IntroductionEnvironmental analysis is the process by which strategists monitor the environmental factors to determine opportunities for and threats to their firms.Analysis also involves studying the minutes of each factor to find its nature, function and relationship.Environmental diagnosis consists of managerial decisions made by assessing the significance of the data of the environmental analysis.

External Environmental:

1. Political Environment2. Economical Environment3. Socio-Cultural Environment4. Technological Environment5. Industry Environment

External Environment

Political Environment

BUSINESS

GOVERNMENT

BUSINESS

Economic Environment Industrial Policy Industrial Licensing Foreign Investment Foreign Technology Agreements Public Sector Monopolies and Restrictive Trade Practices Foreign Trade Privatization Small Scale Industries Financial Sector Infrastructure Income levels Five-Year Plans Agricultural Sector Consumers

External Environment

Social Environment

BUSINESS

Culture and globalization

Collective and

individual

Family, religion

education

authority

ambitionsCaste system

People’s attitude to business

Ethics

Culture determines goods and services

Marriage

Culture

External Environment

Technological Environment Cost of technology Change of technology Technology innovations

BUSINESS

TECHNOLOGY

Influences

Expectations of Customers

System Complexity

Changes in Business

Combinations

Regulation & Opposition

Social Change

Increase in Professionalization

Organization Structure

Demand for more skilled employees

More Emphasis on R&D

Rise in Productivity

Demand for more capital

Rise and Decline of Products

Industry Environment Market Environment Customer Demographic Factors Geographic Factors Competitors

ETOP Analysis: (Environmental threat and Opportunity Profile) :

suggested by Glueck. This analysis divides the environment into different sectors and then analyzing their affect of each sector on the organisation.

Environmental Threat Opportunity Profile

Environmental Sectors Impact of each sector

Social (+) Customer preference for sports cycles which are fashionable , easy to ride and durable.

Political No significant impact.

Economic (+) Growing affluence among urban customers.(+) Export potential is high.

Market (+) Industry growth rate is 8% p.a. for sports cycles.(+) Largely Unsaturated demand.

Supplier (+) Mostly ancillaries and associated companies supply parts and components.(+) Licenses for imported raw material available.

Technological (-) Technological up gradation of industry progress.(+) Impart of machinery under open general license is possible.

Conclusion :•Sports cycle manufacturing is an attractive proposition due to the many opportunities operating in the environment.•The company can capitalize on burgeoning demand by taking advantage at the various government policies and concessions.•It take advantage of the high exports potential that already exists.•It has a favorable supplier as well as technological environments.

Advantages to Strategists•Knows which sectors have a favorable impact on the organisation.•The organization knows where it stands with respect to its environment.•Helps in formulating appropriate strategies to take advantage of the opportunities and counter the threats in the environment.

QUEST Analysis (Quick Environmental Scanning Technique) - (4 steps)

1. Strategy planners first observe the events and trends of the organization.2. From the observation they broadly consider the important issues that

may affect the organization using environmental appraisal.3. A report is created by summarizing these issues, their effects and

different scenarios to show the implementation of these strategies.4. The reports and scenarios are reviewed by the planners who decide the

feasibility of the suggested strategy. Planners also decide that how its implementation will be beneficial to the organisation.

Organizational Appraisal

Organizational appraisal is the process of monitoring an organization’s internal environment to identify strengths and weaknesses that may influence the firm’s ability to achieve goals.

I. Strengths and Weaknesses Analysis: SWOT analysis consists of evaluating a company’s internal strengths and weaknesses and its external opportunities and threats.

II. Competitive Strengths Assessment: Systematic assessment of whether a company competitive position is strong or weak relative to close rivals.

III. Corporate Capability Factors: Corporate capability is the potential of a company to use its strengths and overcome its weaknesses with a view to avail the opportunities provided and face the threats posed by its external environment.

STRENGTH AND WEAKNESSES ANALYSIS

1. Internal Environment

Strengths Infrastructure, Employees, Marketing team, Latest product innovation,

International quality standards, or even its closeness to the market The strength can be anything that adds value to its business

Weaknesses Incompetent management, Untrained employees, Unevenly trained sales

force, Poor marketing strategies, Low quality products, or Lack of proper financial capabilities

SWOT analysis

SWOT analysis

Organizational strengths Organizational weaknesses

Strategic Options

Environmental opportunities SO: strengths can be used to build upon existing or emerging opportunities

WO: The strategies developed need to overcome organizational weaknesses if existing or emerging opportunities are to be used.

Environmental threats

ST: strengths in the organization can be used to minimize existing or emerging threats

WT: The strategies followed must minimize weaknesses and as far as possible, manage with threats.

Internal elements

External elements

2. Core Competencies Distinctive or Core Competence is something a company does especially well

in comparison to its competitors. Distinctive competence is the unique capability it gives an organization in

capitalizing upon a particular opportunity; the competitive edge. Distinctive competence is “ any advantage a company has over its competitors

because it can do something which they can not or it can do something better than they can.”

Core competencies empower a company to build competitive advantage. Core competencies include:

excellent quality maintenance lowest production cost latest technology utilization ability to provide required service ability to develop new products.

3. External Environment

Opportunity• A new potential market with ample scope for growth, A collaborative

advantage (advantages through strategic alliances and partnerships), or opportunities to fulfill the demand of a latent market

• Any such activity in the environment that helps the organization to grow, is an opportunity for it

Threats• A new competitor in the market, Price reduction in the competitor’s product

or A new product introduced in the market that will eat into the company’s market share

4. Strategic Cost Analysis

• Strategic cost analysis involves comparing a company’s cost position relative to key competitors, activity by activity from raw materials purchase to the price paid by customers.

• Strength of a company is its cost position relative to competitors.

Competitive Strength AssessmentSystematic assessment of whether a company competitive position is strong or weak relative to close rivals.

• How strongly the firm holds its present competitive position• Whether the firm’s position can be expected to improve or deteriorate.• How the firm ranks relative to key rivals.• Whether the firm has a net competitive advantage• Firm’s ability to defend it position.

1. Corporate Capability Factors in General Management:• Planning• Organizing• Staffing• Directing• Controlling

2. Corporate Capability Factors in Functional Areas of Management:• Marketing Management• Financial Management• Production / Operations Management• Human Resource Management• Research and Development

Michael Porter: Strategy and Competitive Advantage

• Value chain

Porter’s work can be summarized as ‘Strong Domestic Rivalry’

Porter’s Industry Analysis: Five Forces Model

1. Threat of new entrants New entrants to an industry

• Brings new capacity• Capture market share from existing players• More competition• Price wars• Falling returns - decline in profitability• ‘Acquisition’ - the preferred way to enter into a new market

Barriers to entry into a new market• Economies of scale• Product differentiation• Capital requirements• Cost disadvantages independent of size• Access to distribution channels• Government policy

Five Forces Model

2. Intensity of rivalry among existing competitors Lead to Price wars, Advertising battles, Launches of new products and

increased services and Warranties. Intensity of rivalry depends on

• Number of competitors• Slowdown in industrial growth• Lack of differentiation among products• Absence of switching cost• Under-pricing to avoid spoilage of goods• Price-cut - supply-demand balance

Five Forces Model

3. The Bargaining Power of BuyersBuyers are powerful when

• The suppliers are many and the buyers are a few and large• The buyers purchase in large quantities• The supplier’s industry depends on the buyers for a large percentage of its

total orders• The buyers can switch orders between supply companies at a low cost• Its is economically feasible for the buyers to purchase the input from

several companies at a time• The buyers can use the threat to provide for their own needs through

vertical integration as a device for forcing down price

Five Forces Model

4. The Bargaining Power of Suppliers

Suppliers are powerful when• The product as few substitute and is important to the purchasing company• No single industry is a major customer• Products are too much differentiated and switching cost is higher for a

buyer• Supplier can use the threat of vertically integrating forward into the industry

and competing directly with the buying company• Buyers cannot use the threat of vertically integrating backward and

supplying their own needs

Five Forces Model

5. Threat of Substitute Products• Substitute products can match the needs of the customer in the same way as

the original product• A close substitute is a potential threat to the company’s product• It limits the price charged by a company