ENVIRONMENTAL ANALYSIS

UNIT IIIUNIT III

Environmental AnalysisEnvironmental Analysis

Managers must have a Managers must have a deep deep understanding understanding and and appreciation appreciation of of the environment in which they and the environment in which they and their organizations function. their organizations function.

The environment of business is the The environment of business is the ‘aggregate of conditions, events and ‘aggregate of conditions, events and influences that surround and affect influences that surround and affect it’.it’.

Environmental forces could be Environmental forces could be classified into two categories: classified into two categories:

1. 1. External EnvironmentExternal Environment – It consists of – It consists of those factors that affect a firm from those factors that affect a firm from outside its organizational boundaries.outside its organizational boundaries.

2. 2. Internal EnvironmentInternal Environment – It consists of – It consists of conditions & forces within an conditions & forces within an organization that affect its organization that affect its management, owners, BoDs, management, owners, BoDs, employees etc.employees etc.

Features of EnvironmentFeatures of Environment

COMPLEXCOMPLEX

DYNAMICDYNAMIC

CHALLENGINGCHALLENGING

Components of External Components of External EnvironmentEnvironment

Economic EnvironmentEconomic Environment Social and Cultural EnvironmentSocial and Cultural Environment Political EnvironmentPolitical Environment Legal EnvironmentLegal Environment Technological EnvironmentTechnological Environment Global EnvironmentGlobal Environment Demographic EnvironmentDemographic Environment

The External EnvironmentThe External Environment

General Environment General Environment (cont’d)(cont’d)

The Economic SegmentThe Economic Segment Inflation ratesInflation rates Interest ratesInterest rates Trade deficits or Trade deficits or

surplusessurpluses Budget deficits or Budget deficits or

surplusessurpluses Personal savings ratePersonal savings rate Business savings ratesBusiness savings rates Gross domestic productGross domestic product

General Environment General Environment (cont’d)(cont’d)

The Sociocultural The Sociocultural SegmentSegment Women in the workplaceWomen in the workplace Workforce diversityWorkforce diversity Attitudes about quality of Attitudes about quality of

worklifeworklife Concerns about Concerns about

environmentenvironment Shifts in work and career Shifts in work and career

preferencespreferences Shifts in product and Shifts in product and

service preferencesservice preferences

General Environment General Environment (cont’d)(cont’d)

The Global SegmentThe Global Segment Product innovationsProduct innovations Applications of Applications of

knowledgeknowledge Focus of private and Focus of private and

government-government-supported R&D supported R&D expendituresexpenditures

New communication New communication technologiestechnologies

General Environment General Environment (cont’d)(cont’d)

The Technological SegmentThe Technological Segment Product innovationsProduct innovations Applications of Applications of

knowledgeknowledge Focus of private and Focus of private and

government-supported government-supported R&D expendituresR&D expenditures

New communication New communication technologiestechnologies

General Environment General Environment (cont’d)(cont’d)

The Political/Legal SegmentThe Political/Legal Segment Antitrust lawsAntitrust laws Taxation lawsTaxation laws Deregulation Deregulation

philosophiesphilosophies Labor training lawsLabor training laws Educational philosophies Educational philosophies

and policiesand policies

General EnvironmentGeneral Environment

The Demographic The Demographic SegmentSegment Population sizePopulation size Age structureAge structure Geographic Geographic

distributiondistribution Ethnic mixEthnic mix Income distributionIncome distribution

Importance of Environmental Importance of Environmental ScanningScanning

To know how far these environmental factors & their interactions would be helpful in accomplishing the objectives set for Co.

To know the various factors and their interactions that may threaten the survival and growth of a Co. and evolution of alternative that would possibly turn threats into opportunities.

To know about those factors that may generate new opportunities for the Co. to grow & accomplish stretched goals.

It would help in setting the targets that a Co. would like to formulate for itself which would be not only realistic but would also pose a challenge to motivate the workforce.

Environmental Scanning could be Environmental Scanning could be done through: -done through: -

- Techniques- Techniques1. SWOT Analysis (Internal Analysis)1. SWOT Analysis (Internal Analysis)

2. ETOP (Environmental Analysis)2. ETOP (Environmental Analysis)

3. PESTLE Analysis (Environmental Analysis)3. PESTLE Analysis (Environmental Analysis)

4. Porter’s Five forces Model 4. Porter’s Five forces Model (Industry/Competitive (Industry/Competitive Analysis) Analysis)

- Sources- Sources

SWOT AnalysisSWOT Analysis

It helps an organization match its It helps an organization match its strengths and weaknesses with strengths and weaknesses with opportunities and threats operating opportunities and threats operating in the environment.in the environment.

We should try to capitalize on the We should try to capitalize on the opportunities and by using opportunities and by using organizational resources & organizational resources & capabilities to the best advantage capabilities to the best advantage and neutralize the threat by and neutralize the threat by minimizing the adverse influence of minimizing the adverse influence of weaknesses.weaknesses.

STRENGTHS – internal capabilities of a firm STRENGTHS – internal capabilities of a firm which can be used to gain competitive which can be used to gain competitive advantage over its rivals.advantage over its rivals.

WEAKNESSES – Limitations or constraints WEAKNESSES – Limitations or constraints which tend to decrease the competencies which tend to decrease the competencies of the firm particularly in comparison to its of the firm particularly in comparison to its rivals.rivals.

OPPURTUNITIES – Major favorable OPPURTUNITIES – Major favorable conditions in a firm’s environment which conditions in a firm’s environment which help a firm strengthen its position.help a firm strengthen its position.

THREATS – Major unfavorable conditions in THREATS – Major unfavorable conditions in a firm’s environment which may pose a a firm’s environment which may pose a risk damage to the firm’s position in risk damage to the firm’s position in comparison to its rivals. comparison to its rivals.

ETOP AnalysisETOP Analysis

Environmental Threat and Opportunity Profile Environmental Threat and Opportunity Profile also known as also known as ‘Environmental Impact Matrix’‘Environmental Impact Matrix’..

It includes the following steps: -It includes the following steps: -

- Environmental Factors – Identification of - Environmental Factors – Identification of different components of environment.different components of environment.- Assessing importance of Environmental - Assessing importance of Environmental factorsfactors- Assessing Impact factors- Assessing Impact factors- Combining Importance and Impact factors- Combining Importance and Impact factors

BHEL: ETOPBHEL: ETOPEnvironmental SectorEnvironmental Sector ImpactImpact

(+) Opportunity (-) Threat(+) Opportunity (-) Threat

Socio- Economic (+) continued emphasis on infrastructure development

(-) Severe resource constraints

Technological (+) Higher growth in industrial production and

technology upgradation

Supplier (-) Increasing scarcity of technology because of cartel formation

Government (+) Liberalization for technology import

Competition (-) Increasing role of power plant consultants

(+) Increasing difficulty in retaining specialists and highly qualified personnel

PESTLE Analysis PESTLE Analysis

Political factorsPolitical factors Economic factorsEconomic factors Socio-cultural factorsSocio-cultural factors Technological factorsTechnological factors Legal factorsLegal factors Environmental factorsEnvironmental factors

QUEST ANALYSISQUEST ANALYSIS QUEST stands for Quick Environmental QUEST stands for Quick Environmental

Scanning Technique.Scanning Technique.

It is a four step process which uses It is a four step process which uses scenario-writing for scanning the scenario-writing for scanning the environment and identifying strategic environment and identifying strategic options.options.

The four steps involved are: The four steps involved are: --

Strategists make observation about the Strategists make observation about the major events and trends in their industry.major events and trends in their industry.

Then they speculate on a wide range of Then they speculate on a wide range of important issues that might effect the future important issues that might effect the future of their organizations by scanning the of their organizations by scanning the environment broadly and comprehensively.environment broadly and comprehensively.

The QUEST director prepares a report The QUEST director prepares a report summarizing the major issues and their summarizing the major issues and their implications, and 3 to 5 scenarios implications, and 3 to 5 scenarios incorporating the major themes of the incorporating the major themes of the discussion.discussion.

The report and scenarios are reviewed by a The report and scenarios are reviewed by a group of strategists who identify feasible group of strategists who identify feasible strategic options to deal with the evolving strategic options to deal with the evolving environment. The options are then ranked.environment. The options are then ranked.