environmental scanning by asst prof. jonlen desa

ENVIRONMENTAL ENVIRONMENTAL SCANNINGSCANNING

ASST PROF. JONLEN J.R. ASST PROF. JONLEN J.R. DESADESA

CONTENTS

INTERNAL ENVIRONMENT EXTERNAL ENVIRONMENT IMPORTANCE OF ENVIRONMENTAL SCANNING IN

DECISION MAKING METHODS FOR ASSESSING SWOT BCG MATRIX PROCESS OF ANALYSING EXTERNAL

ENVIRONMENT ANALYSIS OF COMPETITIVE ENVIRONMENT

BUSINESS ENVIRONMENT

• “ ENVIRONMENT”- Surrounding External Objects

INTERNAL ENVIRONMENT FACTOS

EXTERNAL ENIVRONMENT FACTORS

MICRO ENVIRONMENT MACRO ENVIRONMENT

Controllable Factors Easily Modified

Strengths & Weaknesses

Uncontrollable Factors Cannot be modified

easily

Opportunities & Threats

INTERNAL ENVIRONMENT

EXTERNAL ENVIRONMENT

INTERNAL ENVIRONMENT1. STRATEGY

Meaning

Long Term Objectives VISION & MISSION

Analysis of Organizational Factors & Environmental Factors. (SWOT).

Strategy serves as a BLUE PRINT BLUE PRINT indicating the course of action to achieve the desired objectives.

2. STRUCTURE

ORGANIZATIONAL STRUCTURE COMPOSITION OF B.O.D SIZE, NATURE OF BUSINESS FORMAL & INFORMAL ORGANIZATION AUTHORITY, RESPONSIBILITY &

ACCPONTABILITY

3.MARKETING

Understanding Customers & Creating Awareness about the product among customers.

7 P’s of Marketing Segmentation, Targeting & Positioning. Responsibility of the Marketing Department.

4.HUMAN RESOURCE

Man-power Planning Recruitment & Selection Training & Development Performance Appraisal & Compensation Welfare Facilities Employee Grievances Industrial Relations

5. PRODUCTION

Converting Inputs to Outputs or Raw Materials to finished products.

Location, Layout of plant. Product R&D- New Product Development

6. FINANCIAL

Availability & Usage of Funds Capital Structure of a firm Working Capital

Functions of Financial Management Accounting Budgeting Taxation Cost Reduction & Control Return & Risk Management

EXTERNAL ENVIRONMENT- MICRO ENVIRONMENT

1. SUPPLIERS

An important force in the micro envt of a co. Who are suppliers? Uncertainty regarding supply forces companies

maintain high level of inventories thus increasing costs.

Risky to depend on single suppliers Important to maintain good relationship with

the suppliers.

2. CUSTOMERS

Most important for every business. Without customers, no business can survive

& hence business exists only because of customers.

“ Customer is the king”. Main tasks- Attain & Retain Customers. Different categories of customers. Develop a large customer base.

3.COMPETITORS

Competitors are rival firms. Compete for the income of customers. Mostly, competitors are from the same

industry. Product Differentiation Firms cannot eliminate competition. Build on your own strengths, grab every

opportunity and reduce your rivals strenghts.

4.MARKETING INTERMEDIARIES

Middlemen who help a company in promotingpromoting, sellingselling & distributiondistribution of goods to the final buyers.

Vital link between the customers and the company.

Transport & Warehousing firms. Merchants, Agents, Wholesalers, Retailers are

examples of marketing intermediaries.

5.PUBLIC A ‘Public’ is any group that has an actual or

potential interest in the company. Eg: Media, Citizens, Society at large. Media public play an important role in

highlighting certain issues. Publics are not a threat to a business, but an

opportunity. Business has to fulfill its CSR towards the

public.

6.SHAREHOLDERS

Owners of the company. Fair rate of dividend and capital

appreciation. It is important that every company

protects the interest of its shareholders and fulfills its expectations.

7. CREDITORS

Lenders of finance to an organization. Loans given may be secured or unsecured

loans. Responsibility of timely repayment of

principal and interest. Creditors access the credit worthiness of a

firm before lending. Maintain good relationship.

8. FINANCIAL INTERMEDIARIES

It includes financial institutions who help or deal with an organization for various reasons.

Banks, Insurance Companies, Venture Capital Firms, Stock Exchange( in case of listed shares).

Provide financial assistance, consultancy, underwriting services to an organization.

EXTERNAL ENVIRONMENT- MACRO FACTORS

1. DEMOGRAPHIC ENVIRONMENT

Demographics describe a population in terms of its size, structure & distribution.

Consumer wants, preferences, usage rates are associated with demographic variables.

Market Segmentation plays a very important role.

Demographic Variables include the following :

Demographic Classification or Variables

2.SOCIAL ENVIRONMENT

Social Environment factors include human relationships.

Buying & Consumption habits, tastes and preferences influence social environment.

Social Environment Factors affect Strategic Management Process in various areas. They include:

Role of Business in Society.

Social Attitudes & Values

Family Structure & changes- Joint & Nuclear families.

Role of women in society & status

Educational levels and gender inequality

Work ethics

Society & Social Class

3. NATURAL ENVIRONMENT

Natural Environment includes our surroundings. Air, Water, Land. Preservation & Conservation of the environment Control of Pollution. Rational Utilization of Resources. Use of renewable sources of energy. Climate Changes & Global Warming Avoid exploitation or misuse of resources of host

nation.

4. TECHNOLOGICAL ENVIRONMENT

Technology is knowledge of methods to perform certain tasks or solve problems pertaining to goods & services.

Technological environment consists of forces affecting technology and which result in the creation of new products, markets and marketing opportunities.

Technology changes are taking place at a fast pace. A firm should cope with technological changes to

survive in the modern business world. Technological developments increase the demand for

some existing products. Technology influences the way we live. Advantages or Impact of Technology on

Business.

Egs: TVs, Computers, Cars etc

5. POLITICAL ENVIRONMENT

Political Ideology is the body of complex ideas, theories and objectives that constitute a socio-political program.

Political Stability is a crucial factor. Political environment of a business is very

important as it influences every business. Political friendship results in the growth of

trade. All kinds of Political Instability, Uncertainty &

Risks affects business; domestic as well as international.

Egs: Hike in Petrol Prices, BJP Govt in India, FDIs etc.

CLASSIFICATION OF GOVERNMENTS

POLITICAL INSTABILITY, UNCERTAINITY & RISKS

POLITICAL RISKS INDICATORS OF POLITICAL INSTABILITY

POLITICAL ENVIRONMENT FACTORS TO BE SCANNED

Political Climate- Amount of Govt Activity Political Stability & Risks Government Debt Budget Deficit or Surplus Corporate & Personal Tax Rates Import Tariffs & Quotas Restrictions on international financial flows.

6. LEGAL ENVIRONMENT

Laws of the land directly affect business. Different forms of Laws- Civil, Criminal, Contract etc. In International Business, 3 LawsHost Country LawsHome Country LawsInternational Laws

Laws for protection of Intellectual Property. Laws in host nation- Tariffs, Quotas, Restrictions,

Anti-Dumping Laws, Licenses etc.Labour Laws

LEGAL ENVIRONMENT

Laws in the host nation are made by the ruling Government.

Laws are made to protect the interest of customers from unfair practices, control of prices, safeguard business interests.

MRTP Act, Factories Act, Indian Contract Act. Settlement of Disputes.

LEGAL FACTORS TO BE SCANNED

Minimum Wage Laws Environmental Protection Laws Worker Safety Laws Labour Laws Intellectual Property Laws Anti- Monopoly Laws Licenses

7. CULTURAL ENVIRONMENT

Culture is defined as “ the integrated sum total behavioral traits that are shared by members of a society.”

Culture includes beliefs, customs, traditions, morals. Culture changes gradually Knowledge of cultural environment is important in order to

understand the culture of a particular nation. Cultural Elements- Language, Education, Religion play a very

important role. Companies do business locally as well as globally. Cultural blunders may lead to embarrassment, loss of

customers, loss of business, missed opportunities, legal consequences, tarnished environment.

Cultural Environment plays a very important role.

Cultural Environment

FEATURES OF CULTURE LEVELS OF CULTURE

ELEMENTS OF CULTURE

ELEMENTS OF CULTURE IN BUSINESS

TIME & CULTURE SPACE & CULTURE INDIVIDUALISM VS COLLECTIVISM RISK & UNCERTAINITY POWER DISTANCE ETHICS

HIGH & LOW CONTEXT CULTURES

High & Low Context Cultures ( Communication)

Cross Cultural Analysis Cultural Adaptation Cross Cultural Mistakes committed.Topic Selection for Conversation, Silence, Interruption, Humor

8. ECONOMIC ENVIRONMENT

Economic Environment refers to all economic factors which affect the functioning of a business.

Business is dependent on the Economic Environment for producing inputs & selling goods.

It directly influences business. It is the most important macro environment

factor of a business that influences its profits, growth and survival.

CLASSIFICATION OF ECONOMIES

Capitalist Economy Socialist Economy Mixed Economy(3

Sectors)

Public SectorPrivate SectorJoint Sector

Ownership of Means of Production

Level of Development Reached

FACTORS AFFECTING ECONOMIC ENVIRONMENTFACTORS AFFECTING ECONOMIC ENVIRONMENT

BCG MATRIXBCG MATRIX BCG BOSTON CONSULTANCY GROUP Business Portfolio 2 Dimensions: Market Growth Rate ( Y- Axis)

Relative Market Share ( X-Axis)

The BCG Growth-Share Matrix is a portfolio planning model developed by Bruce Henderson of the Boston Consulting Group in the early 1970's. It is based on the observation that a company's business units can be classified into four categories based on combinations of market growth and market share relative to the largest competitor, hence the name "growth-share".

Market growth serves as a proxy for industry attractiveness, and relative market share serves as a proxy for competitive advantage.

RELATIVE MARKET SHARE & MARKET GROWTH

To understand the Boston Matrix you need to understand how market share & market growth interrelated.

Market Share Market share is the percentage of the total market

that is being serviced by your company measured either in the revenue terms or unit volume terms

RELATIVE MARKET SHARE

Business Unit Sales this yearRMS :-

Leading rival sales this year

The higher your market share, the higher proportion of the market you control.

MARKET GROWTH RATE

Market Growth is used as a measure of a market’s attractiveness.

Individual Sales this year – Individual sales last year MGR =

Individual Sales last year

BCG MATRIX

THE BCG GROWTH-SHARE MATRIX

STAR(HIGH GROWTH, HIGH MARKET SHARE)

Stars are leader in business. They also require heavy investment to

maintain it’s large market share. It leads to large amount of cash consumption

& cash generation. Attempts should be made to hold the market

share otherwise the star will became a cash cow.

DOGS (LOW GROWTH, LOW MARKET SHARE)

Dogs have low market share and a low growth rate and thus neither generate nor consume a large amount of cash.

However, dogs are cash traps because of the money tied up in a business that has little potential.

Such businesses are candidates for divestiture.

CASH COWS ( LOW GROWTH, HIGH MARKET SHARE)

They are foundation of the company & often the stars of yesterday.

They generate more cash than required They extract the profits by investing as little

cash as possible They are located in an industry that is mature

not growing or declining

QUESTION MARKS/PROBLEM CHILDREN ( HIGH GROWTH, LOW MARKET SHARE)

Most business start of as question marks They will absorb great amount of cash if the

market share remains unchanged (low) Question marks have potential to become

star & evenly cash cow but can also become dog.

Investment should be high for question marks

BENEFITS

BCG matrix is simple & easy to understand It helps to quickly & simply screen the opportunity

open to you, & help you think about how you can make the most of them.

It is used to identify how corporate cash resources can best be used to maximize company’s future growth & profitability.

It helps in fixing priorities for corporate resource allocation.

It provides rationalization for both invest & divest strategies.

LIMITATION

BCG matrix uses only two dimensions relative market share & market growth rate.

Problem of getting data on market share & market growth

High market share does not mean profits all time.

It ignores many businesses with average growth rate.

BCG-MATRIX FOR THE PRODUCT LINE OF

Coca-Cola

QUESTION MARKS (HIGH GROWTH, LOW MARKET

SHARE

STARS (HIGH GROWTH, HIGH MARKET

SHARE)

CASH COWS (LOW GROWTH, HIGH MARKET

SHARE

DOGS (LOW GROWTH, LOW MARKET

SHARE)

ENVIRONMENTAL SCANNINGENVIRONMENTAL SCANNING

Environmental scanning is a process of gathering, analyzing, and dispensing information for tactical or strategic purposes. The environmental scanning process entails obtaining both factual and subjective information on the business environments in which a company is operating or considering entering

Environmental scanning is the monitoring, evaluating and disseminating of information from the external and internal environments.

KINDS OF ENVIRONMENTAL KINDS OF ENVIRONMENTAL SCANNING OR SCANNING SYSTEMSSCANNING OR SCANNING SYSTEMS

Ad-hoc scanning - Short term, infrequent examinations usually initiated by a crisis

Regular scanning - Studies done on a regular schedule (e.g. once a year)

Continuous scanning (also called continuous learning) - continuous structured data collection and processing on a broad range of environmental factors

Environmental ScanningEnvironmental Scanning

External Analysis Internal Analysis

Macro environment Micro environment

PEST analysis Five force analysis

A scan of the external macro-environment in which the firm operates can be expressed in terms of the following factors:

Political Economic Social Technological

The acronym PEST (or sometimes rearranged as "STEP") is used to describe a framework for the analysis of these macro environmental factors.

Five Force Analysis(Competitive Advantage)Five Force Analysis(Competitive Advantage)

Factors Affecting Environmental ScanningFactors Affecting Environmental Scanning

WHY ENVIRONMENTAL SCANNING?

Macro environmental scanning is useful as it reveals current conditions of market. it helps managers to predict the future characteristics of the organizational environment and hence make decisions today that will help the firm deal with the environment of tomorrow.

TECHNIQUES FOR ENVIRONMENTAL ANALYSIS

Verbal & Written Information Search & Scanning Spying Forecasting Mass Media- Radio, TV, Internet Internal Sources-Co. files, documents,

company employees, database. External Agencies-Customers, Marketing

Intermediaries, Suppliers, Govt Agencies etc.

IMPORTANCE OF ENVIRONMENTAL IMPORTANCE OF ENVIRONMENTAL SCANNINGSCANNING

To study the existing environment To have effective strategists Helps in reading the future Helps in converting threats into opportunities Narrowing down alternatives Strategic Management starts with

Environmental Scanning Helps in decision making Identification of SWOT Optimum utilization of resources Increase in sales, profits & growth of a firm.

SWOT ANALYSISSWOT ANALYSIS

Strengths, Weakness- Internal Environment Opportunities, Threats- External Environment

ANALYSIS OF COMPETITIVE ENVIRONMENTANALYSIS OF COMPETITIVE ENVIRONMENT

Competitor analysis in strategic management is an assessment of the strengths and weaknesses of current and potential competitors. This analysis provides both an offensive and defensive strategic context to identify opportunities and threats.

A competitive environment is one where there are several similar firms that are competing for the same market segment. These firms normally produce products of the same nature and form and whose uses are more or less the same. However, because of the competition that exists for the market, these firms are likely to differentiate their products to endear them to a larger number of consumers compared to their rivals.

3 Stages For Analysis Of 3 Stages For Analysis Of Competitive EnvironmentCompetitive Environment

MICHAEL PORTERS COMPETITIVE MICHAEL PORTERS COMPETITIVE STRATEGIESSTRATEGIES

3 Business Level Strategies known as Generic Strategies These are useful for managers to secure a competitive advantage for the company’s products.

These strategies help a business succeed in the chosen business.

Overall Cost LeadershipOverall Cost LeadershipDifferentiationDifferentiationFocusFocus

STRUCTURAL ANALYSIS & STRUCTURAL ANALYSIS & COMPETITIVE STRATEGYCOMPETITIVE STRATEGY A firm should have an attacking or defensive

strategy or action in order to create a defendable position against the 5 Competitive Forces.

Possible ApproachesA. Positioning of a firm that its capabilities provide

the best defense against the Competitive Forces.B. Improving the firm’s relative position through

strategic moves.C. Exploiting Change: Adopting appropriate

strategy for changing environment ahead of the rivals.

COMPETITOR ANALYSISCOMPETITOR ANALYSIS

Who are the competitors of the firm? What are the current strategies of the

competitors? What are their future goals & likely strategies? What drives the competitors? Where is the competitor vulnerable? What are the competitors SWOT?

COMPETITOR ANALYSIS-4 COMPETITOR ANALYSIS-4 DIAGNOSTIC COMPONENTSDIAGNOSTIC COMPONENTS

Future Goals- A competitor’s direction

Current Strategy- A competitor’s capabilities and intentions

Assumptions -A competitor’s beliefs about the industry

Capabilities -A competitor’s capabilities

VALUE CHAIN ANALYSIS

Michael Porter developed the Value Chain Analysis. It is an important source of Competitive advantage. Value Chain is the chain of activities which an

organization undertakes to create value for the customers.

Main focus is on “Increasing Value” Primary Activities- Inbound Logistics, Operations,

Outbound Logistics, Marketing & Sales, Service. Secondary Activities- Firm’s Infrastructure,

Human Resource Management, Technological Development, Procurement.

1. SCANNING

Scanning is the first step in the process of environmental analysis.

Scanning involves general surveillance of all environmental factors & their interactions in order to

a. Identify early signals of possible environmental changes &

b. Detect environmental change already under way.

Scanning is ill structured & ambiguous environmental analysis activity.

The data is unlimited but scattered, vague, ambiguous & imprecise.

Fundamental challenge for scanning analysis is to make sense out of vague & unambiguous data.

2. MONITORING2. MONITORING

Monitoring involves tracking the environmental trends, sequence of events or streams of activities. It involves following signals or indicators found during scanning.

The purpose of monitoring is to assemble sufficient data to discern whether certain trends or patterns are emerging.

Through monitoring, imprecise data turns to precise data. 3 outcomes from Monitoring:

a. Specific description of envt trends & patterns to forecast.

b. Identification of trends for further monitoring

c. Identification of areas for further scanning.

The outputs become inputs for forecasting. Further scanning & monitoring will be required.

3. FORECASTING3. FORECASTING

Scanning & Monitoring provide a picture of what has taken place & what is happening.

Strategic decision- making, however requires a future orientation & thus forecasting is an essential element in environmental analysis.

Forecasting is concerned with developing projections of the direction, scope & intensity of environmental change. It tries to anticipate changes.

Forecasting is well focused and also a complex activity as compared to scanning & monitoring and its because the scope, focus & goals are more specific as compared to the earlier 2 stages.

4. ASSESSMENT4. ASSESSMENT

S,M,F are not ends in themselves. Unless their outputs are assessed, the previous three steps simply provide information which may not be of much use if not assessed.

Assessment involves identifying & evaluating how & why current & projected envt changes affect or will affect strategic management of an organization.

S,M,F helped us understand the environment but assessment helps us identify what understanding means for the environment.

ANY QUERIES????ANY QUERIES????