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SM - Environemnt (Updated)
SM - Environemnt (Updated)
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 Numerous
organizational SWOT superficially 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 profit 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
The remote environment consists of a set of forces that originate beyond a
firm's operating situation i.e., the distant forces those are common for all
types of the businesses.
� Political factors: The direction and stability of national
& or international politics including legal and regulatory
parameters within which an industry operates or, wants to
operate also include the political system, government
agencies and pressure groups etc.
� Economic Factors: National and international nature and direction
of the economy – such as, economic boom or recession or
depression, purchasing power of customers, availability of credit,
interest rate, inflation, trends of growth – in which a industry
operates.
�Social Factors: Changes in the values, beliefs, attitude,
education, distribution of the population, geographic
distribution etc. in the social culture where a firm targeted its
business.
Recent trends in the social changes as changes in the labor
market, population demography, lifestyle of the people etc. all
these have a primary effect on social character and health.
Prof. Arefin 5
General or Remote Environment
Prof. Arefin 6
Industrial Environmental Analysis
Industrial environment shape the competition (rivalry) 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 and
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.
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 typical barriers are as: Government
and social restrictions, highly specialized
assets & costly equipment which may be
difficult to sell or relocate, asset write-offs &
closure costs, loss of customer goodwill.
These obstacles often cost the firm financially
to leave the market and may prevent a
company from exiting a market.
Exit Barriers
Prof. Arefin 13
Analysis of OPERATING Environment help to Determine:
o The competitive position of a firm
o „Relationship that should be‟ with customers
o Firms relationship with suppliers & creditors
Prof. Arefin 14
Common Environmental Factors that
a Firm Must Analyze
Prof. Arefin 15
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.
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
THANK YOU