This document discusses environmental scanning and analyzing a company's external environment. It identifies key factors in the social, economic, political, and technological environment that companies should monitor. These include economic indicators, social trends, government regulations, and technological advances. The document also discusses tools for environmental scanning like PEST analysis and analyzing competitors, suppliers, markets and other forces in the external task environment. It emphasizes the importance of continuously scanning the external environment to identify opportunities and threats and ensuring the long term success of the company.

1. Module:II
General Environment
By: D.Goutam

2. Environmental Scanning:
Environmental Scanning is monitoring,
evaluating, and disseminating of information
from the external and internal environments to
key people within the corporation uses this
tool to avoid strategic surprises and ensure its
long-term health.

3. Identifying External
Environmental Variable:
In understanding environmental scanning,
strategic managers must first be aware of the
many variables within in a corporation's social
and task environments. The social
environment includes general forces that do
not directly touch on the short-run activities of
the organization but that can, often do,
influence its long-run decisions

4. Socio Environment:
 Economic Factors: EF That regulate the exchange of materials,
money, energy, and information
 Social Factors: SF that regulate the values, morels, and customs
of society
 Political Factors: PF that allocate power & provide
constraining & protecting laws and regulations
 Technological Factors: TF that generate problem –
solving inventions

5. Sources of information include:
◦Internet
◦Libraries (corporate, university, public)
◦Suppliers
◦Distributors
◦Customers
◦Competition

6. Economic Variables:
 GDP Trends
 Inflation rates
 Interest Rates
 Money Supply
 Unemployment Levels
 Wage/ price control
 Devaluation/Revaluation
 Energy Availability and cost
 Disposable Income
 Discretionary Income

7. Major impact on:
◦ Products
◦ Services
◦ Markets
◦ customers

8. Social Factors
Present in the external environment:
◦ Beliefs & Values, Attitudes & Opinions, Lifestyles changes
◦ Career expectations, Consumer Activision, Rte of family
formation, Growth rate of population, Age distribution of
population, Regional Shifts in population
◦ Life expectation Birth rates
Developed from:
◦ Cultural conditioning
◦ Demographic
◦ Religion
◦ Education
◦ Ethnic conditioning.

9. Political Variables
Political constraints on firms:
• Antitrust regulations
• Environmental protection laws
• Tax Laws
• Special Incentives
• Foreign Trade Regulation
• Attitude towards foreign companies
• Laws on hiring and promotion
• Stability of Goveronment

10. Technological Variables:
Changes in the technological part of the social
environment can also have a great impact on
multiple industries.
Ex: Improvements in computer microprocessor have
not only led to the widespread use of home
computers, but also to better automobile engine
performance in terms of power & fuel economy
through the use of microprocessor

11. Variables :
 Total Govt. spending for R&D
 Total Industry spending for R&D
 Focus of technological efforts
 Patent protection
 New Products
 Productivity improvements through
automation
 Internet availability
 Telecommunication infrastructure

12. Internet changes the nature of opportunities
and threats –
 Alters life cycle of products
 Increases speed of distribution
 Creates new products and services
 Eases limitations of geographic markets
 Alters economies of scale
 Changes entry barriers

13. Example of the Impact of
Wireless Technology
 Airline-Many airlines now offer wireless
technology in flight
 Banking- VISA sends text msg. alerts after
unusual transactions.
 Health Care- Patients use mobile devices to
monitor their own health, such as calories
consumed.

14. Some Important Variables in International
Societal Environment:
Economic
 Economic Development
 Per capita income Climate
 GDP trends
 Monitory and fiscal policies
 Unemployment level
 Currency convertibility
 Wage levels
 Nature of competition
 Membership in regional economic association

15. Technological:
 Regulation on technology transfer
 Energy availability/cost
 Natural resource availability
 Transportation network
 Skill level of workforce
 Patent trade mark protection
 Internet availability
 Telecommunication infrastructure

16. Political-Legal:
 Form of Govt.
 Political Ideology
 Tax laws
 Stability of Govt.
 Govt. attitude towards foreign companies
 Regulations on foreign ownership of assets
 Strength of opposition group
 Trade regulations
 Protectionist sentiment
 Foreign policies
 Terrorist activity
 Legal system

17. Socio-Culture:
Customs, Norms, Values
Languages
Demographic
Life expectations
Social institutions
Status symbol
Lifestyle
Religious believes
Attitude towards foreigner
Literacy level
Human rights
Environmentalism

18. Task environment
 A corporation's scanning of the environment
will include analysis of all the relevant
elements in the task environment
 These analysis take the firm of individual
reports written by various people in different
parts of the firm.

19.  Ex; Procter & Gamble
People from each of the brand management teams
work with key people from the sales and market
research departments to research & write a
“competitive Activity Report” each quarter on each
of the product categories in which P&G competes.
People in purchase also writes reports and send it to
P&G---Summarize---Top Level Mgnt---Decision
Making process

20. Scanning the external Environment
Analysis of societal Environment (PEST)
Interest
Group
Analysis
Supplier
Analysis
Competitor
Analysis
Market
Analysis
Community
Analysis
Govt.
Analysis
Selection of
Strategic
Factor
Opportuniti
es Treats

21. Identifying External Strategic Factor:
This willingness to reject unfamiliar as well as
negative information is called myopia
(changing the direction) . If a firm needs to
change its strategy, it might not be gathering
the appropriate external information to change
strategies successfully.
One way to identify and analyze developments
in external environment is to use the issues
Priority Matrix

22. Issues Priority Matrix
Probable impact on Corporation
High Medium Low
Hi
g
h
M
e
di
u
m
L
o
w
Medium
Priority
Low Priority
Low
Priority
High Priority
High Priority
Low Priority
Medium
Priority
High Priority
Medium
Priority
P
ro
ba
bil
ity
of
O
cc
ur
a
nc
e

23. Competitive Forces
Collection and evaluation of information on
competitors is essential for successful
strategy formulation
Competition in virtually all industries can be
described as intense.

24. Competitive Forces
Identifying rival firms
• Strengths
• Weaknesses
• Capabilities
• Opportunities
• Threats
• Objectives
• Strategies

25. Competitive Forces
Key Questions About Competitors:
• Their strengths
• Their weaknesses
• Their objectives and strategies
• Their responses to all external variables (e.g.
social, political, demographic, etc.)
• Their vulnerability to our alternative strategies

26. Conti….
• Our vulnerability to successful strategic
counterattack
• Our product and service positioning
relative to competitors
• Entry and exit of firms in the industry
• Key factors for our current position in
industry

27. Conti..
• Sales and profit rankings of
competitors over time
• Nature of supplier and distributor
relationships
• The threat of substitute products or
services

28. Competitive Intelligence Programs:
 Systematic and ethical process for
gathering and analyzing information
about the competition’s activities and
general business trends to further a
business’ own goals.

29. Industry Environment
 Harvard professor Michael E. Porter propelled
the concept of industry environment into the
foreground of strategic thought and business
planning.
 The cornerstone of Porter’s work first appeared in
the Harvard Business Review, in which he explains
the five forces that shape competition in an
industry.
 Porter’s well-defined analytic framework helps
strategic managers to link remote factors to their
effects on a firm’s operating environment.

30. Competitive Forces Shape
Strategy
 The essence of strategy formulation is coping with
competition.
 Intense competition in an industry is neither
coincidence nor bad luck.
 Competition in an industry is rooted in its underlying
economics, and competitive forces exist that go well
beyond the established combatants in a particular
industry.
 The corporate strategists’ goal is to find a position in
the industry where his or her company can best defend
itself against these forces or can influence them in its
favor.

31. Forces Driving Industry Competition

32. Contending Forces
Threat of Entry
 Economies of Scale
 Product Differentiation
 Capital Requirements
 Cost Disadvantages Independent of Size
 Access to Distribution Channels
 Government Policy

33. Powerful Suppliers
A supplier group is powerful if:
 It is dominated by a few companies and
is more concentrated than the industry
it sells to
 Its product is unique or at least
differentiated, or if it has built-up
switching costs
 It is not obliged to contend with other
products for sale to the industry
 It poses a credible threat of integrating forward into
the industry’s business
 The industry is not an important customer of the
supplier group

34. Powerful Buyers
A buyer group is powerful if:
 It is concentrated or purchases in large volumes
 The products it purchases from the industry are standard
 The products it purchases from the industry form a
component of its product and represent a significant
fraction of its cost
 It earns low profits
 The industry’s product is unimportant to the quality of the
buyers’ products or services
 The industry’s product does not save the buyer money
 The buyers pose a credible threat of integrating backward

35. Substitute Products
 By placing a ceiling on the prices it can charge,
substitute products or services limit the potential of
an industry
 Substitutes not only limit profits in normal times
but also reduce the bonanza an industry can reap in
boom times
 Substitute products that deserve the most attention
strategically are those that are
◦ subject to trends improving their price-performance
trade-off with the industry’s product or
◦ produced by industries earning high profits

36. Competing for Position
Intense rivalry occurs when:
 Competitors are numerous or are roughly equal
 Industry growth is slow, precipitating fights for market
share that involve expansion
 The product or service lacks differentiation or
switching costs
 Fixed costs are high or the product is perishable,
creating strong temptation to cut prices
 Capacity normally is augmented in large increments
 Exit barriers are high
 Rivals are diverse in strategy, origin, and personality

37. Industry Analysis
& Competitive Analysis
 An industry is a collection of firms that offer
similar products or services.
 Structural attributes are the enduring
characteristics that give an industry its distinctive
character.
 Concentration refers to the extent to which
industry sales are dominated by only a few firms.
 Barriers to entry are the obstacles that a firm
must overcome to enter an industry.

38. Competitive Analysis
1. How do other firms define the scope of their
market?
2. How similar are the benefits the customers derive
from the products and services that other firms
offer? The more similar the benefits of products or
services, the higher the level of substitutability
between them.
3. How committed are other firms to the industry?

39. Industry Matrix:
Key success factors: KSF are those variables that can
affect significantly the overall competitive positions of
all companies within any particular industry. They
typically very from industry to industry and are crucial
to determining a company’s ability to succeed within that
industry (Usually determined by economic and
technological characteristics of the industry)
Ex: Wal-Mart- Strong Distribution Channel
Key Success factor- Industry
Strategic factor - Company

40. Industry Matrix:
Key Success Factors Weight Co. A Rating Co. A Weighted Score Co. B Rating Co. B Weighted Score
1 2 3 4 5 6
Total 1

41. 1.Column
List the 8-10 factors that appear to determine current
and expected success in the industry
2. Column
From 1 most important to 0.0 Not important
3. Column
Examine the particular company within the industry
Ex: 5- Outstanding, 4-above avg., 3-evg, 2- Below
evrg., 1- poor

42. 4. Column
(Multiple of column 2and 3)
5. Column
(as like column 3)
6. Column
(column 2nad 5)

43. Thank You

44. ?