ENVIRONMENTAL ANALYSIS UNIT III

Environmental Analysis Managers must have a deep understanding and appreciation of the environment in which they and their organizations function. Managers must have a deep understanding and appreciation of the environment in which they and their organizations function. The environment of business is the ‘aggregate of conditions, events and influences that surround and affect it’. The environment of business is the ‘aggregate of conditions, events and influences that surround and affect it’.

Environmental forces could be classified into two categories: Environmental forces could be classified into two categories: 1. External Environment – It consists of those factors that affect a firm from outside its organizational boundaries. 2. Internal Environment – It consists of conditions & forces within an organization that affect its management, owners, BoDs, employees etc.

Features of Environment COMPLEX COMPLEX DYNAMIC DYNAMIC CHALLENGING CHALLENGING

Components of External Environment Economic Environment Economic Environment Social and Cultural Environment Social and Cultural Environment Political Environment Political Environment Legal Environment Legal Environment Technological Environment Technological Environment Global Environment Global Environment Demographic Environment Demographic Environment

The External Environment

General Environment (cont’d) The Economic Segment Inflation rates Inflation rates Interest rates Interest rates Trade deficits or surpluses Trade deficits or surpluses Budget deficits or surpluses Budget deficits or surpluses Personal savings rate Personal savings rate Business savings rates Business savings rates Gross domestic product Gross domestic product

General Environment (cont’d) The Sociocultural Segment The Sociocultural Segment Women in the workplace Women in the workplace Workforce diversity Workforce diversity Attitudes about quality of worklife Attitudes about quality of worklife Concerns about environment Concerns about environment Shifts in work and career preferences Shifts in work and career preferences Shifts in product and service preferences Shifts in product and service preferences

General Environment (cont’d) The Global Segment The Global Segment Product innovations Product innovations Applications of knowledge Applications of knowledge Focus of private and government- supported R&D expenditures Focus of private and government- supported R&D expenditures New communication technologies New communication technologies

General Environment (cont’d) The Technological Segment The Technological Segment Product innovations Product innovations Applications of knowledge Applications of knowledge Focus of private and government-supported R&D expenditures Focus of private and government-supported R&D expenditures New communication technologies New communication technologies

General Environment (cont’d) The Political/Legal Segment The Political/Legal Segment Antitrust laws Antitrust laws Taxation laws Taxation laws Deregulation philosophies Deregulation philosophies Labor training laws Labor training laws Educational philosophies and policies Educational philosophies and policies

General Environment The Demographic Segment The Demographic Segment Population size Population size Age structure Age structure Geographic distribution Geographic distribution Ethnic mix Ethnic mix Income distribution Income distribution

Importance of Environmental Scanning To know how far these environmental factors & their interactions would be helpful in accomplishing the objectives set for Co. To know the various factors and their interactions that may threaten the survival and growth of a Co. and evolution of alternative that would possibly turn threats into opportunities. To know about those factors that may generate new opportunities for the Co. to grow & accomplish stretched goals. It would help in setting the targets that a Co. would like to formulate for itself which would be not only realistic but would also pose a challenge to motivate the workforce.

Environmental Scanning could be done through: - Environmental Scanning could be done through: - - Techniques 1. SWOT Analysis (Internal Analysis) 2. ETOP (Environmental Analysis) 3. PESTLE Analysis (Environmental Analysis) 4. Porter’s Five forces Model (Industry/Competitive Analysis) - Sources

SWOT Analysis It helps an organization match its strengths and weaknesses with opportunities and threats operating in the environment. It helps an organization match its strengths and weaknesses with opportunities and threats operating in the environment. We should try to capitalize on the opportunities and by using organizational resources & capabilities to the best advantage and neutralize the threat by minimizing the adverse influence of weaknesses. We should try to capitalize on the opportunities and by using organizational resources & capabilities to the best advantage and neutralize the threat by minimizing the adverse influence of weaknesses.

STRENGTHS – internal capabilities of a firm which can be used to gain competitive advantage over its rivals. STRENGTHS – internal capabilities of a firm which can be used to gain competitive advantage over its rivals. WEAKNESSES – Limitations or constraints which tend to decrease the competencies of the firm particularly in comparison to its rivals. WEAKNESSES – Limitations or constraints which tend to decrease the competencies of the firm particularly in comparison to its rivals. OPPURTUNITIES – Major favorable conditions in a firm’s environment which help a firm strengthen its position. OPPURTUNITIES – Major favorable conditions in a firm’s environment which help a firm strengthen its position. THREATS – Major unfavorable conditions in a firm’s environment which may pose a risk damage to the firm’s position in comparison to its rivals. THREATS – Major unfavorable conditions in a firm’s environment which may pose a risk damage to the firm’s position in comparison to its rivals.

ETOP Analysis Environmental Threat and Opportunity Profile also known as ‘Environmental Impact Matrix’. Environmental Threat and Opportunity Profile also known as ‘Environmental Impact Matrix’. It includes the following steps: - It includes the following steps: - - Environmental Factors – Identification of different components of environment. - Assessing importance of Environmental factors - Assessing Impact factors - Combining Importance and Impact factors

BHEL: ETOP Environmental SectorImpact (+) Opportunity (-) Threat (+) Opportunity (-) Threat Socio- Economic (+) continued emphasis on infrastructure development (-) Severe resource constraints Technological (+) Higher growth in industrial production and technology upgradation Supplier (-) Increasing scarcity of technology because of cartel formation Government (+) Liberalization for technology import Competition (-) Increasing role of power plant consultants (+) Increasing difficulty in retaining specialists and highly qualified personnel

PESTLE Analysis Political factors Political factors Economic factors Economic factors Socio-cultural factors Socio-cultural factors Technological factors Technological factors Legal factors Legal factors Environmental factors Environmental factors

QUEST ANALYSIS QUEST stands for Quick Environmental Scanning Technique. QUEST stands for Quick Environmental Scanning Technique. It is a four step process which uses scenario-writing for scanning the environment and identifying strategic options. It is a four step process which uses scenario-writing for scanning the environment and identifying strategic options.

The four steps involved are: - Strategists make observation about the major events and trends in their industry. Strategists make observation about the major events and trends in their industry. Then they speculate on a wide range of important issues that might effect the future of their organizations by scanning the environment broadly and comprehensively. Then they speculate on a wide range of important issues that might effect the future of their organizations by scanning the environment broadly and comprehensively. The QUEST director prepares a report summarizing the major issues and their implications, and 3 to 5 scenarios incorporating the major themes of the discussion. The QUEST director prepares a report summarizing the major issues and their implications, and 3 to 5 scenarios incorporating the major themes of the discussion. The report and scenarios are reviewed by a group of strategists who identify feasible strategic options to deal with the evolving environment. The options are then ranked. The report and scenarios are reviewed by a group of strategists who identify feasible strategic options to deal with the evolving environment. The options are then ranked.