six categories: economic, transfer, exchange rate, location, sovereign and political risk (Fleisher & Bensoussan, 2007). A typical CRA process involves creating a risk assessment team to identify risk categories, variables and measures and in turn, weight and rank scores. The CAGE Distance Framework (Ghemawat, 2001), (Ghemawat, 2007) identifies Cultural, Administrative, Geographic and Economic differences or distances between countries that companies should address when considering and developing international strategies.

Strategic Relationship Analysis (Fleisher & Bensoussan, 2007) involves the investigation of strategic inter-firm relationships to determine their present and potential future competitive impacts. When a company assesses its resources and capabilities, it may discover gaps between what it aspires to achieve and what it realistically can achieve. One option is to address such gaps is through cooperative partnerships with an external collaborating organisation. Strategic relationships (SRs) can take the form of alliances, consortia, outsourcing, joint ventures, networks and partnerships. Steps in a typical strategic relationship analysis include: Ascertain relationship formation readiness, evaluate and select potential partners; meeting with potential partner and establish parameters/ partnership details and relationship management.


All innovators are concerned with assessing and responding to future potential, demand and applications of a given innovation. Indeed, analysis of emerging technology developments, applications and demand inform strategic decision making in terms of R&D prioritisation, innovation objectives and strategies related to innovation development. Technological forecasting may be defined as the estimation, determination and prediction of future evolution of invention characteristics, dimensions, and or performance of a given technology product, process or service (Martino, 1972). In general the concept of technology forecasting applies to all purposeful and systematic attempts to anticipate and understand the potential direction, rate, characteristics, and effects of technological change, especially invention, innovation, adoption, and use.

There are a wealth of technology forecasting methods at the disposal of innovators , ranging from Delphi techniques, growth curves, relevance trees, morphological analysis to trend extrapolation (Fleisher & Bensoussan, 2007). For an overview of their application see Chapter 22 of (Fleisher & Bensoussan, 2007). (Firat, et al., 2008) specifically delineates the wealth of forecasting methodologies across nine categories (Table 1): Expert Opinion, Trend Analysis, Monitoring & Intelligence, Modeling & Simulation, Scenarios, Statistical, Descriptive, Creativity, and Valuing/ Decision/ Economics Methods.

Table Technology Forecasting Methods

Expert Opinion

Delphi (iterative survey)

Focus Groups [panels, workshops]


Participatory Techniques

Trend Analysis

Trend Extrapolation [Growth Curve Fitting]

Trend Impact Analysis

Precursor Analysis

Long Wave Analysis

Monitoring and Intelligence Tools

Monitoring [environmental scanning, technology watch]

Bibliometrics [research profiling; patent analysis, text mining]

Statistical Methods

Correlation Analysis


Cross Impact Analysis

Risk Analysis

Bibliometrics [research profiling; patent analysis, text mining]

Modelling and Simulation

Agent Modeling

Cross Impact Analysis

Sustainability Analysis [life cycle analysis]

Causal Models

Diffusion Modeling

Complex Adaptive System Modeling (CAS) [Chaos]

Systems Simulation [System Dynamics, KSIM]

Technological Substitution

Scenario-simulation [gaming; interactive scenarios]

Economic base modeling [input-output analysis]

Technology Assessment


Scenarios [scenarios with consistency checks; scenario management]

Scenario-simulation [gaming; interactive scenarios] 

Field Anomaly Relaxation Method [FAR]

Valuing/Decision/Economics Methods

Relevance Trees [futures wheel]

Action [options] Analysis

Cost-benefit analysis

Decision analysis [utility analyses]

Economic base modeling [input-output analysis]

Descriptive and Matrices Methods



Checklist for Impact Identification

Innovation System Modeling

Institutional Analysis

Mitigation Analysis

Morphological Analysis

Roadmapping [product-technology rodmapping]

Social Impact Assessment

Multiple perspectives assessment

Organizational analysis

Requirements Analysis [needs analysis]


Brainstorming [brainwriting; nominal group process (NGP)]

Creativity Workshops [future workshops]


Vision Generation

Science Fiction Analysis

Source: (Firat, et al., 2008)

Roadmapping approaches, which articulate an “…extended look at the future of a chosen field of inquiry composed from the collective knowledge and imagination” (Galvin, 1998) to support improved alignment between technology and product development are adopted at company, sector and national levels to align research investments and other actions with goals and policy. Roadmapping represents a strategic and long range planning process (Phaal, et al., 2004) to identify, select, and develop technology alternatives to satisfy a set of product needs and presents the critical technology-planning information to make the appropriate technology investment decisions and to leverage those investments. Roadmapping methods have been adapted to suit many different goals - supporting innovation, strategy and policy development and deployment (Phaal, et al., 2004).

A framework for the creation of roadmaps is illustrated schematically in Figure 1, comprising a multi-layered time- based chart, bringing together various perspectives into a single visual diagram (Phaal & Probert, 2009). This type of roadmap enables both ‘demand’ and ‘supply’ views to be represented, balancing ‘market pull’ and ‘technology push’.


Figure Multilayered Roadmap


Source: (Phaal & Probert, 2009)

The process of roadmap development integrates various key stakeholders and perspectives, to establish consensus. Once a roadmap has been developed, it serves as a reference point for ongoing dialogue and action (Phaal & Probert, 2009). A range of approaches to roadmapping have been developed, and can manifest in many forms, however the focus is generally a graphical representation that provides a high- strategic view of the topic of interest. Further reading: Ronald N. Kostoff and Robert R. Schaller (2001) Science and Technology Roadmaps, IEEE Transactions on Engineering Management, vol. 48, no. 2.



Pestle :

Porters Five Forces : 




Barney, J. B. & Hesterly, W. S., 2010. VRIO Framework. . In: Strategic Management and Competitive Advantage . New Jersey: Pearson, pp. 68-86.
Firat, A., Woon, E. & Madnick, S., 2008. Technological Forecasting – A Review, Working Paper CISL# 2008-15, , Available at: : Online.
Fleisher, C. & Bensoussan, B., 2007. Business and Competitive Analysis: Effective Application of New and Classic Methods: FT Press.
Galvin, R., 1998. Science Roadmaps. Science, p. 280 (5365) 803.
Ghemawat, P., 2001. Distance still matters. Harvard Business Review, 79(8), pp. 137-147.
Martino, J., 1972. An Introduction to Technological Forecasting, 2nd ed.,. London: Gordon and Breach Science.
Phaal, R. & Probert, D., 2009. Technology Roadmapping: Facilitating collaborative Research strategy. s.l.:University of Cambridge.
Phaal, R., Farrukh, C. & Probert, D., 2004. Technology Roadmapping A Planning Framework for Evolution and Revolution. Technological Forecasting and Social Change, Volume 71, pp. 5-6.
Porter, M., 1985. Competitive Advantage: Creating and Sustaining Superior Performance. New York: Simon and Schuster.
Tidd, J., Bessant, J. & Pavitt, K., 2005. Managing Innovation – Integrating Technological, Market and Organizational Change. New York: John Wiley & Sons.
Waterman, R., Peters, T. & Phillips, J., 1980. Structure is not Organization. Business Horizons, pp. 14-26

Getting Started

Which type of company are you? Choose one of the options below and get a head-start.

Framework Overview

Navigate through the different parts of the Framework