FUNDAMENTAL OF ENVIRONMENTAL ANALYSIS

Organizational Environment; is the set of all factors both outside & inside the
organization that can affect its progress toward attaining organizational goals.
Environmental Monitoring; A process of gathering information regarding
companies external environment, analyzing it and forecasting the impact
Environmental Analysis; is the process of monitoring the organizational
environment to identify both present & future threats & opportunities that may
influence the firms ability to reach its goal.

Purpose of Environmental Analysis: To improve managements ability to respond to

critical issues in the environment, assign priorities to these issues, & develop a plan
for handling each of them, covering following aspects: To assess the organizational environment so that management can react to it
appropriately.
To explore future conditions of organizational environment.
To identify current emerging issues that are significant to the company,

Purpose of Environmental Analysis

Purpose: To improve managements ability to respond to critical issues in
the environment, assign priorities to these issues, & develop a plan for
handling each of them.
Purpose Cited by Other Companies
Connecticut General Insurance Company: To provide management with
the ability to respond to critical issues in the environment, it stipulates
that decision makers in the organization must take external
considerations into account.
Sun Exploration & Production Company: To explore the future
conditions of the organizational environment and to incorporate what it
learns into organizational decision making.
Sears Roebuck: To identify current emerging issues that are significant
to the company, assign priority to these issues, and develop a plan for
handling each of them.

Environmental Analysis Role In Organizational

Planning
The Policy Oriented Role; to improve organizational performance by
keeping top management informed about strategic issues in the
environment & evaluate their impact on the firm.
The Integrated Strategy Planning Role; to improve organizational
performance by making Top/Divisional Managers aware of issues that
arises in the firms environment, by having a direct impact on planning
and by linking corporate and divisional planning.
The Function Oriented Role; to improve organizational performance by
providing informational for effective performance of specific
organizational functions. This type of environmental analysis is normally
undertaken to enhance the performance of a particular function.

Environmental Analysis Role In Organizational Planning

The Policy Oriented Role; to improve organizational performance by keeping
top management informed about strategic issues in the environment & evaluate
their impact on the firm.
The Integrated Strategy Planning Role; to improve organizational performance by
making Corporate / Divisional Managers aware of issues that arises in the
firm environment, by linking corporate and divisional planning.
The Function Oriented Role; to improve organizational performance by providing
informational for effective performance of specific organizational functions.

ROLE

Focus

Task / Relationship

Policy
Oriented

Keeping top management

informed about major trends
emerging in the environment

Emphases on broad strategic issues like

norms & laws, thus formal organization
planning is indirect and informal.

Integrated
Strategic
Planning

Making corporate managers

and divisional managers aware
of environmental issues.

Preparing environmental forecasts in

order to generate assumptions about
organizational planning.

Functional
Oriented

Improve organizational
performance of a particular
organizational function.

Seems the most specifically targeted at

particular organizational issues &
integrated in normal planning process.

Review of Organizational Roles

Policy, Integrated Strategic Planning & Functional oriented roles are
Simply designed , so as manager can keep in mind that the role of
environmental analysis in any organization must suit to the specific needs
of that organization.
As a review of these roles several factors become clear:
ROLE

SCOPE

RELATIONSHIP

PURPOSE / ISSUE

Policy
Oriented

Broadest

Loosely
Related

Keeping management informed about

major emerging trend.

Integrated
Strategic
Planning

Focused

Close
Relationship

Make Coorp & Div Mgrs aware about

issues to; Prepare environmental
forecasts & Generate basic assumptions

Functional
Oriented

Specifically Close
Targeted
Relationship

Provide information about a specific

functional issue & its improvement.

Environmental Structure
External Environment
Environment exists outside the organization, whish are beyond
organizational control. Can be further categorize in Two Types:
o The General Environment; consisting of economic, technological, political
& legal and social components. Components are normally broad in scope,
having little immediate application for managing the organization.
o The Operating Environment; consisting of supplier, competition,
customer, labour and international components. Components have
relatively specific and more immediate applications for managing the
organization.

The Internal Environment; covers marketing, financial, personnel and

production aspects. Normally the components has immediate and
specific implications for managing the operations.

Environmental Structure
The General Environment; consisting of economic, technological,
political & legal and social components.
The Operating Environment; consisting of supplier, competition,
customer, labour and international components.
The Internal Environment; covers marketing, financial, personnel and
production aspects.
Environment
Scope
Implications
Control
Type Nature of Organizational Environment Structure
General
Environment

Broad

Little immediate
application

No

Operating
Environment

Relatively
Specific

More immediate
application

No control, but
exercise little
influence

Internal
Environment

Specific

Immediate

Yes

GENERAL ENVIRNOMENTAL FACTORS

ECONOMIC COMPONENT
LEGAL COMPONENT
SOCIAL COMPONENT
POLITICAL COMPONENT
TECHNOLOGY COMPONENT

MACROENVIRONMENTAL FORCES EVALUATION

Economic Conditions
Stage of Business Cycle
Marketing executives need to know which stage of business cycle the economy
currently is in because companys marketing programmes be changed from one
stage of the business cycle to another. A marketing programme is affected by the
following economic factors: Prosperity is a period of economic growth, organizations tend to expand their
marketing programmes by adding new products & entering new markets.
Recession is a period of retrenchment for consumers & business. Some
consumers cut back on eating out & entertainment outside the home.
Resultantly firms catering to these needs face serious marketing challenges.
Recovery is period when economy is moving from recession to prosperity.
Inflation
A rise in prices goods and services represents inflation when price rise at a faster
rate than personal incomes, consumer buying powers declines. Inflation rates
affect government policies, consumer psychology and marketing programmes.
Interest Rates
Another external economic factor that influence marketing programme. Once
interest rate is higher consumer tend not to make long term purchases

SOCIAL COMPONENT

Demographics.
The characteristics of human population, including size, distribution and growth.
Since people constitute markets, demographics are of special interest to marketing
executives.
Age, family life cycle stage (bachelor, young married, middle aged, divorced/single,
old etc), income, social class and education formulate the basis of demographics
analysis.

LABELED GENERATIONS
TYPE 0F
GENERATION
Silent
Generation
Baby Boomers

Generation X or
Baby Busters

Generation Y or
Echo Boomers
or Millennium
Generation

PERIOD
People born before
1946
People born between
1946 to 1966; 20
years following WW-II
40 Million people born
between 1966 & 1976

NATURE

BUYING
PREFERANCES

* Entered workplace
during recession.
* Labeled as cautious &
pessimistic.
People born between *Sizable target market. Homogeneous &
1977 to 1997; children *Relatively, optimistic & receptive to a single
of Baby Boomers; 71 materialistic.
marketing appeal.
Million

DEMOGRAPHICS FORCES EVALUATION

Demographic Factor Influence Marketing Programs: Marketing need to consider

these statistics in choosing target markets & designing their marketing programme.
Change in Age Distribution. It is possible to track age changes and anticipate
what impact they will have, for instance: People in the 65 to 84 age group will increase by 40% from 2010 to 2020,
means growing market for health care products.
Relatively small growth in the age group between 4 to 45 years.
Households Composition Changing: Over 50 years proportion of married
couples has declined from 80% to 50%. Only one half of married couple
households have children living at home.
Rapid Growth of Minority Markets: Minorities represent 33% of total population.
Rapid growth is forecasted for Asian & Hispanic origin people. Hispanics buying
power accounts for almost 10% of US total of 10.6 million in 2008. The respective
shares for African, Asian and native Americans are 9% , 5% and less than 1%.

EXAMPLES OF GENERAL ENVIRNOMENTAL FACTORS

ECONOMIC COMPONENT
Gross National Product
Corporate Profits
Inflation Rate
Productivity
Employment Rates
Interest Rates
Tax Rates
Consumer Income
Dept & Spending
LEGAL COMPONENT
Environment Acts
Occupational Acts
Monopoly Acts
Various Labour Laws
Treaties with Foreign Nations
Patent Trademark Laws
Laws Affecting Business Firms
SECP Laws

SOCIAL COMPONENT
Demography
Educational Level & Literacy Rates
Customs, Norms, Values, Beliefs,
Lifestyle, Age, Geographic
Distribution
POLITICAL COMPONENT
Type of Government in Existence
Government Attitude Toward Various
Industries
Lobbying Efforts by Interest Groups
Progress Towards Legislation
TECHNOLOGY COMPONENT
Employment of Robots for Improving
Productivity
Create Competitive Advantage
Automation & Computerization

ENVIRONMENTAL STRUCTURE
The General Environment

Economic Component
Social Component
Political Component
Legal Component
Technology Component

The Operating Environment

Customer Component; Characteristics of Customers, Target markets , Develop
Profile of Target Customers

ENVIRONMENTAL STRUCTURE
The General Environment

Economic Component
Social Component
Political Component
Legal Component
Technology Component

The Operating Environment

Customer Component; Characteristics of Customers, Target markets , Develop
Profile of Target Customers
Competitive Component; Competitive Analysis, Focus of Competition, Gain
Competitive Advantage

THE COMPETITIVE COMPONENT

Competitors; Rival organizations provide goods or services to the same set of

customers.
Competitive Analysis-Purpose; is to help management appreciate strengths,
weaknesses and capabilities of existing and potential competitors and predict
what strategies they are likely to adopt.
Competition
Brand Competition come from marketers of directly similar product
Substitute Product satisfy the same need
General Type of competition in which every company is rival for the customers
limited buying power.
Competitive Advantage; is the companys ability to perform in one or more ways
the competitors cannot or will not match.

Differential Advantage; is the products characteristics due to which it enjoys

a competitive edge over competing products.

Competitive Analysis Porters Five Forces Model; Porters five forces

model of competitive analysis is a widely used approach for developing
business level strategies.

Potential
Entrants

Bargaining
Power of
suppliers

INDUSTRY
COMPETITORS

Threat of new
entrants
Bargaining
Power of buys

Suppliers

Buys
Revelry Among
Existing Firms

Substitutes

Threat of
substitute
products or
services

PORTERS FIVE FORCES MODEL

THE COMPETITIVE COMPONENT

Competitive Analysis Porters Five Forces Model; Porters five
forces model of competitive analysis is a widely used
approach for developing strategies.
Focus of Competition: The competition focuses on; Rivalry among existing firms
The bargaining power of consumers
Development of substitute products
Bargaining power of suppliers
New entrants into market place

RIVALARY AMONG COMPETITIVE (Existing) FIRMS

DESCRIPTION

IMPLICATIONS

As rivalry among
competitive
firms increases,
industry profit
declines, in
some cases to
the point where
an industry
becomes
inherently
unattractive.

Intensity of Rivalry Increases;

Competitors become more
equal in size and capability
Demand of industry
products decline
Competition Increases
When consumers switch
brands easily
When barriers of leaving
market are high
When mergers & acquisition
are common
When rival firms are diverse
in strategies, culture & origin
When new firms can enter
industry easily

STRATEGY EMPLOYED
Price Competition
Advertising Battles
New product
introduction &
Additional Services
Enhancing Quality &
Adding Features
Extending warranties

BARGAINING POWER OF CONSUMERS

DESCRIPTION

IMPLICATIONS

STRATEGY
EMPLOYED

Consumers ability to
influence market &
competition.
Bargaining power of
consumer is higher
when products are
standard and
undifferentiated,

Whenever the
bargaining power of
consumer is
substantial rival
firms efforts are
focused to gain
consumers loyalty.

Higher quality
Negotiate selling
price
Warranty coverage
/
Extended
warranties
Accessory package
Special services

DEVLOPMENT OF SUBSTITUTE PRODUCTS

DESCRIPTION

IMPLICATIONS

In many industries firms

Puts a ceiling on price,
are in close competition
higher price may compel
with produces of substitute consumers to switch to
products in other
substitute products
industries. The competitive Ceiling potential return &
strength of substitute
industry profit
product is best measured
Performance alternative
by inroad into market
offered by substitute
share those products
obtain

STRATEGY EMPLOYED
Increases capacity and
market penetration

BARGAINING POWER OF SUPPLIERS

DESCRIPTION

Supplier can be
a competitive
threat and at
times control
the market.

IMPLICATIONS

STRATEGY EMPLOYED

Raise the price and

reduce the quality.
Reduce the
profitability in
an industry.
Affects the
intensity of
competition in an
industry.

Firms may pursue a

backward integration
strategy to gain control
or ownership of
suppliers.

POTENTIAL ENTRY OF NEW COMPETITORS

DESCRIPTION

IMPLICATIONS

STRATEGY EMPLOYED

Also called the Threat

to new entrants. A
firm entering an
industry brings new
capacity and an
increase desire to
gain market share
and profits.
Whenever, a firm can
easily enter a
particular industry,
the intensity of
competitiveness
among firms
increase.

The higher the entry

barriers, less likely are the
success chances.
Need to gain
economics of scale
quickly
Need to gain tech &
specialized knowhow
Lack of experience
Strong customer loyalty
Strong brand preferences
Large capital requirements
Government regulatory
policies & tariffs
Potential saturation market

New firms sometimes

enter industry with
higher quality
products, lower prices
and substantial
marketing resources.

ENVIRONMENTAL STRUCTURE
The General Environment

Economic Component
Social Component
Political Component
Legal Component
Technology Component

The Operating Environment

Customer Component; Characteristics of Customers, Develop Profile of Target
Customers
Competitive Component; Competitive Analysis, Focus of Competition, Gain
Competitive Advantage
Labour Component; Factors Influencing Workers Suppliers, Skill & Desired
Wage Rates
Supplier Component; Variable Providing Resources, Credit Terms Offered by
Customers.

SUPPLIER COMPONENT

Suppliers
People or firm that supply the goods or services required by a producer to make what
it sells are critical to marketing success & vital part of its marketing environment.
Marketing Intermediaries
Intermediaries are independent business organizations that directly aid in the flow
of goods between a marketing firm and its markets. Types of intermediaries are:
Middlemen wholesalers & retailers.
Facilitating Organizations transportation, warehousing & financing
Channel of Distribution intermediaries operate between a company & its
markets and between a company and its suppliers.
Value Chain
Collectively the company, suppliers and its intermediaries comprises a value
chain.
It is easy to comprehend the value added by manufacturer but it is difficult to
detect the value added by other members of the value chain

ENVIRONMENTAL STRUCTURE
The General Environment

Economic Component
Social Component
Political Component
Legal Component
Technology Component

The Operating Environment

Customer Component; Characteristics of Customers, Develop Profile of Target
Customers
Competitive Component; Competitive Analysis, Focus of Competition, Gain
Competitive Advantage
Labour Component; Factors Influencing Workers Suppliers, Skill & Desired
Wage Rates
Supplier Component; Variable Providing Resources, Credit Terms Offered by
Customers.
International Component; Legal Environment, Economic Environment,
Cultural Environment, Political System.

The International Environment

Choosing Foreign Countries

When to enter
First-mover advantages
Pioneering costs
Scale of Involvement
Lowest if the firm simply decides to export its products to the foreign country.
Highest if the firm decides to have a wholly owned subsidiary.
Modes of Entry (how to enter)
Exporting entering new markets by sending products to other countries
Turnkey projects specialized type of exporting, where the firm handles the startup of
the company and a local client is then handed the key
Licensing entering new markets by transferring the rights to produce and sell products
Franchising entering new markets in which the franchise pays a fee for using the brand
name and agrees to follow the standards and rules
Joint venture means of entering new markets where two or more independent firms
agree to establish a separate firm
Strategic alliance cooperative arrangements between competitors - different countries
Wholly owned subsidiary entering new markets in which a firm fully owns its
subsidiary in foreign countries

IMPORTANT ASPECTS OF INTERNATIONAL COMPONENT

OF AN ORGANIZATIONS OPERATING ENVIRONMENT

Legal Environment
Legal Tradition
Effectiveness of Legal System
Treaties with Foreign Nations
Patent Trademark Laws
Laws Effecting Business Firms
Economic Environment
Level of Economic Development
Population
Gross National Product
Per Capita Income
Literacy Level
Social Infrastructure
Natural Resources
Climate

Cultural Environment
Customs, Norms, Values, Beliefs
Languages
Attitudes
Motivations
Social Institutions
Status Symbols
Religious Beliefs
Political System
Form of Government
Political Ideology
Stability of Government
Strength of Opposition Parties
Social Unrest
Foreign Policy
Government Attitude Toward Foreign
Firms

ORGANIZATIONS INTERNAL ENVIRONMENT ASPECTS

Organizational Aspects
Marketing Aspects
Financial Aspects

Personnel Aspects
Production Aspects

ORGANIZATIONS INTERNAL ENVIRONMENT ASPECTS

Organizational Aspects
Communication Network
Organizational Structure
Span of Control
Hierarchy of Objectives
Policies, Procedures, Rules
Ability of Management Team
Marketing Aspects; Development of Marketing Programme Strategy
Market Segmentation
Choosing Value Proposition
Marketing Mix Elements

Development of Marketing Programme / Strategy

Market Segmentation; Process of dividing the total market for a good or service
and several smaller groups such that members of each group are similar with
respect to factors that influence demand. The basis of market segmentation are
Geographic, Demographic, Psychographic & Behavioral factors.
Choosing Value Proposition; Company must decide how it will serve target
customers? How it will position and differentiate itself in the market place.
Positioning; arranging for a product to occupy a clear distinctive & desirable
place relative to competing products in the minds of target customers.
Differentiation; actually differentiating the market offering to create superior
value.
Marketing Mix (4Ps) & Elements; A combination of the four elements product,
pricing structure, distribution system and promotional activities used to satisfy
the needs of an organizations target market & achieve its marketing objectives.

ORGANIZATIONS INTERNAL ENVIRONMENT ASPECTS

Organizational Aspects
Communication Network
Organizational Structure
Span of Control
Hierarchy of Objectives
Policies, Procedures, Rules
Ability of Management Team
Marketing Aspects; Development of Marketing Programme Strategy
Market Segmentation
Choosing Value Proposition
Marketing Mix Elements

Financial Aspects: Finance department arrange the capital to produce and

market the products.
personnel Aspects: Train the existing manpower and select / hire additional
resources.
Production Aspects: Develop production processes, techniques, capacity and
technology to meet targets effectively & efficently.

ORGANIZATIONS INTERNAL ENVIRONMENT ASPECTS

Organizational Aspects
Communication Network
Organizational Structure
Record of Success
Hierarchy of Objectives
Policies, Procedures, Rules
Ability of Management Team
Marketing Aspects
Market Segmentation
Product Strategy
Promotion Strategy
Distribution Strategy
Financial Aspects
Liquidity
Profitability
Activity
Investment Opportunity

Personnel Aspects
Labor Relations
Recruitment Practices
Training Programmes
Performance Appraisal System
Incentive Systems
Turnover & Absenteeism
Production Aspects
Plant Facility Layout
R&D
Use of Technology
Purchasing of Raw Materials
Inventory Control
Use of Sub-contracting

PERFORMING ENVIRONMENTAL ANALYSIS

Determining the Relevance of Environmental Levels; Determining the
relevance to the organization of various environmental levels, as well as
various strategic issues, can help improve the quality of environmental
analysis regard less of method used.
Implementing Environmental Techniques; Techniques to help
management in developing a worthwhile environmental analysis.
Environmental Scanning; is a technique whereby the manager reviews
information derived from various levels of organizational environment in order
to keep abreast the critical environmental issues and events.
Threat & Opportunity Analysis; not only helps managers organize
environmental information but also focuses them to formulate conclusions
based on the information.
Environmental Forecasting; is a technique whereby managers attempt to
predict the future characteristics of the organizational environment which
help the firm deal with the environment of tomorrow.

Evaluating the Environmental Analysis Process; Environmental analysis

activities are performed in organizations to help them to achieve their
goals effectively & efficiently. These analysis are more instrumental than
others in helping organizations achieve their goals.

GUDELINES FOR ENVIRONMENTAL ANALYSIS

DETERMINING THE RELEVANCE OF ENVIRONMENTAL LEVELS.
All levels do not affect an
organization equally, organization levels exhibit different degree of relevance. To determine
the relevance the organizations size & its degree of involvement in international business is
considered : LARGE SIZE ORGANIZATION. A large size organization is more involved in international
business, variables in the general environments become more relevant to successful
management.
SMALLER ORGANIZATION. Such organizations are less likely to be involved in international
business, & factors in the general environment tend to be less relevant to its successful
management. Operating &internal environment are generally considered relevant to
success regardless of organizations size or its involvement in international business.
ORGANIZATION
Multinational Company
Large National Company
Medium Size Company
Small Size Company
Very Small Company

HIGH
Internal
General
Operating
Internal
General
Operating
Internal, Operating
Internal Operating
Internal Operating

MEDIUM
-

REDUCED
-

General
-

General
General

DETERMINING THE RELEVANCE OF STARTEGIC

ISSUES
A strategic issue is an environmental factor, (either
inside/outside the organization) is likely to have an
impact on its ability to meet its objectives. Certain
organizations are more sensitive to certain strategic
issues than others. Manager should determine the
sensitivity of their organization to various
environmental factors is to design & implement an
internal system. Therefore management should focus
on analyzing the environmental level & in long run
should understand, how environmental levels &
relationships among them influence organizational
operations.

ENVIRONMENTAL ANALYSIS TECHNIQUES

ENVIRONMENTAL SCANNING
Is a process of gathering information about events & their relationships within an
organizations internal & external environments.
Scanning involves reviewing &evaluating information about internal & external
environments, can be gleaned from several sources.
PURPOSE. To help management determine the future direction of the organization.

METHODS OF ENVIRONMENTAL SCANNING SYSTEM

IRREGULATR SCANNING SYSTEMS. These systems pay little attention to future
environmental events &focus mainly to identify event that has already taken place.
REGULAR SCANNING SYSTEMS. These systems revolve around a regular review of
environment. Which is made annually. The focus of the system is retrospective, but
some thought is given to future conditions.
CONTINUOS SCANNING SYSTEMS. Constantly monitor components of organizational
environment. These systems tend to be more futuristic than irregular/regular
system.

ENVIRONMENTAL FORECASTING
It is the process of determining, what conditions will exist within on
organizations environment at same future tine. To ensure future
environmental success companies determine future environmental
conditions. Environmental forecasts commonly made include economic,
social, political & technological forecasts. Methods of Environmental
Forecasting are: Expert Opinion
Trend Exploitation
Trend Correlation
Dynamic Modeling
Cross Impact Analysis
Multiple scenarios
Demand/hazard forecasting

METHODS OF ENVIRONMENTAL FORECASTING

Expert opinion, knowledgeable people are selected and asked to assign importance and
probability rating to various possible future developments. The most refined version, the
Delphi method, puts experts through several rounds of event assessment, where they keep
refining their assumptions and judgments.
Trend extrapolation, Researchers fit best-fitting curves through past time series to serve as a
basis for extrapolation. This method direction of movement.
Trend correlation. Researchers correlate various time series in the hope of identifying leading
and lagging relationships that can be used for forecasting.
Dynamic modeling. Researchers build sets of equations that attempt to describe the
underlying system. The coefficient in the equations are fitted through statistical means.
Econometric models of more than three hundred equations for example are used to forecast
changes in the US economy.
Cross-impact analysis. Researchers identify a set of key trends (those high in importance / or
probability). The question arises: if event A occurs, what will be the impact on other trends?.
The results are then used to build sets of domino chains with one event triggering others.
Multiple scenarios. Researchers build pictures alternative futures, each internally consistent &
with a certain probability of happening. The purpose of the scenarios is to stimulate
contingency planning.
Demand/hazard forecasting. Researchers identify major event that would greatly affect the
firm. Each event is rated for its convergence with several major trends taking place in society
and for its appeal to each major public group in the society. The higher the events
convergence and appeal, the higher its probability of occurring the highest scoring events
are then researched further.