why is environmental analysis necessary

8/2/2019 Why is Environmental Analysis Necessary

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Why is environmental analysis necessary

Environmental scanning provides a broader

perspective to corporate planners in formulatingplans and policies while reports on market research

and economic forecasts are helpful in a limited way.

On the basis of an enquiry into the relationshipbetween environmental analysis and success of firms

in U.S.A , it was observed that there was a high

degree of correlation between the two variables.

The archetype of successful firms were those in which

the management devoted considerable time in

environmental analysis and used suitable techniques

for the purpose


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3. Indicators relating to individual enterprises, e.g.,

for a company manufacturing agricultural

pumpsets for irrigationthe progress of rural

electrification ;for a transport company-planned

investment in the expansion of railway tracts and

haulage capacity, road construction, costs of fuel

and user needs for additional freight capacity.


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Approaches to the environmental scanning process

Different approaches have been suggested , which

are briefly outlined below:1. PEST analysis:

Johnson and Scholes have suggested that it may

be useful as a starting point to enquire whatenvironmental influence have been important in

the past and the extent to which there are changes

occurring which may make any of these more or

less significant in the future for the organization

and its competitors.


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h bl f d f bl h


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The possible factors identifiable in the respective

categories are listed as illustrative of western

countries

Political/legal : monopolies legislation ;environmentalprotection laws; taxation policy; foreign traderegulations; employment law; government stbility.

Economic : business cycles;GNP trends; interest rates;

money supply; inflation; unemployment ; disposableincome; energy availability and cost.

Socio cultural: population demographics ; incomedistribution; social mobility; life style changes; attitudeto work and leisure; consumerism; levels of education.

Technological: government spending on research;industry focus on technological effort; new discoveries/developments; spend of technology transfer; rates ofobsolescence.


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Structural analysis of competitive environment

A structural approach to examining the competitiveenvironment of an organization has been suggested by

Michael Porter. Porter identified five basic forces which, according to

him, determine the intensity and state of competitionin an industry, and the collective impact which

determine the long run profit potential in the industry. The basic forces are

1. Degree of competitive rivalry among competitors.

2. Threat of entry posed by potential entrants.3. Threat of actual or potential substitutes.

4. Bargaining power of suppliers.

5. Bargaining power of customers.


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Information inputsInformation scanning requires information inputs

which can be derived from different sources :

1. Verbal information from such sources as the audio

visual media (radio and television); conversation

among employees, managers , supervisors and

subordinates, customers , distributors of the

companys products (wholesalers, dealers,

retailers); suppliers; competitors and their

employees; financial executives in banks; stockbrokers; consultants ; government employees.


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2. Written and documentary information from

newspapers , trade journals, industry newsletters,

annual reports, documented clipping services.

3. Information made available through the

management information system which is specially

designed to serve the needs of strategic planners.

4. Forecasting and reports based on forecasts

regarding changes in economic , social and

financial conditions available from governmental

agencies and other specialized consultancy serviceorganizations .

A b f bli i i I di id l bl


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A number of publications in India provide valuable

information and forecasts relating to environmental

conditions :

Economic survey published annually by theMinistry of Finance, economic division, Govt. ofIndia

Five year plans and mid term survey reports onplanned development published by the PlanningCommission.

Decennial Census reports, Govt. of India .

Reserve bank of India Bulletins (monthly) andannual reports on Currency and Finance.

Business intelligence and Data published by the

Centre of Monitoring Indian Economy.


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Indian trade journal (weekly) published by the Directorate

General of Commercial Intelligence and Statistics, Kolkata

Economic trends (fortnightly) published by the Federation

of Indian Chambers of Commerce and Industry, New Delhi. Yojana (fortnightly) published by the Planning commission.

Economic Times (Mumbai, New Delhi), Financial Express

(New Delhi) and Business Standard Capital (Kolkata)-dailies. Business India (Mumbai), Business World Capital (Kolkata)-

fortnightly; Commerce (Mumbai)-weekly.

Bombay Stock Exchange directory ;

Foreign trade (monthly) published by the Indian Institute of

Foreign Trade, New Delhi.

Th f ll i bli ti l ti t i t ti l


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The following publications relating to international

business provide economic, trade and financial data1. United nations publications : World Economic Survey

(Annual); Statistical yearbook(Annual); InternationalFinancial Statistics (Monthly); Economic Survey of Asiaand the Far East(Annual); Economic Survey of Latin

America(Annual); Commodity Trade Statistics

(Quarterly and Annual); Yearbook of InternationalTrade Statistics: Economic Bulletins for Europe, LatinAmerica and Africa (Bi Annuals).

2. Annual Report on Exchange Restrictions published by

the International Monetary Fund.3. Fortnightly , monthly and quarterly

Bulletins/Newsletters/Journalspublished by theExport Promotion Councils of different products.


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4. Monthly statistics of the Foreign Trade of India in

two volumes published by the Department of

Commercial Intelligence and Statistics.

5. Indian export service Bulletin (weekly) published by

the Trade fair Authority of India.

6. Overseas Business Reports published by the United

States Department of Commerce.


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n e as s o a survey o me um an arge n ancompanies in 1983.it was found that the executives had their

order of preferences regarding sources of information as

follows:

Guidelines to industries published by the UnionMinistry of Industries Govt. of India.

Data from industry sources (Association, Forums,

etc.) Market survey by consultants or under own

arrangement

Projection of past performance into future. Foreign magazines and publications and foreign

market intelligence.

Competitors activities.

f


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Use of scenario

Scenario may be used for the interpretation of a

fluid , rapidly changing business environment with

an uncertain future.

Scenario may be regarded as stories about the

future.

Typical scenarios include qualitative and

quantitative description of the more important

social , political, economic, demographic,

technological and other condition.

Describe the basic trends , assumptions, conditions

and dynamics of the factors relating to the future

period that the scenario covers.


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Political conditionThe impact of political instability , unrest andthreats to law and order.

The sources of political risks may be

1. competing political ideologies,

2. vested interest in local business groups,

3. electoral majority of the party in power

4. internal dissensions within the ruling party

5. insurgencies in border areas

6. international power alignments and alliances

7. foreign economic policies of government abroad

8. strength of the parliamentary opposition parties


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Legal/Regulatory conditions and Government PoliciesSome of the policy measures adopted are as follows:

Abolition of industrial licensing for all projects except

for a short list of industries. Automatic clearance of capital goods imports for

projects where foreign exchange availability is ensuredthrough foreign exchange availability is ensuredthrough foreign equity.

Approval of direct foreign investment up to 51% foreignequity in high priority industries as also for trading

companies primarily engaged in export activities. Removal of the threshold limits of assets in respect of

MRTP companies and dominant undertakings, thuseliminating the requirement of prior

T h l i l di i


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Technological conditionsBright has suggested the following guidelines foreffective appraisal of significant technological

advances1. Searching the environment for signals that may be

forerunners of significant technological change.

2. Identifying the possible consequences (assuming that

these signals are not false and the trends that theysuggest persist).

3. Choosing the parameters ,policies, events, anddecisions that should be observed and followed to

verify the true speed and direction of technology andthe effects of employing it.

4. Presenting the data from the foregoing steps in atimely and appropriate manner for managements use

in decisions about the organizations reaction.


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Business conditions

Two other aspects of business environment which

need to be monitored for strategic planning are themarket conditions and the availability of raw

materials and components required for

manufacturing activities.

Di i A t f t iti


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Diagnosis :Assessment of opportunities

and threatsEnvironmental analysis cannot be complete without

diagnosis of the results of analysis.

This actually involves assessment of the

opportunities and threats identified in the process

of analysis.

The three aspects of the diagnostic exercise which

need to be kept in view,

1. The role and characteristics of the planners

2. The planners job

3. Nature of the environment

How well the diagnosis is carried however depends also on


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How well the diagnosis is carried , however depends also onthe characteristics of the planners. The more important

determining factors in that respect are :The age and experience of the executives.

The motivation and aspiration level which are governed by:

a. The felt need of achievement, affiliation and power

b. The rewards for performance linked with long run resultsrather than short term attainments.

Perceptual factors, i.e., pre disposition towards theuncertainty of future conditions which include

a. Risk oriented and willingness to take risks.

b. Ability to reflect rather than acting on impulse.

c. Dogmatism or closed beliefd. Ability to deal with abstract concepts and ideas.

Psychological moods reflecting optimism and pessimism.

Psychological preparedness to accept change.


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ETOP: A technique of Diagnosis .Assessment of the environmental information and

determining the relative significance of threats and

opportunities require a systematic evaluation of the

information developed in the course of

environmental analysis

For this purpose , preparation of a profile of

environmental threat and opportunity (ETOP) is

considered to be a useful device.


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Components of the Managerial Environment

why is environmental analysis necessary

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