Environmental Scanning

The internal environment: Culture, structure, products and

services, people and their skills, finance and resources, processes
etc.

The meso or task or industry environment: Stakeholders,

shareholders, employees, consultants, advisors, customers,
suppliers, trade unions, competitors, trade associations, creditors,
debtors etc.

The external environment: Political, economic, educational,

ecological, environmental, socio-cultural, technological, legal,
demographic and regulatory environment. This may also include
global environment across the national borders when the context
is export or international business.

The internal environment

The micro environment or the internal environment will comprise

organizational culture and structure, products and services,
people and their skills, finance and resources. The internal
environment may also relate to the shared values (the value
system), plans and strategies, styles, systems and procedures.

These are discussed below.

Cultural types:

Power culture: This depends upon a strong leader with central

power manipulating all the activities of the organization.
Employees need to be able to relate well to the central power
holder and to anticipate what is expected of them and perform
accordingly. They must be able to take risks. Their performance,
loyalty and commitment to organizational goals will be well
rewarded.

Role culture: This is where roles are more important than

individuals. In this kind of culture, logic and reason, impersonal
systems and procedures rule behavior. Large banks, government
offices and insurance companies are examples of role cultures.

Task culture: Here there is no single source of power and the

work is the priority. The task culture depends upon getting the
best and most creative individuals to work together towards
organizational goals. Teamwork becomes paramount in achieving
the organization’s mission. Technology companies and
management consultancies are typical examples of the task
culture.
Person culture: The main concern of a person-centered culture is
to look after the needs of the individuals. Often small groups of
professional may come together and design an organization
based around a person culture. The reason they do this is to
enhance and develop their own personal aims and objectives and
to share common facilities. Examples include barristers,
chambers, architects, partnerships and small consultancies.

Structural types

The structure follows from the culture.

Power structure: The boss is the key to advancement. Do well

and you advance fast. Mess up and you could be out altogether.

Role structure: The role structure is sometimes called a

bureaucratic one, though this is perhaps only where the role
culture is taken to extremes, as in government departments. In a
role structure, everyone has their designated job description,
procedural handbook, accountabilities sheet, hierarchical career
path, reward structure and so on.

Task structure: This structure is associated with a flexible project-

based/matrix structure. Project groups or teams are formed as
the need arises, and are disbanded once their task is finished. It
is very adaptable, egalitarian and quick to respond. Microsoft
uses a task structure.

Person structure: This is also egalitarian, though you would not

say it is team based. Individuals are independent, and do not feel
any particular loyalty. Examples includes consultants, computer
programmers and IT people who work on short-term contracts.
They only come together as a matter of convenience or self-
interest.

Let us not assume that any single culture or associated structure

is better than any other. An organization which outsources a lot
of its activities could be a mixture of task and person culture.
Cultures and structures do change and there may be more than
one variation within any single organization.

The culture and structure of any organization are influenced by

various factors such as:

History and ownership- Centralized ownership tends towards a

power culture, as do family-owned companies. New organizations
tend towards power or task-based cultures/structures.

Size- Larger organizations tend to be role based because they

need to be kept under control, but they can also be power based.
A smaller company may be power based, but could be person or
task based.

Technology- for example, rapidly changing technologies tend to

be associated with task-based organizations. Routine,
programmable operations are more suited to being role based.

Goals and objectives- this relates to strategic direction. A key

point is that strategic goals and objectives can change cultures
and structures.

Products and services

An organization can be defined by the products and services it

provides. After all, that is why it is in business. These products
and services are distinctive in some way to the organization that
supplies them- whether the distinction be brand, price, quality or
location.

Decisions about products and services are vital. Any changes to

an organization’s products and services will have an impact on its
ability to compete.

Managers have to be aware of what makes their products sell and

be constantly alert to changes in the perceptions and
expectations of their customers. That is why product analysis is
so useful.

People and their skills

An organization’s people are not just employees. They include

directors and shareholders, customers who buy from you and
suppliers who sell to you. Indeed they include all the people the
organization influences and is influenced by. All these people are
stakeholders.

However, you may care to define an organization by the people

who work in it- their knowledge, talent and skills. The wrong
blend and the organization is in trouble. A shortage of specialist
skills and the organization is in trouble. A lack of harmony
between employers and employees and the organization is in
trouble.

Researches in the US and UK has suggested that there is some

correlation between people management practices and the
bottom line (profitability).

Finance
Organizations have many different ways to finance their ongoing
development – loans, bonds, equity, selling assets, retained
earnings, funding- and the choice may impact significantly on
their development. The proper financial structuring of an
organization and/or using adequate financial leverage can affect
the cash flow (liquidity) to a great extent. This apart, budgetary
exercise, cost benefit analysis and expenditure control will also go
a long way in effective financial management of an organization.

Resources

An organization’s resources- such as land, buildings, systems,

processes- play a key part in determining its strategic approach.
They represent what it can do and what it cannot do. An
organization using natural resources, for example, will need to
have a steady stream of new sources so that as old sources dry
up, new ones come on line. It also has to make sure that its
resources and the way it uses them are as efficient as its
competitors.

The external environment

Political environment:
Political Environment of a country is influenced by the political
organisations such as philosophy of political parties, ideology of
government or party in power, nature and extent of bureaucracy,
political stability in the country, foreign policy, defence and
military policy, image of the country and its leaders in and
outside the country.

The political environment of the country influences the business

to a great extent. For instance, the Government of India, bottling
and sale of coco-cola was discontinued in India in the late
seventies following policy of restricting the growth of
multinationals in Indian markets. But, its entry was allowed under
the New Industrial policy of 1991. Under this new policy,
government allowed liberalized licensing, imports and exports,
inflow of foreign capital and technology on more liberal terms.

Political environment means as to how the Government

intervenes in the economy and may include factors like Trade
Restrictions, Environmental Law, Tariffs, Health, Education, and
Infrastructure. The political environment may also be indicative of
political instability, aggressive trade unionism, favourable or
adverse foreign policy, defence and military policies,
unemployment policy and labour law.

Economic Environment:
The economic environment comprises nature of the economic
system of the country, economic policies of the Government, the
organisation of the capital market, inflation rate, recession, or
boom, growth in spending power and number of person in the
pensionable age. It also includes economic structure of the
country, macro/ micro policies, spending power, cost of capital
and interest rates.

Socio-cultural Environment:

The socio-cultural environment comprises the value system of the

society, costs structure, culture, customs, view toward wealth
and income, respect for seniority, work culture and mobility of
labour, age distribution, education levels, income levels
consumerism, population growth, life expectancies, expectation of
society from the businesses.

Socio-cultural environment determines the code of conduct the

businesses should follow. The social groups such as trade unions
or consumer forum will intervene if the business follows the
unethical practices. For instance, if the firm is not paying fair
wages and/or indulging in black marketing or adulteration,
consumer’s forums and various government agencies will take
action against the business.
Technological environment:

The technical environment comprises internet, e-commerce,

social Media, electronic Media, impact of information technology,
automation, R & D, innovation and outsourcing. The business in a
country is greatly influenced by the technological development.

The technology adopted by the industries determines the type

and quality of goods and services to be produced and the type
and quality of plant and equipment to be used

Technological environment influences the business in terms of

investment in technology, consistent application of technology
and effects of the technology on markets. In India, advancements
in automation and information technology have posed the
challenging situation for the organisation in future.

Legal/Regulatory environment:

Legal environment includes flexibility and adaptability of law and

other legal rules governing the business. It comprises
unemployment law, health and safety, product safety, advertising
regulations, product labeling, weights and measures and labor
laws. It also includes discrimination law, consumer law, health
and safety law and anti-trust laws.

It may include the exact rulings and decision of the courts. These
affect the business and its managers to a great extent. For
instance, in 1992, the Supreme Court ordered the closure of a
number of tanneries in Kanpur as they were polluting Holi Ganga.

In August 1993 several foundries around the famous Taj Mahal

were ordered to be closed down because of air-pollution caused
by them had adverse impact on the whiteness of Taj Mahal.

Environmental and Ecological Factors:

The environmental and ecological factors comprise waste

disposal, energy consumption, pollution monitoring, climate
change and deforestation.

Demographic Environment:

Demographics are statistical characteristics of a population. These

types of data are used widely in public opinion polling and
marketing. Commonly examined demographics
include gender, age, ethnicity, knowledge
of languages, disabilities, mobility, home ownership, employment
status, and even location. Demographic trends describe the
historical changes in demographics in a population over time (for
example, the average age of a population may increase or
decrease over time). Both distributions and trends of values
within a demographic variable are of interest. Demographics are
very essential about the population of a region and the culture of
the people there.

The demographics of India are inclusive of the second most

populous country in the world, with over 1.21 billion people (2011
census), more than a sixth of the world's population. Already
containing 17.5% of the world's population, India is projected to
be the world's most populous country by 2025, surpassing China,
its population reaching 1.6 billion by 2050. Its population growth
rate is 1.41%, ranking 102nd in the world in 2010.

India has more than 50% of its population below the age of 25
and more than 65% below the age of 35. It is expected that, in
2020, the average age of an Indian will be 29 years, compared to
37 for China and 48 for Japan; and, by 2030, India's
dependency ratio should be just over 0.4.

In economics and geography - the dependency ratio is an age-

population ratio of those typically not in the labor
force (the dependent part) and those typically in the labor force
(the productive part – between age group 15 to 64). It is used to
measure the pressure on productive population.