Strategic Management Environmental Analysis

A A A A A
A N U B A J R A C H A R Y A
L E C T U R E R O F S T R A T E G I C M A N A G E M E N T
I B & M S C O L L E G E

Environmental Analysis
Agenda
Environmental Analysis:-
 Introduction
 Need & Importance of Environmental Analysis
 Process of Environmental Analysis
 Limitations of Environment Analysis
 Levels of Environmental Analysis

Environmental Scanning
Agenda
Environmental Scanning:-
Introduction
Features of Environmental Scanning
Procedure of Environmental Scanning
Approaches to Environmental Scanning
Techniques of Environmental Scanning

Forecasting
Agenda
Forecasting:-
 Definition of Forecasting
 Features of Forecasting
 Process of Forecasting
 Techniques of Forecasting
Criteria of Good Forecasting Technique

Internal Analysis
Agenda
Internal Analysis:-
 Introduction
 Dynamics of Internal Analysis
Approaches/Methods of Internal Analysis
 SWOT Analysis

Environmental Analysis is described as the
process which examines all the components,
internal or external, that has an influence on the
performance of the organization.
The internal components indicate the strengths
and weakness of the business entity whereas the
external components represent the opportunities
and threats outside the organization.

Finally, the environmental analysis is awareness
of the organizations to the success.

Need & Importance of Environmental Analysis
They help the managers to achieve the organizational
objectives effectively than other organizations.
An enterprise cannot achieve its objectives unless it
adapts itself to Environmental change.
Systematic analysis enables the managers to predict
the future and to have enough time for other
activities. This minimizes the time pressure of the
managers

Process of Environmental Analysis
1. Identifying Environmental Factors: First of all, the
factors which influence the business entity are to be
identified, to improve its position in the market. The
identification is performed at various levels, i.e. company
level, market level, national level and global level.
2. Scanning and Selecting Relevant and key factors:
Scanning implies the process of critically examining the
factors that highly influence the business, as all the factors
identified in the previous step effects the entity with the same
intensity.
3. Defining variables for Analysis: In this step, a careful
analysis of all the environmental factors is made to determine
their effect on different business levels and on the business as
a whole. Different tools available for the analysis include
benchmarking, Delphi technique and scenario building.

Contd….
4. Using different Methods, Techniques, and Tools: Some of
the methods are Scenario Building, Benchmarking, and Network
Methods. Some of the techniques are Brainstorming, survey,
Historical enquiry. Some of the analytical tools are Mean, Median,
Mode, Frequency.
5. Forecasting Environmental Factors: After identification,
examination and analysis, lastly the impact of the variables is to be
forecasted.
6. Designing Profiles: Internal areas are recorded in Strategic
Advantages Profile (SAP), and External areas are recorded in
Environmental Threat and Opportunity Profile (ETOP). These two
Profiles are designed & combined in to one.
7. Strategic Position and Reporting Writing: After analysis of
business environment a strategist knows the actual situation and
can make some future forecasting based on the Environmental
Analysis.

Limitations of Environmental Analysis
Environmental analysis suffers from certain limitations
also. These limitations are as
follows:
1. Lack of Forewarning of Unforeseen Events:
Environmental analysis does not predict the future. It
does not eliminate uncertainty for the organization also.
2. No Assurance as to Organization Effectiveness:
Environmental analysis does not ensure organizational
effectiveness. It acts only as inputs in strategy
development and testing.

Contd……
3. Not fully Reliable:
Normally, people place too much reliance on the
information collected through environmental
scanning. But in practice, it is not so. When there is
overloading of information, one is likely to get
confused.
4. Absence of Strategic Approach:
Success of any organization lies in adventure and
strategic risk-taking. So this analysis should be
strategically done.

Levels of Environmental Analysis
I. Macro External Environment Analysis (General
or Remote level environment): These components
offer opportunities and threat for the firm. Its
Components are Economic, Political, Social,
Technological & International.
II. Micro Internal Environment Analysis (Operating
Level ): Its factors include Competition, Supplier,
Customer, Channels & Manpower. There are two levels:
a) Industry Analysis
b) Competitive Analysis
III. Firm Level Internal Analysis: The factors of this level
of environment include functional management such as
Organizational, personnel, Marketing, Production &
Financial Components.

Environmental Scanning
Environmental scanning is the process of gathering
information about events and their relationships
within an organization's internal and external
environments.
Environmental scanning is a process of gathering,
analyzing, and dispensing information for tactical or
strategic purposes.

Features
Holistic Exercise:- EA is a holistic exercise in which
total view of environment is taken.
Heuristic or Exploratory Process:- While the
monitoring aspect of the environments is concerned
with present developments, a large, part of the process
seeks to explore the unknown area.
Continuous Process:- EA must be a continuous
process rather than being an starting scanning
system.

Importance of Environmental Scanning:
A. Customer needs: It signals an organization to the changing needs
and requirements of the customers.
B. Capitalize opportunities: It helps an organization to
capitalize opportunities earlier than the competitors.
C. Qualitative information: It provides a base of objective
qualitative information about the environment that can be
utilized for strategic management.
D. Intellectual simulation: It provides intellectual stimulation to
managers in their decision making.
E. Image: It improves the image of the organization as being
sensitive and responsive to its environment.

Procedure of Environmental Scanning
 Environmental scanning is a useful managerial tool for assessing the environmental trend.
The following process is adopted for environmental scanning:-
1) Study the forces and Nature of the Environment: In the first step of environmental
scanning, the forces of the environment that have got significant bearing in the growth
and development of the business should be identified. They may be political, economic,
sociology-cultural, technological, legal, physical environment and global components.
2) Determine the sources of Information: After studying the process and nature of the
environment, the sources of collecting information from the environment should be
determined.
3) Audit Environmental Influences
4) Identify key competitive forces through structural Analysis
5) Identify Strategic Position
6) Identify key opportunities & Threats

Approaches To Environmental Scanning
1. Systematic approach: Under this approach, a systematic method is
adopted for environmental scanning. The information regarding market
and customer, government policy, economic and social aspects are
continuously collected. In other words, the environment is monitored in
a regular way.
2. Ad-hoc Approach: Under this, specific environmental components are
only analyzed through survey and study. Ad-hoc approach is useful for
collecting information for specific project, evaluating the strategic
alternative or formulating new strategies. It is not a continuous process.
3. Processed form approach: Under this, the information collected from
internal and external sources are used after processing them. Normally,
the information obtained from secondary sources are processed and
used as per the requirements of the business.
4. Scan and Assess the Trend: This is the final step of environmental
scanning process. It involves a detailed and micro study of the
environment to identify the early signals of potential changes in the
environment.

Techniques of Environmental Scanning
1. SWOT Analyses :
Strength & weakness are determine by internal analysis
whereas opportunities & threats are determine by external
analysis.
Strengths: characteristics of the business or project
that give it an advantage over others.
Weaknesses: are characteristics that place the team at a
disadvantage relative to others.
Opportunities: elements that the project could exploit to
its advantage.
Threats: elements in the environment that could cause
trouble for the business or project.

2. ETOP Analyses: ETOP stands for Environmental
threat & opportunity profile.
Importance of ETOP:
1. Provide clear picture to the strategist about the sectors &
factors in these sectors which may have favorable impact
on the organization.
2.It help an organization in formulating an
appropriate strategy to take advantage of opportunity &
threats to the business.
3. Spying: To try secretly to get information about a
organization.
4. Ratio analysis
5. Interpolation & Extrapolation: To estimate values of data
or a function between two known values.
To make an estimate about something from known facts.

3. QUEST: Quick Environmental Scanning Technique as proposed
by B Nanus. It is a scanning procedure designed to assist executives
and planners to keep changes things that are next to each other in a
line.
Process of Quest:
1. Preparation
2. Environmental Scanning Workshop
3. Intermediate Analysis & Report
4. Strategic options workshop & follow-up
4. PEST: PEST stands for “political, economic, social &
technological” and describes a framework of macro-
environmental factors used in the environmental scanning
component of strategic management.

Forecasting
Forecasting is the process of predicting the future.
Whether it is predicting future demand, sales, or
production, forecasting is an important yet unavoidable
task that is an internal part of the most all business
activities.
Forecasting is a systematic guessing of the future course of
events.
 Forecasting provides a basis for a planning.
 Forecasting is an operational research technique used as a
basis for management planning and decision making.

Characteristics
1. It is concerned with future events.
2. It is necessary for planning process.
3. The impact of future events has to be considered in
the planning process.
4. It is a guessing of future events.
5. It considers all the factors which affect
organizational functions.
6. Personal observation also helps forecasting.

Process of Forecasting
1. Thorough preparation of foundation:- The very purpose of
thorough
preparation of a foundation is that the forecasting is based on the
foundation.
2. Estimation of Future:- The brightness of future period can be
estimated in consultation with the key personnel & it may be
communicated to all the employees of the business unit.
3. Collection of Results:- Relevant records are prepared &
maintained to collect the result.
4. Comparison of Results:- The actual results are compared with
estimated results to know deviations. This will help the management to
estimate the future.
5. Refining of Forecast:- The forecast can be refined in the light of
deviations which seem to be more realistic.

Techniques of Forecasting
 Qualitative Techniques/Opinion Poling Method:
1. Consumer Survey Methods:- Most direct method of
forecasting demand in the short-run. Surveys are conducted
to collect information about future purchase plans of the
probable buyers of the product. It includes:
a) Complete Enumeration Survey
b) Sample Survey and test Marketing
c) End-use method
2. Sales Force opinion methods: (Collective opinion
methods) Field survey can be conducted to collect
information regarding the attitude of people.

Contd….
3. Delphi Technique: (Expert opinion methods)
Rand corporation has developed the Delphi
method initially in 1969 to forecast the military
events. Then, it has been applied in other areas also.
Delphi method is useful when past data are not
available and where the past data don’t give an
indication for the future events.

Techniques of Forecasting
 Quantitative Techniques/Statistical or Analytical
Methods:
1. Trend Projection Method: An old firm can use its
own data of the past years regarding its sales in sales
in past years. The following methods are:-
A. Graphical Method
B. Least square Method
C. Time series data
D. Moving average data
E. Exponential Smoothing

Contd….
2. Barometric Method:- Index numbers are used to
measure the state of condition of business
condition between two or more periods. Business
trend, seasonal fluctuations of a business and
cyclical movements are studied with the help of
index numbers.
3. Regression Method:- Regression analysis is used
to find out the effect of changes of the relative
movements of two or more inter-related variables.
4. Econometric Method

Importance of Forecasting
1. Promotion of Business
2. Key to planning
3. Co-ordination
4. Control
5. Success in Organization
6. Achieving Objectives
7. Improving the quality of General Management
8. Helping every Aspect

Dynamics of Internal Analysis
Resources
Organizational Behavior
Strength & Weaknesses
Capabilities: Capability is the inherent capacity or
potential for an Organization to use its strengths and
overcome its weaknesses in order to exploit the
opportunities & face the threats in its external
environment.
Synergistic Effects
Competencies
Competitive Advantage (Strategic
Advantage/Competitive Advantage/Distinctive
competitiveness)

Approaches/ Methods Of internal Analysis
1. Value chain Analysis
2. Functional Analysis
3. Grid Approach
4. Quantitative Analysis
5. Qualitative Analysis
6. Benchmarking
7. Balanced Scorecard

Value
THE VALUE IS THE TOTAL AMOUNT (i.e. TOTAL
REVENUE) THAT BUYERS ARE WILLING TO PAY FOR A
FIRM’S PRODUCTS.
THE DIFFERENCE BETWEEN THE TOTAL VALUE (OR
REVENUE) AND THE TOTAL COST OF PERFORMING
ALL OF THE FIRM’S ACTIVITIES PROVIDES THE
MARGIN .
THE VALUE CHAIN IS A TOOL DEVELOPED BY DR.
MICHAEL PORTER(HARVARD BUSINESS SCHOOL)

What is the value chain?
 Porter’s definition includes all activities to design, produce,
market, deliver, and support the product/service.
 The value chain is concentrating on the activities starting
with raw materials till the conversion into final goods or
services.
 Two categories:
I. Primary Activities (operations, distribution, sales)
II. Support Activities (R&D, Human Resources)

What is value chain analysis?
Used to identify sources of competitive advantage
Specifically:
a) Opportunities to secure cost advantages
b) Opportunities to create product/service
c) differentiation
d) Includes the value-creating activities of all industry
participants

 TYPES OF FIRM ACTIVITIES
Primary activities:
 Those that are involved in the creation, sale and transfer of
products (including after-sales service)
 Inbound logistics
 Operations
 Outbound logistics
 Sales and marketing
 Service and support
Support Activities:
 Those that merely support the primary activities:
a) Human resources (general and admin.)
b) Tech. development
c) Procurement

 PRIMARY ACTIVITIES
1. INBOUND LOGISTICS:- CONCERNED WITH RECEIVING,
STORING, DISTRIBUTING INPUTS (e.g. HANDLING OF RAW
MATERIALS, WAREHOUSING, INVENTORY
CONTROL) OPERATIONS- COMPRISE THE TRANSFORMATION OF
THE INPUTS INTO THE FINAL PRODUCT FORM (E.G.
PRODUCTION, ASSEMBLY, AND PACKAGING)
2. OUTBOUND LOGISTICS:- INVOLVE THE COLLECTING, STORING,
AND DISTRIBUTING THE PRODUCT TO THE BUYERS (e.g.
PROCESSING OF ORDERS, WAREHOUSING OF FINISHED
GOODS, AND DELIVERY)
PRIMARY ACTIVITIES
 MARKETING AND SALES:- Identification of customer needs and
generation of sales. (e.g. ADVERTISING, PROMOTION, DISTRIBUTION)
 SERVICE:- INVOLVES HOW TO MAINTAIN THE VALUE OF THE
PRODUCT AFTER IT IS PURCHASED.(e.g. INSTALLATION, REPAIR,
MAINTENANCE, AND TRAINING)

 SUPPORT ACTIVITIES:
FIRM INFRASTRUCTURE
 The activities such as Organization structure, control system,
company culture are categorized under firm infrastructure.
HUMAN RESOURCE MANAGEMENT
 Involved in recruiting, hiring, training, development and
compensation.
TECHNOLOGY DEVELOPMENT
 These activities are intended to improve the product and the
process, can occur in many parts of the firm.
PROCUREMENT
 Concerned with the tasks of purchasing inputs such as raw
materials, equipment, and even labor.

Functional Analysis
One of the simplest ways to scan & analyze an
organization’s internal environment is through
functional analysis.
Types of Areas in Functional Analysis:
A. Production Function
B. Marketing Function
C. HR Function
D. Financial Function
E. R&D Function
F. Operations Function

Grid Approach
 Grid’s Approach to SM helps to address fundamental
issues related to business direction, defining the
options to get there, & the allocation of resources to
achieve these goals.

Quantitative Analysis
I. Financial Analysis: It is vey popular method used
by all those involved in investment decisions like
Entrepreneurs, managers, shareholders, &
financiers.
The prime objective of this analysis is to assess the
financial health of the organization.
Three main methods in financial analysis:
1. Ratio Analysis
2. Economic Value-Added (EVA) Analysis
3. Activity-based cost (ABC) Accounting

Quantitative Analysis
2. Non-financial Analysis: Can't be best expressed in
monetary units. E.g of non-financial quantitative
measures are:
a) Employee turnover
b) Absenteeism
c) Market ranking
d) Rate of advertising recall
e) Service call-rate
f) Inventory units used per period

Qualitative Analysis
Many of the Strengths & Weaknesses of an
organization can’t be expressed in quantitative
terms.
Qualitative analysis can also effectively supplement
quantitative analysis. Quantitative analysis is
considered as ‘soft’ as compared to the ‘hard’
analysis based on numbers.

Importance
A. Understand Cost:- e.g-which one is least
profitable & how one might reduce fixed/variable cost
B. Improve working practice:- e.g- by planting new
varieties of plants to supply different markets.
C. Understand Business Drivers:- Business drivers
are local groups that can share ideas & information,
based on benchmarking.
D. Improve Quality:- Improvement in the quality of the
product/services.

What is a Balanced Scorecard?
 The Balanced Scorecard is a strategic planning and management
system that organizations use to:
1. Communicate what they
are trying to accomplish.
2. Align the day-to-day work
that everyone is doing with
strategy.
3. Prioritize projects, products,
and services.
4. Measure and monitor progress
towards strategic targets.

Balanced Scorecard Concept
 Was first published in 1992 by Robert Kaplan and David Norton, a book
followed in 1996.
 The approach is to provide 'balance' to the financial perspective.
 The system connects the dots between big picture strategy elements such
as mission (our purpose), vision (what we aspire for), core values (what
we believe in), strategic focus areas (themes, results and/or goals) and
 the more operational elements such as objectives (continuous
improvement activities), measures (or key performance indicators, or
KPIs, which track strategic performance), targets (our desired level of
performance), and initiatives (projects that help you reach your targets).

Why Use a Balanced Scorecard?
Improve organizational performance by measuring
matters
Increase focus on strategy and results
Align organization strategy with workers on a day-to-
day basis
Focus on the drivers key to future performance
Improve communication of the organization’s Vision
and Strategy
Prioritize Projects / Initiatives

4 Business Perspectives
The Balanced Scorecard
model suggests that we
view the organization from
4 perspectives.
Then Develop metrics,
collect data and analyze it
relative to each of these
perspectives

4 Business Perspectives Questions
Financial perspective
 Strategic question:
 “To succeed financially, how should we appear to our
shareholders?”
 Examples (measurable indicators):-
 Cash flow
 Sales growth
 Operating income
 Return on Equity (RoE)
 Return On Investment (ROI)
 Return on Capital Employed (RoCE)
 Financial Results (Quarterly/Yearly)
 Value Outcome:-
 Financial performance/profitability

Customer Perspective
 “To achieve our vision, how should we appear to our
customers?”
 Examples (measurable indicators):
 Percent of sales from new products
 On time delivery
 Share of important customers’ purchases
 Ranking by important customers
 Delivery performance to customer
 Quality performance for customer
 Customer satisfaction rate
 Customer percentage of market
 Customer retention rate
 Value Outcome:
 Customer satisfaction

 Business (internal) process perspective
 “To satisfy our shareholders and customers, what
business processes must we excel at?”
 Examples (measurable indicators):
 Cycle time
 Unit cost
 New product introductions
 Number of activities per function
 Duplicate activities across functions
 Process alignment (is the right process in
the right department?)
 Process automation
 Value Outcome:
 Efficiency

Learning innovation and Growth perspective
Strategic question:
 “To achieve our vision, how will sustain our ability to
change and improve?”
Examples (measurable indicators):
 Time to develop new generation of products
 Life cycle to product maturity
 Time to market versus competition
 Is there the correct level of expertise for the
job?
 Employee turnover
 Job satisfaction
 Training/Learning opportunities
Value Outcome:
 Organizational knowledge and growth capacity

Balanced Scorecard Measurement

What is SWOT Analysis? Concept
A technique that enables a group or individual to move
from everyday problems and traditional strategies to a
fresh prospective.
SWOT analysis looks at your strengths and weaknesses,
and the opportunities and threats your business faces.
 The SWOT Analysis framework is a very important and
useful tool to use in marketing Management and other
business applications.
 As a basic tool its mastery is a fundamental requirement
for the marketer, entrepreneur or business person.

Strengths
Strengths
Strengths
Strengths
Strengths
Strengths
Strengths
SWOT
Analysi
s
What is SWOT Analysis?
Technique is credited to Albert Humphrey
who led a research project at Stanford
University in the 1960s and 1970s.
Strengths
Planning tool used to understand
Strengths, Weaknesses, Opportunities,
& Threats involved in a project /
Opportunity Weakness business.
Used as framework for organizing and
using data and information gained from
situation analysis of internal and external
Threats environment.

STRENGTHSSTRENGTHS
STRENGTHS
Characteristics of the business or a
team that give it an advantage over
others in the industry.
Beneficial aspects of the organization
or the capabilities of an organization,
process capabilities, financial
resources, products and services,
customer goodwill and brand loyalty.
Examples - Abundant financial resources, Well-known
brand name, Lower costs
[raw materials or processes], Superior management
talent, Better marketing skills, Good distribution skills,
Committed employees

WEAKNESSES
Characteristics that place the firm at a
disadvantage relative to others.
Detract the organization from its ability
to attain the core goal and influence its
growth.
Weaknesses are the factors which do
not meet the standards we feel they
should meet. However, weaknesses
are controllable. They must be
minimized and eliminated.
Examples - Limited financial resources,
Weak spending on R & D, Very narrow
product line, Limited distribution, Higher
costs, Out-of- date products / technology,
Weak market image, Poor marketing
skills, Limited management skills,
Under- trained employees.

OPPORTUNITIES:
1. a company can identify new products
2. the company can go for new sectors
3. the company can go for new geography
4. New economy - the company can go and extend
their market.
5. Company can take the advantage of the changing
lifestyle & Can go for the opportunities available
technology changing.

THREATS:
1. Political threats
2. Environmental threats
3. Technology threats
4. From the partners business
5. From the buyers
6. From the suppliers
7. From the key staff/employees

Three stages of a SWOT analysis
a) Identify.
b) Draw conclusions.
c) Translate into
strategic action.

Advantages of SWOT
Analysis
1. Consolidate strengths
2. Minimizes Weaknesses
3. Helps to Grab Opportunities
4. Minimizes Threats
5. Facilitates Planning
6. Facilitates Alternative Choice
7. Helps to Innovate
8. Ensure Survival & Success

Nirma chemicals ltd.
Nirma was a basic detergent with no color,
design or sophistication on the pack the
product.
Was priced at around 35% of surf.
Price, medium quality, distribution
reach and effective use of media.
Market share grew from 0% in 1976 to about 60% in
1987 in over a period of ten years
It has become the largest selling brand and the
success of nirma is due to affordable price.
The title 'NIRMA GIRL' going round and round
on her feet makes a strong impact for the brand.

STRENGTH :-
Strong brand equity.
Nirma is a rs.17 billion umbrella brand
offering consumers a brand portfolio of products at
multiple price points in detergents, soaps & personal
care market.
Market leadership in detergents and fabric wash.
Has wide distribution network.
Its strategy of rural marketing is its unbeatable
strength.

WEAKNESSES:-
-high interest burden.
-less presence in premium segment.
-lacks global tie up
OPPURTUNITIES:-
-exports.
-acquisitions for strengthening its distribution tie-ups.
-entry into other categories like shampoos, toothpastes and
fabric whiteners.
THREATS:-
-MNCs are approaching Indian markets.
-brand name products have greater influence over it.
-nirma has been able to niche for itself in the face of intense
MNC competition

Nirma SWOT Analysis
NIRMA's achievement is surely something about
which an Indian can be proud of brand that has lived
up to its catch line; BETTER PRODUCTS ,BETTER
VALUE ,BETTER LIVING...!

Strategic Management Environmental Analysis

Strategic Management Environmental Analysis

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Strategic Management Environmental Analysis