Unit 2: Environmental Analysis
Environmental Scanning
● The process of gathering information about the external and internal environment of
an organization.
● Environmental scanning is the internal communication of external information about
issues that may potentially influence an organization's decision-making process
● Its purpose is to identify strategic factors
● Helps organizations identify opportunities and threats, assess their competitive
position, and make informed strategic decisions.
Components of Environment
● External Environment: Factors outside the organization that influence its operations, such
as economic, technological, socio-cultural, political, legal, and competitive factors.
● Internal Environment: Factors within the organization, such as its resources, capabilities,
and culture.
External Environmental Analysis
Environmental Profile
● A summary of the key environmental factors that are relevant to the organization.
● Helps identify opportunities and threats.
Constructing Scenarios
● A technique for exploring alternative future scenarios and assessing their potential
impact on the organization.
● Involves identifying key uncertainties, developing different scenarios, and assessing
their potential impact.
Environmental Scanning Techniques
● ETOP (Environmental Threat and Opportunity Profile): A matrix used to assess the
likelihood and impact of environmental factors.
● PESTEL Analysis: A framework for analyzing the political, economic, socio-cultural,
technological, legal, and environmental factors in the external environment.
● SWOT (TOWS) Matrix: A tool for analyzing an organization's strengths, weaknesses,
opportunities, and threats.
● External Factor Evaluation (EFE) Matrix: A matrix used to assess the importance and
attractiveness of external factors.
● Competitive Profile Matrix: A matrix used to compare an organization's competitive position
with that of its competitors.
External Environmental Analysis consists of:
Scanning Appraisal Evaluation
PESTEL, 5 Forces, Strategic ETOP - Economic, Threat, External Factor Evaluation
Groups Oppotunites, Profile (EFE) matrix
Analysis of Task Environment
ETOP
- It is a process of dividing the environment into different sectors and then
analyzing the impact of each sector on the organization.
Porter's Five Forces Model
● A framework for analyzing the competitive intensity of an industry.
● Includes the following five forces:
○ Threat of new entrants
○ Bargaining power of buyers
○ Bargaining power of suppliers
○ Threat of substitute products
○ Rivalry among existing firms
Strategic Group Analysis
● A technique for identifying groups of firms within an industry that have similar
strategies and compete directly with each other.
● Helps understand the competitive dynamics within an industry.
Analysis of Internal Environment
Scanning Appraisal Evaluation
RBV Strategic Advantage Profile IFE Matrix, Competitive
(SAP) Profile Matrix (CPM)
Resource-Based View (RBV)
● A perspective that emphasizes the importance of an organization's internal resources
and capabilities in achieving a competitive advantage.
● Focuses on identifying and leveraging the organization's unique strengths.
● The RBV to internal analysis draws attention to fact that there are important, valuable,
precious resources in a firm.
● This approach help in studying internal strategic factors and finding out to what extent
they can lead to Competitive Advantage.
VRIO Frame work
Core and Distinctive Competencies
● Core competencies: The unique skills and abilities that an organization can leverage to
create value.
● Distinctive competencies: Core competencies that are superior to those of competitors.
The role of Strategy
Sustainable Competitive Advantage
● A competitive advantage that is difficult for competitors to imitate or replicate.
● Requires the organization to continuously innovate and adapt to changing
environmental conditions.
Continuum of Sustainability
● A framework for assessing an organization's sustainability performance.
● Includes three levels: economic, environmental, and social sustainability.
Structuring Organizational Appraisal
● The process of assessing an organization's internal environment and identifying areas
for improvement.
● Involves conducting a variety of assessments, such as financial analysis, customer
satisfaction surveys, and employee surveys.
Strategic Advantage Profile
Internal Factor Evaluation (IFE) Matrix
● A matrix used to assess the importance and attractiveness of internal factors.
Why Do Companies Fail?
● Internal factors: Ineffective leadership, poor management, lack of innovation, financial
mismanagement, and organizational culture problems.
● External factors: Economic downturns, increased competition, technological disruptions,
regulatory changes, and natural disasters.
Steps to Avoid Failure
● Continuous learning and adaptation: Stay informed about industry trends and customer
needs.
● Innovation: Develop new products, services, or business models.
● Effective leadership: Provide strong direction and motivation.
● Financial management: Manage resources efficiently and effectively.
● Risk management: Identify and mitigate potential risks.
● Customer focus: Understand and meet customer needs.
● Employee development: Invest in employee training and development.
● Ethical behavior: Conduct business in an ethical and responsible manner.
Value Chain Analysis
● A framework for analyzing the value-adding activities performed by an organization.
● Helps identify opportunities for cost reduction, differentiation, or innovation.
Importance of VCA
1. It is useful method for organizational appraisal as it helps in providing clarity
about areas where strength and weakness of organization reside.
2. In general, activities that create more value to customers at less cost are
STRENGTHS and activities that create less value to customers at more cost are
WEAKNESSES.
3. In such cases, it would be better for organization to outsource those activities to
other parties who could perform them better.
4. Those activities where organization is strong should be retained as they are their
competencies.
