UNIT-II ENvIroNmENTal aNalysIs

Environmental Profiles
The Environmental Profiles is a standardised method of identifying and assessing
the environmental effects associated with building materials over their life cycle - that
is their extraction, processing, use and maintenance and their eventual disposal.

Environmental Profiles allow designers to demand reliable and comparable

environmental information about competing building materials, and give suppliers the
opportunity to present credible environmental information about their products. This
means that designers can have confidence in the "level playing field" status of
Environmental Profiles for every material type.

Environmental Scanning

Environmental scanning is the process of gathering information about events and

their relationships within an organization's internal and external environments. The
basic purpose of environmental scanning is to help management determine the
future direction of the organization.

The Environmental Scanning Committee is a valuable resource to management,

allowing them to make decisions influenced from trended analysis of historical
events to project future events. The committee also assists in creating action plans
to address these upcoming events, reviewing action plans and appropriating
resources for those plans, and putting management in contact with fellow staff
members with the knowledge base to provide quality data for decision making.

Importance of Environmental Scanning :

1. Identification of strength:

Strength of the business firm means capacity of the firm to gain advantage over its
competitors. Analysis of internal business environment helps to identify strength of
the firm. After identifying the strength, the firm must try to consolidate or maximise its
strength by further improvement in its existing plans, policies and resources.

2. Identification of weakness:

Weakness of the firm means limitations of the firm. Monitoring internal environment
helps to identify not only the strength but also the weakness of the firm. A firm may
be strong in certain areas but may be weak in some other areas. For further growth
and expansion, the weakness should be identified so as to correct them as soon as
possible.

3. Identification of opportunities:

Environmental analyses helps to identify the opportunities in the market. The firm
should make every possible effort to grab the opportunities as and when they come.

4. Identification of threat:

Business is subject to threat from competitors and various factors. Environmental

analyses help them to identify threat from the external environment. Early
identification of threat is always beneficial as it helps to diffuse off some threat.

5. Optimum use of resources:

Proper environmental assessment helps to make optimum utilisation of scare

human, natural and capital resources. Systematic analyses of business environment
helps the firm to reduce wastage and make optimum use of available resources,
without understanding the internal and external environment resources cannot be
used in an effective manner.

6. Survival and growth:

Systematic analyses of business environment help the firm to maximise their

strength, minimise the weakness, grab the opportunities and diffuse threats. This
enables the firm to survive and grow in the competitive business world.

7. To plan long-term business strategy:

A business organisation has short term and long-term objectives. Proper analyses of
environmental factors help the business firm to frame plans and policies that could
help in easy accomplishment of those organisational objectives. Without undertaking
environmental scanning, the firm cannot develop a strategy for business success.

8. Environmental scanning aids decision-making:

Decision-making is a process of selecting the best alternative from among various

available alternatives. An environmental analysis is an extremely important tool in
understanding and decision making in all situation of the business. Success of the
firm depends upon the precise decision making ability. Study of environmental
analyses enables the firm to select the best option for the success and growth of the
firm.
Environmental Threat Opportunity Profile (ETOP)

ETOP analysis (environmental threat and opportunity profile) is the process by which
organizations monitor their relevant environment to identify opportunities and threats
affecting their business for the purpose of taking strategic decisions.

Advantages

• Helps organization to identify opportunities and threats

•To consolidate and strengthen organizations position

• Provides the strategists of which sectors have a favourable impact on the

organization

• Help organization know where it stands with respect to its environment

• Helps in formulating appropriate strategy

• Helps in formulating SWOT analysis (Strategic weakness, opportunities and

threats)

ETOP Preparation:
1. Dividing the environment into different sectors such as economical, market, social,
international, legal, technological, political, ecological, etc.

2. Analyzing the impact of each sector on the organization

3. Sub-dividing each environmental sector into sub factors

4. Impact of each sub-sector on organization in form of a statement

The strategic managers should keep focus on the following
dimensions,

1. Issue Selection:

Focus on issues, which have been selected, should not be missed since there is a

likelihood of arriving at incorrect priorities. Some of the impotent issues may be those

related to market share, competitive pricing, customer preferences, technological

changes, economic policies, competitive trends, etc.

2. Accuracy of Data:

Data should be collected from good sources otherwise the entire process of

environmental scanning may go waste. The relevance, importance, manageability,

variability and low cost of data are some of the important factors, Which must be
kept in focus.

3. Impact Studies:

Impact studies should be conducted focusing on the various opportunities and

threats and the critical issues selected. It may include study of probable effects on

the company’s strengths and weaknesses, operating and remote environment,

competitive position, accomplishment of mission and vision etc. Efforts should be

taken to make assessments more objective wherever possible.

4. Flexibility in Operations:

There are number of uncertainties exist in a business situation and so a company

can be greatly benefited buy devising proactive and flexible strategies in their plans,
structures, strategy etc. The optimum level of flexibility should be maintained.
PEST Analysis

PEST analysis (political, economic, socio-cultural and technological) describes a

framework of macro-environmental factors used in the environmental

scanning component of strategic management. It is part of an external analysis when

conducting a strategic analysis or doing market research, and gives an overview of

the different macro-environmental factors to be taken into consideration. It is a

strategic tool for understanding market growth or decline, business position, potential
and direction for operations.

Variants that build on the PEST framework include:

 PESTEL or PESTLE, which adds legal and environmental factors. Popular in the
United Kingdom.
 SLEPT, adding legal factors.
 STEPE, adding ecological factors.
 STEEPLE and STEEPLED, adding ethics and demographic factors.
 DESTEP, adding demographic and ecological factors.
 SPELIT, adding legal and intercultural factors, popular in the United States since
the mid-2000s.
 PMESII-PT, a form of environmental analysis which looks at the aspects of
political, military, economic, social, information, infrastructure, physical
environment and time aspects in a military context .

The basic PEST analysis includes four factors:

 Political factors relate to how the government intervenes in the economy.

Specifically, political factors have areas including tax policy, labour
law, environmental law, trade restrictions, tariffs, and political stability. Political
factors may also include goods and services which the government aims to
provide or be provided (merit goods) and those that the government does not
want to be provided (demerit goods or merit bads). Furthermore, governments
have a high impact on the health, education, and infrastructure of a nation.

 Economic factors include economic growth, interest rates, exchange

rates, inflation rate. These factors greatly affect how businesses operate and
make decisions. For example, interest rates affect a firm's cost of capital and
therefore to what extent a business grows and expands. Exchange rates can
affect the costs of exporting goods and the supply and price of imported goods in
an economy.
 Social factors include the cultural aspects and health consciousness, population
growth rate, age distribution, career attitudes and emphasis on safety. High
trends in social factors affect the demand for a company's products and how that
company operates. For example, the ageing population may imply a smaller and
less-willing workforce (thus increasing the cost of labour). Furthermore,
companies may change various management strategies to adapt to social trends
caused from this (such as recruiting older workers).

 Technological factors include technological aspects

like R&D activity, automation, technology incentives and the rate of technological
change. These can determine barriers to entry, minimum efficient production
level and influence the outsourcing decisions. Furthermore, technological shifts
would affect costs, quality, and lead to innovation.

Expanding the analysis to PESTLE or PESTEL adds:

 Legal factors include discrimination law, consumer law, antitrust

law, employment law, and health and safety law. These factors can affect how a
company operates, its costs, and the demand for its products.
 Environmental factors include ecological and environmental aspects such as
weather, climate, and climate change, which may especially affect industries
such as tourism, farming, and insurance. Furthermore, growing awareness of the
potential impacts of climate change is affecting how companies operate and the
products they offer, both creating new markets and diminishing or destroying
existing ones.

SWOT Analysis
SWOT analysis (or SWOT matrix) is a strategic planning technique used to help a
person or organization identify strengths, weaknesses, opportunities, and threats
related to business competition or project planning. It is intended to specify the
objectives of the business venture or project and identify the internal and external
factors that are favourable and unfavourable to achieving those objectives. Users of
a SWOT analysis often ask and answer questions to generate meaningful
information for each category to make the tool useful and identify their competitive
advantage. SWOT has been described as the tried-and-true tool of strategic
analysis.
Components of SWOT Matrix

There are four essential key factors to evaluate an organization's performance,

which are the components of a SWOT Analysis - Strengths, Weaknesses,

Opportunities, and Threats

1. Strengths - Strengths are the qualities that enable us to accomplish the

organization’s mission. These are the basis on which continued success can
be made and continued/sustained.

Strengths can be either tangible or intangible. These are what you are well-
versed in or what you have expertise in, the traits and qualities your
employees possess (individually and as a team) and the distinct features that
give your organization its consistency.

Strengths are the beneficial aspects of the organization or the capabilities of

an organization, which includes human competencies, process capabilities,
financial resources, products and services, customer goodwill and brand
loyalty. Examples of organizational strengths are huge financial resources,
broad product line, no debt, committed employees, etc.

2. Weaknesses - Weaknesses are the qualities that prevent us from

accomplishing our mission and achieving our full potential. These
weaknesses deteriorate influences on the organizational success and growth.
Weaknesses are the factors which do not meet the standards we feel they
should meet.

Weaknesses in an organization may be depreciating machinery, insufficient

research and development facilities, narrow product range, poor decision-
making, etc. Weaknesses are controllable. They must be minimized and
eliminated. For instance - to overcome obsolete machinery, new machinery
can be purchased. Other examples of organizational weaknesses are huge
debts, high employee turnover, complex decision making process, narrow
product range, large wastage of raw materials, etc.

3. Opportunities - Opportunities are presented by the environment within which

our organization operates. These arise when an organization can take benefit
of conditions in its environment to plan and execute strategies that enable it to
become more profitable. Organizations can gain competitive advantage by
making use of opportunities.

Organization should be careful and recognize the opportunities and grasp

them whenever they arise. Selecting the targets that will best serve the clients
while getting desired results is a difficult task. Opportunities may arise from
market, competition, industry/government and technology. Increasing demand
 for telecommunications accompanied by deregulation is a great opportunity
for new firms to enter telecom sector and compete with existing firms for
revenue.

4. Threats - Threats arise when conditions in external environment jeopardize

the reliability and profitability of the organization’s business. They compound
the vulnerability when they relate to the weaknesses. Threats are
uncontrollable. When a threat comes, the stability and survival can be at
stake. Examples of threats are - unrest among employees; ever changing
technology; increasing competition leading to excess capacity, price wars and
reducing industry profits; etc.

Advantages of SWOT Analysis

SWOT Analysis is instrumental in strategy formulation and selection. It is a strong

tool, but it involves a great subjective element. It is best when used as a guide, and
not as a prescription. Successful businesses build on their strengths, correct their
weakness and protect against internal weaknesses and external threats. They also
keep a watch on their overall business environment and recognize and exploit new
opportunities faster than its competitors.

SWOT Analysis helps in strategic planning in following manner-

a. It is a source of information for strategic planning.

b. Builds organization’s strengths.
c. Reverse its weaknesses.
d. Maximize its response to opportunities.
e. Overcome organization’s threats.
f. It helps in identifying core competencies of the firm.
g. It helps in setting of objectives for strategic planning.
h. It helps in knowing past, present and future so that by using past and current
data, future plans can be chalked out.

Limitations of SWOT Analysis

SWOT Analysis is not free from its limitations. It may cause organizations to view
circumstances as very simple because of which the organizations might overlook
certain key strategic contact which may occur. Moreover, categorizing aspects as
strengths, weaknesses, opportunities and threats might be very subjective as there
is great degree of uncertainty in market. SWOT Analysis does stress upon the
significance of these four aspects, but it does not tell how an organization can
identify these aspects for itself.

There are certain limitations of SWOT Analysis which are not in control of
management. These include-

a. Price increase;
b. Inputs/raw materials;
c. Government legislation;
d. Economic environment;
 e. Searching a new market for the product which is not having overseas market
due to import restrictions; etc.

Internal limitations may include-

a. Insufficient research and development facilities;

b. Faulty products due to poor quality control;
c. Poor industrial relations;
d. Lack of skilled and efficient labour; etc

Michael Porter’s Diamond Model

The American strategy professor Michael Porter developed an economic diamond

model for (small-sized) businesses to help them understand their competitive
position in global markets. This Porter Diamond Model, also known as the Porter
Diamond theory of National Advantage or Porters double diamond model, has
been given this name because all factors that are important in global business
competition resemble the points of a diamond. Michael Porter assumes that the
competitiveness of businesses is related to the performance of other businesses.
Furthermore, other factors are tied together in the value-added chain in a long
distance relation or a local or regional context.
International advantage

Organisations can use the Porter’s Diamond Model to establish how they can
translate national advantages into international advantages. The Porter Diamond
Model suggests that the national home base of an organization plays an important
role in the creation of advantages on a global scale. This home base provides basic
factors that support an organization, including government support but they can also
hinder it from building advantages in global competition. The determinants
that Michael Porter distinguishes are:

1. Factor Conditions

This is the situation in a country relating to production factors like knowledge and
infrastructure. These are relevant factors for competitiveness in particular industries.
These factors can be grouped into material resources- human resources (labour
costs, qualifications and commitment) – knowledge resources and infrastructure. But
they also include factors like quality of research or liquidity on stock markets and
natural resources like climate, minerals, oil and these could be reasons for creating
an international competitive position.

2. Related and supporting Industries

The success of a market also depends on the presence of suppliers and related
industries within a region. Competitive suppliers reinforce innovation and
internationalization. Besides suppliers, related organizations are of importance too. If
an organization is successful this could be beneficial for related or supporting
organizations. They can benefit from each other’s know-how and encourage each
other by producing complementary products.

3. Home Demand Conditions

In this determinant the key question is: What reasons are there for a successful
market? What is the nature of the market and what is the market size? There always
exists an interaction between economies of scale, transportation costs and the size
of the home market. If a producer can realize sufficient economies of scale, this will
offer advantages to other companies to service the market from a single location. In
addition the question can be asked: what impact does this have on the pace and
direction of innovation and product development?

4. Strategy, Structure and Rivalry

This factor is related to the way in which an organization is organized and managed,
its corporate objectives and the measure of rivalry within its own organizational
culture. The Furthermore, it focuses on the conditions in a country that determine
where a company will be established. Cultural aspects play an important role in this.
Regions, provinces and countries may differ greatly from one another and factors
like management, working morale and interactions between companies are shaped
differently in different cultures. This could provide both advantages and
disadvantages for companies in a certain situation when setting up a company in
another country. According to Michael Porter domestic rivalry and the continuous
search for competitive advantage within a nation can help organizations achieve
advantages on an international scale. In addition to the above-mentioned
determinants Michael Porter also mentions factors like Government and chance
events that influence competition between companies.

5. Government

Governments can play a powerful role in encouraging the development of industries

and companies both at home and abroad. Governments finance and construct
infrastructure (roads, airports) and invest in education and healthcare. Moreover,
they can encourage companies to use alternative energy or alternative
environmental systems that affect production. This can be effected by granting
subsidies or other financial incentives.

6. Chance events

Michael Porter also indicates that in most markets chance plays an important role.
This provides opportunities for innovative companies that are not afraid to start up
new operations. Entrepreneurs usually start their companies in their homeland,
without this having any economic advantages, whereas a similar start abroad would
provide more opportunities.
Michael Porter’s Model of Industry

Porter's Five Forces is a model that identifies and analyzes five competitive forces
that shape every industry, and helps determine an industry's weaknesses and
strengths. Frequently used to identify an industry's structure to determine corporate
strategy, Porter's model can be applied to any segment of the economy to search for
profitability and attractiveness.

Porter’s five forces of competitive position analysis:

Competition in the Industry

The importance of this force is the number of competitors and their ability to threaten
a company. The larger the number of competitors, along with the number of
equivalent products and services they offer, the lesser the power of a company.
Suppliers and buyers seek out a company's competition if they are unable to receive
a suitable deal. When competitive rivalry is low, a company has greater power to do
what it wants to do to achieve higher sales and profits.

Potential of New Entrants Into an Industry

A company's power is also affected by the force of new entrants into its market. The
less time and money it costs for a competitor to enter a company's market and be an
effective competitor, the more a company's position may be significantly weakened.
An industry with strong barriers to entry is an attractive feature for companies that
would prefer to operate in a space with fewer competitors.

Power of Suppliers
This force addresses how easily suppliers can drive up the price of goods and
services. It is affected by the number of suppliers of key aspects of a good or
service, how unique these aspects are, and how much it would cost a company to
switch from one supplier to another. The fewer the number of suppliers, and the
more a company depends upon a supplier, the more power a supplier holds.

Power of Customers
This specifically deals with the ability customers have to drive prices down. It is
affected by how many buyers or customers a company has, how significant each
customer is, and how much it would cost a customer to switch from one company to
another. The smaller and more powerful a client base, the more power it holds.

Threat of Substitutes
Competitor substitutes that can be used in place of a company's products or services
pose a threat. For example, if customers rely on a company to provide a tool or
service that can be substituted with another tool or service or by performing the task
manually, and if this substitution is fairly easy and of low cost, a company's power
can be weakened.

Understanding Porter's Five Forces and how they apply to an industry, can enable a
company adjust its business strategy to better use its resources to generate higher
earnings for its investors.
Strategic Group Analysis
Strategic Group Analysis (SGA) aims to identify organizations with similar strategic
characteristics, following similar strategies or competing on similar bases.
Such groups can usually be identified using two or perhaps three sets of
characteristics as the bases of competition
Examples of the SGA:

 Extent of product (or service) diversity.

 Extent of geographic coverage.
 Number of market segments served.
 Distribution channels used.
 Extent of branding.
 Marketing effort.
 Degree of vertical integration.
 Product (or service) quality.
 Pricing policy.
Use of Strategic Group Analysis This analysis is useful in several ways:

 Helps identify who the most direct competitors are and on what basis they
compete.
 Raises the question of how likely or possible it is for another organization to
move from one strategic group to another.
 Strategic Group mapping might also be used to identify opportunities.
 Can also help identify strategic problems.

List of the Advantages of Strategic Group Analysis

1. It allows for the strategic shifts and dynamics of an industry to be assessed.
The business world is always evolving. Companies that stay in their comfort zone
and stop embracing innovation are the ones who will eventually fail. A strategic
group analysis allows an organization to begin assessing their industry and the
various marketplaces where they are active. Shifts in thinking and the dynamics of
solving problems enable the company to identify new pain points, let old pain points
go, and promote a better value statement that encourages consumer protection.

2. It defines the nearest competitors of the company involved.

If a company has a great product, then competitors in the industry will attempt to
meet or exceed the value proposition that is offered. Organizations use strategic
group analysis to identify their closest competitors, which allows them to stay at the
head of the class. They monitor what the competition is doing in the marketplace and
what they are developing. This gives them the information they need to be proactive
with their core demographics to maintain their base of customers.
3. It helps to evaluate the differences in competitive strategy that are in the
marketplace.
Although it is possible to copy a competitive strategy from a competitor, true industry
leaders stand on their own with a strategy that meets the needs of their core
demographics. With a strategic group analysis, they can see what is working for the
competition and what is not working. This information can be used to examine or test
what is working with their own competitive strategy. From there, it becomes possible
to improve the value statements being offered because the organization has already
seen how people react to the work of the competition.

4. It provides help in determining potential strategic moves of competitors in

the market.
It would be fair to say that the world of business is much like a game of chess. The
best chance to win comes from an ability to predict what the competition will create
2-4 moves from now. With a strategic group analysis, it becomes possible to look at
the history of decision-making for a competitor. That information can then predict
what the next moves of the competition will be, allowing the organization to be
proactive in their response to such a move.

5. It allows an organization to understand what will determine profitability in

the market.
Some markets are highly profitable. Some are not. What separates the two extremes
is an understanding of how each marketplace determines profitability. A strategic
group analysis will look at the information and metrics that each market provides. It
will then look at the suite of goods or services that are being offered to that market.
When pain points can be addressed for consumers, profitability is created, and this
process allows the company to predict how much is present.

List of the Disadvantages of Strategic Group Analysis

1. It is useful only when the group thoroughly understands the market.
Imagine a company that sells a cream which relieves pain. In the strategic group
analysis, the company misses the fact that the consumers in their market want to
alleviate pain, but with therapy patches, not cream-based products. How successful
would the company be in this market? There must be an understanding of what
interests each market to have a strategic group analysis be useful. Missing one data
point can be enough to turn a successful venture into one that is unsuccessful.

2. It must be able to identify mobility barriers to enter or exit the market.

A strategic group analysis must also identify what it takes for a company to enter the
market in the first place. Every market has some type of barrier to entry. If those
barriers cannot be identified, then the maximum potential of the company in that
marketplace will never be achieved. The analysis must also look at how a company
can exit the market and what barriers might exist there as well. Most companies do
the first half of the equation, but then fail to look at an exit strategy.
3. It requires the group to make assumptions about competitor goals and
strategies.
If you want to know what the competition is doing, then you must make assumptions
about their goals and strategies. Most competitors are not going to outline their goals
for profitability, even if you ask them for this information. That means a strategic
group analysis is based more on assumptions than fact. Because assumptions are
being made, there is always an element of risk involved with this process.

4. It often requires trial and error before useful dimensions can be examined.
Strategic group analysis is useful for identifying potential opportunities which may
exist in a marketplace. It does not create metrics, however, because it is not
responsible for the implementation of a strategy. Once the analysis is complete,
companies must do some experimentation to determine how useful the dimensions
will be for each market. Even when there are opportunities present, they may not
equate to profitable opportunities. That is why you see businesses testing strategies
with a limited sample of a demographic before jumping into the entire market.

5. It creates useless information unless there is validity to the assumptions

that were made.
If a strategic group analysis reaches a conclusion based on the assumption that
turns out to be incorrect, then everyone’s time was wasted. There is no validity to the
information created by a strategic group analysis unless it is accurate.

The advantages and disadvantages of a strategic group analysis are based on an

attempt to discover how and where competition is happening in the market. When
this information can be obtained, then it becomes possible to differentiate. That
possibility exists, however, only when the data used is accurate.

The International Product Life Cycle (IPLC)

The international product lifecycle (IPL) is an abstract model briefing how a

company evolves over time and across national borders. This theory shows the
development of a company’s marketing program on both domestic and foreign
platforms. International product lifecycle includes economic principles and
standards like market development and economies of scale, with product lifecycle
marketing and other standard business models.

The four key elements of the international product lifecycle theory are −

 The layout of the demand for the product

 Manufacturing the product
 Competitions in international market
 Marketing strategy
The marketing strategy of a company is responsible for inventing or innovating any
new product or idea. These elements are classified based on the product’s stage in
the traditional product lifecycle. These stages are introduction, growth, maturity,
saturation, and decline.

IPL Stages
The lifecycle of a product is based on sales volume, introduction and growth. These
remain constant for marketing internationally and involves the effects of outsourcing
and foreign production. The different stages of the lifecycle of a product in the
international market are given below −

Stage one (Introduction)

In this stage, a new product is launched in a target market where the intended
consumers are not well aware of its presence. Customers who acknowledge the
presence of the product may be willing to pay a higher price in the greed to acquire
high quality goods or services. With this consistent change in manufacturing
methods, production completely relies on skilled laborers.

Competition at international level is absent during the introduction stage of the

international product lifecycle. Competition comes into picture during the growth
stage, when developed markets start copying the product and sell it in the domestic
market. These competitors may also transform from being importers to exporters to
the same country that once introduced the product.

Stage two (Growth)

An effectively marketed product meets the requirements in its target market. The
exporter of the product conducts market surveys, analyze and identify the market
size and composition. In this stage, the competition is still low. Sales volume grows
rapidly in the growth stage. This stage of the product lifecycle is marked by
fluctuating increase in prices, high profits and promotion of the product on a huge
scale.

Stage three (Maturity)

In this level of the product lifecycle, the level of product demand and sales volumes
increase slowly. Duplicate products are reported in foreign markets marking a
decline in export sales. In order to maintain market share and accompany sales, the
original exporter reduces prices. There is a decrease in profit margins, but the
business remains tempting as sales volumes soar high.
Stage four (Saturation)
In this level, the sales of the product reach the peak and there is no further
possibility for further increase. This stage is characterized by Saturation of sales. (at
the early part of this stage sales remain stable then it starts falling). The sales
continue until substitutes enter into the market. Marketer must try to develop new
and alternative uses of product.

Stage five (Decline)

This is the final stage of the product lifecycle. In this stage sales volumes decrease
and many such products are removed or their usage is discontinued. The
economies of other countries that have developed similar and better products than
the original one export their products to the original exporter's home market. This
has a negative impact on the sales and price structure of the original product. The
original exporter can play a safe game by selling the remaining products at
discontinued items prices.