ENVIRONMENTAL

ANALYSIS
Chapter 3

THE CONCEPT OF
ORGANIZATIONAL ENVIRONMENT
Business and managers are now faced with
highly dynamic and ever more complex operating
environments- Robert Paton
Environment of an organization consists of its
surroundings-anything that affects its operations,
favorably or unfavorably.
Managers can not make appropriate and sound
strategy simply on the basis of their guesses and
instincts.

UNDERSTANDING
ENVIRONMENTAL INFLUENCES
Business managers must understand the various
facets of the impacts of environment.
Managers need to recognize that external
environment has many aspects that can have
significant impact on the operations of a firm.
Managers
need
to
undertake
analysis
environment on a regular basis.

BENEFITS OF UNDERSTANDING
ENVIRONMENTAL INFLUENCES
Knowledge of environment helps managers
identify the direction to which they should
proceed.
Without
an understanding of environment,
managers are like a bicycle without a handlebar.
Managers can isolate those factors, especially in
the external environment, which are of specific
interest to the organization.

BENEFITS OF UNDERSTANDING
ENVIRONMENTAL INFLUENCES
Managers can take preparation to deal with
predicted crisis in any of the factors of the
environment.
Managers can develop crisis plan.
Analysis of the environment helps to achieve
organization effectiveness.

TYPES OF ORGANIZATIONAL
ENVIRONMENT

Organizational environment can be classified into

two broad categories:
External environment
Internal environment

ANALYSIS OF EXTERNAL
ENVIRONMENT: MEANING &
NATURE
External
environment
consists
of
an
organizations external factors that affect its
business indirectly.
The organization has no or little control over
these factors.
The
external environmental factors reside
outside the organization, which lead to
opportunities or threats.

TYPES OF EXTERNAL
ENVIRONMENT

THE GENERAL ENVIRONMENT

The general environment includes the distant
factors in the external environment that are
general or common in nature.
Its impact on the operations of the firm, its
competitors and customers make its analysis
imperative.

PESTLED MODEL

A list of the general environmental factors is

given below:
Factor-wise PESTLED

Environment-wise

Political factors

PESTLED
Political environment

Economic factors

Economic environment

Socio-cultural factors
Technological factors

Socio-cultural
environment
Technological environment

Legal factors

Legal environment

Environmental (natural)
factors
Demographic factors

Environment (natural)
Demographic environment

POLITICAL ENVIRONMENT
The government of a country intervenes in the
national economy through setting policies/rules
for business.
We see many policies like- import policy, export
policy, taxation policy, investment policy, drug
policy, competition policy, consumer protection
policy etc.
Political stability of a country affects the
operations of a business substantially.

POLITICAL ENVIRONMENT
Political instability in Bangladesh, srilanka,
Nepal, Pakistan Afghanistan, Argentina can
affect the operations of the business.
Government agencies and pressure groups can
exercise power to influence the operation of
business.

POLITICAL ENVIRONMENT

Government agencies include Different ministries

Office of the controller of imports and
exports
Board of investment
National Board of Revenue etc

POLITICAL ENVIRONMENT

Pressures groups include CAB(Consumers Association of Bangladesh)

Various chambers of commerce and industry
Employers association etc.

ECONOMIC ENVIRONMENT
A countrys economic well-being affects market
attractiveness.
The economy of a country can be in a situation of
boom or recession or depression or recovery or it
may be in a state of fluctuation.
Purchasing power depends on Income
Prices
Savings
Debt
Availability of credit

SOCIO-CULTURAL ENVIRONMENT

Socio-cultural forces includeCulture

Lifestyle changes
Social mobility
Attitude toward technology
Peoples values, opinions and beliefs

SOCIO-CULTURAL ENVIRONMENT

Socio-cultural factors differ across countries in

terms of Increasing life span of population
Trend toward fewer children
Movement of population from rural areas to
urban areas
Increasing rate of female education
Entry of women in the workforce etc.

TECHNOLOGICAL ENVIRONMENT

Technological dimensions include Information technology

The internet
Biotechnology
Global transfer of technology etc.

TECHNOLOGICAL ENVIRONMENT
None can deny the fact that the pace of changes
in these technological dimensions is extremely
fast.
Technology
has major impacts on product
development, manufacturing efficiencies and
Potential competition
The
effects of technological changes occur
primarily through new products, processes and
materials.

LEGAL ENVIRONMENT

The legal environment consists of laws and

regularity framework in a country.
Labor code
Factories act
Industrial Relations ordinance
The Contract Act
The Company Law

NATURAL ENVIRONMENT

The most pertinent issues in the natural

environment that strategy makers should
consider include Availability of raw materials and other inputs
Changes in the cost of energy
Levels of environmental pollution
The
changing role of government in
environmental protection

DEMOGRAPHIC ENVIRONMENT

The demographic environment is concerned with

a countrys population. It is related to Population's size
Age structure
Geographic distribution
Ethnic mix
Income distribution
Educational level
Household patterns
Inter-regional movements

HOW DO ORGANIZATIONS
RESPOND TO EXTERNAL
ENVIRONMENT?
Lobbying
Influencing customers
Influencing suppliers
Boundary spanning
Environmental scanning
Strategic responses
Organizational combinations

INTERNAL ENVIRONMENT:
MEANING AND ELEMENTS

The factors of internal environment are Resources of the organization

Owners/stockholders
Board of Directors
Organization's culture
Organizations image/goodwill

AREAS USUALLY COVERED BY

INTERNAL ANALYSIS

The following major specific issues need to be

covered in the analysis:
Financial position
Product and service option
Product and service quality
Marketing capability
Research and development capability
Organization structure
Human resources
Conditions of facilities and equipment
Past and present objectives and strategies etc.

FRAMEWORK FOR INTERNAL

ANALYSIS
Strengths

Weaknesses

A distinctive competences?

No clear vision?

Adequate financial resources?

Poor strategic direction?

Excellent competitive skills?

Obsolete machinery?

Positive image of the company?

Lack of managerial talent?

Access to economies of scale?

Lack of competencies?

Proprietary technology?
Cost advantages?

Poor track record in strategy

implementation?
Falling behind R & D?

Competitive advantage?

Narrow product line?

Product innovation capabilities?

Weak market image?

Good leadership and

management?
Achieved market leadership?

Competitive disadvantages?
Poor marketing skills?

CONDUCTING INTERNAL
ANALYSIS: WHO TO DO IT?

Usually the following practices are prevalent in

different organizations:
Involvement of planning department
Use of outside consultants
Forming of team