Analysis and Diagnosis of

External Environment
Session III
 Definition of Environmental
Analysis
• Environment Analysis can be viewed as a
process by which corporate planners study
the changes in the environmental factors
and identify opportunities and threats along
with their causes
 What is the Environment ?
• Economic Factor
• Government
• Legal
• Market
• Competition
• Suppliers
• Technological advancement
• Demographic
• Geographic
• Social factors
 Environmental Diagnosis
• It is setting up an opinion from the environmental
analysis to avail an opportunity or to effectively
handle a threat or to ignore an environmental
change
• It can be viewed as a set of decisions to be made
by the corporate planner on the significance of
environmental opportunities and threats in order to
take further decisions for pro-acting or reacting or
setting aside the environmental change noticed
during the phase of analysis
 EAD – Environmental Analysis
and Diagnosis
• Describes the major phase of the strategic
management process for focusing on the
business environment
 During EAD Corporate planners
do the following :-
• Identify the current strategy of the firm and the
related assumptions and predictions on the
environment
• Predict the future environment indicating the
tenability of earlier assumptions and predictions
• Assess the significance of difference between
current realities and future predictions about the
environment
• Indicate what changes in strategy would be useful
for future success
 EAD and its impact on
Business Success
• Miller and Freisen [1977] identified 10
types of firms –
– Failing types
–&
– Successful types
 Failing types

• Impulsive – gambler / high risk

• Stagnant Bureaucratic – risk aversive / power
hungry
• Headless Giant Firm – no powerful visionary
• Swimming Upstream Firm – weak in strategic base /
aware of environmental opportunities but unable to
take it.
 Successful types

– Giant under Fire Firm – big but hostile environment

– Adaptive Firm under Extreme Dynamism – dynamic
top takes all decision after analysis
– Adaptive Firm under Moderate Dynamism – mod
dynamism prefers slow changes
– Entrepreneurial Firm – grow thru mergers
– Dominant Firm – moderate risk taker
– Innovative Firm – head a genius enjoys key position &
power in decision making
 Impulsive Firm
• Gambler type planner
• Takes high risk
• Tries to do everything
• Multidirectional activities
• Top engaged in multiple decision making
• Hardly gets time to carry out systematic and
adequate EAD
 Stagnant Bureaucratic Firm
• Risk aversive
• Power hungry planner
• Does not give proper importance to EAD
• Firm gets markedly separated from the
environment
• Fails to Perceive environmental changes
• Rarely achieve its objectives
 Headless Giant firm
• No powerful and visionary leader
• Management is weak to take bold decisions
• Carries out cursory and inadequate EAD
• EAD not used for strategic planning
 Swimming Upstream Firm
• Weak in terms of strategic base
• Aware of the environmental changes
• But not able to take advantage of the
Opportunities
• Delayed awareness puts the firm in an
unmanageable scarcity of resources
 Companies successful in their home
markets: strong tendencies to replicate ‘home
country practices’ in the new market
• For E.g.
• Kellogg's in India presumed that they would easily
break the conventional breakfast habits of Indians
• Core principles get sidetracked,
• core practices wrongly get endowed with
transformative powers
• In reality, principles travel farther,
• socio-economic factors dull the edge of
practices
 Giant Under Fire
• Faces fierce environment with strict Govt
regulations and stiff competition
• Gives high attention to EAD
• Does systematic and adequate studies
• But the environment complexity forces the
firm to go slow
• Risk aversive planning key feature of its
strategic planning
 Adaptive Firm under extreme
dynamism
Headed by risk taking group of planners
• Adequate degree of EAD
• Opts for sophisticated techniques for analysis
• Prefers innovative ideas for strategy plans
• Involves experts for reacting to the changes in the
environment
• Decentralised operation in the face of turbulance
Mc Donald’s: ‘adjustments in product as
well as value equation’
McAloo Tikki burger for ` 25
 Adaptive Firm under moderate
Dynamism
• Faces slow environment changes
• Predictable nature of environment
• Centralised decision making system
• Risk taking top management
• Carries out moderate degree of EAD
• Just enough assessment of the business
environment
Localized flavors for appeal to
Indian palate
Frito-Lay’s in India (Lays Chaat
Street/Kurkure)
 Entrepreneurial Firm
• Grows externally through mergers
• Thereby invites environmental complexities
• All powerful top management
• Risk oriented decision making
• EAD adequate with corporate experts
spending time to analyse
 Dominant Firm
• Industry leader
• Moderate risk taker while planning
• Minimum complexity and stable
environment
• Thus EAD carried out is minimum
• However this EAD is adequate for future
decision making
 Innovative Firm
• Headed by a Genius
• Enjoys key position and corporate power in
decision making
• Undertakes least amount of EAD
• But always meet the environmental demand
for a new product
 Key External factors
• Porter 1970
– Key aspect is the Industry or Industries in
which the firm competes
– Basic Competitive forces
• Threat from new entrants
• Threat from substitutes
• Bargaining power of buyers
• Bargaining power of suppliers
• Rivalry among current competitors
 Key factors - continued
• Jauch and Gluek (1988)
– General environment
• Socioeconomic
• Technological
• Governmental
 Economic factors
• Inflation and Economic flux can bring
sweeping changes in the purchasing pattern
of the consumers
• Recession brings in unemployment
• Tightening of monetary policy may escalate
costs
• Tax policies may reduce the purchasing
power of the consumer
 Economic Indicator
• Economic Growth – high economic growth
reduces industry competition
• Interest Rate – cost of capital for the firm
• Exchange rates of currency – dynamicity of
exchange rates determines the competitiveness of
our products in international markets
• Inflation Rate – impact on the stability of the
company
 Governmental Policy

• Liberalization
• Privatization
• Globalization
• Stabilization
 Legal factors
• Labour Laws
• Tax Laws
• Trade Laws
• Environment Pollution
 Technological Factors
• Systematic usage of scientific or other
organised knowledge to economic activities
• Technology change occurs in three stages
– Invention
– Innovation
– Diffusion
 Political factors
• Democracy – power in the hands of the
people
– Security, Dynamicity, Efficiency, Honesty
• Totalitarian – power in the hands of the
state
 Social Factors
• Changes in
– Lifestyles
– Social Values
– Education Levels
– Attitude of people
 Geographic factors

• Locational opportunities and Threats

• Cost – Demand advantages

 Market factor
• Primary Demand
• Age-wise distribution of the population
• Brand Loyalty
• Market elasticity of demand
– Price
– Advertisement expenses
– Prices of substitute
 Competitive Factor
• Planner must know the objectives,
strategies, SWOT of major rival
• Absolute cost advantage
• Economies of scale
• Scarcity of raw material
• Product differentiation
• Access to marketing channel
 Supplier Factor
• Cost and availability of raw materials

• Reliability of the Suppliers

• Buyer – supplier power play determines the

price
 Substitution Factor
• Role of substitute industry
– Coffee and Tea
– Coffee and Soft drink
– Coffee and Water
• Pricing of substitutes
• Pricing of raw materials of substitutes
 Techniques for Environmental
Analysis
• Mathematical form
• Dynamicity
• Degree of uncertainty
• Level of Aggregation
• Level of Demand
Reliability Reliability in an
unreliable world
An obsession with The joy of competing
competing
Enhancing and If you don’t look at
enabling things differently you
creativity will never get ahead
A case study of an Indian brand
trying to go global
• “Five years ago we were advising multinationals on their entry
strategy into India, Now our biggest business is advising Indian
companies to go global”

• Manisha Girotra
• Head of investment banking , UBS
India.
 Global marketing: Standardization –
vs- customization: critical balance to
•
strike
Even corporations are creatures of habit and prejudice
• Entry of Procter & Gamble in India
- Pushed for Tide (W) formulation
- This formulation lost to low technology Indian detergents on account
of low sudsing and poor hard water sustenance
- Import content in final formulation pushed up the pricing
- Launched Supersoaker Ariel but withdrew it eventually for dilution
of equity
- Bought the Godrej brands and operations, only to find most of them
hardly of much use
- Launched Rs. 3 shampoo sachets: larger quantity was seen as
sacrosanct
- Finally launched smaller cheaper sachets
 Companies successful in their home
markets: strong tendencies to replicate ‘home
country practices’ in the new market
• For E.g.
• Kellogg's in India presumed that they would easily
break the conventional breakfast habits of Indians
• Core principles get sidetracked,
• core practices wrongly get endowed with
transformative powers
• In reality, principles travel farther,
• socio-economic factors dull the edge of
practices
 Challenges Indian brands face in
trying to go global
1. Limited knowledge of the target audience
2. ‘Made in India’ tag
3. Arriving at the right product – appealing
to the target market yet profitable
4. Ensuring a robust distribution network
• 5. Managing investment against local
players with deep pockets
 Canada: A market of giant banks
• Highly competitive
– The big six control 90% of
the banking assets
• Leading banks enjoy
heritage, reach and trust
• Existing Indian banks like
SBI had limited offerings
– Only remittance,
export/import support, travel
currency etc.
 Canadian market: Changing
modes of banking
• 39000 ABMs – one of the largest per capita
deployment in the world
• Increasing prevalence of non-branch banking
– ABM transactions up 32% p.a.
– Internet banking up by 56% p.a.
– Tele-banking up by 47% p.a.
• New-age banks like ING were capturing the
younger market with direct banking
 ICICI Bank’s business thrust in
Canada
• To establish itself as a mainstream bank
• To address the needs of locals as much as
those of the Indian Diaspora
• Manage with optimum investment, limited
ground presence
Target
To achieve a business of 500 million
Canadian Dollars in the first year of
operations
How did ICICI manage to swim with
the sharks and not get eaten up?
Systematic shoestring marketing
 Step #1

Better understanding of the target

audience
 Understanding the Canadian
consumer..
• In order to mitigate the high
cost of doing research in
Canada;

• ICICI bank in conjunction with

Cogito Consulting of FCB-Ulka
India conducted an e-mail and a
web-poll
- at virtually no cost
 Banking in Canada: A few
research findings…
• Difficult to get older age group to change banks
• Younger Canadians more experimentative
– Open to trying new banks
– Greater acceptance of emerging telephone and internet modes of
banking
• Even then on-ground presence and global network are key
contributors to trust
• Attributes associated with ‘Indians’: dependable, efficient,
ethical and reliable
 ICICI Bank thus decided to
• Focus on the younger age
group
• Leverage the emerging yet
cost effective online
medium to reach the target
audience
 Step #2

Being only Indian: Not very

conducive to be a mainstream bank

Projected the ‘global bank’ character

 Building trust..
• ICICI bank: leveraged banking skills cultivated in
India

– Ability to manage large sums of money for millions of

customers
– Expertise in adapting to diverse customer needs
– Making the most of the consumer’s money

• However, projected itself as a global bank

 Step #3

A distinct brand idea

 What is a brand idea??
• Brand Idea is built on the foundation of the
core brand truth
– Takes the core truth to the next level
• Transcends beyond just advertising and drives
the whole brand experience.
• Has the potential for longevity
– Beyond just one single execution
• Is simple, clear and truly creative
 Arriving at the core truth of the
ICICI brand
• ICICI bank had a very low cost per transaction
– Due to India based operations; and
• There exists an inherent difference in interest
rates between India and Canada
• This enabled ICICI Bank to offer the highest
interest rates onIn short:accounts
its savings
– More than the local competition could ever offer
ICICI had the ‘Indian Efficiency’
advantage
 The brand idea….
• Banking with more benefits (than any one else)
– Product idea: savings account with the highest interest rates ever
• The brand idea was…
– Acquisition led
– Provided a sustainable advantage
– Had appeal across customer segments

Hi-SAVE
• Simple
• Easy to pronounce and remember
• Instantly connotes product and benefit
 Step #4

Finding a cost effective yet robust

means of distribution
 Two distribution models existed
in Canadian banking
1. Mainly through branches
 Requiring heavy capital investment
 Followed by established banks like Royal Bank of Canada,
Scotia bank, CIBC etc
2. Purely online
 No branches
 Cost Effective
– Successfully implemented and perfected by new entrants like
ING
 ICICI made the best of both
worlds..
• ICICI adopted a hybrid model : Branch +
Online

• Full scale, cost effective online presence

• Plus a focused branch network in key pockets
of Canada with Canadian employees
– To provide a human face to the bank
 Step #5

High impact communication with

low budgets
 Using money wisely….

• All communication efforts were therefore

directed at creating a buzz around Hi-Save
– The flagship brand
• Use of innovative yet cost effective media
vehicles
– Print Ads
– Online
– Outdoor
 Target
To achieve a business of 500
million Canadian Dollars in the
first year of operations
Online Banners
Innovative outdoor presence...
UNION STATION BRANDING
An immensely successful launch
• In Canada, in just one year, book size moved
from CAD113 million to CAD 675 million,
against target of CAD 500 million
• Success in Canada prompted ICICI Bank to use a
similar model to enter U.K. as well
• Not just that, ICICI bank’s success prompted
other Indian banks to enter Canada
 ICICI Bank has gone from
strength to strength thereafter …
• ICICI bank stepped up efforts to
consolidate its position amongst local
Canadians
• Focused on expanding its relationship with
consumers through new offerings
– Money Transfer, Retirement Savings plans,
General Insurance Certificates etc