Strategic

Management and
Business Policy
BITS Pilani Dr. Shaili Singh
Pilani Campus Department of Management
 BITS Pilani
Pilani Campus

MBA ZG611, Strategic Management

and Business Policy
Session No. 3
Contents
• Identifying features of environment-
Natural, Societal, Task environment
• Techniques for analyzing environment-
PESTLE/ STEEP; Porter’s 5 Forces,
SWOT
• Understanding how external environment
impacts managers
4
Elements of External
Environment
• The natural environment includes physical resources,
wildlife, and climate that are an inherent part of existence on
Earth. These factors form an ecological system of interrelated
life.
– Sustainability (related concept, Triple Bottom Line)
– Reducing carbon footprints- reducing energy combustion,
harnessing alternate renewable energy sources, use of alternate
sustainable materials, recycling, waste treatment, incinerating
into energy,
– ESG reporting
– Electric cars, Green salons, Sustainable branding, Recycling
industry
• Climate change may cause companies to face following risks-
Regulatory risk, supply chain risk, product and technology
risk, litigation risk, reputational risk, Physical risk
Elements of External
Environment
• The societal environment is mankind’s social
system. It includes
– Sociocultural forces that regulate the values, mores, and
customs of society.
– Technological forces that generate problem-solving
inventions.
– Economic forces that regulate the exchange of materials,
money, energy, and information.
– Political–legal forces that allocate power and provide
constraining and protecting laws and regulations.
Sociocultural trends
• Increasing environmental awareness
• Growing health consciousness
• Expanding seniors market
• Impact of millennials and Gen Z; Gen Alpha
• Declining mass market
• Changing pace and location of life
• Changing household composition
• Increasing diversity of workforce and markets
Source: Statista
Demographic trends
• World’s population roughly 8 billion

• Retirees vs young population

• Demographic Dividend
• https://www.livemint.com/opinion/online-view
s/lets-step-up-strategic-efforts-to-mobilize-ind
ia-s-labour-potential-11666023473758.html
Technological trends
• Portable information devices and
electronic networking
• Alternative energy sources
• Precision farming
• Virtual personal assistant
• Genetically altered organisms
• Smart, mobile robots
Economic trends
• GDP, Interest rates, Inflation,
Unemployment, Currency market etc.
• Few trends observed in India:
– Trade of high tech and value added product is
increasing
– Rising exports
– Improvement in perceived image
– Investments increasing
– Improved tax collections
https://www2.deloitte.com/xe/en/insights/economy/asia-pacific/india-econo
mic-outlook.html

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Political/Legal trends
• Global image
• Relationships with other countries
• Political stability
• Political stance
• New criminal justice system
• National Education policy 2020
• Companies Act 2013
Source: Wheelen, Thomas L. and J. David Hunger, Concepts in
Strategic Management and Business Policy, Pearson Education, 13th
ed.
Source: Wheelen, Thomas L. and J. David Hunger, Concepts in
Strategic Management and Business Policy, Pearson Education, 13th
ed.
PESTLE
• https://strategicmanage
mentinsight.com/tools/p
est-pestel-analysis/
• PESTLE allows you to
analyze natural and
societal factors affecting
an organization
Source: Stephen P. Robbins, and Mary Coulter, “Management”,
Pearson Education, 2017, 13th edition

17
Source: Stephen P. Robbins, and Mary Coulter, “Management”,
Pearson Education, 2017, 13th edition

18
19
Elements of External
Environment
• The task environment includes those elements or
groups that directly affect a corporation and, in turn,
are affected by it.
• Governments, local communities, suppliers,
competitors, customers, creditors, employees/labor
unions, special-interest groups, and trade
associations are some of the key elements in a
firm’s task environment.
• A corporation’s task environment is typically
focused on the industry within which the firm
operates.
Porter’s 5 Forces

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Threat of New Entrants
• Economies of Scale
• Product Differentiation
• High Capital Requirements
• Access to distribution channels
• Switching costs

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Rivalry among existing firms
• Number of competitors
• Rate of industry growth
• Product or service characteristics
• Exit barriers

23
Threat of substitute product or
service
• Switching cost
• Nature of product/service

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Bargaining power of buyers
• A buyer purchases a large proportion of the seller’s product or
service
• A buyer has the potential to integrate backward by producing the
product itself
• Alternative suppliers are plentiful because the product is standard or
undifferentiated
• Changing suppliers costs very little
• The purchased product represents a high percentage of a buyer’s
costs, thus providing an incentive to shop around for a lower price
• A buyer earns low profits and is thus very sensitive to costs and
service differences
• The purchased product is unimportant to the final quality or price of a
buyer’s products or services and thus can be easily substituted
without affecting the final product adversely
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Bargaining power of suppliers
• The supplier industry is dominated by a few
companies, but it sells to many
• Its product or service is unique and/or it has built
up switching costs
• Substitutes are not readily available
• Suppliers are able to integrate forward and
compete directly with their present customers
• A purchasing industry buys only a small portion of
the supplier group’s goods and services and is
thus unimportant to the supplier
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Porter’s 5 forces
• Together, these five forces (see Exhibit 9-5) determine
industry attractiveness and profitability, which managers
assess using these five factors:
1. Threat of new entrants. How likely is it that new competitors
will come into the industry?
2. Threat of substitutes. How likely is it that other industries’
products can be
substituted for our industry’s products?
3. Bargaining power of buyers. How much bargaining power do
buyers (customers) have?
4. Bargaining power of suppliers. How much bargaining power
do suppliers have?
5. Current rivalry. How intense is the rivalry among current
industry competitors?
SWOT Analysis

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SWOT Analysis
• build on its strengths,
• remedy the weaknesses or work around them,
• take advantage of the opportunities presented by the
environment, and,
• protect the firm from the threats.
• https://strategicmanagementinsight.com/tools/swot-
analysis-how-to-do-it/

29
30
Techniques for Analyzing External
Environment
• Environmental Threats and Opportunity
Profile (ETOP)
• PESTEL/STEEP
• Porter’s 5 Forces
• SWOT
• Forecasting
• Market Survey
How environment affects?
1. Impacts on jobs and employment
• Remote work
• Moonlighting
• Layoffs in 2023
• AI
How environment affects?
2. Environment Uncertainty
•Environmental uncertainty is categorized by
the degree of change and complexity in an
organization’s environment
•Degree of change:
• Components of environment changing frequently: Dynamic
environment versus stable environment
• Changes are not predictable in a dynamic environment.
• Complexity:
• Number of components in an environment and organization’s
knowledge about those components defines complexity
Environmental Uncertainty
Matrix

Source: Management, thirteenth edition, Robbins & Coulter

Which strategy when?

Source: Bingham, Eishenhardt and Furr, 2011 35

 How environment affects?
3. Organizational
stakeholders

•Constituencies that are

affected by an organization’s
decisions and actions.
•External or internal
•Primary or secondary
•Why should be consider your
stakeholder?
•Improved performance
•Right thing to do?
Strategy as Active Waiting, Donald
N. Sull, 2005
• For active waiting
– Keep your vision fuzzy and priorities clear
– Probe the future
– Maintain a war chest
– Keep the pressure on
– Declare your “main effort”
BITS Pilani, Pilani Campus