The document discusses analyzing a company's external business environment. It defines the external environment as uncontrollable forces that surround a firm. Environmental scanning involves continuously monitoring factors like economic, competitive, technological, sociocultural, political and global forces to determine opportunities and threats. The external environment is generally divided into the general environment and industry environment. The general environment includes components like economic, technological, social, demographic, political/legal forces and their impact on businesses.
The document discusses analyzing a company's external business environment. It defines the external environment as uncontrollable forces that surround a firm. Environmental scanning involves continuously monitoring factors like economic, competitive, technological, sociocultural, political and global forces to determine opportunities and threats. The external environment is generally divided into the general environment and industry environment. The general environment includes components like economic, technological, social, demographic, political/legal forces and their impact on businesses.
The document discusses analyzing a company's external business environment. It defines the external environment as uncontrollable forces that surround a firm. Environmental scanning involves continuously monitoring factors like economic, competitive, technological, sociocultural, political and global forces to determine opportunities and threats. The external environment is generally divided into the general environment and industry environment. The general environment includes components like economic, technological, social, demographic, political/legal forces and their impact on businesses.
The document discusses analyzing a company's external business environment. It defines the external environment as uncontrollable forces that surround a firm. Environmental scanning involves continuously monitoring factors like economic, competitive, technological, sociocultural, political and global forces to determine opportunities and threats. The external environment is generally divided into the general environment and industry environment. The general environment includes components like economic, technological, social, demographic, political/legal forces and their impact on businesses.
Download as PPTX, PDF, TXT or read online from Scribd
Download as pptx, pdf, or txt
You are on page 1of 75
MODULE-II
ENVIRONMENT ANALYSIS AND
DIAGNOSIS Business Environment is something that is external to the firm or one which surrounds an Organization. These external forces are uncontrollable where the firm is to respect the Components of External environment. As opposed to external environment, each firm enjoys a unique position as to value system, human and material resources, Internal power relations and so on which are controllable. The Internal forces over which the firm has control, determine to what extent the firm can influence and get ,in turn, the share of Opportunities and threats that come along opportunities.
What is Environmental Scanning Environment Scanning is that exercise that involves continuous process of monitoring the dynamic interplay of all those forces namely Economic, Competitive, Technological, Socio- Cultural, Demographic political, and Global forces to determine the opportunities. Environmental analysis is the process by which strategists monitor the environmental factors to determine opportunities for the threats of the firms. Environmental diagnosis consists of managerial decisions made by assessing the significance of the data of the environmental analysis. Thus environmental scanning is both a mental task of of analyzing and synthesizing .Analyzing is that it divides the whole into small and meaningful parts of its microscopic close-up details and synthesizing is that it is correlating and matching the parts into single Whole. Thus it projects both birds eye view and the fish eye-view of the forces operating in the environment. The Business environment is generally divided into two: General Environment Industry Environment Why Environmental Scanning The reasons for are: It imprints the image of Existing Environment It Makes possible to have Effective Strategy External environment throws pen the Opportunities and threats It helps to read the Future. Characteristic features of general Environment The General Environment usually holds both Opportunities for the Threats to Expansion
Development in the General Environment change competitive Battle Lines
The same Environmental Trend can have different Effects on Different Industries The impact of an Environment trend often differs significantly for different firms within the same Industry Difficulty of predicting with any degree of accuracy in some case while others Readily predictable The dimensions of G E with strongest influence on business may differ from country to country.
Components of General Environment The general Environment of an Organization is made up of vital components such as Economic Technological Social Demographic Political and Legal forces.
Economic Environment Components of Economic Environment are General Economic Conditions Economic Systems Economic policies Economic growth Interest Rates Exchange rates
Technological Environment Changing technology It can change the relative competitive Cost positions within a business It can create new markets and a new business segments It can collapse ideas, new products, new process, new methodologies are the outcome of technological change Social Environment Socio-cultural environment covers aspects of society and its constituents Expectations of the society from the business Community Attitudes of Society towards business and its management Views towards to wards achievement of work
Cont Outlook towards the Authority structure, Responsibility and Organizational positions Views towards customs, traditions and conventions Class structure and labor mobility Level of education
Cont. These socio-cultural environment factors influence the organizations in three ways Organizational Objective setting Organizational Process Products and Services to be offered by the organization Cont The consumerism which is in full force, has been responsible for enactment of MRTP Act ,Consumer protection Act. Consumerism has made impact on technology, Product-quality, marketing efforts, Standards of after sale services. All this means that the business Community has to produce and market the products and services as decided by the Socio- cultural Values. Demographic Environment Demographic features deal with population such as birth rate, growth rate, Age composition, Family size, Level of Education, Language, Caste, sIncome level, Earners and Non-earners in a family. The demand for the goods and services is dependent on demand for them and the demand is potential or actual market and market means Actual and potential consumers. Government policies The government policies are both positive and negative in approach. The policy framing and Implementation grants four kinds of roles Regulatory Roles Promotional Roles Entrepreneurial Roles Planning Roles Regulatory Role Regulatory Role consists of: Restriction of private participation in areas like defense, Industries or Atomic energy Controlling capacity and location of plants Putting ceilings on expenses Floor limit of wages and Bonus and provisions for statutory welfare measures Regulation in terms of Equity participation and foreign investment
Corporate tax, professional tax , wealth tax etc
Export and Import rules ,custom duties, Tariff and so on
Promotional role Promotional role consists of: Development of infrastructure for industrial and commercial activities like roads, Industrial estates ,Communication facilities and electricity Assistance like grant ,Investment subsidies, Tax concessions, Tax holidays, Subsidized water or electricity Charges Entrepreneurial Role EP consists of : Participation in business and industry where private participation is not adequate namely electricity generation and distribution Ownership and management of reserved industries like defense production, atomic energy, Oil and gas. Managing public sector industries Planning role P R covers the areas of: Five year plans Prioritization of Industries Foreign participation and bilateral agreement with other states or countries Green field area development plans Regional development plans and programs Globalization Environment Globalization is a process of world wide integration of strategy formulation implementation and valuation activities. Strategic decisions are made based on their impact upon Global profitability of the firm, rather than on just domestic or other individual country considerations. A global strategy seeks to meet the needs of customers world wide, wide with highest value at the lowest cost. This means locating production in countries with the lowest labor costs or abundant natural recourses, locating research are complex engineering centers where skilled scientist locating marketing activities close to the markets to be served. A global strategy includes designing ,producing and marketing products with Global needs in mind, instead of considering individual countries alone. A global strategy integrates actions against competitors into a world wide plan. As a result of globalization ,there will be trade liberalization as well are having in case of GATT and WTO, specialization in production, expansion of regional trade leading to formation of trading blocks such as EU,NAFTA,ASEAN and so on, enhancement of local competition, formation of MNCs and TNCs, world-wide sourcing, business process outsourcing, formation of new structure like virtual organizations, making strong currencies globally acceptable as is the case with US dollar and EECs Euro-dollar. Industry Environment An industry is the group of firms manufacturing goods or rendering services of identical products. Thus steel products we mean all those units engaged in producing steel or iron and steel products. The industry environment has its constituents namely ,Competitors, Customers, Suppliers and Substitutes Cont. Each is a competing force. The best model of Competition is developed by Father of Strategy ie Michael porter, His penta force model is widely accepted that how competitive force works within an Industry.He has also added a sixth force Hexa force ie Other stake holders is added to reflect the power that governments, local communities and other groups from the task of environment over Industrial activities. These hexagon (1)Risk of Entry by Potential Competitors Brand Loyalty
Absolute cost advantage
Policies of government
Development channels of Distribution and Rapport
(2) Rivalry among Established Companies Industry competitive Structure Demand Conditions Exit Barriers (3) Bargaining Power of Buyers (4) Bargaining power of suppliers (5) Threats of Close Substitutes (6) Relative power of Other substitutes Features of Environment Scanning These are Its is Holistic Exercise
It is an Exploratory process
It is continuous process
It is Indispensable Significance of E scanning It helps in converting Threats into Opportunities
Changing colour of Environment
Narrowing down the alternatives
S M starts with E scanning
What is environmental Search The first aspect of E scanning is E search or Monitoring the Environment E search is simply is to do with collection of Information from relevant environment. It means and includes two things namely ie what to search and where to search. The first aspect deals with the type of environment factors to be analyzed and the second aspect with the sources of information about the Environmental Factors Factors governing the Choice of E factors Nature of Environment
Managerial philosophy
Age of organization
Type of Business
Size and Power of the Organization
Geographical Dimensions Techniques of Environmental Search Once the Organizational factors are identified for analysis , the organization goes in for searching the relevant facts about these factors. These techniques ranges from simple information collection through verbal sources to highly complex forecasting techniques. These techniques are Through Verbal Information
Cont. The managers learn about Environment from Employees, official superiors or subordinates or peers Outside sources like Customers, whole-sellers, Retailers, Brokers, Suppliers, Competitors and their Financiers, Academicians and Government authorities.
Spying
Company Records
Publications and
Forecasting
Alternate Scenarios Scenarios or Alternatives techniques is used to explore the likelihood of possible future development and changes and to identify interaction of uncertain future trends and events Scenario building is a process and involves certain logical steps. These steps are: Preparing Background Cont Selecting Critical Indicators Establishing past behavior Indicators Verifying the potential future Events o Evaluation of past trends o Assessment of potential impact of future events o Assessment of probability of future trends o Forecasting of future events o Assumptions for Forecasts Environment Diagnosis E D is the assessment of E factors in terms of Opportunity and Threats and the importance of their impact. E D is comparable to diagnosis of a patient in medical science where it is used to identify and its criticality. This E D as apart of S M that identifies both threats and opportunities. Preparation of ETOP Environmental Threat and opportunities Profile is a summarized projection of E factors and their likely impact on the organization when E scanning is undertaken on a formal and systematic way ,it is essential that the results are structured .ETOP is the most useful way of structuring the results of E scanning .ETOP preparation involves four logical steps: Steps Identification of different components of relevant Environment
The impact (Opportunity/Threat) Domestic and foreign market(+) Resource constraints(-) The production of trucks is technically superior(+) Updated production facilities Liberalization for technology Import(+) Exemption in excise
Cont Environment component Competitiveness
Suppliers
Customers
Note + =An opportunity - = A Threat
The Impact(Opportunity/Threat) High employee turn over(-) Placing second fiddle after Rexello, the Market Leader(- Merger of small units for getting Inputs(-) Distribution and logistic Management is not catching up(-)
Internal scanning Internal analysis or corporate analysis or situational analysis is the process of reviewing organizational resources, scanning organizational activities and linking them with creations of value of the organization and identifying the strengths and capabilities. This implies that the Internal analysis is concerned basically with three things namely Resources, value chain analysis and identification of core- competence Internal analysis is the process by which the strategists examine the firms marketing and distribution, Research and development, production and operations, Corporate resources and personnel, finance and accounting factors to determine where the firm has significant strengths and weaknesses Significance of internal Scanning A perfectly carried out Internal Appraisal brings home the facts on which firms success or failure rests. It helps to know where the firms stands in terms of strengths and weaknesses
It helps to select the opportunities to be tapped in line with its capacity.
It supports matching of objectives to its capacity It assists in assessing the capability-gap and takes steps for Evaluating the Capability in line with Growth objectives It assists in selecting the specific lines in which it can grow using potential Steps of make an Internal scanning The internal analysis is essentially a diagnostic step in identifying the companys strengths and weaknesses. And so it is worth while to emphasize that the firm is to formulate strategy which is consistent with competitive environment to take full advantage of opportunities offered by the external environment at the same time immunize or weaken the Threats. Further it should be compatible with Mission and Objectives of firm Steps (1)Identification of strategic Internal Factors Research and Development factors Production and Operations factors Human resources factors Finance and accounting factors Marketing factors Information and Organizational factors
R & D functions are to do with finding out new ideas, new processes, new products, Innovation where engineers and researchers carry on research and development activities. These factors lead to Improved product quality Improved production Methods that bring home reduction in cost Improved value of products
Production and operations factors Production operations are concerned with converting the Inputs into end products that are meant for either direct consumption or for further production. This factors include Proper location of plant including future expansion Better conversion efficiency and productivity Superior quality and Inspection methods Cont The manufacturing operations are considered more strategic from mid 80s where new strategies are developed by Japanese which attracted attention all over the world. This Includes TQC(Total quality Control) six sigma ,5-S techniques and so on. Now the attention has shifted to quality, cost and price. Human resources Factors Man power plays a significant role because there may be best possible materials, Best Boss, the machinery and methods. This factors includes Adequate numbers of employees with appropriate skills Service benefits and welfare measures taken by Management Cont Employee morale and motivation Scientific recruitment and selection Carrier planning and merit based promotions Industrials relations Including trade unions Least absenteeism and Retention Workers participation in management Finance and accounting factors Finance and accounting go together as it is the science that brings financial discipline. These factors include Relation with classes of Investors, creditors and shareholders Ability to raise long term and short term capital Financial planning- working capital, budgeting both capital and revenue and expenditure
Marketing Factors The areas of strength and weakness are Market potential of product or services Market share of products and services Marketing research and Intelligence net work Pricing policy Incentives and terms of credit Advertising salesmanship and sales promotion Consumer loyalty and Brand name
Cont Marketing factors are most significant and taking a product life cycle , the strategies have to change as each needs different treatment as to product, price, promotion and distribustion. A company which has strength fares very successfully while the weaker one will fail. Information and Organizational Factors These factors include Marketing intelligence Product development Improved sales Telemarketing Consumer loyalty Customer services. These acts as strength and absence of which is the weakness
Historical analysis Each and every strategy is an extension of another. The company cannot afford to forget the past. It is because the present and future strategies have some relationships of the past. The past experience is the base for future action and standard for comparison. To take care of these past experience ,a firm has three techniques. These are: Cont Identification of strategic factors of the past
Preparation of functional area profile(FAP)
Preparation of functional area resource deployment(FARD)
Marked futures of historical Analysis Consideration of each area one at a time
Comparison of over whole picture
Comparison of weakness to strengths
Strengths and weakness are relative
Totality of picture Evolution Analysis Evolution analysis refers to the study of product life cycle as the product undergoes a evolutionary life cycle and at each stage, the strategy that apply differs .There cannot be one set of strategies that can be applied right from the birth of a product till its death. PLC is a conceptual representation that recognizes distinct stages in the sales history of the product. Evolution analysis refers to study of product life-cycle as the product undergoes a evolutionary Life-cycle and at each stage, the strategies that need to apply or employ differ. Strategies of R&D ,production and operation, Human resources, financing and Accounting, Marketing and information and organizational will change with each stage of Life- cycle. Stages of PLC Introduction
Growth
Maturity
Decline Introduction When a new product is introduced it these characteristics namely Low and slow Sales
Highest promotional expenses
Higher product prices Growth In this stage the market has accepted the product ,Sales begin to rise. The characteristics of this stage are Sales rises faster
Higher promotional expenses
Product Improvements Maturity The features at this stage is Sales increase at decreasing rate
Normal promotional Expenses
Uniform and lower prices Decline Interest in product will fade, The out standing features at this is Rapid fall in prices
Further Fall in prices
No promotional Expenses Competitive Analysis The very Act of Internal analysis is to compare the strength and weaknesses of own firm with those of Competitors. The success of a firm in the Market is directly compared to others in the line .The firms which are competing among themselves within the same Industry ,possess distinctive skills in various areas as to their strategy in marketing the products. Cont. These strengths are the internal capabilities which form a significant basis or the very foundation on which the present and future strategies are intricately interwoven. The comparison also makes clear of the firms weaknesses which are definitely pit-falls. Techniques of Competitive Analysis SAP- STRATEGIC ADVANTAGE PROFILE
BSC-BALANCE SCORE CARD TECHNIQUE
FINANCIAL ANALYSIS
Strategic Advantage Profile SAP is a technique of analyzing the strengths and weaknesses of a company by preparing the concise picture of different capability factors. It is quite relevant to know what is SA ?.It is the relative strength of a company over its competitor competitions. Relative strengths are significant because internal weakness or inefficiencies can usually be tolerated ,at least for a time. By contrast Cont. Deterioration of companys position relative to that of its competition may endanger the very existence of Enterprise.