CHAPTER-THREE 

ENVIRONMENTAL OR STRATEGIC ANALYSIS

 Definitions
Strategic Environmental Assessment is a family of
tools for up-streaming environmental and social issues
into development planning, decision-making and
implementation processes at the strategic level(Based
on World Bank, 2002).

 Environmental Assessment is the monitoring,

evaluating, and disseminating of information from
the external & internal environments to key people
within the cooperation.

 All organizations surrounded by environmental

uncertainty.
Environmental Assessment…Continued
 Deep understanding of the company’s
situation
 Two facets of the company’s situation are
particularly pertinent:
1) The general environment and competitive
(also called industry or task) environment in
which the company operates
2) The company’s own market position and
competitiveness-its resources and
capabilities, its strength and weaknesses vis-
a- vis rivals, and its window of opportunity
Introduction….Cont’d
 Company’s internal and external analysis is a
prerequisites for managers to succeed in crafting a
strategy. From thinking strategically to choosing
a strategy
Thinking
 strategically
about a Form Identify Select the
company’s strategic promising best strategy
external vision of strategic and business
environment where the options for model for the
co. needs the company
to head company
Thinking
strategically
about a
company’s
internal
environment
 Group Discussion (15’)
Group-1: Take one business company
operating in Ethiopia and then Conduct
SWOT Analysis for it.
 Group-2: Discuss how general
environment such as Economic, Political and
Legal, technological, Social, Environmental,
etc affect Strategy Formulation.
Group-3: How internal assessment is
conducted? What are the functional areas of
the organization to be assessed?
 SWOT Analysis
 To understand the business environment of a
particular firm, you need to analyse both the general
environment and the firm’s industry and competitive
environment.
 An industry is composed of a set of firms that
produce similar products or services, sell to similar
customers, and use similar method of production.
 Gathering industry information and understanding
competitive dynamics among the different companies
in your industry is key to successful strategic
management.
 One of the most basic techniques for analysing firm
and industry conditions is SWOT analysis.
Strengths
A firm’s strengths are its resources and capabilities
that can be used as a basis for developing a
competitive advantage. Examples strengths
include:
 Patents
 Strong brand names
 Good reputation among customers
 Cost advantages from proprietary know-how
 Exclusive access to high grade natural
resources
 Favorable access to distribution networks
Weaknesses
 The absence of certain strengths may be viewed
as a weakness. For example, each of the following
may be considered as weaknesses:

 Lack of patent protection

 a weak brand name
 Poor reputation among customers
 High cost structure
 Lack of access to the best natural resources
 Lack of access to key distribution channels
Opportunities
The external environmental analysis may reveal
certain new opportunities for profit and growth.
Some examples of opportunities are:
 an unfulfilled customers need
 arrival of new technologies
 loosening of regulations
 removal of international trade barriers
 favorable whether condition
 untouched natural resources
 favorable government policy
Threats
Changes in the external environmental also may
present threats to the firm. Some examples of
such threats include:
 Shifts in consumers tastes away from the firm’s
products
 emergence of substitute products
 new regulations
 increased trade barriers
 increased number of new entrant to the industry
 Political instability
 natural disasters
SWOT Matrix…Continued
S-O strategies pursue opportunities that are
the good fit to the company’s strengths
 W-O strategies overcome weaknesses to
pursue opportunities
 S-T strategies identify ways that the firm
can use its strengths to reduce its
vulnerability to external threats
 W-T strategies establish a defensive plan
to prevent the firm’s weaknesses from
making it highly susceptible to external
threats.
 External Analysis
 It consists of both competitive and general
environment
 All companies operate in a “macro environment”
shaped by influences emanating from the following
factors ;

1) Economy at large
2) Population demographics
3) Societal values and lifestyles
4) Governmental legislation and regulation
5) Technological factors

 Close to home, the industry and competitive area in

which the company operates includes
External Analysis…Cont’d

Economic
Environment

Industry Environment Socio-cultural

Demographic
•Threats of New Environment
Environment
Entrants,
•Power of Suppliers,
•Power of Buyers,
•Substitute Product,
• Intensity of Rivalry
Competitors
Political/Legal Environment
Environment
Global
Technological Environment
Environment
External Analysis…Cont’d
 General environment is broad threat in a context in
which a firm operates and it can have an impact on a
company’s strategic choices
 It consists of the following interrelated elements:
1) Population demographics-it indicate changes in how
a population is distributed in terms of each gender,
marital status, income, education level, religion,
nationality, race, etc…
2) The economic climate: reflect a condition of a
country economy and the global economy within which
a firm operate.
3) Socio-cultural trend: indicate changes in the
international markets that a company may be engaged
in.
External Analysis…Cont’d
4) Technological changes: can be a threat to one
company providing opportunities to other company

5) The legal and political condition: reflect the current

laws that affect how a firm conduct laws that affect
how a firm conduct its business and a relationship
exist between a firm and a government.
Competitive (Industry or task) Analysis
 Task environment refers to all forces that do affect short
term activities of corporation and in term affected by it.
 It includes forces like:
 Customers
 Competitors
 Creditors
 Suppliers
 Distributors
 Trade unions
 stockholders
 Labor unions
 Local communities
 Interest group
 Government
 Competitive (Industry or task) Analysis
 In order to do competitive and industry analysis we need to
get answers to seven questions:
1) What are the industry’s strategy-shaping economic features?
2) What kinds of competitive forces are industry members
facing, and how strong is each force?
3) What forces are driving changes in the industry, and what
impact will these changes have on competitive intensity and
industry profitability?
4) What market positions do industry rivals occupy-who is
strongly positioned and who is not?
5) What strategic moves are rivals likely to make next?
6) What are key factors for future competitive success?
7) Does the outlook for the industry presents the company with
sufficiently attractive prospects for profitability?
 Five Competitive Forces

 The "five forces" model, the most commonly utilized

analytical tool for examining the competitive
environment, was developed to broaden our thinking
about how forces in the competitive environment
shape strategies and affect performance.
 The task facing managers is to analyze competitive
forces in an industry's environment in order to
identify the opportunities and threats confronting a
company.
 The task of the strategist is to determine which of
these forces are of the greatest importance to the
organization.
 The five basic forces are listed and portrayed
graphically below.
The Five-Forces Model of Competition: A key Analytical Tool for Diagnosing the Competitive Environment

Threat of new
entrant

Rivalry
Bargaining power among Bargaining
of suppliers existing power of buyer
Players

Threat of substitute
product
Five Competitive Forces
 The one uses the five forces model to determine
what competition is like in a given industry is to
build the picture of competition in three steps or
stages
Step-1: is to identify the specific competitive pressures
associated with each of the five forces
Step-2: is to evaluate how strong the pressures
composing each of the five forces are (fierce, strong,
moderate to normal, or weak).
Step-3: is to determine whether the collective strength
of the five competitive forces is conducive to earning
attractive profits
 Internal Analysis
 Analysis of the firm’s internal environment find
evaluators thinking of their firm as a bundle of
heterogeneous resources and capabilities that can
be used to create an exclusive market position.
 Individual firms possess at least some resources
and capabilities that other companies do not-at
least not in the same combination.
 In order to understand competitive advantage we
should know first value creation
 Competitive advantage is obtained either by
increasing value of product or lowering cost.
 Sustaining competitive advantage
 Internal Audit
Involvement in performing an internal strategic
management audit provides vehicle for
understanding nature and effect of decisions in
other functional business areas of the firm.
 Gather and assimilate information from:
 Management
 Marketing
 Finance/accounting
 Production/operations
 Research & development
 Managing Information Systems
 Generic Building Blocks of CA

Superior
efficiency

CA Superior
Superior  Differentia
tion
customer
Innovation responsiveness
 Lower cost

Superior quality
 Roots of CA

Resources
Differe
Superior ntiation
Distinctive  Efficiency
 Quality Value
 Innovation creation
competences  Customer Low
service cost
 Responsiveness

Capabilities High
Profit
 VIRO FRAME WORK
 The VIRO frame work represent the four
questions that must be asked about each resource
or capability to determine its competitive
potential.

1) The question of value

2) The question of imitability
3) The question of rarity
4) The question of organization
 VIRO Frame work…Cont’d
1) The Question of Value
 It helps a firm to determine if it has strength that help
to exploit environmental opportunity or neutralize
environmental threat.
 Resources that are non-valuable for this purposes are
classified as weaknesses
2) The question of imitability
 It evaluates to what extent valuable
resources can be sources of competitive
advantage
 Two ways firms may imitate resources
through direct duplication or substitution
VIRO Frame work…Cont’d
3) The Question of Rarity
 It determines the extent resources capability is controlled
by numerous other firms
 If resources is rare it is more likely to be a resources of
competitive advantage

4) Question of Organization
 Addresses how the firm is organized in order to
exploit its resources and capabilities
 The component of a firm organization include the
formal reporting structure, management control
system, informal management controls and
compensation policies.
VIRO Frame work…Cont’d
 Firms can apply the VIRO frame work to help
them identifying a firm’s competitive advantages
and disadvantages along with firms strength and
weaknesses
 Value Chain Analysis

 Allow firms to understand the parts of its

operations that create value and those that do
not.

 Firm earns above average returns only when the

value it creates is greater than the costs incurred
to crate that value

 Firms value chain is segmented into: primary

activities and support activities
Value Chain Analysis….Cont’d
Primary activities
Involved with product’s physical creation, sales and
distribution to buyers, and service after the sale
Service, marketing/sales, outbound/inbound logistics
and operations are parts of primary activities.

Support activities
Provide assistance necessary for the primary activities
to take place. Includes firm infrastructure, HRM,
technologies development and procurement.
Value creating potential of primary activities
Inbound logistics
Activities, such as materials handling, warehousing, and inventory control, used to
receive, store ,and disseminate inputs to a product
Operations
Activities necessary to convert the inputs provided by inbound logistics into final
products from. Machining, packaging, assembly, and equipment maintenance are
examples of operations activities
Outbound Logistics
Activities involved with collecting, storing, and physically distributing the final
product to customers. Examples of these activities include finished goods
warehousing, materials handling, and order processing
Marketing & Sales
Activities completed to provide means through which customers can purchase
products and to induce them to do. To effectively market and sell products, firms
develop advertising and promotional campaigns, select appropriate distribution
channels, and select, develop, and support their sales force

Service
Activities designed to enhance or maintain a product’s value. Firms engage in a range
of service-related activities, including installation, repair, training, and adjustment.
 
Each activity should be examined relative to competitors’ abilities. Accordingly, firms rate
each activity as superior, equivalent, or inferior
Examining Value Creating Potential of secondary
activities
Procurement
Activities completed to purchase the inputs needed to produce a firm’s products.
Purchased input include items fully consumed during the manufacture of products
e.g., raw materials and supplies, as well as fixed assets –machinery, laboratory
equipment, office equipment, and buildings)
Technological Development
Activities completed to improve a firm’s product and the processes used to
manufacture it. Technological development takes many forms, such as process
equipment, basic research and product design, and servicing procedures

Human Resource Management

Activities involved with recruiting, hiring, training, developing, and compensating all
personnel
Firm Infrastructure
Firm infrastructure includes activities such as general management, planning, finance,
accounting, legal support, and governmental relations that are required to support the
work of the entire value chain. Through its infrastructure, the firm strives to
effectively and consistently identify external opportunities and threats, identify
resources and capabilities, and support core competencies
 
Each activity should be examined relative to competitors’ abilities. Accordingly, firms rate
each activity as superior, equivalent, or inferior
 I Thank you!

The End of the 3rd Chapter