Environment Scanning

Environment Scanning
There is a need to establish strategic fit between company
and environment

What corporate can offer? What does environment want?

What does corporate need? What environment can provide?

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 Environment Scanning
• Environment constitutes the aggregate of all conditions,
events, influences that surround an organization and
affect it.
• Environment is dynamic, complex and challenging hence
uncertain.
• Scanning is management tool to avoid strategic
surprises and ensure company’s long term health

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 Environment Scanning
• Environmental scanning constitutes a primary
mode of organizational learning
– Holistic exercise: looking at forest than trees
– Exploratory process: systematic speculation
– Continuous activity: picking up new threads
• It is the acquisition and use of information about
events, trends, and relationships in an
organization's external environment
– To assist management in planning the organization’s
future course of action
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 Types of Environment
• External Environment
– Societal Environment or Macro environment
• macro variables which affect all the industries or many
industries
– Task Environment/ Industry Environment/ Competitive
Environment
• macro variables which are specific to an industry
• Internal Environment
– Specific to an organisation
• Culture
• People
• Resources
• Structure
• Strategy 5
 Environment
SOCIETAL/MACRO
ENVIRONMENT

Demographic TASK/INDUSTRY Economic

ENVIRONMENT
Buyer
INTERNAL
Supplier
ENVIRONMENT Political
Legal
Culture, Structure,
Strategy, Resources Substitute

Technological Competitor Social

International

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 Strategic Aspects of Environment
External Environment
• Opportunity
– a favourable situation which enables the firm to strengthen its
position, e.g. expanded market due to globalisation
• Threat
– an unfavourable situation which results in risk of damage to the
firm’s position, e.g. increased competition due to globalisation
Internal Environment
• Strength
– An inherent capacity which can be used to build competitive
advantage, e.g. strong R&D
• Weakness
– An inherent constraint which creates disadvantage to the firm,
e.g. high debt equity ratio
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 Societal Environment
Demographic
• Size, growth rate of population, average life expectancy
– Determines size of aggregate demand and rate of growth of
demand
• Age distribution/geographic distribution/rural-urban
– Segmentation
• Rural-urban mobility
– Potential for change in demand
– Work force composition
• Literacy / education level
– Consumer awareness/ preferences
– Skill sets
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 Societal Environment
Social/Cultural
• Values, traditions, norms, beliefs, practices,
faith
– Affect taste and preferences
– Help in product design, advertisement
– HR practices
• Belief in destiny:Locus of control
– Performance
– Turnover

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 Societal Environment
Social/Cultural
• Attitudes
– Materialistic/spiritual
– Competitive/complacent
• Rigidity
– Adaptability to change
– Strong culture
• Ethical norms
– Work culture

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 Societal Environment
Economic
• National income:
– GNP, PCI, Personal disposable income, personal
consumption
– Determines demand structure
• Savings and Investments :
– Personal savings, Corporate savings
– Capital formation
– FDI, FII
– Money market
• Prices, wages, productivity
• Capital markets: Equity, bond
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 Societal Environment
Economic
• Sectoral growth
– agricultural, industry, infrastructure, services
• Infrastructure
– Banking, transportation, power, communication
• International transactions
– exchange rates, exports, imports, Balance of
payments

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 Societal Environment
Political-legal
• Forms of governance
– Democratic or monarchy or others
• Stability
– Uncertainty about policies
• Policy initiatives:
– Fiscal, Monetary, Forex Policies, other economic
Policies
• Rules, Regulations, Acts
• Reforms
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 Societal Environment
Technological
• R&D spend
– Proportion spend by industry, government, academia
• Rate of growth of technology (rate of obsolescence)
• Nature of Technology
– Indigenous /Imported
– State of the art /old /obsolete
• Rate of Technology transfer
– Time to convert an idea into a successful product
• Impact of technology
– On environment, on human being

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 Societal Environment
International
• Global technology, legal framework, global market,
financial system
• World bodies
– World Bank; IMF
– WTO
• World trade
– Volume
– Country share
– Composition of trade
• Regional economic blocks
• Environmental issues
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 Techniques
• PEST/ PESTLE Analysis
• ETOP (Environment Threat Opportunity
Profile)
• Strategic Factor Analysis

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 PEST Analysis
POLITICAL ECONOMIC SOCIAL TECHNOLOGI
CAL
• Political • Demand • Demograp • Rate of
Stability structure hics growth of
• Economic • Capital • Values, technology
Policies markets traditions, • Transfer of
• Rules & • Infrastruct beliefs, technology
Regulation ure faith • Man-machine
s • Ethical interface
norms

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 PESTLE Analysis
POLITICAL ECONOMIC SOCIAL
• Political Stability • Demand • Demographics
• Economic structure • Values,
Policies • Capital markets traditions,
• Rules & • Infrastructure beliefs, faith
Regulations • Ethical norms
TECHNOLOGICAL LEGAL ENVIRONMENTAL
• Rate of growth of • Rules & • Pollution control
technology Regulations • Norms and
• Transfer of • Laws and Acts regulations
technology • Ease of • Punishments
• Man-machine business
interface 19
 Sources of information
• Government sources
• Magazines, newspapers
• Research papers, Journals, Reports
• Consultants
• Company records
• International sources

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 Other Information Sources
• Other methods of information gathering activities
– Competitor Intelligence
– Competitive Intelligence
– Business Intelligence

• Scanning is complementary to these methods as

also distinct from them

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 Competitor Intelligence
• Competitor intelligence is an assessment of the
strengths and weaknesses of current and
potential competitors
• It is focused on the actions, behaviours, and
options of one or more existing or potential
competitors
• The strategic rationale of competitor profiling is
that superior knowledge of rivals offers a
legitimate source of competitive advantage.

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 Competitor Intelligence
• A common technique is to create detailed profiles on
each of the major competitors.
• These profiles give an in-depth description of the
competitor's background, finances, products, markets,
facilities, personnel, and strategies. 
• A competitor's media strategy reveals budget allocation,
segmentation and targeting strategy, and selectivity
and focus. 
• By knowing the competitor's media buy, media selection,
frequency, reach, continuity, schedules, and flights, the
firm can arrange its own media plan.

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 Competitive intelligence
• Competitive intelligence involves analysis of
competitors as well as competitive conditions in
particular industries or regions.
• It involves understanding and learning what is happening
in the world outside the business to increase one's
competitiveness.
• It is important to learn as much as possible and as soon
as possible, about one's external environment including
one's industry in general and relevant competitors.
• CI is ‘early signal analysis’ which is the organizational
function responsible for the early identification
of risks and opportunities in the market before they
become obvious .
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 Competitive intelligence
Key points:
•Competitive intelligence is a legal business
practice, as opposed to industrial espionage,
which is illegal.
•The focus is on the external business
environment.
•There is a process involved in gathering
information, converting it into intelligence and then
using it in decision making.

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 Competitive intelligence
• Strategic Intelligence focuses on the longer
term, looking at issues affecting a company's
competitiveness over the course of time in future.
• Tactical Intelligence focuses on providing
information designed to improve shorter-term
decisions.
– growing market share or revenues.
• It investigates various aspects of a
product/product line marketing

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 Business intelligence
• Business intelligence is the activity of monitoring the
environment external to the firm for information that is
relevant for the decision-making process in the company.
• Business intelligence is ‘a set of methodologies,
processes, architectures, and technologies that transform
raw data into meaningful and useful information used to
enable more effective strategic, tactical, and operational
insights and decision-making’.
• BI technologies can handle large amounts of structured
as well as unstructured data to help identify, develop, and
create new strategic business opportunities.
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 Business intelligence
• BI Technologies aim to allow for the easy interpretation of
big data.
• BI helps in identifying new opportunities and implementing
an effective strategy based on insights.
• This can provide a competitive advantage and long-term
stability.
• When BI combines data derived from the market (external
data) with data from company sources such as financial
and operations data (internal data), its effectiveness is
maximum.
• The big data analysis can provide a complete picture
which, in effect, creates an "intelligence“.
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 Business intelligence
• Business intelligence BI primarily deals with
internal data and business processes while
competitive intelligence (CI) collects and
analyses data about external environment with a
focus on competition.
– BI may be a subset of CI
• Business analytics (BA) focuses on statistics,
prediction, and optimization, rather than the
reporting functionality.
– BA is the subset of BI
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 ETOP
• Environment Threat Opportunity Profile for any
industry
• ETOP is a technique to scan the external environment of
any business and analyse the impact of the environment
forces on the organisation
– As a threat
– As an opportunity

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 ETOP: Process
• List environmental factors
– PESTLE
• Divide them into variables
• Assess importance of these factors
– Qualitatively (high, medium, low)
– Quantitatively ( scale of 5 points, 10 points)
• Assess the impact
– Positive (+)
– Negative (-)
• Combine the importance and impact
– Highly important factor with positive impact is a great opportunity
– Highly important factor with negative impact is a great threat.

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 ETOP
Analysis Of Environmental Factors Of
Automobile Industry In India
 POLITICAL-LEGAL ENVIRONMENT

Variables Importance Impact Decision Remarks

Economic Threat / Opens up the

1 2 3 4 5 -ve/+ve doors for foreign
reforms Opportunity
players: more
competition/
possibilities of
alliances
Labor laws Threat Increases labour
1 2 3 4 5 -ve strength

Reduction in Opportunity Will facilitate

1 2 3 4 5 +ve import of
excise duty
technology

EV Policy Threat Uncertainty about

1 2 3 4 5 -ve other fuel sources
 ECONOMIC ENVIRONMENT

Variables Importance Impact Decision Remarks

Economic Opportunity Industrial policy/

1 2 3 4 5 +ve corporate policy/FDI
policies Threat
-ve Policy on EVs

Infrastructure Opportunity Roads, sectoral growth

1 2 3 4 5 +ve

GDP Growth Opportunity High income favours

1 2 3 4 5 +ve auto purchase
Recession/
slow down -ve Threat Slow down hampers
demand/sale
 SOCIAL ENVIRONMENT

Variables Importance Impact Decision Remarks

Education Opportunity Facilitates

1 2 3 4 5 +ve Communication
Level
through media etc,
value driven demand

Life Style Opportunity Dual income families

1 2 3 4 5 +ve Preference for present
comfort

Family opportunity Nuclear families

1 2 3 4 5 +ve Need and want
structure
increases, taking own
decision
Cultural Threat Slow response to new
1 2 3 4 5 -ve designs and new
rigidity
technology
 TECHNOLOGICAL ENVIRONMENT

Variables Importance Impact Decision Remarks

Technological Opportunity Advanced

1 2 3 4 5 +ve technologies help
development
development of the
industry

Rate of Threat Additional cost will be

1 2 3 4 5 -ve incurred to survive in
change in
the market
technology

R&D spend Opportunity Better designs, more

1 2 3 4 5 +ve efficient engines
 INTERNATIONAL ENVIRONMENT

Variables Importance Impact Decision Remarks

Fuel Prices threat Increase in fuel price

1 2 3 4 5 -ve lowers the demand

Global threat Global advanced

1 2 3 4 5 -ve products are available
Competition
at the same rate of
local market

Global opportunity FDI and FPI has

1 2 3 4 5 +ve opened the door to
financial
expansions
system
Carbon 1 2 3 4 5 -ve threat Carbon emission
offsetting norms, pollution
norms.
 Strategic Factor Analysis

Opportunity Score Threat Score

GNP, PCI Carbon Offsetting
Sectoral growth Regulatory Structure
Education Level Fuel prices
Infrastructure Labour laws
Technology
Total (mean) Total (mean)

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 External Strategic Factors Analysis
Summary
External Strategic Factors Weight Rating Weighte Comments
(1) ( 2) ( 3) d Score
( 2x3)
Opportunity        
Latent market 0.30 4 1.20 In India car
penetration is about 7
cars per 1000 people

Improvements in road 0.20 1 0.20 No control

infrastructure
Electric Vehicle (EV) 0.30 2 0.60
segment

Total 1.00   2.80  

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 External Strategic Factors Analysis
Summary

Threats        
The cheapest car – Nano 0.20 3 0.60 Different market
segment

Entry of multinational brands 0.30 4 1.20 Well positioned and

in small and mid segment loyal customer base

Increase in petroleum price 0.30 3 0.90 MSIL offered Wgnar

duo

Changes in consumer 0.1 1 0.10 Weak in new offerings

preferences

Total 1.00   2.80  

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