MODULE-II

ENVIRONMENT ANALYSIS AND

DIAGNOSIS
Business Environment is something that is
external to the firm or one which surrounds
an Organization. These external forces are
uncontrollable where the firm is to respect the
Components of External environment. As
opposed to external environment, each firm
enjoys a unique position as to value system,
human and material resources, Internal
power relations and so on which are
controllable.
The Internal forces over which the firm has
control, determine to what extent the firm
can influence and get ,in turn, the share of
Opportunities and threats that come along
opportunities.

What is Environmental Scanning
Environment Scanning is that exercise that
involves continuous process of monitoring the
dynamic interplay of all those forces namely
Economic, Competitive, Technological, Socio-
Cultural, Demographic political, and Global
forces to determine the opportunities.
Environmental analysis is the process by which
strategists monitor the environmental factors to
determine opportunities for the threats of the
firms.
Environmental diagnosis consists of
managerial decisions made by assessing the
significance of the data of the environmental
analysis. Thus environmental scanning is both
a mental task of of analyzing and
synthesizing .Analyzing is that it divides the
whole into small and meaningful parts of its
microscopic close-up details and synthesizing
is that it is correlating and matching the parts
into single Whole.
Thus it projects both birds eye view and the
fish eye-view of the forces operating in the
environment.
The Business environment is generally divided
into two:
General Environment
Industry Environment
Why Environmental Scanning
The reasons for are:
It imprints the image of Existing Environment
It Makes possible to have Effective Strategy
External environment throws pen the
Opportunities and threats
It helps to read the Future.
Characteristic features of general
Environment
The General Environment usually holds both
Opportunities for the Threats to Expansion

Development in the General Environment
change competitive Battle Lines

The same Environmental Trend can have
different Effects on Different Industries
The impact of an Environment trend often
differs significantly for different firms within
the same Industry
Difficulty of predicting with any degree of
accuracy in some case while others Readily
predictable
The dimensions of G E with strongest
influence on business may differ from country
to country.

Components of General Environment
The general Environment of an Organization is
made up of vital components such as
Economic
Technological
Social
Demographic
Political and Legal forces.

Economic Environment
Components of Economic Environment are
General Economic Conditions
Economic Systems
Economic policies
Economic growth
Interest Rates
Exchange rates

Technological Environment
Changing technology
It can change the relative competitive Cost
positions within a business
It can create new markets and a new business
segments
It can collapse ideas, new products, new
process, new methodologies are the outcome
of technological change
Social Environment
Socio-cultural environment covers aspects of
society and its constituents
Expectations of the society from the business
Community
Attitudes of Society towards business and its
management
Views towards to wards achievement of work

Cont
Outlook towards the Authority structure,
Responsibility and Organizational positions
Views towards customs, traditions and
conventions
Class structure and labor mobility
Level of education

Cont.
These socio-cultural environment factors
influence the organizations in three ways
Organizational Objective setting
Organizational Process
Products and Services to be offered by the
organization
Cont
The consumerism which is in full force, has
been responsible for enactment of MRTP Act
,Consumer protection Act. Consumerism has
made impact on technology, Product-quality,
marketing efforts, Standards of after sale
services. All this means that the business
Community has to produce and market the
products and services as decided by the Socio-
cultural Values.
Demographic Environment
Demographic features deal with population such
as birth rate, growth rate, Age composition,
Family size, Level of Education, Language, Caste,
sIncome level, Earners and Non-earners in a
family.
The demand for the goods and services is
dependent on demand for them and the demand
is potential or actual market and market means
Actual and potential consumers.
Government policies
The government policies are both positive
and negative in approach. The policy framing
and Implementation grants four kinds of roles
Regulatory Roles
Promotional Roles
Entrepreneurial Roles
Planning Roles
Regulatory Role
Regulatory Role consists of:
Restriction of private participation in areas like
defense, Industries or Atomic energy
Controlling capacity and location of plants
Putting ceilings on expenses
Floor limit of wages and Bonus and provisions
for statutory welfare measures
Regulation in terms of Equity participation and
foreign investment

Corporate tax, professional tax , wealth tax etc

Export and Import rules ,custom duties, Tariff
and so on

Promotional role
Promotional role consists of:
Development of infrastructure for industrial
and commercial activities like roads, Industrial
estates ,Communication facilities and
electricity
Assistance like grant ,Investment subsidies,
Tax concessions, Tax holidays, Subsidized
water or electricity Charges
Entrepreneurial Role
EP consists of :
Participation in business and industry where
private participation is not adequate namely
electricity generation and distribution
Ownership and management of reserved
industries like defense production, atomic
energy, Oil and gas.
Managing public sector industries
Planning role
P R covers the areas of:
Five year plans
Prioritization of Industries
Foreign participation and bilateral agreement
with other states or countries
Green field area development plans
Regional development plans and programs
Globalization Environment
Globalization is a process of world wide
integration of strategy formulation
implementation and valuation activities.
Strategic decisions are made based on their
impact upon Global profitability of the firm,
rather than on just domestic or other
individual country considerations.
A global strategy seeks to meet the needs of
customers world wide, wide with highest
value at the lowest cost. This means locating
production in countries with the lowest labor
costs or abundant natural recourses, locating
research are complex engineering centers
where skilled scientist locating marketing
activities close to the markets to be served.
A global strategy includes designing
,producing and marketing products with
Global needs in mind, instead of considering
individual countries alone. A global strategy
integrates actions against competitors into a
world wide plan.
As a result of globalization ,there will be trade
liberalization as well are having in case of GATT
and WTO, specialization in production,
expansion of regional trade leading to formation
of trading blocks such as EU,NAFTA,ASEAN and
so on, enhancement of local competition,
formation of MNCs and TNCs, world-wide
sourcing, business process outsourcing,
formation of new structure like virtual
organizations, making strong currencies globally
acceptable as is the case with US dollar and
EECs Euro-dollar.
Industry Environment
An industry is the group of firms
manufacturing goods or rendering services of
identical products. Thus steel products we
mean all those units engaged in producing
steel or iron and steel products. The industry
environment has its constituents namely
,Competitors, Customers, Suppliers and
Substitutes
Cont.
Each is a competing force. The best model of
Competition is developed by Father of
Strategy ie Michael porter, His penta force
model is widely accepted that how
competitive force works within an Industry.He
has also added a sixth force Hexa force ie
Other stake holders is added to reflect the
power that governments, local communities
and other groups from the task of
environment over Industrial activities.
These hexagon
(1)Risk of Entry by Potential Competitors
Brand Loyalty

Absolute cost advantage

Policies of government

Development channels of Distribution and
Rapport

(2) Rivalry among Established Companies
Industry competitive Structure
Demand Conditions
Exit Barriers
(3) Bargaining Power of Buyers
(4) Bargaining power of suppliers
(5) Threats of Close Substitutes
(6) Relative power of Other substitutes
Features of Environment Scanning
These are
Its is Holistic Exercise

It is an Exploratory process

It is continuous process

It is Indispensable
Significance of E scanning
It helps in converting Threats into
Opportunities

Changing colour of Environment

Narrowing down the alternatives

S M starts with E scanning

What is environmental Search
The first aspect of E scanning is E search or
Monitoring the Environment
E search is simply is to do with collection of
Information from relevant environment. It
means and includes two things namely ie what
to search and where to search. The first
aspect deals with the type of environment
factors to be analyzed and the second aspect
with the sources of information about the
Environmental Factors
Factors governing the Choice of E
factors
Nature of Environment

Managerial philosophy

Age of organization

Type of Business

Size and Power of the Organization

Geographical Dimensions
Techniques of Environmental Search
Once the Organizational factors are identified
for analysis , the organization goes in for
searching the relevant facts about these
factors. These techniques ranges from simple
information collection through verbal sources
to highly complex forecasting techniques.
These techniques are Through
Verbal Information


Cont.
The managers learn about Environment from
Employees, official superiors or subordinates or
peers
Outside sources like Customers, whole-sellers,
Retailers, Brokers, Suppliers, Competitors and
their Financiers, Academicians and
Government authorities.

Spying

Company Records

Publications and

Forecasting

Alternate Scenarios
Scenarios or Alternatives techniques is used to
explore the likelihood of possible future
development and changes and to identify
interaction of uncertain future trends and
events
Scenario building is a process and involves
certain logical steps. These steps are:
Preparing Background
Cont
Selecting Critical Indicators
Establishing past behavior Indicators
Verifying the potential future Events
o Evaluation of past trends
o Assessment of potential impact of future events
o Assessment of probability of future trends
o Forecasting of future events
o Assumptions for Forecasts
Environment Diagnosis
E D is the assessment of E factors in terms of
Opportunity and Threats and the importance
of their impact. E D is comparable to
diagnosis of a patient in medical science
where it is used to identify and its criticality.
This E D as apart of S M that identifies both
threats and opportunities.
Preparation of ETOP
Environmental Threat and opportunities
Profile is a summarized projection of E factors
and their likely impact on the organization
when E scanning is undertaken on a formal
and systematic way ,it is essential that the
results are structured .ETOP is the most
useful way of structuring the results of E
scanning .ETOP preparation involves four
logical steps:
Steps
Identification of different components of
relevant Environment

Assessing significance of E Factors

Assessing the Impact factor and

Combining significance and Impact factors
ETOP CHART-Gujrath industrial Trucks
Limited
Environment component
Socio economic


Technological


Legal/political

The impact (Opportunity/Threat)
Domestic and foreign
market(+)
Resource constraints(-)
The production of trucks is
technically superior(+)
Updated production
facilities
Liberalization for technology
Import(+)
Exemption in excise

Cont
Environment component
Competitiveness


Suppliers

Customers

Note + =An opportunity
- = A Threat


The Impact(Opportunity/Threat)
High employee turn over(-)
Placing second fiddle after
Rexello, the Market Leader(-
Merger of small units for
getting Inputs(-)
Distribution and logistic
Management is not catching
up(-)

Internal scanning
Internal analysis or corporate analysis or
situational analysis is the process of reviewing
organizational resources, scanning
organizational activities and linking them with
creations of value of the organization and
identifying the strengths and capabilities. This
implies that the Internal analysis is concerned
basically with three things namely Resources,
value chain analysis and identification of core-
competence
Internal analysis is the process by which the
strategists examine the firms marketing and
distribution, Research and development,
production and operations, Corporate
resources and personnel, finance and
accounting factors to determine where the
firm has significant strengths and
weaknesses
Significance of internal Scanning
A perfectly carried out Internal Appraisal
brings home the facts on which firms success
or failure rests.
It helps to know where the firms stands in
terms of strengths and weaknesses

It helps to select the opportunities to be
tapped in line with its capacity.

It supports matching of objectives to its
capacity
It assists in assessing the capability-gap and
takes steps for Evaluating the Capability in line
with Growth objectives
It assists in selecting the specific lines in which
it can grow using potential
Steps of make an Internal scanning
The internal analysis is essentially a diagnostic
step in identifying the companys strengths and
weaknesses. And so it is worth while to
emphasize that the firm is to formulate strategy
which is consistent with competitive
environment to take full advantage of
opportunities offered by the external
environment at the same time immunize or
weaken the Threats. Further it should be
compatible with Mission and Objectives of firm
Steps
(1)Identification of strategic Internal Factors
Research and Development factors
Production and Operations factors
Human resources factors
Finance and accounting factors
Marketing factors
Information and Organizational factors

R & D functions are to do with finding out
new ideas, new processes, new products,
Innovation where engineers and researchers
carry on research and development activities.
These factors lead to
Improved product quality
Improved production Methods that bring
home reduction in cost
Improved value of products





Production and operations factors
Production operations are concerned with
converting the Inputs into end products that are
meant for either direct consumption or for
further production. This factors include
Proper location of plant including future
expansion
Better conversion efficiency and productivity
Superior quality and Inspection methods
Cont
The manufacturing operations are considered
more strategic from mid 80s where new
strategies are developed by Japanese which
attracted attention all over the world. This
Includes TQC(Total quality Control) six sigma
,5-S techniques and so on. Now the attention
has shifted to quality, cost and price.
Human resources Factors
Man power plays a significant role because
there may be best possible materials, Best
Boss, the machinery and methods. This factors
includes
Adequate numbers of employees with
appropriate skills
Service benefits and welfare measures taken
by Management
Cont
Employee morale and motivation
Scientific recruitment and selection
Carrier planning and merit based promotions
Industrials relations Including trade unions
Least absenteeism and Retention
Workers participation in management
Finance and accounting factors
Finance and accounting go together as it is the
science that brings financial discipline. These
factors include
Relation with classes of Investors, creditors
and shareholders
Ability to raise long term and short term
capital
Financial planning- working capital, budgeting
both capital and revenue and expenditure


Marketing Factors
The areas of strength and weakness are
Market potential of product or services
Market share of products and services
Marketing research and Intelligence net work
Pricing policy Incentives and terms of credit
Advertising salesmanship and sales promotion
Consumer loyalty and Brand name

Cont
Marketing factors are most significant and
taking a product life cycle , the strategies have
to change as each needs different treatment
as to product, price, promotion and
distribustion. A company which has strength
fares very successfully while the weaker one
will fail.
Information and Organizational Factors
These factors include
Marketing intelligence
Product development
Improved sales
Telemarketing
Consumer loyalty
Customer services. These acts as strength and
absence of which is the weakness

Historical analysis
Each and every strategy is an extension of
another. The company cannot afford to forget
the past. It is because the present and future
strategies have some relationships of the past.
The past experience is the base for future
action and standard for comparison. To take
care of these past experience ,a firm has three
techniques. These are:
Cont
Identification of strategic factors of the past

Preparation of functional area profile(FAP)

Preparation of functional area resource
deployment(FARD)

Marked futures of historical Analysis
Consideration of each area one at a time

Comparison of over whole picture

Comparison of weakness to strengths

Strengths and weakness are relative

Totality of picture
Evolution Analysis
Evolution analysis refers to the study of
product life cycle as the product undergoes a
evolutionary life cycle and at each stage, the
strategy that apply differs .There cannot be
one set of strategies that can be applied right
from the birth of a product till its death. PLC is
a conceptual representation that recognizes
distinct stages in the sales history of the
product.
Evolution analysis refers to study of product
life-cycle as the product undergoes a
evolutionary Life-cycle and at each stage, the
strategies that need to apply or employ differ.
Strategies of R&D ,production and operation,
Human resources, financing and Accounting,
Marketing and information and organizational
will change with each stage of Life- cycle.
Stages of PLC
Introduction

Growth

Maturity

Decline
Introduction
When a new product is introduced it these
characteristics namely
Low and slow Sales

Highest promotional expenses

Higher product prices
Growth
In this stage the market has accepted the
product ,Sales begin to rise. The
characteristics of this stage are
Sales rises faster

Higher promotional expenses

Product Improvements
Maturity
The features at this stage is
Sales increase at decreasing rate

Normal promotional Expenses

Uniform and lower prices
Decline
Interest in product will fade, The out standing
features at this is
Rapid fall in prices

Further Fall in prices

No promotional Expenses
Competitive Analysis
The very Act of Internal analysis is to compare
the strength and weaknesses of own firm with
those of Competitors. The success of a firm in
the Market is directly compared to others in
the line .The firms which are competing
among themselves within the same Industry
,possess distinctive skills in various areas as
to their strategy in marketing the products.
Cont.
These strengths are the internal capabilities
which form a significant basis or the very
foundation on which the present and future
strategies are intricately interwoven. The
comparison also makes clear of the firms
weaknesses which are definitely pit-falls.
Techniques of Competitive Analysis
SAP- STRATEGIC ADVANTAGE PROFILE

BSC-BALANCE SCORE CARD TECHNIQUE

FINANCIAL ANALYSIS

Strategic Advantage Profile
SAP is a technique of analyzing the strengths
and weaknesses of a company by preparing
the concise picture of different capability
factors. It is quite relevant to know what is
SA ?.It is the relative strength of a company
over its competitor competitions. Relative
strengths are significant because internal
weakness or inefficiencies can usually be
tolerated ,at least for a time. By contrast
Cont.
Deterioration of companys position relative to
that of its competition may endanger the very
existence of Enterprise.