Environmental Scanning


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business environment analysis


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INTRODUCTION Business decisions are influenced by two sets of factors Internal factors (The Internal Environment External Factors( The External Environment) Business Environment presents two challenges to the enterprise The challenge to combat the environmental threats Exploit the business opportunities Environmental Analysis is one of the first steps in Strategic Management


definition “ The process by which strategists monitor the economic, governmental/legal, market/competitive, supplier/technological, geographic and social settings to determine opportunities and threats to their firms” “Environmental diagnosis consists of managerial decisions made by analysing the significance of data (opportunities and threats) of the environmental analysis”

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Environmental Scanning is the monitoring, evaluating and disseminating of information from the external and internal environments to key people within the corporation. A corporation uses this tool to avoid strategic surprise and to ensure its long-term health.




INTERNAL ENVIRONMENT Important internal factors are 1) Value System The value system of founders and those at the helm of affairs has important bearing on the choice of business, the mission and objectives of the organization, business policies and practices. 2) Mission and Objectives The business domain of the company , priorities , direction of development, business philosophy, business policy etc. are guided by the mission and objectives of the company


INTERNAL ENVIRONMENT 3) Management Structure and Nature The organizational structure, the composition of the Board of Directors, extent of professionalization of management etc. are important factors influencing business decisions. 4) Internal Power Relationship Factors like the amount of support the top management enjoys from lower levels and workers, share holders and Board of Directors have important influence on the decisions and their implementation. The relationship between the members of Board of Directors is also a critical factor.


INTERNAL ENVIRONMENT 5) Human Resources The characteristics of the human resources like skill, quality, morale, commitment, attitudes etc. could contribute to the strength and weakness of the organization. The involvement, initiative etc. of the people at different levels may vary from organization to organization. 6) Company Image and Brand Equity The image of the company matters while raising finance, forming joint ventures or other alliances, soliciting market intermediaries, entering purchase or sale contracts , launching new products etc.


INTERNAL ENVIRONMENT OTHER FACTORS Physical Assets and Facilities R&D and Technological Capabilities Marketing Resources Financial Factors


EXTERNAL ENVIRONMENT Two Types Micro Environment Consists of actors in the company’s immediate environment, that affects the performance of the company. Macro Environment Consists of larger societal forces that affect all the actors in company’s micro environment.


MICROENVIRONMENT Also known as task environment and operating environment Include The suppliers Marketing intermediaries Competitors Customers Publics More intimately linked with the company than macro factors The micro forces need not necessarily affect all the firms in a particular industry in the same way. Some of the micro factors are particular to a firm


suppliers Those who supply the inputs to the company. Source/Sources should be Reliable Uncertainty regarding the supply or other supply constraints compel companies to maintain high inventories causing cost increases. Very risky to depend on a single supplier The purchasing department should “market” itself to suppliers, to obtain favourable treatment during the periods of shortages.


customers Major task of business is to create and sustain customers Different categories of consumers Individuals Households Industries and other commercial establishments Government and other institutions Depending on single customer is too risky Choice of customer should be done by considering Relative profitability dependability stability of demand growth prospectus extent of competition


competitors A firm’s competitors include not only the other firms which market the same or similar product but also all those who compete for the income of the consumers Desire competition Generic competition Product form competition Brand competition

Marketing intermediaries:

Marketing intermediaries Firms that aid the company in promoting, selling and distributing its goods to final buyers. Include the middlemen and merchants who “help the company find customers or close sales with them” Physical distribution firms which “ assist the company in stocking and moving goods from their origin to their destinations” Marketing service agencies which “assist the company in targeting and promoting its products to the right markets” Financial intermediaries which “finance marketing activities and insure business risks” Vital links between the company and the final consumers.


publics Any group that has an actual or potential interest in or impact on an organization’s ability to achieve its interests E.g. Media publics, citizens action publics, local publics Media attack on any company can even influence the government decisions affecting the company. Environmental pollution is an issue often taken up by number of local publics Publics are not always threat to the business. Fruitful cooperation between a company and the local publics may be established for the mutual benefit.


MACRO ENVIRONMENT Consists of larger societal forces that affect all the actors in company’s micro environment-namely the demographic, economic, natural, technological, political and cultural forces Also known as Societal Environment The Societal Environment includes general forces that do not directly touch on short-run activities of the organization but that can, and often do, influence its long-run decisions.

Economic Environment:

Economic Environment Important factors are: Economic conditions Economic policies Economic systems Economic condition The economic conditions of a country –for example, the nature of the economy, the stage of development of the economy, economic resources, the level of income, the distribution of income and assets, etc.- are among the very important determinants of business strategies. In a developing country, the low income may be the reason for the very low demand for the product.

Economic Environment:

Economic Environment Economic policies Some types or categories of business are favourably affected by government policy, some adversely affected, while it is neutral to some others. E.g. a restrictive import policy may greatly help the import competing industries, while a liberalisation of the import policy may create difficulties for such industries Economic System The scope of the private business depends on the economic system. The freedom of the private enterprise is the greatest in the free market economy.

Political & Government Environment:

Political & Government Environment Has close relationship with the economic system and economic policy. In many countries regulations to protect consumer interests have become stronger. Some governments specify certain standards for the products to be marketed in the country; some even prohibit the marketing of certain products. Promotional activities are subject to various types of controls. Eg: In India, Advertisement of alcoholic product is prohibited. and the packages must carry “injurious to health” warnings

socio-cultural environment:

socio-cultural environment Major factors are: the buying and consumption habits of people, their language beliefs and values, customs and traditions, tastes and preferences, Education Strategy should be appropriate in the socio-cultural environment. Eg: nestle brews a very large variety of instant coffee to satisfy different national tastes

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Even when people of different cultures use the same basic product, the mod of consumption, conditions of use, purpose of use or the perceptions of the product attributes may vary so much so that the product attributes, method of presentation, positioning or method of promoting the product may have to be varied to suit the characteristics of different markets. E.g.: Vicks Vaporub, the popular pain balm is used as mosquito repellent in some tropical countries

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Language difference pose a serious problem. e.g. Preet-> Prestige for overseas market In Japanese, General Motors’ “body by Fisher” means “Corpse by fisher” Colour Blue: feminine and warm in Holland ; but masculine and cold in Sweden Green: favorite in Muslim world; but represents illness in Malaysia Red: popular in communist countries; but represents disaster in Africa White: death and mourning in China and Korea; but it expresses happiness in some countries. Also it is the color of bridal dress.

Demographic environment:

Demographic environment Factors: Size, growth rate, age composition, sex composition of population, family size, educational levels, economic stratification of the population, language, caste, religion, etc. E.g. Decline in birth rates in USA have affected the demand for baby products. So Johnson &Johnson repositioned their products like baby shampoo and baby oil, to the adult segment, particularly to females.

Natural environment:

Natural environment Geological and ecological factors, such as natural resources endowments, weather and climatic conditions, topographical factors, location aspects in the global context, port facilities etc., are relevant to business. Differences in geographical conditions between markets may some times call for changes in the marketing mix. Geographical and Ecological factors also influence the location of certain industries. E.g. industries with high material index tend to be located near the raw material sources. Topographical factors may affect the demand pattern E.g.. In hilly areas with difficult terrain, jeeps may be in a greater demand than cars. Ecological factors have recently assumed great importance. The depletion of natural resources, environmental pollution and the disturbance of ecological balance have caused great concern.

Physical & technological environment:

Physical & technological environment Business prospects demands availability of certain physical facilities E.g. demand for electrical appliances is affected by the extent of electrification and the reliability of power supply. Demand for LPG stoves depend on rate of growth of gas connections differing technological environment of different markets may call for product modifications E.g. Many appliances are designed for 110 V in USA. They should be converted for 240v in India

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Technological developments may increase or decrease the demand for some existing products E.g. voltage stabilizers help increase in sale of electrical appliances in markets characterized by frequent voltage fluctuations Introduction of TVs, Refrigerators, etc. with in-built stabilizers adversely affects the demand for voltage stabilizers. 6/2/11

International Environment:

International Environment Particularly important for the industries directly depending on imports or exports and import-competing industries Recession, economic boom, liberalization Major international developments have their spread effects on domestic business. E.g. Oil price hikes increased the cost of production and the prices of certain products such as fertilizers , synthetic fibres. So usually, the demand for natural fibres and manures increased. Also demand for automobiles that economise energy consumption got increased.

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The oil crisis also promoted some companies to resort to demarketing “ demarketing ” refers to the process of cutting consumer demand for a product back to the level that can be supplied by the firm. E.g. The Indian Oil Corporation have publicised tips on how to cut oil consumption


TECHNIQUES FOR ENVIRONMENTAL SCANNING Involve two phases: Information gathering and Evaluation 1) Verbal & Written Information: verbal information includes, information obtained by direct talk with people, by attending seminars, meetings, etc.. Written or documentary information includes both published and unpublished materials 2) Search and Scanning: this involves research for obtaining the required information 3) Spying: Eve though it is not considered as ethical, spying to get information about the competitor is not uncommon These 3 pertains to source of information/methods of gathering information

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4) Forecasting: done by corporate planners or other staff personnel or consultants This pertains to use the information gathered by above mentioned 3 methods for picturing the future scenario.


references STRATEGIC MANAGEMENT by Francis Cherunilam, Himalaya Publishing House STRATEGIC MANAGEMENT by J. David Hunger and Thomas L. Wheelen, Addison-Wesley EXPAND YOUR BUSINESS by Robert Zegers and Cornelius J. Murombedzi

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THANK YOU…. 6/2/11

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