Environment

 Environment means the surroundings, external objects, influences or circumstances under

which someone or something exists.

 In the case of Subway, for example, the environment contains its customers, its rivals such
as McDonald’s and Kentucky Fried Chicken, social trends such as the shift in society
toward healthier eating, political entities such as the U.S. Congress, and many additional
conditions and forces.
 External Environment- Includes all the factors outside the organization which provide
opportunities or pose threats to the organization.

 Internal Environment- Refers to all the factors within an organization which impart
strengths or cause weaknesses of a strategic nature.
 Characteristics

 Complex

 Dynamic

 Multi faceted

 Has a far reaching impact on organisations

 Components Of Environment

 Economic

 Legal

 Social

 political

 technological
 Environmental Scanning
 Process of gathering, analysing and dispensing information for strategic purpose.

 Carefully monitoring of organisation’s internal and external environment for detecting

early signs of opportunities and threats that may influence its current and future plans.
 Purpose Of
Environmental
Scanning
 Factors To Be Considered

 Expectations of people

 Issues

 Trends

 Events
 Approaches

 Systematic Approach- continuous environment scanning to monitor changes, for strategic

and operational activities, marketing activities, changes in legislation government, policy
have a direct impact on organisation.

 Adhoc Approach- organisations conduct special surveys and studies to undertake special
projects, evaluation of existing strategy or formation of new one, for changes and unforeseen
developments.

 Processed Form Approach- information provided by govt agencies or private institutions,

secondary data from internal or external sources.
 SWOT Analysis

 SWOT analysis includes the systematic analysis of internal and external factors to
determine an effective marketing strategy.

 Tool used by organisations for auditing, marketing management and other business
activities

 Technique is credited to Albert Humphery who led a research project at Stanford

University in the 1960s and 1970s.
 Internal Factors

Strength Weakness
 Characteristics of the business that gives  Characteristics that place the firm at a
advantage over others in the industry. disadvantage relative to others.
 Positive tangible and intangible  Detract the organisation from its ability to
 attain the core goal and influence its growth.
process capabilities, financial resources,
services, customers goodwill and brand  Controllable, minimized and eliminated.
loyalty, well known brand name, better
marketing skills.
 Threats Opportunities
 Chances to make greater profits in the
 Can cause trouble for the business, beyond an environment
organisation’s control  Reason for an organisation to exits and develop.
 Arise when an organisation can take benefit of
 Jeopardise the reliability and profitability
conditions in its environment to plan and
execute strategies that enable it to became more
 Uncontrollable, stability and survival can be profitable.
at stake.  Organisation should grasp them whenever they
arise
 Aim

 To help decision makers share and compare ideas

 To bring clearer common purpose and understanding of factors for success

 To organise the important factors linked to success and failure in the business world.

 To provide linearity to the decision making process allowing complex ideas to be

presented systematically.
 Who need SWOT Analysis

 Business Unit
1. When the team has not meet its target
2. Customer service can be better
3. Launching a new business unit to peruse a new business
4. New team leader is appointed
 Company
1. When revenue, cost and expense targets are not being achieved
2. Market share is declining
3. Industry conditions are unfavourable

4. launching a new business venture

 Process

1. Analyse internal and external

2. Perform SWOT Analysis and document

3. Prepare action plan

 Limitations
And Example
 ETOP Analysis

 ETOP means environmental threat and opportunity profile. It is a technique of

environment analysis where organisation make a profile of their external environment.

 Identify strategic opportunities for the company. Environmental opportunities indicate

new lines of business and threats restrain them from entering into new business lines.

 Consolidate and strengthen an organisation’s position

 Helps formulating SWOT analysis

Limitation and
Example
 Quest Analysis

 Quick environmental scanning technique

 It assumes a quick and easy study of the market and the internal situation of the company,
to solve the most relevant issues in the shortest possible time. It helps to distinguish
internal and external variables and estimate their impact on the operation of the company.
 Benefits

 It provides an opportunity to develop a shared future and eventualities

 Provide greater awareness

 Shift towards proactive activities

 Increase strategic thinking

Limitation and
Example
 Porter’s Five Forces Analysis

 It is a framework that attempts to analyse the level of competition within an industry and
business strategy development
 One way to analyse your competition – and understand your standing in your industry –
is using porter’s five forces model. Originally developed by harvard business school’s
michael E. Porter in 1979
 The five forces model looks at five specific factors that determine whether a business can
be profitable in relation to other businesses in the industry.
 Using porter’s five forces in conjunction with a swot analysis will help you understand
where your company or business fits in the industry landscape.
 Porter’s five forces is considered a macro tool in business analytics – it looks at the
industry’s economy, while a swot analysis is a micro analytical tool, focusing on a
specific company’s data and analysis.
 “Understanding the competitive forces, and their underlying causes, reveals the roots of
an industry’s current profitability while providing a framework for anticipating and
influencing competition (and profitability) over time,” porter wrote in a Harvard business
review article.
 Porter theorized that understanding both the competitive forces at play and the overall
industry structure are crucial for effective, strategic decision-making, and developing a
compelling competitive strategy for the future. Every business strives to prevent its
competitors from stealing its profits.
 Porter's five forces model is a strategic framework that helps to identify and analyze five
forces that affect company’s profitability in any given industry.
 Threat of New Entrants

 This force determines how easy (or not) it is to enter a particular industry.

 If an industry is profitable and there are few barriers to enter, rivalry soon intensifies.
When more organizations compete for the same market share, profits start to fall. It is
essential for existing organizations to create high barriers to enter to deter new entrants.

 Threat of new entrants is high when:

• Low amount of capital is required to enter a market.

• Existing companies can do little to retaliate.

• Existing firms do not possess patents, trademarks or do not have established brand reputation.

• There is no government regulation.

• Customer switching costs are low (it doesn’t cost a lot of money for a firm to switch to other
industries);

• There is low customer loyalty.

• Products are nearly identical.

• Economies of scale can be easily achieved.

 Questions you can use during
analysis
 How expensive would it be and how long would it take someone to enter your market?

 Is there strong customer loyalty in your industry? Would it be difficult for a new entrant to
woo customers away from your products or services?

 Are there any additional barriers to entry a new player could encounter (e.g., regulation,
intellectual property, access to distribution channels, etc.)?

 How strictly is your industry regulated?

 Is your key technology protected?

 Bargaining power of suppliers

 Strong bargaining power allows suppliers to sell higher priced or low-quality raw
materials to their buyers. This directly affects the buying firms’ profits because it must
pay more for materials. Suppliers have strong bargaining power when:
• There are few suppliers but many buyers.
• Suppliers are large and threaten to forward integrate.
• Few substitute raw materials exist.
• Suppliers hold scarce resources.
• Cost of switching raw materials is especially high.
 Questions you can use during
analysis
 Who are your key suppliers?

 How many competent suppliers does your company have to choose from?

 How many alternative suppliers can you find?

 How difficult or expensive would it be to change your suppliers?

 Bargaining power of buyers

 Buyers have the power to demand lower price or higher product quality from industry
producers when their bargaining power is strong.

 Lower price means lower revenues for the producer, while higher quality products usually
raise production costs. Both scenarios result in lower profits for producers. Buyers exert
strong bargaining power when:
• Buying in large quantities or control many access points to the final customer;

• Only few buyers exist

• Switching costs to another supplier are low

• They threaten to backward integrate

• There are many substitutes

• Buyers are price sensitive

 Questions you can use during
analysis
• How many potential buyers are in your industry compared to the number of sellers?

• Does a handful of buyers make up most of your revenue?

• What is the size of the orders you receive?

• How easy would it be for your buyer to switch from one seller to another?
 Threat of substitutes

 This force is especially threatening when buyers can easily find substitute products with
attractive prices or better quality and when buyers can switch from one product or service
to another with little cost. For example, to switch from coffee to tea doesn’t cost anything,
unlike switching from car to bicycle.
 Questions you can use during
analysis
• How many substitute products/services are in your industry?

• How similar are those products/services from a functional standpoint?

• What differentiates your products/services from those substitutes?

• Are those products/services affordable?

• What is the buyer’s cost of switching to a substitute product? Low or high?

• Are you able to offer a new product or service that can become a substitute for a market
leader? If so, what it is?
 Rivalry among existing
competitors
 This force is the major determinant on how competitive and profitable an industry is. In
competitive industry, firms have to compete aggressively for a market share, which results
in low profits. Rivalry among competitors is intense when:
• There are many competitors
• Exit barriers are high;
• Industry of growth is slow or negative;
• Products are not differentiated and can be easily substituted;
• Competitors are of equal size;
• Low customer loyalty.
 Questions you can use during
analysis
• What is the number of competitors in your industry?

• Who is your biggest competition?

• What makes your product/service different from your rivals?

• Are there any barriers that would prevent your customers from switching providers? If so,
what are they?

• Is your industry shrinking or growing?

 How to apply Porter’s 5 Forces
analysis
 Using Porter's 5 Forces, you should start to understand the forces that shape your industry. The
next step is to identify how your company is going to compete and formulate a strategy.

 Ideally, you want to sit in a position where you can balance the 5 Forces and maximize your
profit. The key question to answer here is how are you going to achieve a competitive
advantage that will put your organization in a winning position.

 Porter developed three generic strategies that can be used to create a defendable position and
outperform competitors. These strategies are cost leadership, differentiation, and focus on a
particular niche.
 IFE

 Internal factor evaluation

 A summary step in conducting and internal strategic management audit is to construct an

IFE Matrix

 The process of identifying or determining internal strengths and weakness factors of an

organisation is included in the strategy formulation.

 Intuitive judgements are being required

 EFE

 Evaluate external environment or macro environment of the firm include social,

technological, government, political, legal and competitive information.

 EFE matrix method is a strategic management tool often used for assessment of current
business conditions.

 EFE matrix is a tool to visualize and prioritize the opportunities and threats that a
business is facing.
 CPM Matrix

 CPM is a tool that compares the firm and its rivals and reveals their relative strengths and
weakness.
 In order to better understand the external environment and the competition in a particular
industry, firms often use CPM.
 The matrix identifies a firm’s key competitors and compares them using industry’s critical
success factors.
 The matrix also reveals company’s relative strengths and weakness against its
competitors, so a company would know, which areas it should and, which areas to
product.
 Competitive profile matrix and is a powerful strategic analysis tool. CPM allows business
owners, stockholders and other interested parties to see the strengths and weaknesses of
all major competitors in an industry on a single page. This helps visualize and
communicate the competitive landscape.