SM_Environmental Analysis

DEGREE OF ENVIRONMENTAL COMPLEXITY

Environment
Factors or forces those have the potentiality to influence
over the firms operations.

External General or Remote, Industrial and Specific

Internal SWOT and Value Chain model

Environmental Uncertainty Matrix

Simple

DEGREE OF ENVIRONMENTAL CHANGES

Stable

Complex

Dynamic

Stable & Predictable

Few
&
similar
components and, remain
same over time
Minimal
need
for
sophisticates knowledge

Stable & Predictable

Many & not similar
components but remain
same over time
High
need
for
sophisticates knowledge

Dynamic & predictable

Few & similar components
and,
always
in
change
process
Minimal
need
for
sophisticates knowledge
Dynamic & unpredictable
environment
Many
&
not
similar
components but always in
change process
High need for sophisticates
knowledge

To manage environment a manager mainly can do two

things:
Positioning the company in the environment so that it is
capable to provide the best defense against its
competitive environment.

Taking the offensive by attempting to change the

environments i.e., challenging strategy.

Environmental management refers to the proactive

strategies aimed at challenging the environmental context
in which the organization operates its business.
SM_Envir_Page 1 of 6

SM_Environmental Analysis

Three
General
Ways
of
Environmental
Management
01. Strategic Maneuvering: The firms conscious effort
to change the boundaries of its task environment. And
the aggressive companies continuously change their
boundaries of tasks such as new product and market
development, diversification, acquisitions etc.

Strategic maneuvering at the different level of the

organization:

Corporate Level: Moving in or out of certain task

environment

Business level: Properly positioning the firm in the

market niche by creating a new task environment.

02. Independent strategies: Individual firm act on its own

to change some aspect of its current environment.
03. Cooperative strategies: Two or more firm work
together to change their own or industrial environment.
This happen when,
a. Taking joint actions reduce cost and risks
b. Mutual cooperation increases their power
What to do to choose management strategies
Find out and attempt to change appropriate elements /
factors of the environmental forces those

Causes the firms operational or business problems

Provide business or operational best opportunities and

Forces that the firm can change successfully

Choose appropriate strategies that focus on related

elements of the environment and the firms operations
SM_Envir_Page 2 of 6

SM_Environmental Analysis

Implement strategies that offer the most benefits for the

firm at the lowest cost

Strategic Environmental Analysis

REMOTE ENVIRONMENT
Economic Factors: National and international nature
and direction of the economy such as availability of
credit, interest rate, inflation, trends of growth in which
a industry operates.
Social Factors: Changes in the values, beliefs, attitude,
education, lifestyle etc in the social culture where a firm
targeted its business. Recent trends in the social
changes as changes in the labor market, distribution of
the population, lifestyle of the people etc.
Political factors: The direction and stability of political
conditions including legal and regulatory parameters
within which an industry operates and wants to operate.
Technological factors: Technological changes that
might influence the whole industry.
Ecological factors: Relationships among human and
others living things that might be affected by the goods
and services of the industry.
INDUSTRY ENVIRONMENT
Entry threats of the new firm

Economic of scale

Product differentiation

Capital requirements

Cost disadvantages

Government policies etc.

SM_Envir_Page 3 of 6

SM_Environmental Analysis

Suppliers powerfulness

Dominate by few suppliers

Supply a unique or least differentiated products

If the buyers are not that important for the suppliers

Suppliers side integration etc.

Powerfulness of the Buyers

Buyers purchase a large volume

Many substitute products

Quality of life style of the buyers

When product does not save the buyers money

Possibilities of buyer side integration etc.

Substitute products can limit the potential of the

industry and its profits & growth too.

Higher rivalry among the firm

Equal size of the firm

Industry growth is slow

Product got lack of differentiation

Exit barrier is high

STEPS OF INDUSTRY ANALYSIS

Define the boundary of an industry

Define who are the competitors

Major determinants of the competition

Why defining the boundary is important? To determine

.

SM_Envir_Page 4 of 6

SM_Environmental Analysis

The areas in which the firm should compete

Competitors of the firm

Key Industrial Success factors

Key Success Factors for the firm

Why defining boundary is difficult?

Over the time evolution creates new opportunity and

threats

Evolution creates new industry with-in the industry

Globalization of the industry

Common Mistakes in Analyzing Industry Environment

Over emphasis the firm strengths

Over looking the environmental changes

Under estimate the competitors

Misreading the competitors and assuming that the

competitors and environment will behave in a same
manners

How to Identify Competitors? through investigating

How the other firms are defining their scope of market?

How similar services customers are getting from the
products that offered by the firm
How the other firms are committed with their customer
& industry

Common Mistakes in Identifying the Competitors

Over emphasizing current and known competitors

Over emphasizing large competitors ignoring the small
one
SM_Envir_Page 5 of 6

SM_Environmental Analysis

Assuming that the competitors will behave in a same

manners
Over looking the potentials of international competitors
etc.

IMPORTANCE OF ANALYSING OPERATING

ENVIRONMENT

Determine the competitive position of a firm

Determine the nature of relationship that should be with
the customers

Determine the firms relationship with suppliers and

creditors
Common Factors that a Firm MUST Analyze

Size of the market

Growth rate of the firms market

Market capacity and surplus or shortages

Changes in the technology

Capital requirements

Customers loyalty

Possibilities of business integration

Economic of scale

Innovations etc.

SM_Envir_Page 6 of 6