Environmental Analysis

Characteristics of Business Environment

1. Complex
2. Multi Faceted in Nature
3. Dynamic In Nature
4. Far Reaching Impacts
 Types of Environments
1. Micro Environment
• Suppliers
• Customers
• Competitors
• Marketing Intermediaries
Types of Markets
1. Consumer markets
2. Industrial markets
3. Institutional markets
4. International markets
5. Reseller market
• General Public
 2.Macro Environment
1. The economic environment
2. The political and government environment
• Role of State in an economy with reference to business
 Establishment and enforcement of laws
 Maintenance of order
 Money and credit
 Infrastructure
 Orderly growth
 Information assistance to small industries
3. Socio-cultural Environment
 Social values and attitudes
 Social groups and movements
 Education and culture
 Public attitude towards business
 Caste system
 Social institutions
 Marriage and religion
4. Demographic Environment
5. Natural Environment
6.Physical and Technical Environment
 Environment Analysis
Variables affecting choice of factors
1. Type of business
2. Size and power of organisation
3. Age of organisation
4. Geographic dimension of organisation
5. Nature of environment
6. Philosophy of the strategist

Techniques
7. Survey methods
8. Historical method
9. Business barometers
10. Analysis of the time series
11. Extrapolation method
12. Regression analysis
13. Delphi techniques
14. Input –Output Analysis
Forces Influencing Environmental scanning

1. Nature of business
2. Age of organisation
3. Size of organisation
4. Influence of organisation
5. Geographical dimensions
6. Volatility of environment
7. Managerial attitude
8. Managerial culture
 Techniques for environmental search and analysis

• Information gathering
• Spying
• Forecasting

Principles of scanning
1. Principles of linkage
2. Principle of purpose
3. Principle of culture
4. Principle of support
Environmental diagnosis
5. Identification of strategic internal factors
6. Historical analysis
7. Evolution analysis
8. Competitive analysis
9. Development of company profile
 Techniques of diagnostic analysis
1. Functional /departmental analysis
2. Scenario analysis
3. Issue analysis
4. ETOP
5. TOWS matrix
Organisational Appraisal
“ process through which managers analyse the various factors of their
organisation to evaluate their relative strengths and weaknesses so as to
meet the opportunities and threats of environment”
6. Identification of key factors
7. Identification of strategic importance of factors
8. Assessing the SW of key factors
9. Preparing strategic advantages profile
10. Relating strategic advantage to strategy
 ETOP
1. Forecasting techniques
2. Time series analysis
3. Judgmental forecasting
4. Delphi technique
5. Multiple scenarios
6. Strategic or competitive advantage
7. National competitive advantage

Factor Firm
strategy,str
conditio ucture and
ns National
rivalry
competitive
advantage

Related Demand
and
supporting conditio
industries ns
1. Factor conditions
a. HR b. Physical resources c. Capital resources d. Infrastructural resources
e. Natural resources

2. Demand conditions
3. Firm strategy
4. Support industries
5. Government
 Industry analysis
• Competition analysis
1. Threat of new entrants
2. Degree of rivalry(no of competitors, rate of industrial growth, capacity etc)
3. Threat of substitutes
4. Bargaining power of buyers
5. Bargaining power of suppliers
6. Relative power of other stake holders

STEPS
7. Define the Arena
8. Focus on Competitors
9. Identify key factors of success
10. Porter’s analysis
 Core competence
• Eg: honda’s core competence is its depth of expertise in small engine
development .
• For sony its expertise is electronic technology

• So core competency is the collective learning in the organization especially

how to co ordinate diverse production skills and integrate multiple
streams of technologies.
 Portfolio Analysis
• It simply means a range of investments held by a company.
• Eg: marketing mix
• It uses Display Matrices
1. BCG growth share matrix
2. GE business screen
3. Hofer’s product/market evolution matrix
Hofer’s Matrix for product evaluation
 Factors influencing portfolio strategy
• Mission/vision
• Value system
• Future prospects
• Position of portfolio matrix
• Government policy
• Supply/demand condition
• Competitive moves
• Company resources
 Levels of Strategies
Corporate strategy- determination of the overall directions that will enable
the organization to achieve it’s strategic goals through it’s operation.
(Grand Strategy)

 It involves decisions relating to choice of business resource allocation

among different business units
 Corporate strategies
 Stability
Makes no change in the firms activities
 Growth/Expansion
Expands the firm’s activity
 Retrenchment
Reduce the firm’s level of activities
 Combination
Several simultaneously strategies
 Grand strategy

Stability Growth /Expansion Retrenchment Combination

 Stability Strategy
• Why stability strategy?
1. Firms doing well or perceives itself as successful
2. Less risky
3. Environment is highly dynamic and unpredictable
4. Too much expansion leads to ineffectiveness

No change Caution Profit

• Artificially
• Like army maintain profit by
• Pause /proceed reducing
• Do nothing • Bata and liberty investment and
Hindustan Levers short term
investment
 Growth /Expansion Strategies
Why this strategies?
Intensive Strategies
1. To obtain economies of scale
2. Survival
3. Increase profit
4. To become market leader
Integration Strategies

Diversification Strategies
 Intensive strategy

Market Penetration Product Market

• Increase market Development Development
share for the • Present product in • new or improved
product in existing new market product
market • New geographical • Achieved through
• Increasing sales to markets new product,
current customers, • New market quality variation,
attracting segments product
competitors • Suitable when new proliferation
customers, untapped market, • Strong R&D,Product
new channels for at maturity level,
attracting non distribution,exccess Technology
users to buy the production capacity, development, High
product excess resource industrial Growth
 Relative market share
M
a
r
k
e
t
g
r
o
w
t
h
r
a
t
e
• Sold over 7.5 million vehicles in India and exported over 500,000 units to
Europe and other countries.
• Their turn over for the fiscal 2008-09 stood at Rs.203,583 million and
profit after tax at Rs.12,187 million
 Overseas Market
• Poland Finland Iceland Malta Switzerland Netherlands Algeria and
Italy,latin America Africa and south east Asia
• 70,023 units ,a growth of 32.1% in the fiscal year 2008-09
 Integration strategies
• Means combining activities relating to the present activity of the firm

Backward Vertical integration

Horizontal Integration
Forward
 Vertical Integration Strategies
• Allow a firm to gain control over :
1. Distributors
2. Suppliers
3. Competitors
Forward integration
Gaining ownership or increased control over distributors or retailers
 Why FI?

• Present distributors are expensive, unreliable or incapable of meeting

firm’s demand
• Availability of quality distributors is limited
• When a firm competes in an industry that is expected to grow markedly
• Organization has both capital and human resources needed to manage
new business distribution
• Advantages of stable production are high
• Present distributors have high profit margins
 Backward Integration
• Seeking ownership or increased control over a firm’s suppliers
 Why BI?

• When present suppliers are expensive ,unreliable or incapable of meeting

needs
• No of suppliers is small and number of competitors are large
• High growth in industry sector
• Firm has both capital and human resources to manage new business
• Advantages of stable prices/quality are important
 Horizontal Integration
• Seeking ownership or increased control over competitors

Tata steel on Wednesday 31 Jan 07 acquired the British steel company “the
Corus group', the revenue of Tata steel is 1/4th of that Corus group and is
said to be the 54th largest steel company but still it acquired the 9th biggest
steel company in the world
Increased economies of scale provide major competitive advantages
Transfer of resources and capabilities
To access new markets
The firm can gain monopolistic characteristics
Competes in growing industry
• BI : ford buys Bethlehem steels
• FI : ford buys Rizza ford dealership
• HI : ford buys John Deere Tractors
 Diversification Strategies
• Adding new business to existing business
Reasons Concentric
1. Saturation in current business
2. Market opportunity diversification
3. Excess resources
4. Technology
5. Good brand equity Conglomerate
6. Risk minimization
diversification

Horizontal
diversification
 Concentric Diversification
• Adding new but related products/services or business
• Competes in no or slow growth industry
• Adding new and related products increase sales of current products
• New and related products offered at competitive prices
• Current products are in decline stage of the product life cycle
• Strong management team and resources
 Conglomerate diversification
• Adding new unrelated products / services to the business
• Due to declining annual sales and profit
• Capital and managerial talent to compete successfully in a new industry
• Saturated market for existing products
 Horizontal Diversification
• Adding new unrelated products or services for present customers
• Revenue from current products/services would increase significantly by
adding the new unrelated products
• Highly competitive and/or no growth industry with low profit margins and
returns
• Present distribution channels can be used to market them
• New products have counter sales patterns when compared with existing
products
• Ariel laundry detergent
• Bounty paper towels, sold in the United States and Canada
• Braun, a small-appliances manufacturer specializing in electric razors, coffeemakers, toasters, and blenders
• Charmin bathroom tissue and moist towelettes
• Dawn dishwashing detergent
• Downy fabric softener and dryer sheets
• Duracell batteries and flashlights
• Febreze Odor control/Freshener
• Fusion five blade cartridge and razors.
• Gillette, variety of razors for men and women, shaving cream for men, body wash for men, shampoo for men, deodorant
and anti-perspirant for men
• Head & Shoulders shampoo
• Iams dog and cat foods
• Lenor fabric softener
• Olay Personal and beauty products
• Oral-B inter-dental products, such as Oral-B Glide
• Pampers & Pampers Kandoo disposable diapers and moist towelettes
• Pantene haircare products
• Tide variety of liquid and powder laundry detergents, stain remover for laundry and stain remover pen
• Vicks cough and cold
• Wella hair care products
 Retrenchment/Defensive
Strategies
Defensive Strategies

Turn Around Divestiture Liquidation

 Turn Around
• A firm is said to be sick when it faces a severe cash crunch or consistent
downtrend in its operating profit. The process of recovery is called
Turnaround.
1. Decreasing market share
2. Decreasing profit
3. Lack of planning
4. Debt
5. Competition
6. Inadequate management Types of
Turnarou
7. Lack of marketing effort nd
 Divestment strategies
• Selling a division or part of an organization
• When firm has pursued retrenchment but failed to attain needed
improvements
• When a division needs more resources than the firm can provide
• When a division is responsible for the firm’s overall poor performance
• When a division is misfit in the organization
 Liquidation Strategies
• Selling all of a company’s assets, in parts , for their tangible worth
• When both retrenchment and divestment fails
• If the only alternative is bankruptcy
• When stockholders can minimize their losses by selling the firm’s assets
Combination/Corporate Strategies
1. Mergers
2. Take overs
3. Joint ventures
4. Strategic alliances
 Merger
• Occurs when two or more organizations of about equal size combines to
become one through an exchange of stock ,cash or both
1. Horizontal
2. Vertical
3. Concentric
4. Conglomerate
 Horizontal mergers
• Between two companies producing same or similar products/services
• E.g.: bank of Maharashtra and ICICI
• Centurion bank with HDFC
• Deccan and Kingfisher
Vertical mergers
• A merger between two different companies with different products and
services for one specific finished product.
• E.g. :footwear companies merge with tanneries for making products
• Narmada electronics with videocon
Concentric mergers
• Takes place when there is a combination of two or more organisations
related to each other either interms of customer functions,groups or
technologies used.
• Eg: A footwear company combining with a hosiery firm making socks
 Conglomerate mergers
• A merger between firms that are involved in totally unrelated business
activities
• Walt Disney and American broadcasting company
Demerger
• Relience
• Demerger of Dabur India in July 2003 to FMCG group and Pharma Group
Acquisitions
• When a large firm purchases a small firm or vice versa
• Eg: Videocon acquiring Thomson picture tube division
 Take Over
• Involves the acquisition of a portion or whole of the equity capital of
another firm and get effective control
• Eg : videocon takes over Philips Television plant in 2000
• Bharati Aritel takes over South Africa’s MTN
• Tata steel takes over Corus
• Vodafone-Hutchison Essar

Joint venture
By absorption or consolidation two or more companies become one
Consortium –specific period
Legally independent to share partners resources and capabilities to develop a
competitive advantage
Maruthi suzuki, Hero honda, Tata Docomo
 Strategy Alliances
• Two or more firms unite to pursue a set of agreed upon goals but remain
independent subsequent to the formation of the alliance
• The partner firms share the benefits of the alliance and control over the
performance of assigned tasks.
• They contribute on continuing basis
 1. Procompetitive alliances
• Suppliers and buyer firms enter upon long term contracts (low
interaction/low conflict)
2. Non competitive alliance (high interaction /low conflict)
• Intra industry partnerships between non competitive firms in same
industry
• Both have different areas in industry
Competitive alliances(high interaction /high conflict)
• alliances between intense rivals.
Precompetitive alliance(low interaction/high conflict)
• Two firms from different unrelated industries
 Reasons
• Entering new markets
• Reducing manufacturing cost
• Developing diffusion technology
• Managing strategic alliances
 Business Level Strategies
• Popularly defined as competitive advantage
• What are the customers needs?
• Who are our customers?
• How can we satisfy these customer needs?
• What is our core competency?
Types:
1. Porter's generic model (generic strategies)
• A. cost leadership (quality with cost, high capacity utilization,
economies of scale, technological advances and skill and
experiences)
• B. Differentiation(unique product/service ,creating value against low
cost, product innovation)
• C. Focus(special attention to a particular product/product line to get a
competitive advantage by targeting particular areas like
demographic ,life styles)
2. Miles and Snow’s Adaptation Model
• Relate business level strategies to environment and meet uncertainty
challenges and change in external environment through adaptation.
• A. The Defender Strategy : defend the limited product market by
aggressively pursuing internal efficiencies
• B. The Prospector Strategy: seeks and exploits new product and new
market opportunities, continuously monitors environment
• C. The Analyzer Strategy :combination of defender and prospector
The firm maintains a firm base of traditional products and customers
• D. The Reactor Strategy :not a pro active one. Responding to competitive
pressure. Ad hoc in nature
3. Product Life Cycle Model
Not really a strategy but gives a frame work for the managers to make
strategies
 Why companies wants to global?
Fundamental Reasons
• Market saturation
• Threat of trade deficit
• Facing foreign competition
• Rise of new markets
• Opportunities through foreign programmes
Collateral Reasons
• To utilize full capacity
• To offset the business downturns
• To effect savings in costs
• To take advantage of tax concessions
• To develop and test new products
• To have access to International Technology Raw Materials and Economic groups
 Functional Strategies
• Financial strategies
• Marketing strategies
• Product in strategy
• Human resources strategy
Financial strategy
• Source of funds
• Usage of funds
• Management of funds
• Capital structure
• Financing the firm
• Use of the venture capital
 Marketing strategies
• Product
• Pricing
• Place
• Promotion
Product concept
a. consumer goods
a.1 convenience goods
a.2 shopping goods
a.3 specialty goods
b. insistence goods
c. industrial goods(RM,SFG,Fabricated materials,Equipments,
Operating Supplies)
Promotion
a. Personnel selling
b. Advertising
c. Publicity
d. Public relations
e. Sales promotion
f. Promotional mix
Pricing
f. Price considerations
g. Legal considerations in pricing
h. Branding strategies
 Manufacturing Strategy
Production system
Operational planning and control
R&D
 Study of corporate plan and statement of objectives
 Analysis of the present manufacturing operations and environmental
forces
 Review of sales forecast and marketing mix
 Making strategic decision
 Extent of manufacturing process
 Choice of the manufacturing process
 Capacity decisions
 Choosing machines and equipments
• Plant location
• Plant buildings
• Plant lay out
• Maintenance
HR Strategy
Role of HRM
Competitive advantage through people
Personnel policies
HR Planning
Recruitment
Selection
Placement
Induction
T&D
Executive development programmes
GK
Performance appraisal