Professional Documents
Culture Documents
SESSION 2:
Dr. Sasmita Palo
TISS, Mumbai
Today's agenda
ØWhat is the external environment?
ØKey components of external environment
ØAnalysis of external environment
ØTechniques of scanning of general environment
ØPEST Analysis
ØSWOT Analysis
ØCASE STUDY ANALYSIS
• What is external environment?
3
A Copernican view of the
Organisation.
7
Alignment of Firm-Strategy-Environment
Position Core
Competitive
ing Competencies
Arena
Technological,
Value chain, culture,
Industry Forces Leadership, control systems
Governance
8
External Analysis:
Identification of Opportunities
Opportunities Threats
Layers of the Business
Environment
Components of
EXTERNAL Analysis
• Scanning: collecting information
• Monitoring: detecting the trend
• Forecasting: anticipating the future
• Assessing: impact on the firm
What is Environmental
Scanning
Environmental scanning is the
acquisition and use of information
about various events in an
organization's external environment,
the knowledge of which would assist
management in planning the
organization's future course of action.
Objectives Of An Environmental
Scanning System
detecting scientific, technical, economic, social,
and political trends and events important to the
institution,
14
External Audit
Techniques
• PESTEL
• SWOT Analysis
Macro-environment –
PESTEL
POLITICAL/ GOVERNMENT
Environmental laws
ecological concerns that affect
o the firms production processes
o customers' buying habits
o customers' perception of the company or product
LEGAL
Industrial laws
Labour laws
corporate and personal tax rates
payroll taxes
import tariffs and quotas
export restrictions
restrictions on international financial
flows
23
Key Aspects of PESTEL
• Not just a list of influences
• Need to understand key
drivers of change
• Focus is on future impact of
environmental factors
• Combined effect of some of
the factors likely to be most
important
Issues Priority Matrix
Internal Environment
l Strengths Weaknesses
External Environment
l Opportunities Threats
The SWOT analysis
The SWOT analysis
External Factor Analysis Summary
(EFAS)
External Weighted
Factors Weight Ratin Score Comment
g s
1 2 3 4
Opportunities
Threats
1
.00
Notes: 1. List opportunities and threats (5–10 each) in column 1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not Important) in Column 2
based on that factor’s probable impact on the company’s strategic position. The total weights must sum to 1.00. 3. Rate each factor from 5 (Outstanding)
to 1 (Poor) in Column 3 based on the company’s response to that factor. 4. Multiply each factor’s weight times its rating to obtain each factor’s
weighted score in Column 4. 5. Use Column 5 (comments) for rationale used for each factor. 6. Add the weighted scores to obtain the total weighted
score for the company in Column 4. This tells how well the company is responding to the strategic factors in its external environment. A weighted score
of 3.0 means average performance.
Source: T. L. Wheelen and J. D. Hunger, “External Strategic Factors Analysis Summary (EFAS).” Copyright © 1991 by Wheelen and Hunger Associates.
Reprinted by permission.
Internal Factor Analysis Summary
(IFAS)
Weighted
Internal Weight Ratin Score Comment
Factors g s
1 2 3 4 5
Strengths
Weaknesses
1
.00
Notes: 1. List st and wea(5–10 each) in column 1. 2. Weight each factor from 1.0 (Most Important) to 0.0 (Not Important) in Column 2 based on that
relevance of the factor to the company’s strategic position. The total weights must sum to 1.00. 3. Rate each factor from 5 (Outstanding) to 1 (Poor) in
Column 3 based on the company’s response to that factor. 4. Multiply each factor’s weight times its rating to obtain each factor’s weighted score in
Column 4. 5. Use Column 5 (comments) for rationale used for each factor. 6. Add the weighted scores to obtain the total weighted score for the
company in Column 4. This tells how well the company is responding to the strategic factors in its external environment A weighted score of 3.0 means
average performance..
Source: T. L. Wheelen and J. D. Hunger, “External Strategic Factors Analysis Summary (EFAS).” Copyright © 1991 by Wheelen and Hunger Associates.
Reprinted by permission.
IE Matrix
Produc Present
Market New
Market Penetration Product
Consolidation Development
Prese Contraction
nt Market
Development Diversification
New
Market Penetration
Objective of this strategy is to increase
market share. This is done in the
following ways:
• Increase the number of users
– attract users from competitors
– convert non-users into users
• Increase the frequency of purchase
• Increase the volume of product
purchased
Product Development
distribution channels)
n Quasi-integration (buy/sell from outside
q Backward integration
q Forward integration
Examples
• Conglomerate Diversification: diversification into unrelated
business areas ....
Integration:
Backwards to
sources of supply
Vertical
Integration
Strategy
Forwards to the
customer
“ Diversification is a strategic move
into a new product/market activity
that requires the development of
new competencies or the
augmentation of existing ones. “
Harvest strategy: Limits investment and optimizes cash flow.
43
SWOT Matrix
Four Types of
Strategies
§Strengths-Opportunities (SO)
§Weaknesses-Opportunities (WO)
§Strengths-Threats (ST)
§Weaknesses-Threats (WT)
SO Strategies
Use a firm’s
Strengths internal
Weaknesses strengths
Opportunities
Threats
to take
SO advantage
Strategies
SWOT of external
opportunities
WO Strategies
Improving
Strengths internal
Weaknesses weaknesses by
Opportunities
Threats
taking
WO advantage
Strategies
SWOT of external
opportunities
ST Strategies
Use a firm’s
Strengths strengths
Weaknesses to avoid or
Opportunities
Threats
reduce the
ST impact
Strategies
SWOT of external
threats
WT Strategies
Defensive
tactics
Strengths aimed at
Weaknesses reducing
Opportunities internal
Threats WT weaknesses &
Strategies avoiding
SWOT environmental
threats
SWOT Matrix
COMPETITVE ADVANTAGES
OF A NATION
Porter’s Diamond
• PESTEL factors differ from country to
country –their competitive impact
will differ from country to country
• Porter’s (1990) suggests reasons why
some countries are more competitive
than others
Porter’s Diamond
Model: The Determinants of National