External Environment Analysis SM.pdf

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1. Strategic
Management
Submitted by
Govind Maheshwari
Submitted to
Dr. Rajeev Samuel
AMITY GLOBAL
BUSINESS SCHOOL

2. External
Environment
Analysis
Strategic Management

3. Introduction
Business
Environment
Environmental
Analysis
Internal
Environment
External
Environment
Micro
Environment
Macro
Environment
PESTLE
Analysis
Strategic
response to the
Environment

4. BUSINESS
ENVIRONMENT
Businessenvironmentrepresentsallexternalforces,
factorsorconditionsthatexertsomedegreeof
impactonthebusinessdecisions,strategiesand
actionstakenbythefirm.Thesuccessofabusinessis
generallydependentonitsbusinessenvironment.A
successfulbusinessmustidentify,appraise,and
respondtothevariousopportunitiesandthreatsinits
environments.Tobesuccessful,thebusinesshastonot
onlyrecognizedifferentelementsofitsown
environmentbutalsoadaptandmanagetoinfluence
them.Thebusinessmustcontinuouslymonitorand
adaptitselftotheenvironmentifitistosurviveand
prosper.

5. Characteristics of
Business
Environment
•Complex
•Dynamic
•Multi-Faceted
•Long-Lasting Impact
•Relativity
•Keeps on Changing
Importance of
Business
Environment
•Determining Opportunities
and Threats
•Giving Direction for Growth
•Continuous Learning
•Image Building
•Meeting Competition

6. ENVIRONMENTAL
ANALYSIS
Whenthecompanydoesnotreact
tothedemands ofthe
environmentbychangingits
strategy,theresultisdeclining
performanceofthecompany in
themarket.Abusinesscannot
operateinisolationfromits
environment.Thus,ithasnoother
optionbuttoidentifyandreactto
itstrategically.

7. Utility of Environmental
Analysis
Fromenvironmentalanalysis,strategistsgettime
toanticipateopportunitiesandtoplanoptimal
responsestotheseopportunities.Italsohelps
strategiststodevelopanearlywarningsystemto
preventthreatsortodevelopstrategieswhich
canturnathreattothefirm'sadvantage.
Itisclearthatbecauseofthedifficultytoassessing
thefuture,notallfutureeventscanbeanticipated.
Totheextentthatsomeormostoftheseoutcomes
ofenvironmentareanticipatedbythisanalysis,
managerialdecisionsarelikelytobebetter.The
managerscanconcentrateonthesefewcrucial
events,insteadofhavingtodealwithallthe
environmentalinfluences.

8. Purpose of Environment Analysis
In general, environmental analysis has three basic goals:
⬥First,theanalysisshouldprovideanunderstandingofcurrentandpotentialchangestaking
placeintheenvironment.Itisimportantthatonemustbeawareoftheexistingenvironment.At
thesametime,onemusthavealong-termperspectiveaboutthefuturetoo.
⬥Second,environmentalanalysisshouldprovideinputsforstrategicdecisionmaking.Mere
collectionofdataisnotenough.Theinformationcollectedmustbeusefulforandusedin
strategicdecisionmaking.
⬥Third,environmentanalysisshouldfacilitateandfosterstrategicthinkinginorganizations-
typicallyarichsourceofideasandunderstandingofthecontextwithinwhichafirmoperates.It
shouldchallengethecurrentwisdombybringingfreshviewpointsintotheorganization.

9. The Environment of business can be broadly categorized
Consists of all the
things affecting the
business
Factors decide the
overall direction,
thinking of firm
Factors which directly affect
the day to day functioning of
the firm

10. Four Environment influence could be described
(SWOT ANALYSIS)
A STRENGTHis an inherent
capacity which an
organization can use to gain
strategic advantage over its
competitors. An example of
strength is superior research
and development skills which
can be used for new product
development so that the
company gains competitive
advantage
A WEAKNESS is an inherent
limitation or constraint which
creates a strategic
disadvantage. An example of
a weakness is over
dependence on a single
product line, which is
potentially risky for a company
in times of crisis.
An OPPORTUNITY is a
favorable condition in the
organization's environment
which enables it to
consolidate and strengthen
its position. An example of an
opportunity is growing
demand for the products or
services that a company
provides.
A THREATis an unfavorable
condition in the
organization's environment
which creates a risk for, or
causes damage to, the
organization. An example of a
threat is the emergence of
strong new competitors who
are likely to offer stiff
competition to the existing
companies in an industry.

11. TYPES OF BUSINESS ENVIRONMENT
Business
Environment
Internal
Environment
External
Environment
Micro
Environment
Macro
Environment

12. External
Environment
Abusinessdoesnotoperateinavacuum.Ithastoactand
reacttowhathappensoutsidethefactoryandwithinits
officewalls.Thesefactorsthathappenoutsidethe
businessareknownasexternalfactorsorinfluences.
Thesewillaffecttheinternalfunctionsofthebusinessand
theobjectivesofthebusinessanditsstrategies.
Theenvironmentinwhichanorganizationexistscan,
therefore,bedescribedintermsoftheopportunitiesand
threatsoperatingintheexternalenvironmentapartfrom
thestrengthsandweaknessesexistingintheinternal
environment.

13. MICRO
ENVIRONMENT
The employees of the firm,
their characteristics and
how they are organized.
The customer base on
which the firm relies for
business.
The ways in which the firm
can raise its finance.
Who are the firm suppliers
and how are the links
between the two being
developed?
The local community within
which the firm operates.
The direct competition and
how they perform.
Micro-environmentisrelatedtosmall
areaorimmediateperipheryofan
organization. Micro-environment
influencesanorganizationregularlyand
directly.Withinthemicroorthe
immediateenvironmentinwhichafirm
operatesweneedtoaddressthe
followingissues:

14. Elements of Micro Environment
MICRO
Customers One who pays to acquire the product
Organisation Consists of owners, BOD, employees
Market Price sensitivity/market maturity/cost structure
Intermediaries Ones who act as a bridge b/w the manufacturer & the marketer
Competitors Other entities that compete for resources as well as markets
Suppliers Suppliers with their bargaining power affect the cost structure
Thisisalsoknownasthetaskenvironmentandaffectsbusinessandmarketingatthedailyoperatinglevel.Whilethe
changesinthemacroenvironmentaffectbusinessinthelongrun,themicroenvironmentalchangesarenoticed
immediately.Organizationshavetocloselyanalyseandmonitoralltheelementsofmicroenvironmentinorderto
staycompetitive.

15. MACRO
ENVIRONMENT
What are its threats from
the competitive world in
which it operates and
why?
Which areas of
technology might pose
a threat to its current
product range and how?
The bargaining
power/dominance of
suppliers and
customers.
Macroenvironmenthasbroader
dimensions.Itmainlyconsistsof
economic,technological,political,legal
andsocio-culturalfactors.Theissues
concerninganorganizationintermsof
macroenvironmentare:
Theclassificationoftherelevantenvironmentintocomponentsorsectorshelpsan
organizationtocopewithitscomplexity,comprehendthedifferentinfluencesoperating,
andrelatingtheenvironmentalchangestoitsstrategicmanagementprocess.

16. Elements of Macro Environment
MACRO
Demographic Population size / income distribution
Political Governmentpolicies/legal laws
Economic Interestrates/level of disposable income
Social Traditions/beliefs/culture
Technological Opportunitiesarising/risk & uncertainty
Government Changesin policies & approach towards developments
Legal Introduction of new laws like GST, Real estate Regulation Act
Global
Change in the world level political climate as well as environmental
issues
Macroenvironmentisthatpartofexternalenvironmentwhichislargelyexternaltotheenterpriseandthusbeyondthe
directinfluenceandcontroloftheorganization,butwhichexertspowerfulinfluenceoveritsfunctioning.
Theexternalenvironmentoftheenterpriseconsistsofindividuals,groups,agencies,organizations,events,conditions
andforceswithwhichtheorganizationcomesintofrequentcontactinthecourseofitsfunctioning.Itestablishes
interactingandinterdependentrelations,conductstransactions,designsandadministersappropriatestrategiesand
policiestocopewithfluctuationsthereinandotherwisenegotiatesitswayintothefuture.

17. PESTLE ANALYSIS
ThetermPESTLEisusedtodescribea
framework foranalysisofmacro
environmentalfactors.PESTLEanalysis
involvesidentifyingthepolitical,economic,
socio-cultural,technological,legaland
environmentalinfluencesonanorganization
andprovidingawayofscanningthe
environmentalinfluencesthathaveaffected
orarelikelytoaffectanorganizationorits
policy.‘PESTLEanalysisisanincreasingly
usedandrecognizedterm,replacingthe
traditionalframeworkformonitoring
environmentknownasPESTanalysis.

18. PESTLE is an Acronym
for:
P -Political
E –Economic
S -Socio-Cultural
T -Technological
L -Legal
E -Environment
Political factors are how and to what extent the government intervenes in
the economy and the activities of business firms.
Economic factors have major impacts on how businesses operate and
take decisions.
Social factors affect the demand for a company's products and
how that company operates.
Technological factors can determine barriers to entry, minimum
efficient production level and influence outsourcing decisions.
Legal factors affect how a company operates, its costs, and the
demand for its products, ease of business.
Environmental factors affect industries such as tourism, farming, and
insurance.
Key Factors

19. Strategic responses to the Environment
INTERNAL STRATEGIC
RESPONSES
HOLISTIC STRATEGIC
RESPONSES

20. Internal Strategic
Responses
Administrative
Response
Competitive
Response
Collective
Response
Organizationsmusthavethecapacityto
monitorandmakesenseoftheir
environmentsiftheyaretorespond
appropriately.Theymustidentifyand
attendtothoseenvironmentalfactors
andfeaturesthatarecloselyrelatedto
theirgoal achievement and
performance.
Holistic Strategic
Responses
Thebusinessorganizationanditsmany
environments have innumerous
interrelationshipsthatattimes,it
becomesdifficulttodetermineexactly
wheretheorganizationendsandwhere
itsenvironmentbegins.Itisalsodifficult
todetermineexactlywhatbusiness
shoulddoinresponsetoaparticular
situationintheenvironment.
Least
resistance
Proceed
with
caution
Dynamic
response
Classes of Internal
response
This are the
approaches

21. Thank you
For your time