Business environment scanning.

The environment of any organization is “the aggregate of all Factors to be considered for environmental scanning:
conditions, events and influences that surround and affect it.”
1. Events are important and specific occurrences
Environment refers to all external forces which have a taking place in different environment sector.
bearing on the functioning of business.
2. Trends are the general tendencies or courses of
Jauch and Gluecke has define environment in following
action along which events takes places.
manner “The environment includes factors outside the firm
which can lead to opportunities or a threat to the firm. 3.Issues are the current concerns that arise in responses
Although there are many factors the most important of the to events and trends.
sectors are socio- economic, technological, supplier,
competitor and govt.” 4.Expectations are the demands made by interested
groups in the light of their concern for issues.
CHARACTERISTICS OF ENVIRONMENT
1.0 TYPES OF ENVIRONMENT
1. Environment is complex: The environment
consists of a number of factors, events, Environment can be divided into three broad categories:
conditions and influences arising from different
sources. All these interact with each other to  Internal Environment
create entirely new sets of influences.  Macro Environment (General Environment)
2. Environment is dynamic: The environment is  Micro Environment (Relevant Environment,
constantly changing in nature. Competitive Environment)

3. Environment is multi-faceted: The same 1.0.1 Internal Environment

environment trend can have different effects on
different industries. Internal environment is internal to the organization and it
is controllable. In brief important internal factors are as
4. Environment has a far reaching impact. The follows:
growth and profitability of an organization 1. Culture and Value System: Organizational culture
depends critically on the environment in which it can be viewed as a system of shared values and
exists. believes that shape a company’ behavioral norms. A
value is an enduring preference for a mode of conduct
5. The impact of an environmental trend often
or an end – state. The value systems of founders have
differs significantly for different firm with in
a great and lasting impact on the value system of
the same industry: Any change in environment
organization. Value system not only influences the
may have different impacts on different firms
operations and behavior it also influences the choice
operating in the same industry
of business.
6. The general environment usually holds both 2. Mission and Objectives: The business domain of the
opportunities for, and threat to, expansion: company. The mission and objectives of the company
Development in general environment often guide priorities, direction, of development, business
provides opportunities for expansion in terms of philosophy, and business policy.
both products, and markets. Changes in
environment also pose serious threat to entire 3. Management Structure and Nature: Structure is the
industry. way in which the tasks and sub tasks are related.
Structure is about the hierarchical relationship, span
7. Development in the general environment of management relationship between different
change competitive battle line: General functional areas. Structure of top management, pattern
environmental changes may alter the boundaries of share holding etc.
of an industry and change the nature of its
competition. 4. Human Resource: It deals with factors like
manpower planning, recruitment and selection, and
8. Many developments in the general environment development, compensation, communication, and
are difficult to predict with any degree of appraisal.
accuracy, while others are readily predictable: Besides this internal environment includes corporate
Macroeconomic development such as interest rate resources, production/ operation of goods and services,
fluctuations, the rate of inflation, and exchange finance and accounting system and methods, marketing
rate variations are extremely difficult to predict and distribution.
on a medium – or long-term basis. On the other
hand some trends as on demographic, income 1.0.2 Macro Environment
level, age can be forecast.
Macro/ General Environment consists of factors external
The process by which organization monitor their to the industry that may have significant impact on the
relevant environment to identify opportunities and firm’s strategies.
threats affecting their business is known as environmental
 Here we will look at six broad dimensions: Demographic, cultural, an across the border level which have an impact on
Socio-cultural, political/legal, technological, economic the business of an organization. Every new bilateral and
and global. multilateral agreement opens new vistas for business and
also gives new threat in the form of global competition.
7. Economic Environment: The economic environment
consists of macro level factors related to the means of
production and distribution of wealth, which have an impact
on the business of an organization. The economic structure
whether it is socialist, mixed or capitalist, its stage whether
its developing or developed, economic policies such as
foreign trade policy, industrial policy, fiscal policy, GDP
growth rate, policy of licensing, monetary policy,
development of financial institutions, development of money
and stock market, extent of globalization all have a drastic
impact on business.
8.National Competitive Advantage: Despite globalization
number of industries are clustered in specific and small
number of countries. As many of the most successful
computer and biotechnology firms are based in USA, many
1. Political Environment: It is the political environment of the of the successful chemical and engineering industry is
country which decides the fortune of the business in a based in Germany, many of the successful electronics
country. industry is based on Japan. Many of the successful call
Not only political philosophy but also political stability has a centers are situated in India, many of the customized
significance importance. More stable will be the political software companies are clustered in India. This suggest that
environment of country the more conducive will be the in nation in which a company is based may have an
environment for business. Not only stableness but also the important bearing on the competitive position of that
consensus among various political parties on key issues also company in the global market place.
have a significant importance.
In a study of national competitive advantage Michael
2. Regulatory and Legal Environment: Political environment Porter identified four attributes of a national or country –
decides the legal and regulatory environment of country. specific environment that have an important impact on the
Regulatory environment plays a vital role by telling dos and global competitiveness of companies located within that
don’ts to business. Every country has its legal environment. nation.
3. Demographic: It is Demographic environment which decides Michael Porter’s International Competitiveness Model
the all the marketing mix for the organization. It is
demography which decides the pricing, promotion and Firm Strategy, Structure, and
distribution strategy. Rivalry
4. Socio Culture: Socio culture variable like the beliefs, value
system, attitudes of people, their demographic composition
have a major impact on their personality and behavior style.
5. Technological: Technological forces present wide range of Factor Local Demand
opportunities and threats which have to be accounted for in Endowment Condition
the process of business strategy formulation. Technological
advancement may dramatically affect “organization’s
products, service, markets, suppliers, distributor’s
competitors, customers, manufacturing process, marketing Relating and Supporting
practices, financial composition, and competitive position.” Industries
Some of the important factors that influences operating in the
technological environment are as follows:
 Sources of technology, like company sources, 1. Factor Endowment: A nation’s position in factors of
external source, and foreign sources, cost of production such as skilled labor, capital, technology or the
technology acquisition, collaboration in and infrastructure necessary to compete in a given industry.
transfer of technology.
2. Demand Condition: The nature of home demand for the
 Rate of change in technology, rate of obsolesce. industry’s product and service.
 Impact of technology on human being, the man 3. Relating and Supporting Industry: The presence and
machine system, and the environmental effect of absence in a nation of supplier industries and related
technology. industries that is internationally competitive.
 Communication and infrastructural 4. Firm Strategy, Structure and Rivalry: The condition in the
technology in management. nation governing how companies are created, organized and
6. Global Environment: The international environment consist managed and the nature of domestic rivalry.
of all those factors that operates at the transnational, cross
 1.0.3 Micro Environment brand loyalty.
Microenvironment or competitive environment refers to 5. Capital requirement: It is said the offender must have three
the environment, which an organization faces in its times power than that of defender. Thus offender required
specific arena. This arena may be an industry, or it may be capital not only to establish new business but also to compete
what is referred to as strategic group. Besides looking at from established firms. Even the cost of capital is higher for a
primary demand and supply factors, the firms examine new firm as lenders hesitate to lend to lend new people.
state of competition it faces. Because it also determines
that whether it remains in same or will start new business. 6. Switching Cost: Sometimes the costs (Physical, Psychological
All the business decision that is new business, pricing, and financial) incurred in switching from one supplier to
distribution channel, promotion strategy, product portfolio another supplier. This also resists the customer to go for new
etc depends upon to extent upon the competitive position vendor.
of the firm. 7. Access to Distribution: The middleman is reluctant to deal with
Professor Michael Porter of the Harvard Business School the product which is new to market. It is more critical in
has convincingly demonstrated the state of competition in industrial and international market as there are few middle man
and industry is a composite of five competitive forces. and who usually prefer only establish products.
The Five Forces of Competition Government and Regulatory Environment
According to Michael porter five forces of competition Government policies as license, permit, broadcasting
are: regulations, liquor policies, anti monopoly policies also
1. The rivalry among sellers in the industry. (threat of work as barrier for new entrant.
competitors) 1. Bargain Power of Supplier: Suppliers have little or no
2. The potential entry of new competitor. (the threat of bargain power when there are many suppliers and
new entrant) supply exceeds demand and supplier competes with
each other to grab the order
3. The market attempts of companies in other
industries to win customers over to their own 2. Bargain Power of Buyer: Buyer enjoys as significant
substitutes products. (threat of substitute) bargain power when sellers are many and buyers are
few or when production capacity exceeds the
4. The competitive pressure of stemming from supplier- demand.
seller collaboration and bargaining. (bargain power of
supplier)
3. The market attempts of companies in other industries
to win customers over to their own substitutes
5. The competitive pressure stemming from seller- products (threat of substitute): Firm in one industry
buyer collaboration and bargaining. (bargain power are quite in close competition with firm in another
of buyer) industry because their respective products are good
substitutes. The producer of scooter compete with
motorcycle, Newspaper compete with television, tea
Threat of New Entrant compete with coffee.
Strong competitive pressure from substitute product
A new entrant in an industry represent a competitive threat
depends upon three factors:
to the established firms, sometimes called the incumbents.
The entrants add new production capacity and bring (a) Whether attractively prices substitutes are
substantial resources that were not previously required for available.
success in the industry.
(b) Whether the buyers view the substitutes as
There are various entry barriers which hinders the entry of being satisfactory in terms of quality,
new entry. The barrier are: performance, and other relevant attributes,

1. Economies of Scale: Existing large firms enjoy low cost per (c) Whether buyers can switch to substitutes easily.
unit. They have enough room to reduce price as they may The presence of readily available and attractively prices
taking high profits or they may be selling product at such a low substitutes create competitive pressure by placing a ceiling
price that new player couldn’t produce it at that cost as it might on the prices an industry can charge for its product without
be producing small quantity. giving customers an incentive to switch to substitute and
risking sales erosion.
2. Cost disadvantage independent of scale: Besides economies of
scale existing firm have other many cost advantages as 4. Rivalry among Competing Sellers: The strongest force
proprietary product knowledge, such as a patent, favorable in the rivalry with competitors. When compete with
access to raw material, favorable location, lowering borrowing each other to get favorable attitude of customer, to
cost and government subsidies etc. please customer, to improve market share or
profitability. The intensity of rivalry among competing
3. Learning and Experience Curve: Established companies an
sellers is a function of how vigorously they employ
advantage of learning curve. Because of this learning curve
such tactics as lower prices, snazzier features expanded
established firm are in a better position as they better skilled
customer service, longer warranties, special
and equipped human resource.
promotions, and new product introductions. All this
4. Product Differentiation: It differences in physical or perceived leads to adverse impact on the profits of the firm.
characteristics make an incumbent’s product unique in the eyes  Rivalry intensifies as the number of competitors increases
of the consumer, new entrant must overcame the resulting
 and as a competitors become equal in size and capability, business with the firm, competitors and their employees,
financial executives such as bankers, stockholders, and
 Rivalry is more stronger when demand of a product in
stock analysts, consultant, government an university
growing more slowly, rivalry become more intense when
employees.
industry condition tempt competitors to use price cuts or
other competitive weapons to boost unit volume, Besides verbal sources, information can be gathered
through reading. Information about environment is
 rivalry in stronger when one or more competitor are
readily available in newspapers, trade journals, industry
dissatisfied with their market position and launch
newsletter, Journals publications, government reports,
moves to bolster their standing at the expense of rivals,
reports of various marketing research agencies as Gallop,
 rivalry ends to be more vigorous when exit barrier is very ORG etc.
high and it cost more to get out of business then to stay
Second solution to environment analysis in to design a
in
Management Information System. A formal MIS gives
 compete rivalry increase when stronger companies outside quick relevant information to the decision makers, which
the industry acquire weak firms in the industry and helps a lot in taking timely decisions. Beside this,
launch aggressive, well funded moves to transform tier information regarding competitor can be gathered through
newly acquired competitors into major market Corporate Intelligence and Spying.
contenders.
Environmental analysis can be divided into two parts:
 Rivalry is weak when most competitors in the industry are
relatively well satisfied with their sales growth and
i) Environmental evolution
market shares, rarely make concerted attempt to steal ii) Process of environmental analysis
customers away from one another, and have
comparatively attractive earning and returns on Environmental Evolution
investment.
There are three components, which are useful to describe
Besides this five force there are many other factors which changes in the environmental segments:
have a direct impact on business and constitute micro
environment of business these are:  Type of Change

 The Sixth Force: Andrew Grove the former CEO of Intel  Forces driving change
has argued that Porter’s five forces model ignores a sixth  Type of future evolution
force: the power, vigor and competence of
complementors. Complementary products are those Changes in the micro environment may be systematic or
products which add value to some other product. They discontinuous. Gradual, or changes in phased manner
are consumed together with some other product. which are predictable are systematic changes or
Because they are used together that’s why demand of Unpredictable, sudden changes are discontinuous.
one product depends upon the demand and availability of Some time changes in one segment may be the result of
another product. So both substitute and complements driving forces in other segment.
product influence demand.
Evolution of change in the future, evolution can be
 Marketing Intermediaries: These are firms and persons completely predictable and some time they are dependent
which help in distribution, promotion, selling, gives upon actions of the firm or other entities in the
consultancy etc. Almost every business have to take the environment.
help of these intermediaries.
Process of Environmental Analysis
 Financial Institution: For any business FIs plays a critical
role. FIs not only make available the finance but also Process of environmental analysis can be divided into four
create environment for investment. FIs also give expert parts:
opinion and consultancies to the corporate.
 scanning the environment to detect warning signals,
 monitoring specific environmental trends,
ENVIRONMENTAL ANALYSIS
 forecasting the direction of future environmental
Collection of Information changes and

The analysis is done by means of a search of verbal and  assessing current and future environmental changes
written information, spying, forecasting and formal studies for their organizational implications.
and information system. 1. Scanning: Environmental scanning is aimed at
At first there is the gathering of verbal information, the alerting the organization to potentially significant
sources of verbal information are: external impingement before it has fully formed or
crystallized. Successful environment scanning draws
1. Media such as Radio and Television attention to possible changes and events well before
occurrence, giving time for suitable action. Scanning
2. The firm’s employees such as peers, subordinates, and
frequently detects environmental change that is
supervisors.
already in an advanced stage. Scanning is most ill-
Other source of verbal information out side the firm are: structured and ambiguous environmental analysis
Customer of the enterprise, persons in industry channel (as activity. The data sources are many and varied.
wholesalers, brokers, distributors etc), suppliers doing Moreover a common feature of scanning is that early
 signals often show up in unexpected places. problem in Chabaria (owners of Shaw Wallace)
Fundamental challenge for the analyst in scanning is family, he started monitoring it and when he found
to make sense of vague, ambiguous and unconnected suitable time he purchased his arch rival that is Shaw
data and to infuse meaning into it. Wallace and became second largest brewery of world.
2. Monitoring: Monitoring involves following the Benefits of Environmental Analysis
signals or indicators unearthed during 1. Environmental analysis gives the idea of whole
environmental scanning. In monitoring the data environment organization.
search is focused and much more systematic
than scanning. By focused it is meant that the 2. Environmental analysis gives in brief about
analyst is guided by a priori premonition. competitors.
Systematic refers to the notion that the analyst 3. Environmental analysis tells us about opportunities
has the general sense of the pattern and he is to reap profits.
looking for and collects data regarding the
evolution of the pattern. 4. Environmental analysis gives detail about threats
in the environment.
As monitoring progress the data frequently move
from the imprecise and unbounded to reasonably 5. Environmental analysis keeps the manager
specific and focused. The output or monitoring informed and alert.
are three fold: 6. Business is all about taking right decision at the
(a) A specific description of environmental right time without proper Environmental analysis
patterns to be forecast. right decision can’t be taken.
(b) Identification of trends for further monitoring 7. Environmental analysis helps in predicting future.
and, 8. Environmental analysis helps in suitable
(c) Identification of patterns requiring further modification of strategies as and when required.
scanning.
3. Forecasting: Forecasting is concerned with the
development of plausible projections of
directions, scope, speed and intensity of
environment change, to lay out the evolutionary
path of anticipatory change. There are number of
key analytic tasks and outputs involved in
forecasting. The first concern untangling of
forces that drive the evolution of a trend. The
second concern understanding the nature of the
evolutionary path; that is whether the change is
a fad or of some duration, or cyclical or
systematic in character. The third concern more
or less clearly delineating the evolutionary path
or paths leading to projections and alternatives
futures. Forecasting is well focused and is much
more deductive and complex activity.
4. Assessment: Assessment involves identifying
and evaluating how and why current and
projected environmental change will affect
strategic management of an organization. In
assessment, the frame of reference moves from
understanding the environment – the focus of
scanning, monitoring and forecasting – to
identifying what that understanding of
environment means for the organization.
Assessment thus tells about the implication of
environment change on the organization.
There is not always a liner relationship between
scanning, monitoring, forecasting and assessment. If
some trends are disclosed in scanning process a
organization can directly jump to find out how it is
going to influence the organization.. Even after
having the assessment of the external environment
factor an organization may continuously monitor and
forecast the factor about is future development. So
sometime assessment monitoring and forecasting go
simultaneously. A good strategist always keep an eye
on development in environment. Like when Vijay
Mallaya came to know that there is some internal