Analysing the Business

Environment
Layers in the business environment

1. The macro environment

2. Industry environment (or sector)
3.Competitive Environment (Competition/
Markets)
4. The Firm
Layers in the Business Environment
Macro Environment

Industry Environment

Competition

M
I
Firm
1. It is useful to take an initial view of the nature of the
organization's environment in terms of how uncertain
it is.
If the environment is in a dynamic state or shows signs
of becoming so, a future-oriented perspective is more
sensible.

2. A second step might involve an auditing of

environmental influences. Here the aim is to identify
which of the many different environmental influences
have affected the organization's development or
performance in the past.
Auditing Environmental
influences:

a) ETOP / QUEST / PESTEL analysis

b) Scenario analysis : If the future

environment is going to be very
different from the past.
Environmental Scanning Techniques

ETOP : Environmental Threat and Opportunity

Profile.

ETOP Preparation:
The preparation of ETOP involves dividing the
environment into different sectors and then analyzing
the impact of each sector on the organization.
(ETOP of a motor bike company)
(+)opportunity / (- ) threat
As shown in the table motorbike manufacturing is an
attractive proposition due to the many opportunities
operating in the environment.

The company-can capitalize on the burgeoning

demand by taking advantage of the various
government policies and concessions. It can also take
advantage of the high exports potential that already
exists. Since the company is an established
manufacturer of motorbike, it has a favorable supplier
as well as technological environment.

The preparation of an ETOP provides a clear picture

for organization to formulate strategies to take
advantage of the opportunities and counter the
threats in its environment.
QUEST: Quest is an acronym for Quick Environmental
Scanning Technique.

Quest for environmental scanning is a four step process

1.Strategists make observation about the major events and trends

in their industry.
2.Then they speculate on a wide range of important issues that
might affect the future of their organizations by scanning the
environment broadly and comprehensively.
3. The Environmental scanner prepares a report summarizing the
major issues and their implications, and three to five scenarios
incorporating the major themes of the discussions.
4. The report and scenarios are reviewed by the group of
strategists who identify feasible strategic options to deal with the
evolving environmental conditions. The options are ranked and
teams are designated to develop strategies.
 PESTEL analysis:

Political:
Taxation policy/ foreign trade regulations/Government
stability / social welfare policies.

Economic :
Business Cycles/ GNP trends/ Interest rates/ money
supply/ Inflation/ unemployment/ disposable income.

Socio- Cultural:
Population demographics/ income distribution/ social
mobility/ lifestyle changes/ attitudes to work and leisure/
consumerism / levels of education
Technological :
Government spending on research / government and
industry focus of technology effort/ New discoveries/
development/ Speed of technology transfer/ rates of
obsolescence

Environmental
Environmental protection laws /waste disposal / energy
consumption
Legal:
Competition law /employment law /health and safety /
product safety

Thus for a PESTEL analysis, one has to look for-

- what environmental factors are affecting the organization ?
- which of these are the most important at the present time ?
In the next few years ?
Key drivers of change :

The PESTEL factors are of limited value if

they are merely seen as listing of influences.
It is important to identify a number of key
drivers of change.

Key drivers of change are forces likely to

affect the structure of an industry, sector or
market.
Forces- key drivers of change:
Automobile Industry:
●Adoption of BS-VI emission norms(Govt
regulations)
●Prices of oil
● Shifts from IC engines to Electric vehicles

Telecom Industry:
●Shifts from 3G-4G-5G.
●What pricing/partnerships should be adopted.

Oil and gas industry:

●Demand for fossil based fuels and govt’s
clampdowns on environmental pollution
●Incentives to shift to renewable energy sources
Scenario planning :

Scenario planning is especially useful in

circumstances where it is important to take a
long-term view of strategy.

Scenario building is an attempt to construct

views of possible future situations. These are not
based on hunch, but try to build consistent views
of possible developments around identified key
factors. Scenario’s can be used for sensitivity
testing of possible strategies
The main steps in drawing up
scenarios are as follows-

1. Identify the key assumptions or forces at work

or drivers of change- They may be build on
PESTEL analysis.

2. Identify the trend with regard to assumptions

being considered, their impact on market
conditions and organizational strategies, and
what these assumptions themselves depend on.
3. It is important that the number of assumptions
& uncertainties are kept to just a few to avoid
unmanageable complexity of the analysis.

This can be done by focusing on the factors which

i) have high potential impact and
ii) are uncertain

Each of the factors may have different scenarios.

These factors may combine to create scenarios of
the future
 Building the Scenario Matrix
 Choose two drivers that are most
uncertain and most critical in terms of
impact on your organisation.

Critical Uncertainty 1

Critical Uncertainty 2
Scenarios are specially useful where-

a) it is important to take a long term view of

strategy, probably a minimum of five years.

b) where there are limited number of key

factors influencing the success of the
strategy.

c)where there is a high level of uncertainty

about such influences.
 Scenarios: “Not a tool for
helping managers predict what
will happen, but a means to
explore what we should do if it
happens.”

-- Brian Marsh, Shell