ENVIRONMENTAL ANALYSIS

1. ENVIRONMENTAL ANALYSIS UNIT III

2. Environmental Analysis • 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’.

3. 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.

4. Features of Environment • COMPLEX • DYNAMIC • CHALLENGING

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

6. The External Environment

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

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

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

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

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

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

13. 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.

14. 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

15. SWOT Analysis • 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.

16. 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. • 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.

18. ETOP Analysis • Environmental Threat and Opportunity Profile also known as ‘Environmental Impact Matrix’. • 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

19. BHEL: ETOP Environmental Sector Impact (+) 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

20. PESTLE Analysis • Political factors • Economic factors • Socio-cultural factors • Technological factors • Legal factors • Environmental factors

21. QUEST ANALYSIS • 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.

22. The four steps involved are: - • 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. • 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.