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Environme NT A L: Strategic Analysis
Environme NT A L: Strategic Analysis
Environmental
Analysis
“Developing a sound and healthy organization requires understanding the
environment as much as understanding the organization.”
Environment - Gary Hamel
& its Classifications:
‣ Factors or forces those have the potentiality to influence over the
firms’ operations & or profitability.
Classifications of Environment :
o Internal Environment refers to the culture, employees, events
and factors within an organization that has the ability to influence
the decisions of the organization.
o External Environment is composed of all the outside factors or
influences that impact the operation of business.
‣ General or Remote environment
‣ Industrial environment
‣ Specific or Operational environment
Prof. Arefin 1
S W O T Analysis
S trengths are resources, skills & or other favorable advantages relative to
other competitors and needs of the markets a firm serve or expect to
serve. Examples of Strengths are: Firm’s technical skill, Valuable physical
assets, Fruitful alliances etc.
Thus Strengths are:
o Something that a company is good in doing.
o It gives the company increased competitiveness.
Preconditions of an “asset” to be the S t r e n g t h ”
o Should be better than competitors;
o Must have the market demand or marketability;
o Organization should have the capability to use that ‘assets’ as resource.
: Limitations of S W O T :
: S W O T Diagram :
o Mostly manager does their
organizational SWOT superficially Numerous Opportunities
and subjectively;
Weaknesses Turnaround Aggressive
Substantial
o SWOT is mostly qualitative
Strengths
strategy strategy
Critical
Value is the total amount that the buyers are willing to pay for a firm’s
products. And the difference between the total value and the total cost of
performing all of the firm’s activities provides the margin.
Prof. Michael Porter suggests that activities within an organization add value
to the service and products that the company produces, and that all of these
activities should be run at optimum level if the organization is to gain any
real competitive advantage.
Prof. Arefin 4
General or Remote Environment
Distant forces those are common for all types of the businesses.
Prof. Arefin 5
General or Remote Environment
Prof. Arefin 6
Industrial Environmental Analysis
Industrial environment shape the competition in an industry and, help the
analyst to link the impact of remote factors to the firm’s operating
environment.
Analysis of industrial Five forces determine the intensity of competition,
attractiveness of an industry and, level of profitability.
1. Entry threats of new firm
2. Suppliers’ powerfulness
3. Buyers’ powerfulness
4. Substitute products or services
5. Rivalry among competitors
o Attractive industry means profitable industry and,
o Unattractive industry is one in which the combination of above five
forces acts to drive down overall profitability.
A t t r a c t i v e industry: U n a t t r a c t i v e industry
o High entry barriers o Low entry barriers
o Weak suppliers bargaining power o Strong suppliers bargaining power
o Weak buyers bargaining power o Strong buyers bargaining power
o Few substitute products or services o Many substitute products or services
o Low competition o Intense competition
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Entry threats
Entry threats: Existing competitors discourage the
potential new entrance entering into the industry by
creating some barriers to entry that become very costly for
new competitors to adopt.
Thus existing business can preserve a favourable position
and take fair advantage of it.
Prof. Arefin 8
Suppliers powerfulness is how easy or difficult it is for the suppliers to
drive up the supply price.
In general fewer the supplier means more powerful the suppliers are.
Thus powerful suppliers are threat to the firm who have to buy at the
price that asked by the suppliers.
Suppliers become powerful when:
o Supply-side dominated by few suppliers
o Supply a unique or least differentiated products
o If the buyers are not that important for the suppliers
o Suppliers side integrations, etc.
Prof. Arefin 10
High Exit barrier:
Barriers to exit are obstacles in the path
of a firm who wants to leave a given
market or industry. These obstacles often
cost the firm financially to leave the market
and may prohibit it doing so.
Typical barriers to exit include highly
specialized assets, which may be difficult to
sell or relocate, and high exit costs, such
as asset write-offs and closure costs.
Prof. Arefin 11
Industry Environment …..cont
STEPS of Industry Analysis
1. Define the boundary of an industry
2. Define who are the competitors
3. Major determinants or factors of the
competition
Prof. Arefin 14
Common Environmental Factors that
a Firm Must Analyze
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Ways of Environmental Management
Strategic Maneuvering
Firm’s conscious effort to change the boundaries of its task &/or
industry environment.
Aggressive firm continuously change their boundaries of tasks through
introducing new product, re-modeling of existing products, also go for
market development, diversification, acquisitions etc.
» Different level of Strategic Maneuvering:
o Corporate Level: Moving in or out of certain task & or industry.
o Business level: Properly positioning the firm in the market niches
by creating a new task environment.
» Strategic Maneuvering could be done though….
o Independent strategies: Individual firm act on its own to change
some aspect of its current environment.
o Cooperative strategies: Two or more firm work together to change
their own or industrial environment. This happen when,
o Taking joint actions reduce cost and risks
o Mutual cooperation increases their power
Prof. Arefin 16
What to do to Manage Environment Strategically
o Reactive: Positioning firm in the changed environment so that it is
capable to provide the best defense against the environment.
o Proactive: Taking the offensive by attempting to change the
environments i.e., challenging strategy.
Note: Strategic environmental management refers to the proactive
strategies aimed at challenging the environmental context in which the
organization operates its’ business.
Prof. Arefin 17