ENVIRONMENTAL

ANALYSIS
INTRODUCTIO
N
 Business decisions are influenced by two sets of factors
 Internal factors (The Internal Environment
 External Factors( The External Environment)

 Business Environment presents two challenges to the

enterprise
 The challenge to combat the environmental threats
 Exploit the business opportunities

 Environmental Analysis is one of the first steps in

Strategic
Management
 Definition
“The process by which strategists monitor the economic,
governmental/legal, market/competitive,
supplier/technological, geographic and social settings to
determine opportunities and threats to their firms”

“Environmental diagnosis consists of managerial decisions

made by analysing the significance of data (opportunities
and threats) of the environmental analysis”
Environmental Scanning is the monitoring, evaluating and
disseminating of information from the external and
internal environments to key people within the
corporation.

A corporation uses this tool to avoid strategic surprise and to

ensure its long-term health.
 INTERNAL
ENVIRONMENT
Important internal factors are
1)Value System
The value system of founders and those at the helm of affairs
has important bearing on the choice of business, the mission and
objectives of the organization, business policies and
practices.

2)Mission and Objectives

The business domain of the company , priorities , direction of
development, business philosophy, business policy etc. are
guided by the mission and objectives of the company
 INTERNAL
ENVIRONMENT
3) Management Structure and Nature
The organizational structure, the composition of the Board of
Directors, extent of professionalization of management etc.
are important factors influencing business decisions.

4) Internal Power Relationship

Factors like the amount of support the top management enjoys
from lower levels and workers, share holders and Board of
Directors have important influence on the decisions and their
implementation.
The relationship between the members of Board of Directors
is also a critical factor.
 INTERNAL
ENVIRONMENT
5) Human Resources
The characteristics of the human resources like
skill, quality, morale, commitment, attitudes etc. could
contribute to the strength and weakness of the organization.
The involvement, initiative etc. of the people at different
levels may vary from organization to organization.
6) Company Image and Brand Equity
The image of the company matters while raising
finance, forming joint ventures or other alliances, soliciting
market intermediaries, entering purchase or sale contracts
, launching new products etc.
 INTERNAL
ENVIRONMENT
OTHER FACTORS
1.Physical Assets and Facilities
2.R&D and Technological Capabilities
3.Marketing Resources
4.Financial Factors
 EXTERNAL
Two Types
ENVIRONMENT
a)Micro Environment
Consists of actors in the company’s immediate environment, that
affects the performance of the company.
b)Macro Environment
Consists of larger societal forces that affect all the actors in
company’s micro environment.
MICROENVIRONMEN
T
 Also known as task environment and operating environment
 Include
 The suppliers
 Marketing intermediaries
 Competitors
 Customers
 Publics
 More intimately linked with the company than macro factors
 The micro forces need not necessarily affect all the firms in a
particular industry in the same way.
 Some of the micro factors are particular to a firm
supplier
s
 Those who supply the inputs to the company.
 Source/Sources should be Reliable
 Uncertainty regarding the supply or other supply
constraints
compel companies to maintain high inventories causing cost
increases.
Very risky to depend on a single supplier
The purchasing department should “market” itself to suppliers,
to obtain favourable treatment during the periods of shortages.
customer
s
 Major task of business is to create and sustain customers
 Different categories of consumers
 Individuals
 Households
 Industries and other commercial establishments
 Government and other institutions
 Depending on single customer is too risky
 Choice of customer should be done by considering
 Relative profitability
 dependability
 stability of demand
 growth prospectus
 extent of competition
 Marketing
intermediaries
Firms that aid the company in promoting, selling and
distributing its goods to final buyers.
Include
 the middlemen and merchants who “help the company find
customers or close sales with them”
 Physical distribution firms which “ assist the company in
stocking
and moving goods from their origin to their destinations”
 Marketing service agencies which “assist the company in
targeting and promoting its products to the right markets”
 Financial intermediaries which “finance marketing activities and
insure business risks”
Vital links between the company and the final consumers.
public
s
Any group that has an actual or potential interest in or impact
on an organization’s ability to achieve its interests

 E.g. Media publics, citizens action publics, local publics

Media attack on any company can influence the government
decisions affecting the company.
Environmental pollution is an issue often taken up by number
of local publics
Publics are not always threat to the business.
Fruitful cooperation between a company and the local publics
may be established for the mutual benefit.
 MACRO
ENVIRONMENT
 Consists of larger societal forces that affect all the actors in
company’s micro environment-namely
 the demographic,
 economic,
 natural,
 technological,
 political and
 cultural forces
 Also known as Societal Environment
 The Societal Environment includes general forces that do not
directly touch on short-run activities of the organization but that
can, and often do, influence its long-run decisions.
 Economic
Environment  Important factors are:
 Economic conditions
 Economic policies
 Economic systems
 Economic condition
 The economic conditions of a country –for example, the nature of
the economy, the stage of development of the economy, economic
resources, the level of income, the distribution of income and assets,
etc.- are among the very important determinants of business
strategies.
 In a developing country, the low income may be the reason for the
very low demand for the product.
 Economic
Environment
 Economic policies
 Some types or categories of business are favourably affected by
government policy, some adversely affected, while it is neutral to
some others.
 E.g. a restrictive import policy may greatly help the import competing
industries, while a liberalisation of the import policy may create
difficulties for such industries

 Economic System
 The scope of the private business depends on the economic system.
 The freedom of the private enterprise is the greatest in the free market
economy.
 Political & Government
Environment
Has close relationship with the economic system and economic
policy.
In many countries regulations to protect consumer interests
have become stronger.
Some governments specify certain standards for the products
to be marketed in the country; some even prohibit the
marketing of certain products.
Promotional activities are subject to various types of controls.
Eg: In India, Advertisement of alcoholic product is prohibited.
and the packages must carry “injurious to health” warnings
 socio-cultural
environment
 Major factors are:
 the buying and consumption habits of people,
 their language beliefs and values,
 customs and traditions,
 tastes and preferences,
 Education
 Strategy should be appropriate in the socio-cultural
environment.
 Eg: nestle brews a very large variety of instant coffee to
satisfy different national tastes
 Demographic
 Factors:
environment
 Size, growth rate, age composition, sex composition of
population, family size, educational levels, economic
stratification of the population, language, caste, religion, etc.
 E.g.
 Decline in birth rates in USA have affected the demand for
baby products. So Johnson &Johnson repositioned their
products like baby shampoo and baby oil, to the adult
segment, particularly to females.
 Natural
environment
 Geological and ecological factors, such as natural resources
endowments, weather and climatic conditions, topographical
factors, location aspects in the global context, port facilities etc.,
are relevant to business.
 Differences in geographical conditions between markets may some
times call for changes in the marketing mix. Geographical and
Ecological factors also influence the location of certain industries.
E.g. industries with high material index tend to be located near the
raw material sources.
 Topographical factors may affect the demand pattern
 E.g.. In hilly areas with difficult terrain, jeeps may be in a greater
demand than cars.
 Ecological factors have recently assumed great importance. The
depletion of natural resources, environmental pollution and the
disturbance of ecological balance have caused great concern.
 Physical & technological
environment
 Business prospects demands availability of certain physical facilities
 E.g. demand for electrical appliances is affected by the extent of
electrification and the reliability of power supply.
 Demand for LPG stoves depend on rate of growth of gas connections
 differing technological environment of different markets may call for
product modifications
 E.g. Many appliances are designed for 110 V in USA. They should be
converted for 240v in India
 Technological developments may increase or decrease the demand
for some existing products
 E.g. voltage stabilizers help increase in sale of electrical appliances in
markets characterised by frequent voltage fluctuations
 Introduction of TVs, Refrigerators, etc. with in-built stabilizers
adversely affects the demand for voltage stabilizers.
 International
Environment
Particularly important for the industries directly depending on
imports or exports and import-competing industries
Recession, economic boom, liberalization
Major international developments have their spread effects on
domestic business.
 E.g. Oil price hikes increased the cost of production and the
prices of certain products such as fertilizers , synthetic fibres. So
usually, the demand for natural fibres and manures increased.
 Also demand for automobiles that economise energy
consumption got increased.
 TECHNIQUES
FOR
ENVIRONMENTAL
SInCvolAve tNwo NphaIseNs: InGformation gathering
and Evaluation
1)Verbal & Written Information:
 verbal information includes, information obtained by direct talk
with people, by attending seminars, meetings, etc..
 Written or documentary information includes both published and
unpublished materials
2)Search and Scanning:
 this involves research for obtaining the required information
3)Spying:
 Eve though it is not considered as ethical, spying to get