TOPIC: ENVIRONMENTAL ANALYSIS/SCANNING PARTS OF ENVIROMENTAL ANALYSIS

Refers to the process of gathering, analyzing and dispensing information for tactical Environmental analysis is conducted in two parts: -
and strategic purposes. A) Situational Analysis
It seeks to understand the state of both internal and external factors and their B) Industry Analysis
potential influence on the business activities and the firm’s ability to achieve goals
and objectives. (A) Situational Analysis
- The American marketing association defines situational analysis as “the
Business environment. systematic collection and study of past and present data to identify trends,
The aggregate of all force’s, conditions, events, factors and circumstances that have forces and conditions with the potential to influence the performance of the
the potential to influence the decisions and actions of a business entity. business and to choose the appropriate strategies”.
- It is an analysis of both the internal and external elements of the environment
COMPONENTS OF BUSINESS ENVIRONMENT and their potential impact on the organization.

The environment comprises of two broad components: Internal and external Models used in performing a situational analysis include: -
factors. I. SWOT MODEL
i) Internal environment
These are factors that emanate from within the business and are therefore SWOT is a framework or tool used for strategic planning and
within the control and influence of the management. They can always be management. It is a useful tool in conducting a situational analysis.
changed depending on the needs of the situation.
SWOT is an acronym for strengths, weaknesses, opportunities and threats.
ii) External environment
Conditions that exist in the outside corporate world. They are beyond the N/B: Strengths and weaknesses (represent internal conditions)
control of management and the firm can only align its activities with the opportunities and threats (represent external conditions)
conditions.

a) Micro factors
Forces immediate to organizations’ activities. They directly interface
with what a business does and are industry specific (i.e., only affect
firms in a particular industry).

b) Macro factors
Broad and the general forces existing in the outside corporate world
and as such affect all firms regardless of the industry.

Models/Approaches for environmental analysis

I. SWOT Model
II. SOAR Model
III. PESTEL Analysis
IV. Porter’s Value Chain Model Strengths
V. Porter’s Five force Model Positive internal conditions which provide an entity with an advantage over others
i.e., something that the firm does so well. Examples include;
 - Expertise (highly skilled personnel) - This is achieved by leveraging strengths, reducing weaknesses, exploiting
- Superior technology opportunities and avoiding threats.
- Intellectual property rights
- Strong capital base N/B: When the SWOT profile is plotted on a grid, it is referred to as a SWOT
- Healthy cash flows matrix.
- Prime location etc.
SWOT MATRIX
Weaknesses
Internal negative business conditions that prevent a firm from excelling in what it
does. Examples; opposite of strengths

Opportunities
External favorable future conditions which a business can exploit to enhance its
future prospects. Examples;
- Emerging markets for the firms’ products.
- Exit of a major competitor
- Improved technology
- Favorable legislation
- Strong economy
- Good government policies etc.
Threats
External negative and future conditions that can inhibit business growth and
competitiveness. Examples;
Strategies for each quadrant
- Emergence of new competitors
- Change in customer and tastes and preferences.
Quadrant I (S-O)
- Shrinking demand for the firms’ product
- The situation of the firm is that it has strengths that match opportunities. It
- Adverse change in technology
should pursue strategies that make good use of strengths to exploit the
- A weak economy
opportunities.
- Increased cost of new materials, etc.
Quadrant II (S-T)
- The firm faces many threats but has an equal number of strengths. It should
Application of SWOT in strategic management
also use its strengths to reduce its vulnerability to external threats.
Quadrat III ((W-T)
- The SWOT methodology analyzes the business environment by categorizing it
- The firm faces serious negative environmental conditions which are now
into both internal conditions (strengths and weaknesses) and external
threatening its existence i.e., the threats are capitalizing on the weaknesses.
conditions (opportunities and threats) to provide an audit of the overall
- This situation calls for the need to restructure the firm to prevent it from
strategic position of the business.
succumbing to the negative conditions.
- The analysis generates this information in the form of a SWOT profile (a
Quadrant IV (W-O)
prioritized list of the four conditions). -The firms’ weaknesses are so strong but their exists enough opportunities.
- The firm should employ strategies that reduce the weaknesses to try and exploit
- With this information, the business can seek to develop a strategic fit (crates a the opportunities.
firms’ specific business model that will best align an organizations resources
and capabilities to the requirements of the environment in which the firm
operates.
II. SOAR (STRENGTH, OPPORTUNITIES, ASPIRATIONS AND SOAR FRAMEWORK
RESULTS) MODEL

- A strategic planning tool that focuses an organization on its current strengths

and vision of the future for developing its strategic goals.
- SOAR is a "positive approach to strategic thinking and planning that allows an
organization to construct its future through collaboration, shared understanding,
and a commitment to action."
-
- This tool differs from the commonly used SWOT analysis. SOAR engages all
levels and functional areas of an organization, while SWOT is typically a top-
down approach.
- SOAR is an adaption of the SWOT analysis, only that it is a positively
reframed SWOT analysis.
-
- With SOAR, the focus is on the organization and enhancing what is currently
done well, rather than concentrating on perceived threats and/or weaknesses.
- It removes the negative factors and follows a strategic planning method based
on the expansion of opportunities and strengths to achieve results targeting the
management aspirations. II PESTEL ANALYSIS
- - A framework used in understanding the general and broad environmental
- Building on strengths, requires less effort and resources than trying to correct elements in the outside corporate world and their potential influence on the
weaknesses and avoiding threats, hence SOAR is more action oriented than ability to achieve goals and objectives.
SWOT and is focused on outcomes. i) Political Environment Analysis
- - An assessment of the potential effect of political processes on business
- By using a SOAR analysis, an organization focuses on what they are doing activities. Political processes are associated with a number of factors
well, what can be improved and what is most important to stakeholders. Using that provide a direction on what a business does, including:
the SOAR approach, strategic plans can be more dynamic, creative and o Regimes whose attitudes towards business activities
optimistic. influence business policies.
- o Legislation.
- SOAR uses Appreciative Inquiry, an approach to organizational analysis and o Level of political stability
learning - intended for discovering, understanding and fostering innovations in o Choice of economic system which determines level of
social organizational arrangements and processes. Government intervention in business processes.
ii) Economic Environment Analysis
SOAR is an acronym for: - An analysis of the general state of the economy which influence
i) Strengths: What an organization is doing really well, including its demand for products, cost of doing business and access to
assets, capabilities and greatest accomplishments credit/finance by firms.
ii) Opportunities: External circumstances that could improve profits, - The main economic variables include: interest rates, foreign exchange rates,
satisfy customer needs, and threats or weaknesses reframed into inflation, disposable incomes, labor rates, economic growth, economic cycles
possibilities. (boom or rescission), etc.
iii) Aspirations: What the organization can be. What the organization iii) Social environment Analysis
desires to be known for. - A consideration of the societal value system, beliefs and attitudes, which
iv) Results: The tangible, measureable outcomes that will indicate when influence people needs and wants as well as their perception towards
the goals and aspirations have been achieved. products and work.
 - The main social factors include: Work habits (career attitude), cultural - It is used by companies to examine all of the activities and see how they are
beliefs and values, religious beliefs, population size, age and gender, tastes connected since the way in which value chain activities are performed,
and preferences etc. determines cost and affects profits.
iv) Technology Environment Analysis - The tool therefore can help to understand the sources of value for an
- An assessment of the pace of technological advancement which influences organization. Understanding how a company creates value and considering
innovation processes. more ways to add value are critical elements in developing a competitive
- Change in technology may present opportunities to firm’s or create threats. It strategy.
may lead to improvement/creation of new products and process which - The goal of performing value chain analysis is to maximize value creation
increases competitiveness and may also increase the risk of obsolescence of while also monitoring and minimizing costs.
the firms’ existing technology. - Porter described a chain of activities common to all businesses which he
v) Ecological Environment Analysis divided into primary and support activities.
- An assessment of the degree of consciousness and awareness amongst the
members of the society on the need to protect the wellbeing of the natural
ecosystem.
- Environmental concerns may impose new obligations to firms (such as
investments in waste management systems), introduce restrictions to firms
(such as sustainable extraction of new materials) of increased costs of
operations (such as improving the quality of packaging).
vi) Legal Environment Analysis
- An assessment of both existing and potential legislation relating to the
conduct of businesses.
- All businesses are obligated to comply with the relevant laws and change in
laws may introduce new obligations/requirements (such are installation of
ETR machines), reduction in hours of doing business (such as the Mututho
laws), reduced access to raw materials (such as the logging ban) etc.
- The main issues of legal concern include: Health and safety at work place,
product safety, environmental laws, advertising standards, competition Primary Activities
practices, etc.
Activities that are directly involved in the production and selling of the actual
IV. PORTER’S VALUE CHAIN MODEL product. They cover the physical creation of the product, its sales, transfer to
- A model used to analyze the internal activities of any organization to establish the buyer as well as after sale assistance.
those that give it a competitive advantage. 1. Inbound logistics
All activities concerned with management of purchased inputs such as raw
- Value chain - a set of activities that a firm performs in order to deliver a materials. They relate to all the processes related to receiving, storing, and
valuable product for the market. i.e., to create value for its customers. distributing inputs internally. This also covers all relationships with suppliers.
- The idea of the value chain is based on the process view of organizations - the 2. Operations
idea of seeing a manufacturing or service organization as a system made up of These are the transformation activities that change inputs into outputs that are
sub-systems, each with inputs, transformation processes and outputs. sold to customers.
3. Outbound Logistics
The Model All activities to distribute a final product to a consumer. The activities
- The value chain model is a framework used as part of strategic analysis stage to associated with outbound logistics are collecting, storing and physically
assess whether an organization has a sustainable competitive advantage. distributing the product to buyers.
 4. Marketing and sales This theory is based on the concept that there are five forces that determine the
All activities that help convince a consumer to purchase a company’s product competitive intensity and attractiveness of a market. Porter’s five forces help to
or service. They enhance visibility and include advertising, promotion, and identify where power lies in a business situation.
pricing.
5. Service The purpose of Five Forces analysis is to determine the attractiveness of an
These are post sale services related to maintaining the value of a product or industry, provide basis for articulating strategy and understanding the competitive
service to the customers. They include all the activities required to keep the scene in which a company operates.
product working effectively for the buyer after it is sold and delivered.

Support Activities
Activities that go across the primary activities and aim to coordinate and support
their functions as best as possible.
1. Procurement/Purchasing
Refers to the function of purchasing inputs used in the firm’s value chain, not
the purchased inputs themselves. They include finding and negotiating prices
with suppliers and vendors.
2. Technology Development
Pertains to the equipment, hardware, software, procedures and technical
knowledge brought to bear in the firm's transformation of inputs into outputs.
3. Human Resource Management
Consists of all activities involved in recruiting, hiring, training, developing,
compensating and (if necessary) dismissing or laying off personnel.
4. Firm Infrastructure Rivalry - This force looks at the number and strengths of the firm’s existing
These are a company’s support systems and functions that allow it to maintain competitors. In competitive industry, firms have to compete aggressively for a
daily operations. It serves the company's needs and ties its various parts market share, which results in low profits.
together, and consists of functions such as accounting, legal, finance, planning, Threat of new entrants - This force determines how easy (or not) it is to enter a
public affairs, quality assurance and general management. particular industry. If an industry is lucrative and there are few barriers to enter,
rivalry soon deepens. Profitable markets attract new entrants, which erodes
(B) Industry Analysis profitability, unless incumbents have strong and durable barriers to entry.
Refers to an assessment of a company's operating environment. Industry analysis is Threat of substitutes - Where close substitute products exist in a market; it
a tool that facilitates a company's understanding of its position relative to other increases the likelihood of customers switching to alternatives in response to price
companies that produce similar products or services. increases. This reduces both the power of suppliers and the attractiveness of the
A model for analyzing the structure of industries is the Porter's five forces model. market.
Buyer power - An assessment of how easy it is for buyers to drive prices down.
V. PORTER'S FIVE FORCES MODEL Buyers have the power to demand lower price or higher product quality from
industry producers when their bargaining power is strong. If a business has just a
A framework for analyzing a company's competitive environment. The Five Forces few powerful buyers, they are often able to dictate terms.
model is widely used to analyze the industry structure of a company as well as its Supplier power - An assessment of how easy it is for suppliers to drive up prices.
corporate strategy. Powerful suppliers can demand premium prices and limit profit of company.

It assesses and evaluates the competitive strength and position of a business

organization.

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