Fourth Week:

Environmental Scanning:

Internal & External conditions

Prof. Dr. Mohamed A. El-araby
 Introduction:
This chapter examines the tools and concepts needed to conduct an
external strategic management audit (sometimes called environmental
scanning or industry analysis).

The purpose of an external audit is to develop a finite list of opportunities

that could benefit a firm as well as threats that should be avoided.

Firms should be able to respond either offensively or defensively to the

factors by formulating strategies that take advantage of external
opportunities or that minimize the impact of potential threats.
 External
environment
 What is External Environment ?

• Environment literally in general means the surroundings,

objects, influences or circumstances under which
someone or something exists.

• External assessment is a step where a firm identifies

opportunities that could benefit it and threats that it
should avoid.
 Characteristics of External Environment
1. Complex
2. Dynamic
3. multi –faceted
4. far-reaching impact (on contrary with internal envir.)
5. impact on different firms within the same industry differs
from one project to another.
6. An opportunity for one project could be a threat to
others.
7. Changes in Extr. environment causes other counter
changes to the competitive scenarios or internal plans.
8. Sometimes extr. Conditions are difficult to predict with
any degree of accuracy (uncertainty situation).
 Quantitative & Qualitative Information
analysis: Scientific tools

For the above purpose, firms use a number of tools and

techniques depending on their specific requirements in
terms of quality, relevance, cost etc.

Some of the techniques which are generally used for

carrying out environmental analysis are:
(1) Time series analysis
(2) Judgmental forecasting
(3) Expert opinion
(4) Delphi’s technique
(5) Statistical modeling
(6) Cross-impact analysis
(7) Brainstorming
(8) Demand/hazard forecasting
External Environment for individual organization
(Micro level)
Types of External Environment for individual organization
(Micro level)
We can designate 3 different layers of external envi. Analysis :

1st Layer 3rd Layer

Competitive envi. Global envi.

2 nd
Layer
National envi.
 International Environmental
Conditions effects
Major Challenges to Strategic Management for MNC (Multi-National
Corporation) & international Business & Development Strategies:
• Globalization (WTO, Regional cartelling ..)
• Innovation & Digitalization.
• Sustainability, Rivality, Market Survival.
• Political conditions ( ex. Russia vs. Ukraine war, Regional instability, ….)
• Economic conditions ( ex. USA vs. China commercial wars, EU vs.
Russia energy wars .. Petroleum & Natural Gas.. Effects on
industrialization)
• Global warming & Climate Change, dryness, forest fires , pollutions &
industry ..)
• International Terrorism.
• Illegal Immigrations & work force issues.
 Private Sector: Strategic Business Environment levels
Multi- Global /
National Universal
corporations Global Scoop
Markets
International /
International Continental
corporations
Regional
Scoop
Market

National
Market
SMEs & Big One Nation
Institutions
Native State
Markets
SMEs Native / Local
corporations Communities
But .. For a government … (macro level):
Governmental scanning :

How many Layers?

 External Environmental Scanning levels in
Gov. Sector

Global Regional
• Wars • Middle East
• Alliances • Africa
• Disputes
• International Prices & inflation
 Internal
environment
For a government … (macro level).. internal
environment is :
 Society (Citizen)
seeking welfare Needs , demands Problem suffering

Tourism Agri. Housing Industry Edu. Health Defense & Economy &
sector sector sector sector sector sector security Finance

Government
Government Should Respond to sectoral needs of citizen in formula of setting required
Strategies & Policies….

Tourism Agri. Housing Industry Edu. Health Defense & Economy &
policy policy policy policy policy policy policy Fin. policy
 Local Executive
Councils [Sectoral Minister of
[Governor] Ministries] Planning

Sources of Data & Local scan:

Local Service
1. Local people are reporting their: Central
complains , demands, problems ,
mother directorates
needs.. Government
2. Local information & decision [Cabinet]
support systems.
3. Local mass media & civil society ins.
Direct local Service 4. Official investigations performed by
offered by sub- official local seniors & leaders. Supreme Council of
directorates Planning &
5. National & local elected Sustainable
representative members per Development
localities. [SCP & SDS]

Local Communities
& Local People Parliament
needs
 Local
Authorities
Thus, Central Gov.
Local Development
leads to achieving:

Comprehensive &
National
Development in final
Sum.
 Dynamics of envir. Scanning in Gov. sector:
1. Feeling the existence of societal Sources of Data (examples) :
problems.. 1. people are reporting their:
complains , demands, problems ,
2. Sources of information.. needs..
3. Problem diagnose .. Dilemma of 2. information & decision support
systems.
data accuracy.. 3. mass media & civil society ins.
4. Official investigations performed by
4. Setting & preparing Official official local seniors & leaders.
agenda: Detection of priorities.. 5. National & local elected
representative members per
5. Dilemma of Financial resources localities.
sufficiency..
Environmental Scanning for (ONE) organization

Internal Environment for individual organization

(Micro level) .. is:
 What does the Internal Environment Mean ?
Internal Environment includes all of internal components of our
organization such as:

1. Our Resources , Capabilities, Competencies, Core-competencies.

2. Our Structure.
3. Our Culture.
4. Our Human interactions & Org. Behavior (formal & informal).
5. Managerial processes (POSDCORB).
6. Strategic Leadership.
7. Our Divisions.
8. Our Functional units.
9. Our Vision, Mission, Objectives, Strategies, Policies, Programs,
Procedures , Rules of working.
 Internal Environment analysis offers:

Strengths points Weakness points

(S) (W)

• Areas of Distinction • Underdeveloped Areas

• Competitive Advantages • Low, poor performance elements
• Competences & Core competencies • Dropping points ..etc
• Sophisticated Capabilities

Each of previously listed 9 elements of internals could be point of (S)

or (W) .. It depends … and differs from one place to another , from one
time to time .. As well .. Even inside one place.
Internal environmental conditions are
often the primary source of creating:

organizational Competitive Advantage

including

: Resources, Capabilities,
Competencies
 Competitive Advantage

Core
Resources Capabilities Competencies
Competencies

• Tangible (Location, • Your ability of • Within one division, • Within

Buildings, Furniture, utilizing resources in when cross- organizational
Equipment, the right, rational functional divisions, when
Machinery, cars .. directions within capabilities being cross-divisional
Other logistics) one functional unit. integrated for integration results
• Financial (capital, • Each unit has its creation of new in new product,
funds, budgets, own resources and product, or adding new value, then you
balance sheets, capabilities.. new value, then you have core
shares, bonds, • Functional units have a competency. competency.
treasuries..) located in each of
• Human (skills, organizational
manpower size, divisions as well.
subordinates,
leaders..)
• Sustainability Competitive
• Rivaling Advantage
• Contestability
• Growth
• Expansions
• Aggressive Strategies
Distinctive - Core
Competencies

Competencies

Capabilities

Resources
** Enhancing Internal Enviro.
& Benchmarking **
 Benchmarking
Benchmarking is the process of comparing the business
processes and performance metrics including:
• cost,
• cycle time,
• productivity,
• quality
to another that is widely considered to be an industry
standard benchmark or best practice. Essentially,
benchmarking provides a snapshot of the performance of a
business and helps one understand where one is in relation to
a particular standard.
 Types of Benchmarking
Benchmarking can be of following types:
1. Managerial Process : the initiating firm focuses its observation and
investigation of business processes with a goal of identifying and
observing the best practices from one or more benchmark firms. Activity
analysis will be required where the objective is to benchmark cost and
efficiency; increasingly applied to back-office processes where
outsourcing may be a consideration.
2. Financial : performing a financial analysis and comparing the results in
an effort to assess your overall competitiveness and productivity.
3. Production : the process of designing new products or upgrades to
current ones. This process can sometimes involve reverse engineering
which is taking apart competitors products to find strengths and
weaknesses.
4. Strategy building: involves observing how others compete. This type is
usually not industry specific, meaning it is best to look at other industries.
5. Functional : a company will focus its benchmarking on a single
function in order to improve the operation of that particular function.
Complex functions such as Human Resources, Finance and Accounting
and Information and Communication Technology are unlikely to be
directly comparable in cost and efficiency terms and may need to be
disaggregated into processes to make valid comparison.

6. Best-in-class benchmarking: involves studying the leading

competitor or the company that best carries out a specific function.

7. Operational : embraces everything from staffing and productivity to

office flow and analysis of procedures performed.
The following is an example of a typical benchmarking methodology:

1. Identify your problem areas:

Because benchmarking can be applied to any business process or
function, a range of research techniques may be required. They
include: informal conversations with customers, employees, or
suppliers; exploratory research techniques such as focus groups; or in-
depth marketing research, quantitative research, surveys,
questionnaires, re-engineering analysis, process mapping, quality
control variance reports, or financial ratio analysis. Before embarking
on comparison with other organisations it is essential that one knows
one's own organisation's function, processes; base lining performance
provides a point against which improvement effort can be measured.
2. Identify other industries that have similar processes: For
instance if one were interested in improving hand offs in
addiction treatment he/she would try to identify other fields
that also have hand off challenges. These could include air
traffic control, cell phone switching between towers, transfer
of patients from surgery to recovery rooms.
3. Identify organizations that are leaders in these areas:
Look for the very best in any industry and in any country.
Consult customers, suppliers, financial analysts, trade
associations, and magazines to determine which companies
are worthy of study.
4. Visit the "best practice" companies to identify leading edge
practices: Companies typically agree to mutually exchange information
beneficial to all parties in a benchmarking group and share the results
within the group.
5. Implement new and improved business practices: Take the leading
edge practices and develop implementation plans which include
identification of specific opportunities, funding the project and selling
the ideas to the organization for the purpose of gaining demonstrated
value from the process.