UNIT II

STRATEGIC
MANAGEMENT
ENVIRONMENTAL
ANALYSIS

• An environmental analysis is a strategic

technique used to identify all internal and
external factors that could affect a
company's success.
• Internal components reveal the strengths
and shortcomings of a company, while
external components represent the
opportunities and risks.
 Importance of Environmental Analysis

• Find opportunities: By looking at the outside world, organizations can find

new trends and chances to enter new markets or make new products or
services.
• Identify threats: It helps businesses find threats to their business, such as new
competitors, changes in regulations, or a slowing economy.
• Create effective strategies: Organizations can create effective strategies that
are in line with their goals and objectives when they understand how the
outside world affects their business.
• Anticipate change: Environmental scanning helps organizations plan ahead
for changes in the outside world and create strategies to deal with them.
• Make informed decisions: It helps organizations learn more about the outside
factors that affect their business so that they can make better decisions.
Environmental
analysis process

• Environmental analysis is the process of

assessing and evaluating the internal and
external factors that can have an effect
on an organization’s performance and
strategy.

• This analysis aims to find opportunities,

threats, strengths, and weaknesses so that
the organization can make a good
workforce strategy that fits its goals and
objectives.
Environmental analysis process
1. Determine the effects on the environment

To begin a business environmental analysis procedure, select environmental factors evaluating. Your industry determines this.

For example, if you work in a medical facility, you might want to think about legal implications. Regulations managing
healthcare experience and safety, for example. Choose factors that have the potential to influence how you make deals.

2. Obtain information

Collect information about your chosen environmental factors once you decide which ones to evaluate. You can observe your factors
and conduct research here. There are two types of information to gather: verbal and written data. Hearing is how people obtain
verbal information.

As an example, consider listening to a radio broadcast. They obtain written information from sources such as newspapers and
magazines.
Environmental
analysis process

3. Consider your competitors

• You may want to gather information about your
competitors. To see if they pose any threats. You can
accomplish this by employing a technique known as
spying. This involves unusually gathering information.
4. Examine your strategies
• Finally, evaluate your present and prospective
strategies to determine how future environmental
changes will impact your organization. This assists you
in resolving potential issues. These factors could have
been to blame.
PESTEL ANALYSIS

• Political
• Political issues refer to the level of government
intrusion into an organization’s operations.
Primary concerns include taxes, tariffs,
regulations, elections, and political stability.
• For example, different political parties hold
divergent viewpoints on raising the minimum
wage. Small businesses may be affected by an
election.
 PESTEL
• Political
Analysis
• Economic
• Social
• Technological
• Environmental
• Legal
• This is essentially a bird’s eye view of corporate behavior. Because
we take a broad look at some macro issues that significantly
impact the health of a particular business or industry, this study is
used by managers and strategists to determine where their market
is right now. It also assists in evaluating the company’s future
position.
• The PESTLE study considers several factors that have an impact
on the business environment. It is a macroeconomic instrument
that is used to understand the external environment through more
extensive environmental analysis.
 • SWOT Analysis
• Strength: After analysis of the internal environment of a
company, we will be able to identify the strengths that give the
company a competitive advantage. The entrepreneur can use
this information to maximise these strengths and earn more
profits.
• Weakness: Study of the internal environment also point out the

SWOT weaknesses of the company. For the growth and stability of the
company, these identified weaknesses must be corrected

ANALYSIS
without delay.
• Opportunity: Analysis of the external environment helps with
the identification of possible opportunities. The entrepreneur
can prepare to capitalize on these.
• Threats: Analysis of the external environment will also help in
the identification of any business threats from competitors or
any other factors. The company can come up with a strategy to
diffuse such threats or minimize its impact.
SWOT Analysis

• S-O strategies pursue opportunities that are a

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.
•
Porter’s 5 Force Analysis
Value Chain Analysis
 •Primary activities are directly related to the flow of the product to the customer and
include five sub-activities as listed below:

1. Inbound logistics: All activities that an organisation uses for receiving, storing
and transporting inputs going into the production process. Typical inbound
logistics activities performed in organizations are materials handling,
warehousing and inventory control.
2. Operations: All activities required for transformation of raw materials to

Value Chain finished products. Typical operations activities performed in organizations are
assembling, fabricating, machining, maintaining and packaging.
3. Outbound logistics: All activities that an organisation uses for receiving,
Analysis storing and transporting outputs going out of the production process. Typical
outbound logistics activities performed in an organisation are of materials
handling, order processing, physical distribution, and warehousing.
4. Marketing and sales: All activities that an organisation uses to market and sell
its products to customers. Typical marketing and sales activities performed by
organizations are of pricing, developing products, advertising, promoting and
distributing.
5. Service: All activities that an organisation uses for enhancing and maintaining
a product’s value. Typical service activities performed by organizations are of
installation, repair, maintenance and customer training.
Value Chain Analysis
•Support activities are provided to sustain the primary activities. These consist of:
1. Firm infrastructure: All activities that an organisation uses for ascertaining
the external opportunities and threats, identifying strengths and weaknesses and
generally managing the organisation for achieving its objectives. Typical firm
infrastructure activities performed by organizations are of accounting, finance,
planning, general management, legal support and managing government
relations.
2. Human resource management: All activities that an organisation uses for
managing human resources. Typical human resource management activities
performed by organizations are of recruitment, selection and training,
developing, appraising and compensating employees.
3. Technology development: All activities that an organisation uses for creating,
developing and improving products and services. Typical technology
development activities performed by organizations are research and
development, product design, process design, equipment design and servicing
procedures.
•
4. Procurement: All activities that an organisation uses for procuring inputs
needed to produce products or provide services. Typical procurement activities
performed by organizations are purchasing fixed assets such as machinery and
equipments, raw materials and supplies.
•
Resource Based
View

• The resource-based view (RBV) argues

that a firm's sustained competitive
advantage is based on its valuable, rare,
inimitable, and nonsubstitutable
resources (Barney, 1991).

• The capability of firms to create or

acquire these resources affects their
performance and competitiveness over
their competitors.
VRIO
Framework
• It includes value, rarity,
imitability, and organization.
These four categories are markers
for the unique value and
resources your business is
characterized by and their data
analysis helps uncover what the
long-term advantages are for your
organization.
•A Real-life VRIO Example: Google
•There’s no doubt that Google is one of the most powerful companies in
the world, and its success arguably stems from a sustained competitive
advantage in human capital management. If we were to break down
Google’s VRIO framework from the HR perspective, it might look
something like this:
•Value: Use human capital management data to hire and retain
innovative, productive employees. These employees consistently create
some of the most popular consumer products and services in the world.
•Rarity: No other companies are using data-based employee
management so extensively.
•Imitability: Data-based human capital management is both costly and
difficult to imitate, at least for the near future. Companies have to build
the software and invest in training their HR staff on the new technology
and strategy.
•Organization: Google is organized to capture value from this
capability. The IT department has the skills to collect and maintain the
data, while HR and team leaders are trained on how to use the data to
hire, promote, manage, and improve performance of employees.
Industry Analysis

• Industry analysis, for an entrepreneur or

a company, is a method that helps to
understand a company's position
relative to other participants in the
industry.

• It helps them to identify both the

opportunities and threats coming their
way and gives them a strong idea of the
present and future scenario of the
industry.
 •There are many techniques available to structure the
environmental appraisal. One such technique,
suggested by Glueck, is that of preparing an
environmental threat & opportunity profile (ETOP) for
an organization.

ETOP •The foregoing analysis indicates that organizations

should engage themselves in continuous assessment of
ANALYSIS the opportunities & threat situations that emerge from
environmental forces as they act & interact with each
other, & ultimately affect their working. The following
is a summary presentation of the foregoing discussion.
The preparation of an ETOP involves dividing the
environment into different sectors & then analyzing
the impact of each sector on the organization.
 Environmental Factors Indicative list of details to be studied to identify opportunities & threats
GNP trends, GDP, Interest rates/savings rate, Money supply, Inflation rate, Unemployment, Disposable income, Business
Economic Environment cycles, Trade deficit/surplus, fiscal policy, balance of trade, disposable income, government control over prices, etc
The constitutional framework, directive principles, fundamental rights & division of legislative powers between the
Government Policy & Legal Environment central, state & local governments, Policies, Plan & budget allocations, import & exports, taxes, subsidies, FDI policies,
liberalization, consumer protection laws etc
Digital revolution, Government spending on research, Government and industry focuses on technological effort, New
discoveries/development, Speed of technology transfer, Rates of obsolescence, Technological development, stages of
Technological Environment development, rate of change of technology, Sources of technology like company sources, external sources & foreign
source, cost of technology acquisition, collaboration in & transfer of technology, etc
Government stability, Political values and beliefs shaping policies, Regulations towards trade and global business,
Political Environment Taxation policies, Priorities in social sector, etc.
Population demographics, ethnic composition, aging of population, regional changes in population growth and decline,
Socio-cultural Environment Social mobility, Lifestyle changes, Attitudes to work and leisure, Education - spread or erosion of educational standards,
Health and fitness awareness, multiple income families, etc.
Globalization, its process, content & direction, Global economic forces, organizations, block & forums, Global trade &
commerce, its process & trends, Global financial system, sources of financing & accounting standards, Geopolitical
situation, equations, alliances & strategic interests of nations, Global demographic patterns & shifts, Global human
International Environment resources: institutions, availability, nature & quality of skills & expertise, mobility of labour & other skilled personnel,
Global information system, communication networks & media, Global technological & quality systems & standards,
Global markets & competitiveness, Global legal system, etc.

Cost, availability & continuity of supply of raw materials, sub assemblies, parts & components, Cost & availability of
finance for implementing plans & projects, Costs, reliability & availability of energy used in production, Cost,
Supplier Environment availability & dependability of human resources, Cost, availability & existence of sources & means for supply of plants
& machinery, spare parts & after-sale service, Infrastructural support & ease of availability of the different factors of
production, bargaining power of suppliers & existence of substitutes.
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