ENVIRONMENTAL

ANALYSIS
Environmental analysis is a strategic tool. It is a process to identify all the
external and internal elements, which can affect the organization’s
performance. The analysis entails assessing the level of threat or opportunity
the factors might present. These evaluations are later translated into the
decision-making process. The analysis helps align strategies with the firm’s
environment.

Our market is facing changes every day. Many new things develop over time
and the whole scenario can alter in only a few seconds. There are some
factors that are beyond your control. But, you can control a lot of these
things. Businesses are greatly influenced by their environment. All the
situational factors which determine day to day circumstances impact firms.
So, businesses must constantly analyze the trade environment and the market.

There are many strategic analysis tools that a firm can use, but some are more
common. The most used detailed analysis of the environment is the PESTLE
analysis. This is a bird’s eye view of the business conduct. Managers and
strategy builders use this analysis to find where their market currently. It also
helps foresee where the organization will be in the future.
 SWOT ANALYSIS
SWOT analysis is a planning tool used to understand the Strengths, Weaknesses,
Opportunities, and Threats involved in a project or in a business. It involves specifying the
objective of the business or project and identifying the internal and external factors that are
supportive or unfavorable to achieving that objective. SWOT is often used as part of a
strategic planning process.

•Strengths describe what an organization excels at and what separates it from the competition:
a strong brand, loyal customer base, a strong balance sheet, unique technology, and so on. For
example, a hedge fund may have developed a proprietary trading strategy that returns market-
beating results. It must then decide how to use those results to attract new investors.
•Weaknesses stop an organization from performing at its optimum level. They are areas where
the business needs to improve to remain competitive: a weak brand, higher-than-average
turnover, high levels of debt, an inadequate supply chain, or lack of capital.
•Opportunities refer to favorable external factors that could give an organization a
competitive advantage. For example, if a country cuts tariffs, a car manufacturer can export its
cars into a new market, increasing sales and market share.
•Threats refer to factors that have the potential to harm an organization. For example, a
drought is a threat to a wheat-producing company, as it may destroy or reduce the crop yield.
Other common threats include things like rising costs for materials, increasing competition,
tight labor supply and so on.
Key success factor (KSF)
Those functions, activities, or business practices, defined by the market not the company,
and as viewed by customers that are critical to the company/customer relationship.

Key Success Factors (KSF) are generally three to five areas that a company may focus on,
to attain its vision. KSF may also be major flaws that need to be addressed before other
goals can be completed or strengths that must be preserved.

Value Chain Analysis Bench Marking

A value chain is the full range of activities – including design, production, marketing and
distribution – businesses conduct to bring a product or service from conception to
delivery. For companies that produce goods, the value chain starts with the raw materials
used to make their products, and consists of everything added before the product is sold to
consumers.

Value chain management is the process of organizing these activities in order to properly
analyze them. The goal is to establish communication between the leaders of each stage to
ensure the product is placed in the customers' hands as seamlessly as possible.
External environmental analysis involves looking into the environment
within which the organization operates and identifying the opportunities and
threats that are evident within that business environment. The analysis
composes of four components;

Scanning: This is the process of looking into any early signals that mark the
existence of emerging trends and environmental changes. Once these are
identified the organization then moves on to the next step.

Monitoring: Once the trends and environmental changes are identified,

monitoring helps in identifying what they could mean to the organization
and its activities. This is done through constant observation of the various
patterns and changes that take place in relation to the identified particulars.

Forecasting: Once the trends and environmental changes have been singled
out and monitored over time, forecasting is applied as the organization
articulates the outcome that could be experienced within both the
organization and the business environment.
Assessing: Finally, the organization analyzes these probable outcomes with focus being
on the possible influence they could have on the organization’s predetermined strategies.

Once the environmental scanning is done, it is then up to the management to come up

with possible measures to counter identified threats or take advantage of any
opportunities that have presented themselves.

Segments of General Environment

The Six Segment Analysis is a framework to analyze the general environment of a firm.
The framework is frequently used in the analysis of competitive strategy. Six Segment
Analysis can help managers to identify potential opportunities and threats. The six
segments of the general environment are demographic, sociocultural, political/legal,
technological, economic, and global.

In contrast to Michael Porter's Five forces analysis, which focuses on the

competitiveness of a specific industry, Six Segment Analysis target on broader macro-
environmental trends. Such trends could potentially affect the profitability of the
industry as a whole and influence the sustainability of the competitive strategies of a
company.
Porter’s Five Forces Model
Competitive Rivalry: This looks at the number and strength of your competitors. How
many rivals do you have? Who are they, and how does the quality of their products and
services compare with yours?

Where rivalry is intense, companies can attract customers with aggressive price cuts and
high-impact marketing campaigns. Also, in markets with lots of rivals, your suppliers and
buyers can go elsewhere if they feel that they're not getting a good deal from you.

On the other hand, where competitive rivalry is minimal, and no one else is doing what
you do, then you'll likely have tremendous strength and healthy profits.

Supplier Power: This is determined by how easy it is for your suppliers to increase their
prices. How many potential suppliers do you have? How unique is the product or service
that they provide, and how expensive would it be to switch from one supplier to another?

The more you have to choose from, the easier it will be to switch to a cheaper alternative.
But the fewer suppliers there are, and the more you need their help, the stronger their
position and their ability to charge you more. That can impact your profit.
Buyer Power: Here, you ask yourself how easy it is for buyers to drive your prices down.
How many buyers are there, and how big are their orders? How much would it cost them
to switch from your products and services to those of a rival? Are your buyers strong
enough to dictate terms to you?

When you deal with only a few savvy customers, they have more power, but your power
increases if you have many customers.

Threat of Substitution: This refers to the likelihood of your customers finding a different
way of doing what you do. For example, if you supply a unique software product that
automates an important process, people may substitute it by doing the process manually or
by outsourcing it. A substitution that is easy and cheap to make can weaken your position
and threaten your profitability.

Threat of New Entry: Your position can be affected by people's ability to enter your
market. So, think about how easily this could be done. How easy is it to get a foothold in
your industry or market? How much would it cost, and how tightly is your sector
regulated?

If it takes little money and effort to enter your market and compete effectively, or if you
have little protection for your key technologies, then rivals can quickly enter your market
and weaken your position. If you have strong and durable barriers to entry, then you can
preserve a favorable position and take fair advantage of it.
 PEST analysis
It is a strategic business tool used by organizations to discover, evaluate, organize,
and track macro-economic factors which can impact on their business now and in the
future. The framework examines opportunities and threats due to Political,
Economic, Social, and Technological forces. Outputs from the analysis inform
strategic planning processes and contribute to market research.
 Industry Driving forces
Most Common Driving Forces
 Internet & the new e-commerce opportunities and threats it breads in the
industry.
 Increasing globalization
 Change in an industry long term growth rate
 Changes in who buy the product and how they use it.
 Product innovation.
 Technological changes.
 Marketing innovation.
 Strategic group mapping
A strategic group is a concept used in strategic management that groups
companies within an industry that have similar business models or similar
combinations of strategies. For example, the restaurant industry can be divided
into several strategic groups including fast-food and fine-dining based on
variables such as preparation time, pricing, and presentation.
You can see in the "Retail" example below that the firms are categorized across
two criteria: Price/Quality and Geographic Coverage. However, there can
be numerous criteria over which firms can be measured.
•Extent of product (or service) diversity.
•Extent of geographic coverage.
•Number of market segments served.
•Distribution channels used.
•Extent of branding.
•Marketing effort.
•Degree of vertical integration.
•Product (or service) quality.
•Pricing policy.