environment analysis & diagnosis

8/12/2019 Environment Analysis & Diagnosis

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MODULE-II

ENVIRONMENT ANALYSIS AND

DIAGNOSIS


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Business Environment is something that isexternal to the firm or one which surroundsan Organization. These external forces are

uncontrollable where the firm is to respect theComponents of External environment. Asopposed to external environment, each firmenjoys a unique position as to value system,

human and material resources, Internalpower relations and so on which arecontrollable.


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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.


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What is Environmental Scanning

Environment Scanning is that exercise thatinvolves continuous process of monitoring thedynamic interplay of all those forces namely

Economic, Competitive, Technological, Socio-Cultural, Demographic political, and Globalforces to determine the opportunities.

Environmental analysis is the process by which

strategists monitor the environmental factors todetermine opportunities for the threats of thefirms.


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Environmental diagnosis consists ofmanagerial decisions made by assessing thesignificance of the data of the environmental

analysis. Thus environmental scanning is botha mental task of of analyzing andsynthesizing .Analyzing is that it divides thewhole into small and meaningful parts of its

microscopic close-up details and synthesizingis that it is correlating and matching the partsinto single Whole.


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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.


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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


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The impact of an Environment trend oftendiffers significantly for different firms withinthe same Industry

Difficulty of predicting with any degree ofaccuracy in some case while others Readilypredictable

The dimensions of G E with strongestinfluence on business may differ from countryto country.


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Components of General Environment

The general Environment of an Organization ismade up of vital components such as

Economic

Technological

Social

Demographic

Political and Legal forces.


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Economic Environment

Components of Economic Environment are

General Economic Conditions

Economic Systems Economic policies

Economic growth

Interest Rates Exchange rates


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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


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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


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Outlook towards the Authority structure,

Responsibility and Organizational positions

Views towards customs, traditions and

conventions

Class structure and labor mobility

Level of education


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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


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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 theproducts and services as decided by the Socio-

cultural Values.


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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 afamily.

The demand for the goods and services is

dependent on demand for them and the demandis potential or actual market and market means

Actual and potential consumers.


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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 provisionsfor statutory welfare measures


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Regulation in terms of Equity participation and

foreign investment

Corporate tax, professional tax , wealth tax etc

Export and Import rules ,custom duties, Tariffand so on


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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


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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


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Globalization Environment

Globalization is a process of world wide

integration of strategy formulation

implementation and valuation activities.

Strategic decisions are made based on theirimpact upon Global profitability of the firm,

rather than on just domestic or other

individual country considerations.


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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 laborcosts or abundant natural recourses, locating

research are complex engineering centers

where skilled scientist locating marketingactivities close to the markets to be served.


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As a result of globalization ,there will be tradeliberalization as well are having in case of GATTand WTO, specialization in production,expansion of regional trade leading to formation

of trading blocks such as EU,NAFTA,ASEAN andso on, enhancement of local competition,formation of MNCs and TNCs, world-widesourcing, business process outsourcing,

formation of new structure like virtualorganizations, making strong currencies globallyacceptable as is the case with US dollar andEECs Euro-dollar.


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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 producingsteel or iron and steel products. The industry

environment has its constituents namely

,Competitors, Customers, Suppliers andSubstitutes


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Each is a competing force. The best model ofCompetition is developed by Father ofStrategy ie Michael porter, His penta force

model is widely accepted that howcompetitive force works within an Industry.Hehas also added a sixth force Hexa force ieOther stake holders is added to reflect the

power that governments, local communitiesand other groups from the task ofenvironment over Industrial activities.


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These hexagon

(1)Risk of Entry by Potential Competitors

Brand Loyalty

Absolute cost advantage

Policies of government

Development channels of Distribution andRapport


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(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


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Features of Environment Scanning

These are

Its is Holistic Exercise

It is an Exploratory process

It is continuous process

It is Indispensable


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Significance of E scanning

It helps in converting Threats intoOpportunities

Changing colour of Environment

Narrowing down the alternatives

S M starts with E scanning


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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


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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 simpleinformation collection through verbal sources

to highly complex forecasting techniques.

These techniques are Through Verbal Information


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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.


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Spying

Company Records

Publications and

Forecasting


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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 andevents

Scenario building is a process and involves

certain logical steps. These steps are:

Preparing Background


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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


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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 sciencewhere it is used to identify and its criticality.

This E D as apart of S M that identifies both

threats and opportunities.


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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 formaland systematic way ,it is essential that the

results are structured .ETOP is the most

useful way of structuring the results of Escanning .ETOP preparation involves four

logical steps:


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Steps

Identification of different components ofrelevant Environment

Assessing significance of E Factors

Assessing the Impact factor and

Combining significance and Impact factors


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ETOP CHART-Gujrath industrial Trucks

Limited

Environment component

Socio economic

Technological

Legal/political

The impact (Opportunity/Threat)

Domestic and foreignmarket(+)

Resource constraints(-)

The production of trucks istechnically superior(+)

Updated productionfacilities

Liberalization for technologyImport(+)

Exemption in excise


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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 catchingup(-)


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Internal scanning

Internal analysis or corporate analysis orsituational analysis is the process of reviewingorganizational resources, scanning

organizational activities and linking them withcreations of value of the organization andidentifying the strengths and capabilities. Thisimplies that the Internal analysis is concerned

basically with three things namely Resources,value chain analysis and identification of core-competence


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Internal analysis is the process by which the

strategists examine the firms marketing and

distribution, Research and development,

production and operations, Corporateresources and personnel, finance and

accounting factors to determine where the

firm has significant strengths andweaknesses


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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.


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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


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Steps of make an Internal scanning

The internal analysis is essentially a diagnosticstep in identifying the companys strengths andweaknesses. And so it is worth while toemphasize that the firm is to formulate strategywhich is consistent with competitiveenvironment to take full advantage ofopportunities offered by the externalenvironment at the same time immunize orweaken the Threats. Further it should becompatible with Mission and Objectives of firm


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Steps

(1)Identification of strategic Internal Factors

Research and Development factors

Production and Operations factors

Human resources factors

Finance and accounting factors

Marketing factorsInformation and Organizational factors


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R & Dfunctions 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


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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


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The manufacturing operations are considered

more strategic from mid 80s where new

strategies are developed by Japanese which

attracted attention all over the world. ThisIncludes TQC(Total quality Control) six sigma

,5-S techniques and so on. Now the attention

has shifted to quality, cost and price.


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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 takenby Management


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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


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Finance and accounting factors

Finance and accounting go together as it is thescience that brings financial discipline. Thesefactors include

Relation with classes of Investors, creditorsand shareholders

Ability to raise long term and short termcapital

Financial planning- working capital, budgetingboth capital and revenue and expenditure


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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


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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 anddistribustion. A company which has strength

fares very successfully while the weaker one

will fail.


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Information and Organizational Factors

These factors include

Marketing intelligence

Product development

Improved sales

Telemarketing

Consumer loyalty

Customer services. These acts as strength andabsence of which is the weakness


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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 threetechniques. These are:


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Identification of strategic factors of the past

Preparation of functional area profile(FAP)

Preparation of functional area resource

deployment(FARD)


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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


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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 beone set of strategies that can be applied right

from the birth of a product till its death. PLC is

a conceptual representation that recognizesdistinct stages in the sales history of the

product.


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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 organizationalwill change with each stage of Life- cycle.


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Stages of PLC

Introduction

Growth

Maturity

Decline


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Introduction

When a new product is introduced it these

characteristics namely

Low and slow Sales

Highest promotional expenses

Higher product prices


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Maturity

The features at this stage is

Sales increase at decreasing rate

Normal promotional Expenses

Uniform and lower prices


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Decline

Interest in product will fade, The out standing

features at this is

Rapid fall in prices

Further Fall in prices

No promotional Expenses


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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 inthe line .The firms which are competing

among themselves within the same Industry

,possess distinctive skills in various areas asto their strategy in marketing the products.


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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. Thecomparison also makes clear of the firms

weaknesses which are definitely pit-falls.


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Techniques of Competitive Analysis

SAP- STRATEGIC ADVANTAGE PROFILE

BSC-BALANCE SCORE CARD TECHNIQUE

FINANCIAL ANALYSIS


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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 isSA ?.It is the relative strength of a company

over its competitor competitions. Relative

strengths are significant because internalweakness or inefficiencies can usually be

tolerated ,at least for a time. By contrast


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Deterioration of companys position relative to

that of its competition may endanger the very

existence of Enterprise.

environment analysis & diagnosis

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