2. LET’s BEGIN NOW
• What is Environmental Analysis?
• Environmental analysis is a systematic process that study and evaluate all the internal and
external factors within which business has to function. It identifies, assess and understand the
impact of it on the business enterprise
• How the Environmental Influence on Business?
• A business which continuously remains passive to the relevant changes in the environment is destined to
gradually fade-away in oblivion. The business must continuously adapt and monitor to the environment if it
is to survive and prosper. A successful business has to identify, appraise, and response to the various
opportunities and threats in its environment.
3. Environment is the sum totals of external and internal forces that affect the functioning of the business. Environmental influence on business can be judge with the
: The input in the form of human, physical, financial and other related resources are drawn from the environment.
: The business converts these resources into output by performing certain processes in inputs.
: Output that exchange with environment i.e., customers.
: The exchange with environment brings in some surplus or goodwill that is required for stability and
survival of the business.
: It provides both opportunities and threats.
: Business must continuously monitor and adapt the required change for prosperity and survival
4. Steps in Environmental Analysis
• Identifying the purpose and need of the proposed action.
• Understand issues, opportunities and effects of the
• Collect data, flow and complete the feasibility study.
• Design alternative action plans..
• Evaluate effects – Direct, Indirect and Cumulative.
•8 Steps in
• Compare alternatives
• Select preferred option.
6. Internal Factors External Factors
Micro Environment Macro Environment
Value system • Organization • Economic
Mission & Objectives • Customer • Political – legal
Organizational Structure • Competitors • Technological
Corporate Culture • Market • Global
Quality of Human Resource • Suppliers • Social-Cultural
Labour Unions • Intermediaries • Demographic
Physical & Technological
Components of Environmental Analysis
7. SWOT stands for Strengths, Weaknesses, Opportunities and Threats
➢Identification of the threats and opportunities in the external environment and
strengths and weaknesses in the internal environment of the firms are the
cornerstone of business policy formulation.
➢It is the SWOT analysis which determines the course of action to ensure the
growth / survival of the firm.
Strengths—internal to the unit; are a unit’s resources and capabilities that can be used as a basis for
developing a competitive advantage; strength should be realistic and not modest.
The list of strengths should be able to answer:
•What are the unit’s advantages?
•What does the unit do well?
•What relevant resources do you have access to?
•What do other people see as your strengths?
•What would you want to boast about to someone who knows nothing about this organization and its work?
•Examples: good reputation among customers, resources, assets, people, : experience, knowledge, data, capabilities
•Think in terms of: capabilities; competitive advantages; resources, assets, people
•(experience, knowledge); marketing; quality; location; accreditations
•qualifications, certifications; processes/systems
Weaknesses—internal force that could serve as a barrier to maintain or achieve a
competitive advantage; a limitation, fault or defect of the unit;
It should be truthful so that they may be overcome as quickly as possible
The list of weaknesses should be able to answer:
•What can be improved?
•What is done poorly?
•What should be avoided?
•What are you doing as an organization that you feel could be done more effectively/efficiently?
•What is this organization NOT doing that you feel it should be doing?
•If you could change one thing that would help this department function more effectively, what would you
•Examples: gaps in capabilities, financial, deadlines, morale
•lack of competitive
Opportunities—any favorable situation present now or in the future in the
Examples: unfulfilled customer need, arrival of new technologies, loosening of
regulations, global influences, economic boom, demographic shift
•Where are the good opportunities facing you?
•What are the interesting trends you are aware of?
•Think of: market developments; competitor; vulnerabilities; industry/ lifestyle
trends;; geographical; partnerships
External force that could inhibit the maintenance or attainment of a
competitive advantage; any unfavorable situation in the external environment that is potentially damaging now
or in the future.
•Examples: shifts in consumer tastes, new regulations, political or legislative effects, environmental effects, new
technology, loss of key staff, economic downturn, demographic shifts, competitor intent; market demands; sustaining
internal capability; insurmountable weaknesses; financial backing
The list of threats should be able to answer:
•What obstacles do you face?
•What is your competition doing?
•Are the required specifications for your job/services changing?
•Is changing technology threatening your position?
•Do you have financial problems?
•Could any of your weaknesses seriously threaten your unit?
12. Significance of
1. It provides a logical framework
2. It presents a Comparative analysis
3. It guides strategist Strategy Identification and
• Price increase
• Availability of input/ raw material
• Government legislation
• Economic environment
• Searching a new market for the product which
does not have overseas market due to import
13. Environmental Threat and Opportunity Profile (ETOP)
The preparation of ETOP involves dividing the environment into different sectors and
then analyzing the impact of each sector on the organization. A comprehensive ETOP
requires subdividing each environmental sector into sub factors and then the impact of
each sub factor on the organization is described in the form of a statement
Steps involved in the preparation of ETOP:
▪Dividing the environment into different sectors
▪Analyzing the impact of each sector on the organization
▪Subdividing each environmental factor into sub factors for a comprehensive ETOP
▪Analyzing the impact of each sub factor on the organization in the form of a
▪Preparing a summary to show the major factors for the sake of simplicity
14. Environmental Threat and Opportunity Profile (ETOP)
Environmental Sectors Impact of each sector
1. Social (↑)
2. Political (→)
3. Economic (↑)
4. Regulatory (↑)
5. Market (↑)
6. Supplier (↑)
7. Technological (↑)
• Customer preference for motorbike, which are fashionable, easy to ride and durable.
• No significant factor.
• Growing affluence among urban consumers; Exports potential high.
• Two Wheeler industries a thrust area for exports.
• Industry growth rate is 10 to 12 percent per year, For motorbike growth rate is 40 percent, largely
• Mostly ancillaries and associated companies supply parts and components, REP licenses for imported
raw materials available.
• Technological up gradation of industry in progress. Import of machinery under OGL list possible.
15. The strategic managers should keep focus on the
2.Accuracy of Data
4.Flexibility in Operations
16. Some of the key elements for increasing the
flexibility are as follows
(a) The strategy for flexibility must be stated to enable managers adopts it during unique situations.
(b) Strategies must be reviewed and changed if required.
(c) Exceptions to decided strategies must be handled beforehand. This would enable managers to violate strategies when it is necessary.
(d) Flexibility may be quite costly for an organization in terms of changes and compressed plans; however, it is equally important for companies to meet urgent
17. GAP Analysis
Definition of 'Strategic Gap Analysis'
The evaluation of the difference between a desired outcome and an actual outcome. This difference is called a gap.
Strategic gap analysis attempts to determine what a company should do differently to achieve a particular goal by looking
at the time frame, management, budget and other factors to determine where shortcomings lay. After conducting this
analysis, the company should develop an implementation plan to eliminate the gaps
18. GAP Analysis
Gap analysis is a tool that organizational managers can use to work out the size, and
sometimes the shape, of the strategic tasks to be undertaken in order to move from
its current state to a desired, future state.
• Formal means to identify and correct gaps between desired levels and actual levels
• Used by organizations to analyze certain processes of any division of their company
19. Requirements for Effective Gap Analysis
1. Clearly agreed indicators of overall corporate performance; it is highly desirable that that the indicator of
overall corporate performance should be traceable through a range of business performance metrics, in the
form of simple cause and effect relationships, sometimes called a value driver tree.
2. Sound data feeding the results measured by the key performance indicators (KPI) used in the organization,
including data on the performance of the organization for the past few years.
3. An agreed time span for the strategic planning exercise for comparing forecast performance under different
assumptions. These various sets of assumptions may be trialed in a process of scenario planning.
4. Before performing an analysis the strategic planning team needs to undertake target setting. The targets for
desired future performance of the organization need to be set using the corporate performance indicator
mentioned above. Target setting should be done with possible risks of corporate collapse in mind.
5. The availability of forecasting techniques, for the strategic planning team to use in the business forecasting of
likely corporate results under various scenarios. This may sometimes warrant the employment of business
20. Porter’s Five Forces Model of Competition
Risk of entry
Five force model of MichealPortel is powerful and widely used tool for systematically
diagnosing the significant competitive pressure in the market and assessing their strength
and importance. Porter 5 forces analysis is a frame work for industry analysis and business
strength development. This model holds that the state of competition in an industry is a
composite of competitive pressures operating in five areas of the overall market. These five
forces are discussed as follows:
21. Factors Driving Industry Change
The Concept of Driving Force:
Industry conditions change because important forces are driving industry
participants (competitor, customer, or suppliers) to alter their actions; the
driving forces in an industry are the major underlying causes of changing
industry and competitive conditions- they have thebiggest influence on how the industry landscape will be
altered. Some originate in the outer ring of macro-environment and some originate from the inner ring.
22. Identifying an Industry’s Driving Forces
1. Emerging new internet Capabilities and Applications
2. Increasing Globalization
3. Changes in an Industry Long Term Growth Rate
4. Changes in who buys the Product and how they use it
5. Product Innovation
6. Technology Change & Manufacturing Process Innovation
7. Marketing Innovation :
8. Entry or Exit of Major Firms
9. Diffusion of Technical Know-how across more companies and more countries
10.Change in cost and efficiency
11.Growing buyer preferences for differentiated products instead of a commodity product
12.Reduction in uncertainty and Business Risk
13.Regulatory Influence and government Policy Changes
14.Changing Societal Concerns, attitudes and life styles