Unit - III

ENVIRONMENTAL
ANALYSIS
 MEANING OF ENVIRONMENTAL ANALYSIS

 A process for identifying all external and internal elements

that can affect the performance of the organization and
evaluating the level of threat or opportunity they present.
Opportunity and threat assessments are then incorporated
into decision making process in order to better align
strategies with the organization's environment.
 MOST COMMONLY ASSESSED FACTORS IN
ENVIRONMENTAL ANALYSIS

 1. P for Political factors

 Government policies
 Taxes laws and tariff
 Stability of government
 Entry mode regulations
 2. E for Economic factors
 The inflation rates
 The interest rates
 Disposable income of buyers
 Credit accessibility
 Unemployment rates
 The monetary or fiscal policies
 The foreign exchange rate
 3. S for Social factors
 The cultural implications
 The gender and connected demographics
 The social lifestyles
 The domestic structures
 Educational levels
 Distribution of Wealth
 4. T for Technological factors
 New discoveries
 Rate of technological obsolescence
 Rate of technological advances
 Innovative technological platforms
 5. L for Legal factors
 Product regulations
 Employment regulations
 Competitive regulations
 Patent infringements
 Health and safety regulations
 6. E for Environmental factors
 Geographical location
 The climate and weather
 Waste disposal laws
 Energy consumption regulation
 People’s attitude towards the environment
 IMPORTANCE OF THE STUDY OF BUSINESS
ENVIRONMENT:

1. First move advantage:

2. Competitive analysis:
3. Strategic control:
4. Adaptation:
5. Stability and sustainability:
6. Dynamism:
7. Lobbying:
8. Public image:
 Environmental Scanning

 Environmental scanning is a process that systematically

surveys and interprets relevant data to identify external
opportunities and threats that could influence future
decisions.
Process of Environmental Scanning
 1. Study the forces and Nature of the Environment:
 2. Determine the sources of Information:
 Secondary sources:
 Newspapers, book, research articles, industrial and trade publications,
government publication, and annual report of the competitors.
 Mass media: Radio, TV and Internet.
 Internal sources: Internal reports, management information system, data
network, and employee.
 External agencies: Consumers, marketing intermediaries and suppliers.
 Formal studies: Formal research and study by employee, research agencies, and
educational institutions.
 3. Approaches of environmental scanning:
 1 Systematic approach:
 2Ad-hoc Approach: specific
 3 Processed form approach:
 4. Scan and Assess the Trend:
 Opportunities and threats
Techniques of Environmental
Scanning

1. ETOP
2. QUEST analysis
3. SWOT analysis
4. PEST analysis
5. Forecasting Technique
1. ETOP :
Environmental Threat and Opportunity Profile
Analysis
 By dividing the environment into different
sections, the ETOP analysis helps in
analyzing its impact on the organization.
 The analysis is based on threats and
opportunities in the environment.
Dimensions of ETOP:
 The strategic managers should keep focus on
the following dimensions,
 1. Issue Selection:
 2. Accuracy of Data:
 3. Impact Studies:
 4. Flexibility in Operations:
 2. QUEST analysis
 Quick Environmental Scanning Technique
Analysis
 designed to assist with organizational strategies
by keeping adheres to change and its
implications.
Steps involved:
 Observation of the organization’s events and
trends by strategists.
 Using environment appraisal - important issues that
may impact the organization are considered
 A report is created by - summary of these issues
and their impact.
 Review reports - planners who are responsible for
deciding the feasibility of the proposed strategy
3. SWOT analysis
Strengths:
 efficient resources or technology or skills or
advantages over its competitors.
1. Strong customer relations
2. Market leader in its product or services
3. Sound market image and reputation
4. Smooth cash-flows
Weaknesses:
 scarcity of its resources or skill-set of staff or
capabilities that creates an adverse effect on its
performance.
1. Poor product quality
2. Low productivity
3. Unrecognized brand name or poor brand image
4. Limited cash-flow
5. High cost
Opportunities:
 Its most favorable situation
 circumstances that are external to the business and
can become an advantage to the organization.
1. Social media marketing
2. Mergers & acquisitions
3. Tapping new markets
4. Expansion in International market
5. New product development
Threats:
 Current or future unfavorable situations that may
occur in its external environment.
1. A new competitor in the market
2. The slow growth of the market
3. Changing customer preferences
4. Increase in the bargaining power of consumers
5. Change in regulations or major technical changes
4. PEST analysis
5. Forecasting Technique
 1. Qualitative Forecasting Techniques:
 2. Quantitative Forecasting Techniques:
1. Qualitative Forecasting Techniques:
a. Sales Force Composite:
 Under the sales force composite method, a forecast of sales is
determined by combining the sales predictions of experienced
sales people.
b. Customer Evaluation:
 It goes to customers for estimates of what the customers
expect to buy.
 Individual customer estimates are then pooled to obtain a
total forecast.
c. Executive Opinion:
 With this method, several managers get together and devise a
forecast based on their pooled opinions.
d. Delphi Technique:
 A panel of experts is chosen to study a particular question.
 The panel members do not meet as a group and may not even know
each other’s identity.
 Panel members are then asked (usually by mailed questionnaire) to
give their opinions about certain future events or forecasts.
 The coordinator summarizes the opinions and sends this information
to the panel members.
 Panel members rethink their earlier responses and make a second
forecast.
 This same procedure continues until a consensus is reached or until
the responses do not change appreciably.
e. Anticipatory Surveys:
 Mailed questionnaires, telephone interviews, or personal interviews are
used to forecast customer intentions.
2. Quantitative Forecasting Techniques:
a.Time-Series Analysis:
 forecasts future demand based on what has happened in the pastOne advantage of this
technique is that it is based on something other than opinion. This method works best
when a significant amount of historical data is available and when the environmental
forces are relatively stable. The disadvantage is that the future may not be like the past.
b. Regression Modeling:
 Once the mathematical relationship between the independent variables and the
dependent variable has been determined, future values for the dependent variable can
be forecast based on known or predicted values of the independent variables.
c. Econometric Modeling:
 Most econometric models are based on numerous regression equations that attempt
to describe the relationships between the different sectors of the economy.
 Those organizations that do use econometric models usually hire the services of
consulting groups or company that specialist in econometric modeling.
MICHAEL E. PORTER FIVE
FORCES MODEL
History
 In 1979, Harvard Business School professor
Michael E. Porter developed the five forces
model.
 first article for the Harvard Business review
titles “How Competitive Forces Shape
Strategy”.
PORTER’S FIVE FORCES

The five forces identified by Porter are divided

into:
 Horizontal forces: Threat of substitutes,
threat of new entrants, competitive rivalry
 Vertical forces: Bargaining power of buyers
and bargaining power of customers
When is competitive rivalry high?
 Competitive rivalry may be higher when:
 Similar sized companies operate in one market
 These companies have similar strategies
 Products on offer have similar features and offer
the same benefits
 Growth in the industry is slow
 There are high barriers to exit or low barriers to
entry
When are barriers for new entrants high?
 Barriers to entry may stem from things like:
 patents and proprietary knowledge
 access to specialized technology or infrastructure
 economies of scale or government driven obstacles
 high initial investment needed
 high switching costs for consumers, loyal consumers
 difficulty in accessing raw material and difficulty in
accessing distribution channels
 Within the framework defined by Porter, substitute products are those that exist in
another industry but may be used to fulfil the same need. The more substitutes that
exist for a product, the larger the company’s competitive environment and the lower
the potential for profit. An example of this is that for a boxed juice producer, fresh
juice, water and soft drinks are all substitutes though they exist in separate categories.
 A high threat of substitutes will impact a company’s ability to set prices that it wants. If
a substitute is priced lower or fulfils a need better than it may end up attracting
consumers towards it and reduce sales for existing companies.
 When is there a threat from substitutes?
 The threat of substitutes is affected by factors such as brand loyalty, switching costs,
relative prices, as well as trends and fads.
 4. Bargaining Power of Buyers
 When buyers have the power to affect prices in an industry, it becomes an important
factor to consider for a company.
 When buyers have the power to affect prices
in an industry, it becomes an important factor
to consider for a company.
 When do suppliers have power?
 Supplier may enjoy more power if there are
less of them.
 Costs of switching to an alternate are high, or
there are no alternates.
 A supplier may also be the only provider of a
certain raw material.