ENVIRONMENTAL ANALYSIS

Environment:-
Aggregate of all conditions, events and
influences that surround and affect an
organization

Shape the future of the organization

 CHARACTERISTICS OF
ENVIRONMENT

UNCERTAIN
COMPLEX
DYNAMIC
MANY-SIDED
WIDE RANGING INFLUENCE
ENVIRONMENTAL SCANNING
Monitoring, Evaluating and disseminating of
information from the external and internal
environments to key people within the
organization.

Done to avoid strategic surprise and maintain

long term corporate health.

Positive relationship is demonstrated between

environmental scanning and profits
 EXTERNAL ENVIRONMENT:
Surrounding Factors outside an
organization which give rise to opportunities
and threats for the organization.

INTERNAL ENVIRONMENT
Surrounding Factors inside an organization
that give rise to strengths and weaknesses of
an organization to manage the opportunities
and threats posed by the external
environments.
Opportunity:
Favorable position in the external
environment that consolidates and
strengthens its position.

Threat:
Unfavorable position in the external
environment that may cause damage
and risk to the organization.
Strength:
Inherent capacity within an organization
that helps it to gain some sort of
strategic advantage.

Weakness:
inbuilt constraint or limitation of the
organization that can cause strategic
disadvantage.
 IS ENVIRONMENTAL
SCANNING NECESSARY?
In the mid fifties, Hindustan Lever Ltd., forecasted an
acute shortage of edible oil in India during the next
twenty years. The forecast came true with pin point
accuracy. However, the company was able to avert a
collapse by undertaking diversification in a big way,
taking up many new products, over a period of ten to
fifteen years. The conscious analysis of the company's
environment, keeping the long term perspective in mind
enabled the company to make painless transition. The
company had realized the importance of a crucial
management function, that of strategic management,
that of shaping the future of organization, which the other
companies cited above had not.
 NEED FOR ENVIRONMENTAL
APPRAISAL
To learn about events and trends in the
environment and project the future position in
each factor of the environment.

To identify the favorable and unfavorable factors

of the environment from the firms view

To find the opportunities and threats embedded

in the environmental events and trends.
 To assess the scope of various opportunities
and identify the ones having the potential of
becoming good businesses

To draw up the attractiveness profile of these

opportunities

To draw an opportunity threat profile

To identify those opportunities that will help in

reducing the strategic gap
 THE NEED GAP

DESIRED
PERFORMANCE

NEED GAP SEARCH FOR

TO BE BRIDGED OPPORTUNITY
CURRENT
THREAT
STRATEGY
EXPECTED PERFORMANCE
OF CURRENT STRATEGY
 RELEVANT EXTERNAL
ENVIRONMENT

Part of general environment, having

strategic significance for the organization.

Will include those factors that are highly

related to the mission, vision, objectives
and strategies of the company.
 EXTERNAL ENVIRONMENT
MACRO ENVIRONMENT
(Societal environment)
General forces that do not
directly affect the short run
activities of the organization
but can have an influence on
the long run decisions of the
organization.
MICRO ENVIRONMENT
(Task environment)
Elements or groups that
directly affect the company and
in turn are affected by it.
(Issues directly related to
business)
 CONSTITUENTS OF MACRO
ENVIRONMENT
Demographic environment
Socio cultural environment
Economic environment
Political environment
Natural environment
Technology environment
Regulatory environment
 Demographic environment
CHARACTERISTICS OF POPULATION
Size
Growth rate
Age distribution
Religious composition
Literacy levels
Composition of workforce
Household patterns
Regional characteristics
Population shifts
 Socio cultural environment
FORCES THAT REGULATE THE VALUES,
MORALS AND CUSTOMS OF THE
SOCIETY
Culture
Social class
Traditions
Beliefs
Values
Attitudes
Life styles
 Economic environment
Factors related to means of production and
distribution of wealth and affect the
organizations business
Economic structure
Stage of economic development
GDP/ GNP trends
Per capita income
Real disposable income
Monetary, fiscal and industrial policies
Infrastructural factors
Unemployment level
Wage levels
Membership in regional economic associations
 Political environment
Factors affecting the management of public affairs and
having an impact on the business of an organization

Form of government
Political ideology
Tax laws
Stability of governments
Governments attitude towards business
Strength of opposition groups.
Terrorist activities
Protectionist sentiment
 Natural environment
Natural forces having an impact on
organizations
Ecology
Endowment of natural resources; raw
materials, energy, gas
Climate
Pollution levels
 Technological environment
Total government and industry spending
on R&D
New developments in technology
Rules related to technology transfer
Energy availability and cost
Patent trademark laws
 Regulatory environment
Laws and legislations related to business
Corporate affairs
Consumer protection
Employee protection
Sectoral protection
Corporate protection
Protection of society
Regulations on products, prices and distribution
Protection of national firms against foreign firms.
Any Other Government policies that may affect business
organizations.
ENVIRONMENTAL SCANNING
Monitoring, Evaluating and disseminating of information
from the external and internal environments to key
people within the organization. (DECIDE ON HOW AND
WHAT TO ANALYZE?)

Identify the opportunities and threats present in the

environment (ETOP)

Match the opportunities and threats with the strengths

and weaknesses of the organization (SAP, SWOT)
Sources of information for external
environment analysis

Secondary compiled sources

Syndicated services
Media
Companys internal sources
Formal studies
Informal sources
INTERNET
 Methods and techniques used for
environmental analysis

QUANTITATIVE QUALITATIVE
TECHNIQUES TECHNIQUES
EXTRAPOLATION EXPERT OPINION
REGRESSION METHOD
ANALYSIS SCENARIO WRITING
Trend analysis
 IDENTIFYING STRATEGIC
EXTERNAL FACTORS
External environment is vast and
companies respond differently to the very
same factors

Personal values of a corporations

manager and the success of current
strategy may bias their perception of what
to monitor in the external environment and
how to interpret the changes
 Strategic myopia
The tendency to reject unfamiliar and
negative information
 Issues priority matrix
Identify the number of likely trends emerging
in the societal and task environments the
ones that will determine what the industry
would look like

Assess the probability of these trends

actually occurring from low to high

Attempt to ascertain the likely impact (low-

high) of each of these trends on the company
being examined.

A matrix will be formed. Those key external

factors which have medium to high
probability of occurrence and also medium to
high probability of impact on the organization
must be the ones to be scanned and
analyzed.
 IPM
Probable impact on corporation
High Medium Low
Probability of occurrence

High High priority High priority Medium

priority

Medium High priority Medium priority Low

priority

Low Medium Low priority Low

priority priority