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UNIT III

ENVIRONMENTAL
ANALYSIS

Environmental Analysis
 Managers must have a deep
understanding and appreciation of the
environment in which they and their
organizations function.

 The environment of business is the
‘aggregate of conditions, events and
influences that surround and affect it’.

BoDs. employees etc. Environmental forces could be classified into two categories: 1. External Environment – It consists of those factors that affect a firm from outside its organizational boundaries. . Internal Environment – It consists of conditions & forces within an organization that affect its management. owners. 2.

Features of Environment  COMPLEX  DYNAMIC  CHALLENGING .

Components of External Environment  Economic Environment  Social and Cultural Environment  Political Environment  Legal Environment  Technological Environment  Global Environment  Demographic Environment .

The External Environment .

General Environment (cont’d) The Economic Segment  Inflation rates  Interest rates  Trade deficits or surpluses  Budget deficits or surpluses  Personal savings rate  Business savings rates  Gross domestic product .

General Environment (cont’d) The Sociocultural Segment  Women in the workplace  Workforce diversity  Attitudes about quality of worklife  Concerns about environment  Shifts in work and career preferences  Shifts in product and service preferences .

General Environment (cont’d) The Global Segment  Product innovations  Applications of knowledge  Focus of private and government- supported R&D expenditures  New communication technologies .

General Environment (cont’d) The Technological Segment The Technological Segment  Product innovations  Applications of knowledge  Focus of private and government-supported R&D expenditures  New communication technologies .

General Environment (cont’d) The Political/Legal Segment  Antitrust laws  Taxation laws  Deregulation philosophies  Labor training laws  Educational philosophies and policies .

General Environment The Demographic Segment  Population size  Age structure  Geographic distribution  Ethnic mix  Income distribution .

 It would help in setting the targets that a Co.  To know the various factors and their interactions that may threaten the survival and growth of a Co.  To know about those factors that may generate new opportunities for the Co. to grow & accomplish stretched goals. Importance of Environmental Scanning  To know how far these environmental factors & their interactions would be helpful in accomplishing the objectives set for Co. would like to formulate for itself which would be not only realistic but would also pose a challenge to motivate the workforce. . and evolution of alternative that would possibly turn threats into opportunities.

Porter’s Five forces Model (Industry/Competitive Analysis) . Environmental Scanning could be done through: - . SWOT Analysis (Internal Analysis) 2. PESTLE Analysis (Environmental Analysis) 4. ETOP (Environmental Analysis) 3.Techniques 1.Sources .

.  We should try to capitalize on the opportunities and by using organizational resources & capabilities to the best advantage and neutralize the threat by minimizing the adverse influence of weaknesses. SWOT Analysis  It helps an organization match its strengths and weaknesses with opportunities and threats operating in the environment.

 OPPURTUNITIES – Major favorable conditions in a firm’s environment which help a firm strengthen its position. STRENGTHS – internal capabilities of a firm which can be used to gain competitive advantage over its rivals.  WEAKNESSES – Limitations or constraints which tend to decrease the competencies of the firm particularly in comparison to its rivals.  THREATS – Major unfavorable conditions in a firm’s environment which may pose a risk damage to the firm’s position in comparison to its rivals. .

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Assessing Impact factors .Environmental Factors – Identification of different components of environment. ETOP Analysis  Environmental Threat and Opportunity Profile also known as ‘Environmental Impact Matrix’.Combining Importance and Impact factors .  It includes the following steps: - .Assessing importance of Environmental factors . .

Economic (+) continued emphasis on infrastructure development (-) Severe resource constraints Technological (+) Higher growth in industrial production and technology upgradation Supplier (-) Increasing scarcity of technology because of cartel formation Government (+) Liberalization for technology import Competition (-) Increasing role of power plant consultants (+) Increasing difficulty in retaining specialists and highly qualified personnel . BHEL: ETOP Environmental Sector Impact (+) Opportunity (-) Threat Socio.

PESTLE Analysis  Political factors  Economic factors  Socio-cultural factors  Technological factors  Legal factors  Environmental factors .

 It is a four step process which uses scenario-writing for scanning the environment and identifying strategic options. . QUEST ANALYSIS  QUEST stands for Quick Environmental Scanning Technique.

 The report and scenarios are reviewed by a group of strategists who identify feasible strategic options to deal with the evolving environment. The options are then ranked.  The QUEST director prepares a report summarizing the major issues and their implications. The four steps involved are: -  Strategists make observation about the major events and trends in their industry. . and 3 to 5 scenarios incorporating the major themes of the discussion.  Then they speculate on a wide range of important issues that might effect the future of their organizations by scanning the environment broadly and comprehensively.