STRATEGIC MANAGEMENT

Unit-II
• Nature, Components and Significance of Environmental
Scanning;
• Analysing External Environmental Opportunities and
Threats- Economic, Technological, Competitive, Political,
Social & Culture.
 Concept of Business Environment
Environment literally means the surroundings, external objects, influences, or
circumstances under which business deals or interact. Environment can be defined as a
“totality” of all the factors which are external and beyond the capacity of the business
organization and its management.
Definition :
According to Keith Davis “Environment of the business means the aggregate of all
conditions, events, and influences that surround and affect it”.

Business environment can be divided into Internal and External Environments:

1.Internal Environment: It includes internal factors of the business which can be
controlled by business. The components of internal environment are usually within the
control of the business.

2.External Environment: It refers to external aspects of the surroundings of a business

enterprise which have an influence on the functioning of the business. The external
aspects of the surroundings are by large and beyond the control of the business.
 Components of Business Environment

Internal External Environment

Environment

Value System
Micro or Operating Macro or General
Environment Environment
Mission & Objectives

Plans & Policies Demographic

Customers

Human Resources Economic

Competitors

Physical Resources Naturals

Suppliers

Financial Resources Marketing Social &

Intermediaries Technological
External Environment Opportunities and Threats Scanning
Different factors that are considered while scanning the external environment of the
organization like Competitors, customers, suppliers, technology, social and
economic factors, political and legal issues, market trends, etc.

Economic Environment:- The economic environment consists of macro-level factors related

to the means of production and distribution of wealth that have an impact on the
business of an organization.
• The economic stage in which a country exists at a time such as agrarian, industrial, or
post-industrial economy.
• The economic structure adopted, such as a capitalistic, socialistic, or mixed economy.
• Economic policies such as industrial, monetary, and fiscal policies.
• Economic planning, such as five-year plans, annual budgets, etc.
• Economic indices like national income, distribution of income, rate and growth of gross
national product(GNP), per capita income, rate of savings and investments, value of
exports and imports, the balance of payments, etc.
• Infrastructural factors such as financial institutions, banks, modes of transportation, etc.
Technological Environment:- It consists of those factors related to knowledge applied and
the material and machines used in the production of goods and services that have an
impact on the business.
• Sources of technology like company sources, external sources, and foreign sources; cost
of technology acquisition; collaboration in technology etc.
• Technological development, change and rate of change technology and research and
development.
• Impact of technology on human beings and the environmental effects of technology.

Competitive Environment:- A competitive environment is where different businesses

compete with each other by using various marketing channels, promotional strategies,
pricing methods, etc.
• Types of competition (Pure competition, Monopolistic competition, Oligopoly,
Monopoly) etc.
• Entry and exit of major competitors.
• Nature of competition, and
Political Environment:- The political environment refers to the political or government
regulations and actions that impact business operations positively and negatively.
• Nature of the political system, ideological forces, political parties, etc.
• Political structure, its goals, and stability.
• Political philosophy, government’s role in business, its policies, and interventions in
economic and business development.
• Political processes like operation of the party system, elections, funding of elections,
formulation of governments and legislation.

Socio-cultural Environment:- It consists of factors related to human relationships within the

society, the development, forms and functions of such a relationship, and learned and
shared behaviour of groups of human beings.
• Demographic characteristics, such as population, its density and distribution, changes in
population and age composition, inter-state migration and rural-urban mobility.
• Socio-cultural attitudes and values, such as expectation of society from business, social
customs, beliefs, rituals and practices, changing lifestyle pattern, and materialism.
• Educational levels, awareness and consciousness of rights, work ethic of members of
society and attitude towards minority and disadvantaged groups.
 The Business Environment of an Organization

Introduction to Environmental Scanning

The environment must be scanned so as to determine the development and forecasts of
factors that will influence organizational success. The process by which organizations
monitor their relevant environment to identify opportunities and threats affecting their
business for the purpose of taking strategic decisions is known as Environmental Scanning.
 Steps in the Process of Environmental Scanning
1. Monitoring:- It means to understand the various environmental factors which affect the
business and to identify published or unpublished sources of information which affect the
business. Newspapers, Magazines and Journals, Government Publications, etc.
2. Searching and Scanning:- Even when the sources of required information exist, these may
not be readily available. Search and scanning are therefore needed to manage the timely
availability of required information.
3. Forecasting:- Forecasting is concerned with estimation of direction and intensity of change
in environmental factors. Forecasts of important components of business environment like
economic, social, technological and political environment, etc.
4. Evaluation and Assessment:- As to how these environmental changes will affect the
business so that appropriate counter strategies can be made well in time.

Factors to be Considered for Environmental Scanning

1. Events 3. Issues

2. Trends 4. Expectations
 Approaches to Environmental Scanning
1. Systematic Approach:-
• Information for environmental scanning is collected systematically.
• Information must be related to internal & external factors of the business should be
collected.
• Information collected are to be updated continuously.
2. Ad hoc Approach:-
• Organisation conduct special surveys and studies to collect information related to specific
environmental issues from time to time.
• Such studies may be conducted, for instance, when an organisation has to undertake
special projects, evaluate existing strategies or devise new strategies.
3. Processed-form Approach:-
• The organisation uses information in a processed form available from different sources
both inside and outside the organisation.
• It uses secondary sources of data and the information is available in a processed form.
 Significance of Environmental Scanning
• Identification of strengths
• Identification of weaknesses
• Identification of opportunities
• Identification of threat
• Effective planning
• Survival and growth of business
• Flexibility in operations
Environmental Appraisal
Environmental appraisal is the process through which the strategies monitor and
comprehends various environmental factors and determines the opportunities and threats
that are provided by these factors.

• It help strategists to develop an early warning system to prevent threats to develop

strategies which can convert threats to opportunities.
• Systematic appraisal and diagnosis enable the managers to predict the future and to have
enough time for their activities.
 Techniques of Environmental Appraisal
• Issues Priority Matrix
• Environmental Threat and Opportunity Profile Analysis (ETOP)
• Strategic Advantage Profile (SAP)
• Quick Environmental Scanning Technique Analysis (QUEST)
• SWOT Analysis (Strengths, Weaknesses, Opportunities and Threats analysis)
• PESTLE Analysis (Political, Economic, Social, Technological, Legal and
Environmental factors)
• Functional Area Profile and Resource Deployment Matrix
• The Opportunity and Threat Matrices
• The Impact Matrix
• Gap Analysis
• Balanced Scorecard
 Issues Priority Matrix (IPM)
A Prioritization Matrix is a useful technique to identify which problems are the most important
to work on solving first. The Matrix helps you rank problems or issues generated through
brainstorming, using weighted criteria that are important to your project and/or organization .
Environmental Threats and Opportunities Profile (ETOP )
ETOP analysis (environmental threat and opportunity profile) is the process by which
organizations monitor their relevant environment to identify opportunities and threats
affecting their business for the purpose of taking strategic decisions.

According to Glueck,“ The environmental threat and opportunities profile is a systematic

evaluation of environmental factors weighted by the significance of each factor for the
company”.

Steps involved in the preparation of ETOP

The preparation of ETOP involves dividing the environment into different sectors and then
analyzing the impact of each sector on the organization.
1. Identification of different components
2. Assessing importance of environmental factors
3. Assessing impact factor
4. Combining importance and impact factor
Environmental Threat and Opportunity Profile (ETOP) for a Motor Bike company
Environmental Impact of each sector
Sectors
Social (↑) Customer preference for motorbike, which is fashionable, easy to ride,
and durable.
Political (→) No significant factor.
Economic (↑) Growing affluence among urban consumers; Exports potential high.
Regulatory (↑) Two Wheeler industry a thrust area for exports.
Market (↑) The industry growth rate is 10 to 12 percent per year, For motorbike
growth rate is 40 percent, largely Unsaturated demand.
Supplier (↑) Mostly ancillaries and associated companies supply parts and
components, REP licenses for imported raw materials available.
Technological (↑) Technological up-gradation of industry in progress. Import of
machinery under OGL list possible.

(↑) Favorable Impact (→) Unfavorable Impact ( ) Neutral Impact

 PESTLE Analysis

Political

Environmental Economic

PESTLE
Analysis

Legal Social

Technological
PESTLE Analysis
 Gap Analysis
Gap analysis is used to
examine expected and current
business practices.
Essentially, it shows the
difference between where the
company is and where it
wants to be.

Types of Gap Analysis

• Profit Gap: Gap between profit for the past few years and profit projection based on
freehand projection, linear regression coefficient or exponential smoothing.
• Sales Gap: Gap between planned & actual sales.
• Product gap: Difference between what a firm offers in terms of product items and what
the industry provides in terms of product line.
• Risk Gap: Gap between anticipated risk with strategic decision and the actual happening.
 SWOT Analysis
SWOT analysis stands for strengths, weaknesses, opportunities and threats analysis of a
business environment.
• Strengths and weaknesses are an organization’s internal factor, while
• Opportunities and threats are considered as external factors.
So, the process of SWOT analysis includes the systematic analysis of these factors to determine
an effective marketing strategy.
1. Strength
• It is an inherent capability of the organization.
2. Weakness
• It is an inherent limitation of the organization.
3. Opportunities
• It is a favourable environmental condition.
4. Threats
• It is an unfavourable environmental condition.

Significance of SWOT Analysis

1. Logical Framework
• Because it covers all the logical factors good or bad whatever it is.

2. Helpful in Comparison
• Compare external opportunities and threats with internal strengths and weaknesses.

3. Helpful in Strategy Formulation

• SWOT allows companies to take competitive advantages by analysing SWOT.
 Internal Environment Analysis
Strengths:- The strength of any organization is related to its core competencies i.e.
efficient resources or technology or skills or advantages over its competitors. For
example,
• The marketing expertise of a firm
• Strong customer relations
• Market leader in its product or services
• Sound market image and reputation
• Smooth cash-flows
Weaknesses:- A weakness or limitation of an organization is related to the scarcity of
its resources or skill-set of staff or capabilities that creates an adverse effect on its
performance. For example,
• limited cash-flow and high cost
• Poor product quality
• Low productivity
• Unrecognized brand name or poor brand image
 External Environment Analysis
Opportunities:- An opportunity of the organization’s environment is considered as its most
favorable situation. These are the circumstances that are external to the business and can
become an advantage to the organization. For example,
• Social media marketing
• Mergers & acquisitions
• Tapping new markets
• Expansion in International market
• New product development

Threats:- Threats of an organization are current or future unfavorable situations that may
occur in its external environment . For example,
• A new competitor in the market
• The slow growth of the market
• Changing customer preferences
• Increase in the bargaining power of consumers
• Change in regulations or major technical changes
References-
• Strategic Management 4th Edition by Azhar Kazmi & Adela Kazmi McGraw Hill
Education (India) Private Limited.
• Strategic Management: An Introduction to Business and Corporate Strategy by Prof
Paul Finlay.

Thanking You
Prepared By:
Name:- Akshaya Kumar
Roll No.:- 20325701798
Exam Roll No.:- 20414CCM002
Course:- Masters in Corporate Communication Management (MCCM)
Semester:- Second
Subject:- CC-09: Strategic Management
Department:- Journalism and Mass Communication