ENVIRONMENTAL ANALYSIS

Environment:-
• Aggregate of all conditions, events and
influences that surround and affect an
organization

Shape the future of the organization

 CHARACTERISTICS OF
ENVIRONMENT

• UNCERTAIN
• COMPLEX
• DYNAMIC
• MANY-SIDED
• WIDE RANGING INFLUENCE
ENVIRONMENTAL SCANNING
• Monitoring, Evaluating and disseminating of
information from the external and internal
environments to key people within the
organization.

• Done to avoid strategic surprise and maintain

long term corporate health.

• Positive relationship is demonstrated between

environmental scanning and profits
• EXTERNAL ENVIRONMENT:
Surrounding Factors outside an
organization which give rise to opportunities
and threats for the organization.

• INTERNAL ENVIRONMENT
Surrounding Factors inside an organization
that give rise to strengths and weaknesses of
an organization to manage the opportunities
and threats posed by the external
environments.
Opportunity:
Favorable position in the external
environment that consolidates and
strengthens its position.

Threat:
Unfavorable position in the external
environment that may cause damage
and risk to the organization.
Strength:
Inherent capacity within an organization
that helps it to gain some sort of
strategic advantage.

Weakness:
inbuilt constraint or limitation of the
organization that can cause strategic
disadvantage.
• IS ENVIRONMENTAL
SCANNING NECESSARY?
In the mid fifties, Hindustan Lever Ltd., forecasted an
acute shortage of edible oil in India during the next
twenty years. The forecast came true with pin point
accuracy. However, the company was able to avert a
collapse by undertaking diversification in a big way,
taking up many new products, over a period of ten to
fifteen years. The conscious analysis of the company's
environment, keeping the long term perspective in mind
enabled the company to make painless transition. The
company had realized the importance of a crucial
management function, that of strategic management,
that of shaping the future of organization, which the other
companies cited above had not.
 NEED FOR ENVIRONMENTAL
APPRAISAL
• To learn about events and trends in the
environment and project the future position in
each factor of the environment.

• To identify the favorable and unfavorable factors

of the environment from the firm’s view

• To find the opportunities and threats embedded

in the environmental events and trends.
• To assess the scope of various opportunities
and identify the ones having the potential of
becoming good businesses

• To draw up the attractiveness profile of these

opportunities

• To draw an opportunity threat profile

• To identify those opportunities that will help in

reducing the strategic gap
 THE NEED GAP

DESIRED
PERFORMANCE

NEED GAP SEARCH FOR

TO BE BRIDGED OPPORTUNITY
CURRENT
THREAT
STRATEGY
EXPECTED PERFORMANCE
OF CURRENT STRATEGY
 RELEVANT EXTERNAL
ENVIRONMENT

• Part of general environment, having

strategic significance for the organization.

• Will include those factors that are highly

related to the mission, vision, objectives
and strategies of the company.
 EXTERNAL ENVIRONMENT
• MACRO ENVIRONMENT • MICRO ENVIRONMENT
(Societal environment) (Task environment)

General forces that do not Elements or groups that

directly affect the short run directly affect the company
activities of the organization and in turn are affected by it.
but can have an influence on (Issues directly related to
the long run decisions of the business)
organization.
 CONSTITUENTS OF MACRO
ENVIRONMENT
• Political & Regulatory Environment
• Economic environment
• Socio – cultural environment
• Technology environment
• Demographic environment
• Natural environment
 Political environment
Factors affecting the management of public affairs and
having an impact on the business of an organization

• Form of government
• Political ideology
• Tax laws
• Stability of governments
• Government’s attitude towards business
• Strength of opposition groups.
• Terrorist activities
• Protectionist sentiment
 Regulatory environment
• Laws and legislations related to business
• Corporate affairs
• Consumer protection
• Employee protection
• Sectoral protection
• Corporate protection
• Protection of society
• Regulations on products, prices and distribution
• Protection of national firms against foreign firms.
• Any Other Government policies that may affect business
organizations.
 Economic environment
Factors related to means of production and
distribution of wealth and affect the
organization’s business
• Economic structure
• Stage of economic development
• GDP/ GNP trends
• Per capita income
• Real disposable income
• Monetary, fiscal and industrial policies
• Infrastructural factors
• Unemployment level
• Wage levels
• Membership in regional economic associations
 Socio – cultural environment
FORCES THAT REGULATE THE VALUES, MORALS AND CUSTOMS OF
THE SOCIETY

• Culture
• Social class
• Traditions
• Beliefs
• Values
• Attitudes
• Life styles
 Technological environment
• Total government and industry spending
on R&D
• New developments in technology
• Rules related to technology transfer
• Energy availability and cost
• Patent – trademark laws
 Demographic environment
CHARACTERISTICS OF POPULATION
• Size
• Growth rate
• Age distribution
• Religious composition
• Literacy levels
• Composition of workforce
• Household patterns
• Regional characteristics
• Population shifts
 Natural environment
Natural forces having an impact on
organizations
• Ecology
• Endowment of natural resources; raw
materials, energy, gas
• Climate
• Pollution levels
ENVIRONMENTAL SCANNING
• Monitoring, Evaluating and disseminating of information
from the external and internal environments to key
people within the organization. (DECIDE ON HOW AND
WHAT TO ANALYZE?)

• Identify the opportunities and threats present in the

environment (ETOP)

• Match the opportunities and threats with the strengths

and weaknesses of the organization (SAP, SWOT)
Sources of information for external
environment analysis

• Secondary compiled sources

• Syndicated services
• Media
• Company’s internal sources
• Formal studies
• Informal sources
• INTERNET
 Methods and techniques used for
environmental analysis

• QUANTITATIVE • QUALITATIVE
TECHNIQUES TECHNIQUES
– EXTRAPOLATION – EXPERT OPINION
– REGRESSION METHOD
ANALYSIS – SCENARIO WRITING
– Trend analysis
 IDENTIFYING STRATEGIC
EXTERNAL FACTORS
• External environment is vast and
companies respond differently to the very
same factors

• Personal values of a corporation’s

manager and the success of current
strategy may bias their perception of what
to monitor in the external environment and
how to interpret the changes
 Strategic myopia
• The tendency to reject unfamiliar and
negative information
 Issues priority matrix
• Identify the number of likely trends emerging in
the societal and task environments – the ones that
will determine what the industry would look like

• Assess the probability of these trends actually

occurring from low to high

• Attempt to ascertain the likely impact (low- high)

of each of these trends on the company being
examined.

• A matrix will be formed. Those key external

factors which have medium to high probability of
occurrence and also medium to high probability of
impact on the organization must be the ones to be
scanned and analyzed.
 IPM
Probable impact on corporation
High Medium Low
Probability of occurrence

High High priority High priority Medium

priority

Medium High priority Medium priority Low

priority

Low Medium Low priority Low

priority priority