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Definition

Environmental analysis is defined as "the process by


which strategists monitor the economic,
governmental/legal, market/competitive, supplier/
technological, geographic, and social settings to
determine opportunities and threats to their firms”.

"Environmental diagnosis consists of managerial


decisions made by analyzing the significance of the
data (opportunities and threats) of the environmental
analysis.“

Environmental analysis is an essential prerequisite for


strategic management decision-making.
Just as the life and success of an individual depend on
his innate capability, including physiological factors,
traits and skills, to cope with the environment, the
survival and success of a business firm depend on its
innate strength — resources as its command,
including physical resources, financial resources, skill
and organization — and its adaptability to the
environment.
Types of Business Enterprise
Every business enterprise, thus, consists of a set of
internal factors and is confronted with a set of external
factors.
The internal factors are generally regarded as
controllable factors because the company has control
over these factors; it can alter or modify such factors
as its personnel, physical facilities, organisation and
functional means, such as marketing mix, to suit the
environment.
The external factors, on the other hand, are, by and
large, beyond the control of a company. The external
or environmental factors such as the economic factors,
socio-cultural factors, government and legal factors,
demo-graphic factors, socio-cultural factors,
government and legal factors, demo-graphic factors,
geo-physical factors etc., are, therefore, generally
regarded as uncontrollable factors.
Types of Business Environment

Internal Business External


Environment Decision Environment

Value System Micro Environment


Mission and Objectives Suppliers
Management Structure and Nature Customers
Internal Power Relationship Competitors
Human Resources Marketing
Company Image and Brand Equity Intermediaries
Other Factors Publics
Internal Environment

™Value System

The value system of the founders and those at the


helm of affairs has important bearing on the choice of
business, the mission and objectives of the
organisation, business policies and practices. It is a
widely acknowledged fact that the extent to which the
value system is shared by all in the organisation is an
important factor contributing to success.
™Mission and Objectives
The business domain of the company, priorities,
direction of develop-ment, business philosophy,
business policy etc., are guided by the mission and
objectives of the company.

™Management Structure and Nature

The organizational structure, the composition of the


Board of Directors, extent of professionalisation of
management etc., are important factors influencing
business decisions.
™Internal Power Relationship
Factors like the amount of support the top
management enjoys from different levels of
employees, shareholders and Board of Directors have
important influence on the decisions and their
implementation .
™Human Resources
The characteristics of the human resources like skill,
quality, morale, commitment, attitude etc., could
contribute to the strength and weakness of an
organisation. Some organizations find it difficult to
carry out restructuring or modernization because of
resistance by employees whereas they are smoothly
done in some others.
™Company Image and Brand Equity
The image of the company matters while raising
finance, forming joint ventures or other alliances,
soliciting marketing intermediaries, entering purchase
or sale contracts, launching new products etc. Brand
equity is also relevant in several of these cases.

™Other Factors
¾Physical Assets and Facilities
¾R & D and Technological Capabilities
¾Marketing Resources

¾Financial Factors
External Environment

It is now unquestionably accepted that the prospects


of a business depend not only on its resources but
also on the environment. An analysis of Strengths,
Weaknesses, Opportunities and Threats (SWOT) is
very much essential for the business policy
formulation.

™Micro Environment
™Suppliers
™Customers
The choice of the customer segments should be made
by considering a number of factors including the
relative profitability, dependability, stability of demand,
growth prospects and the extent of competition.

™Competitors
This competition among these products may be
described as desire competition as the primary task
here is to influence the basic desire of the consumer.
The competition among such alternatives which
satisfy a particular category of desire is called generic
competition.
In other words, there is a product form competition.
Finally the consumer encounters the brand
competition i.e., the competition between the different
brands of the same product form.

™Marketing Intermediaries

The immediate environment of a company may


consist of a number of marketing intermediaries which
are "firms that aid the company in promot-ing, selling
and distributing its goods to final buyers.
™Publics

A company may encounter certain publics in its


environment. "A public is any group that has an actual
or potential interest in or impact on an organisation's
ability to achieve its interests". Media publics, citizens
action publics and local publics are some examples.
Macro Environment
™Economic Environment
Economic conditions, economic policies and the
economic system are the important external
factors that constitute the economic environment
of a business.
1. The economic conditions of a country - for
example, the nature of the economy, the stage of
development of the economy, economic
resources, the level of income, the distribution of
income and assets, etc.— are among the very
important determinants, of business strategies
MACRO

MICRO

Internal

BUSINESS
NATURAL
FACTORS

PUBLICS COMPETITORS

MARKETING
INTERMEDIARIES

ENVIRONMENT

DEMOGRAPHIC
FACTORS

ENVIRONMENT
2. The economic policy of the government, needless
to say, has a very great impact on business. Some
types or categories of business are favorably
affected by government policy, some adversely
affected, while it is neutral in respect of others.

The scope of private business depends, to a large


extent, on the economic system. At one end, there
are the free market economies or capitalist
economies, and at the other end are the centrally
planned econo-mics or communist countries. In
between these two are the mixed econo-mies.
Within the mixed economic system itself, there are
wide variations
Countries like the United States, Japan, Australia,
Canada and member countries of the EEC are
regarded as market economies.

China, East Germany Soviet Union, Czechoslovakia,


Hungary, Poland, etc., had centrally planned
economies. However, recently several of these
countries have discarded communist system and
have moved towards the market economy.
™Political and Government Environment
Therefore a considerable part of the attention of a the
Chief Executive and his senior colleagues has to
be devoted to a continuous dialogue with various
government agencies to ensure growth and
profitability within the framework of controls and
restraints.
The differences in language sometimes pose a
serious problem, even necessitating a change in
the brand name. Preett was, perhaps, a good
brand name in India; but it did not suit in the
overseas market;
and hence it was appropriate to adopt 'Prestige' for
the overseas markets. Chevrolet's brand name
*Nova' in Spanish means "it doesn't go". In
Japanese, General Motors' "Body by Fisher"
translates as corpse by Fisher". In Japanese,
again, 3M's slogan "sticks like crazy" translates as
"sticks foolishly". In some languages, Pepsi-Cola's
slogan "come alive" translates as "come out of the
grave.
The values and beliefs associated with colour vary
significantly between different cultures. Blue,
considered feminine and warm in Holland, is
regarded as masculine and cold in Sweden.
Green is a favorite color in the Muslim world; but in
Malaysia, it is associated with illness. White
indicates death and mourning in China and Korea;
but in some countries, it expresses happiness and
is the color of the wedding dress of the bride. Red
is a popular color in the communist countries; but
many African countries have a national distaste for
red color.
There are also a number of demographic factors, such
as the age and sex composition of population,
family size, habitat, religion, etc., which influence
the business.
While dealing with the social environment, we must
also consider the social environment of the
business which encompasses its social
respon-sibility and the alertness or vigilance of the
consumers and of society at large.

™Demographic Environment

Demographic factors like the size, growth rate, age


composition, sex composition, etc. of the
population, family size, economic stratification of
the population, educational levels, language,
caste, religion etc. are all factors which are
relevant to business.
™Natural Environment

Geographical and ecological factors, such as natural


resource endowments, weather and climatic
conditions, topographical factors, locational
aspects in the global context, port facilities, etc.,
are all relevant to business.

™Physical and Technological Environment


™International Environment
The international environment is very important from
the point of view of certain categories of business.
It is particularly important for industries directly
depending on imports or exports and import-
competing industries. For example, a recession in
foreign markets, or the adoption of protectionist
policies by foreign nations, may create difficulties
for industries depending on exports. On the other
hand, a boom in the export market or a relaxation
of the protectionist policies may help the export-
oriented industries. A liberalization of imports may
help some industries which use imported items, but
may adversely affect import-competing industries.
Environmental Change
Business environment is dynamic. Many elements in
the environment undergo changes. Technological
changes are frequent. Tastes and the preferences of
the people change. The competitive situation changes.
Demographic factors, including population size,
change.Altitudes and value systems undergo changes.
Economic factors, like income, change continuously.
Government policies and regulations also change to
cope with the changing environment.All these factors
indicate that a business policy should be dynamic
enough to be successfully adaptable to the changing
environment. The success of a business depends on
its ability to foresee the environmental changes and to
modify its business strategies appropriately
Techniques for Environmental Analysis

¾Verbal and written information


¾Search and scanning

¾Spying

¾Forecasting and formal studies


Strategic Management
An analysis of SWOT (i.e., strengths and weaknesses
of the company and the opportunities and threats in
the environment) plays a very important role in the
strategic management process or the formulation of
business policy. A look at the strategic management
process would make the importance of the external-
internal factors nexus more clear.

Glueck defines strategy as a "unified, comprehensive


and integrated plan relating the strategic advantages
of the firm to the challenges of the environment. It is
designed to ensure that the basic objectives of the
enterprise are achieved
Strategic management is defined as “that set of
decisions and actions which leads to the development
of an effective strategy or strategies to help achieve
corporate objectives.”

Chandler describes strategic management as the


determination of the basic long-term goals and
objectives of an enterprise and the adoption of courses
of action and allocation of resources necessary to
carry out these goals.
Strategic management or business policy is the means
to achieve the objectives. Strategic management
process involves ascertaining the objectives, analysis
of the environmental opportunities and threats and
appraising the strengths and weaknesses of the firm to
tap the opportunities or to combat the threats,
formulating strategies to achieve the objectives on the
basis of the SWOT analysis, choosing the most
appropriate strategy, implementation of the strategy
and reformulation of the objectives or strategy, if
needed
Consideration of
Formulation of SWOT
Strategic
Objectives Analysis
Alternatives

Choice of
Implementation Evaluation
Strategy
A strategy is, in fact, a means to achieve the ends or
objectives. Objectives should not be static, they should
be dynamic.
To formulate clear objectives, it is essential to get
definite answers to certain questions, viz., "what
business the company is in?" "What should the
company's business be?" "What will the company's
business be?"
Environmental analysis will help find answer to the
question what should the company's business be?. If
'what should be the business' is different from 'what is
the business', there is certainly a need for redefining
the business, matching the company resources to the
environment.
Identification of the threats and opportunities in the
environment and the strengths and weaknesses of the
firm is the cornerstone of business policy formulation;
it is these factors which determine the. course/courses
of action to ensure the survival and/or growth of the
firm.
Strategic Alternatives and Choice of
Strategy
A company may be confronted with several
alternatives such as:
1. Should the company continue in the same
business or get out of it completely or partly?
2. If it should continue in the same business, should it
grow by expanding the existing units, establishing
new units or by acquiring other units in the
industry.
3. If it should diversify, should it diversify into related
area or unrelated areas?
4. Should it grow by vertical integration?
A company which plans to market its products in
foreign markets may have the following
alternatives:
1. Manufacture the product completely in the home
country and export it to the foreign market.
2. Establish manufacturing facility in a free area like
an export processing zone and make exports from
there.
3. Establish manufacturing facility in the foreign
country and undertake the complete manufacturing
of the product there.
4. Manufacture the components at home and
assemble the product in the foreign market.
5. Contract some foreign firm for manufacturing the
product and do only the marketing of it.
6. Enter into licensing agreement with a firm in the
foreign market.
7. Establish a joint venture abroad for manufacturing
and marketing the product.

The choice of the strategy should invariably be based


on the evaluation of the various alternatives.
Implementation

A good strategy is not a sufficient condition for


success; its effective implementation is equally
important. Many good strategies fail to achieve the
results because of poor implementation. It is
necessary to formulate a detailed plan to achieve
the objectives by means of the chosen strategy.
The term implementation is used in a broad sense
so that it encompasses also the formulation of the
plan to implement the strategy.
In a multi-unit business, formulation of different levels
of strategies is an essential and important aspect
of implementation. There are three levels-of
strategies applicable to such a business.

Corporate Level Strategy: This is the master strategy


to achieve the overall corporate objectives. The
other levels of strategies are designed to
implement the corporate strategy and they are,
therefore, formulated with reference to the
corporate strategy.
SBU Level Strategy: It is the strategy to achieve the
specific objectives of the strategic business unit
(SBU) so as to help achieve the overall corporate
objectives. A SBU is “an operating division of a
firm which serves a distinct product/market
segment or a well-defined set of customers or a
geographic area. The SBU is given the authority to
make its own strategic decisions within corporate
guidelines as long as it meets corporate
objectives”. The SBU is also known as ‘operating
division’.
Functional Level Strategy:

The task of implementation involves mobilization and


deployment of resources, including personnel,
needed for implementation, organizing and
assigning tasks to the various elements of the
organization. For effective implementation of the
strategy it is essential to formulate an
implementation strategy.
Evaluation
“Evaluation of strategy is that phase of the strategic
management process in which the top managers
determine whether their strategic choice as
implemented is meeting the objectives of the
enterprise”
Failure to achieve the results may arise from any one
or more of the following:
1. Improper implementation of the strategy.
2. Environmental changes which were not anticipated
while formulating the strategy.
3. Inappropriate strategy.
Improper implementation of the strategy may be due to
a) inappropriateness of the implementation strategy.
b) inefficiency and/or lack of commitment of the
personnel in charge of implementation.
c) wrong assignment of the tasks; or
d) inadequacy of resources.
Environmental changes such as increase in
competition, changes in consumer preferences or
altitudes, technological changes which could not
be anticipated while formulating the strategy etc.
may come in the way of achieving the results.
Conclusion
The key to business success is the most effective
utilization of the company's resources (resources
here mean not only the existing resources but also
the additional resources it can mobilize and
augment for any specific task). This involves the
evaluation of the company's strengths and
weaknesses in the light of the environmental
threats and opportunities and taking appropriate
measures to harness the opportunities or to
combat the threats and formulation of strategies
accordingly.

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