Strategic management unit 2 environmental analysis & diagnosis

This study material helps to students who are studying the Strategic Management

1. Basavaraj M Naik Teaching Assistant, Rani Channamma University, Belagavi . Department of Studies in Commerce PG Centre, Jamkhandi. Mail: [email protected]

2. Unit 2 Environmental Analysis & Diagnosis:

3. Environmental Analysis Environmental analysis: it is the use of analytical chemistry and other techniques to study the environment. The purpose of this is commonly to monitor and study levels of pollutants in the atmosphere, rivers, & other specific settings. Environmental Diagnosis: The identification of the nature of an illness or other problem by examination of the symptoms.

4. Concept Of Business Environment: Business Environment refers to the factors and forces that affects or influences over the functions or activities of business. FEATURES OF BUSINESS ENVIRONMENT: It may be internal or external environment It is complex in nature It is dynamic in nature It differs from place to place and country to country It decides the fate of the organisation It is source for business strategies Environment needs adoptability Environment includes both opportunities & threads Environmental imapcts or uncertain Environmental impact in various forms.

5. Concept of Business Environment: Mainly business environment is classified into two categories they are: Internal Business Environment External Business Environment.

6. Internal Business Environment includes: Vision, Mission of the organization Objectives, goals of the organization Value system of the organization Nature of the organization Physical assets and equipments Technological Capabilities Marketing resources and facilities Financial strength of the organization Management perception & behavior

7. Company perception & behavior. Company procedures, norms and philosophy. Board of Directors & Employees Management values Stakeholders Goals Resource of the organisation Information system Working style of the organisation Structure of the organisation Strategies of the org.

8. All these are the components of internal environment and these are controllable by the management, and also some of them are semi controllable. External Business Environment: A) Political Environment & Legal Environment 1) Different political parties and philosophies 2)Regulations & Deregulations 3)political conditions of the country 4)consumer related regulations 5)Tax related regulations 6) Budegetory controls 7)Policies relating to exports & imports 8)Accounting & Auditing systems 9) Levels of subsidies & incentives 10) Availability of concessional finance 11) Industrial finance, plants, sheds & markets

9. B) Economic Environment : Economic resources of the country Economic conditions of the people Economic policies of the country Per capita income of the citizen Status of agriculture resources. Infrastructure development of the country Financial institutions Industrial policies of the country Investment policies of the country GDP of the country Other economic conditions and movements

10. 3)Sociological & cultural environment Values & beliefs Customs traditions Tastes & patterns Life styles Family structures Religious beliefs Gender preferences Geographical heritages Superstitions (unscientific beliefs). Behaviors of stakeholders Celebrations of various festivals etc.

11. 4) Technological Environment : Technology developments New technologies Sources & technologies 1) internal 2) external Cost of technology Impact of technology on manpower, products, and markets, production etc. Some of the technologies will be prohibited Some environmental friendly technologies will be entertained. Investment on R&D etc.

12. Environment Scanning & Appraisal: Environmental Scanning is the process of gathering information about the events and their relationships within an organisations internal and external environments. The basic purpose of environmental scanning is to help the management to determine the future directions of an organisation. Environmental appraisal: Its the process of identifying the opportunities & threats facing an organisation. It measures the impact of future environmental changes to the organisation.

13. Organisational Appraisal OA is the process of monitoring an organisations internal environment to identify strength and weaknesses that may influence the firms ability to achieve the goals. OA Includes: 1) identifying strength & weaknesses 2)Strategic cost analysis 3) analysis of organisational structure 4) right person in right place. 5)Effective methods of motivation 6)Effective leadership 7) Qualitative & quantitative analysis 8) setting up of industry standards & Bench marking.

14. Strategic Advantages& diagnosis: Strategic advantage analysis looks at positive points that differentiate our business from competitors. This may be brand goodwill, or reputation geographical location, intellectual property and so on. Strategic advantage analysis would look to what unique strengths the company has and whether these strength are likely to sustainable for long period or not.

15. For example: ownership of more sophisticated equipment than competitors; is not a strategic advantage, because competitors can buy it tomorrow itself. So using all the available unique capabilities of an organisation is strategic advantages diagnosis.

16. Concept of competitive advantage A condition or circumstance that puts a company in a favourable or superior position. A superiority gained by an organisation when it can provide the same value as its competitors but at lower price, or can change higher prices by providing greater value through differentiation. Competitive advantage refers to the organisation have an edge over the competitors and getting more customers & earnings.

17. Key Terms: Benchmarking  is the practice of comparing business processes and  performance metrics  to industry bests and  best practices  from other companies. The main objectives of the Indian  Factories Act , 1948are to regulate the working conditions in  factories , to regulate health, safety welfare, and annual leave and enact special provision in respect of young persons, women and children who work in the  factories . The  objective  of the  Industrial Disputes Act  is to secure  industrial  peace and harmony by providing mechanism and procedure for the investigation and settlement of  industrial disputes  by conciliation, arbitration and adjudication which is provided under the statute. The term “ strategic advantages ” refers to those marketplace benefits that Experiment a decisive influence on an organization's likelihood of future success. These  advantages  frequently are sources of an organization's current and future  competitive  success relative to other providers of similar products.

18. Porter's Five Forces Framework is a tool for analyzing  competition  of a business. It draws from  industrial organization (IO) economics  to derive five forces that determine the competitive intensity and, therefore, the attractiveness (or lack of it) of an industry in terms of its profitability. An "unattractive" industry is one in which the effect of these five forces reduces overall profitability.

19. Analysis of Michael Porter’s five force model: Porter five forces framework is a tool for analyzing competition of business. He identified five factors that are influence on business decisions. it provides structural analysis of an industry. He proposed that the state or position of competition in an industry is depends on five basic factors. Porter’s five forces model  is an analysis tool that uses five industry forces to determine the intensity of competition in an industry and its profitability level. Five forces model was created by M. Porter in 1979 to understand how five key competitive forces are affecting an industry. The five forces identified are:

20. 1) Threat of new entrants.   This force determines how easy (or not) it is to enter a particular industry. If an industry is profitable and there are few barriers to enter, rivalry soon intensifies. When more organizations compete for the same market share, profits start to fall. It is essential for existing organizations to create high barriers to enter to deter new entrants. Threat of new entrants is high when: Low amount of capital is required to enter a market; Existing firms do not possess patents, trademarks or do not have established brand reputation; There is no government regulation; Customer switching costs are low (it doesn’t cost a lot of money for a firm to switch to other industries); There is low customer loyalty; Products are nearly identical; Economies of scale can be easily achieved.

21. 2) Bargaining power of suppliers.  Strong bargaining power allows suppliers to sell higher priced or low quality raw materials to their buyers. This directly affects the buying firms’ profits because it has to pay more for materials. Suppliers have strong bargaining power when: There are few suppliers but many buyers; Suppliers are large and threaten to  forward integrate ; Few substitute raw materials exist; Suppliers hold scarce resources; Cost of switching raw materials is especially high.

22. Bargaining power of buyers.  Buyers have the power to demand lower price or higher product quality from industry producers when their bargaining power is strong. Lower price means lower revenues for the producer, while higher quality products usually raise production costs. Both scenarios result in lower profits for producers. Buyers exert strong bargaining power when: Buying in large quantities or control many access points to the final customer; Only few buyers exist; Switching costs to other supplier are low; They threaten to  backward integrate ; There are many substitutes; Buyers are price sensitive.

23. Threat of substitutes.  This force is especially threatening when buyers can easily find substitute products with attractive prices or better quality and when buyers can switch from one product or service to another with little cost. For example, to switch from coffee to tea doesn’t cost anything, unlike switching from car to bicycle.

24. Rivalry among existing competitors.  This force is the major determinant on how competitive and profitable an industry is. In competitive industry, firms have to compete aggressively for a market share, which results in low profits. Rivalry among competitors is intense when: There are many competitors; Exit barriers are high; Industry of growth is slow or negative; Products are not differentiated and can be easily substituted; Competitors are of equal size; Low customer loyalty.

25. SWOT ANALYSIS: SWOT analysis refers to the study of internal strength and weakness and external opportunities and threats of an organization. Strength : it is an inherent capacity which an organization can use to gain strategic advantage. Ex: Reputation, Brand, resources, people, experiences etc. 1 what advantage does your organization have? 2) what do you do better than any one else? 3) what unique or lowest cost resources can you drawn upon that other can not? 4) what quality is prefered by your customer in your product? 5) what are your total uniquesness ?

26. Weakness: It is an inherent limitation or constraint which creates strategic disadvantages. Ex: Financial deadliness, low moral, conflicts, assets problem. What would you improve? What should be avoid? Why customers are refusing your product? Are your competitors doing anything better than you ?

27. Opportunities It is the favorable and profitable conditions from the external environment to an organization. What would opportunities can you spot? What interesting trends are going on? Useful changes may going on like; 1)changes in technology 2) changes in govt policy 3)changes in social patterns, population, life style etc.

28. Threats: It is an unfavorable and uncontrollable condition which are reasons to unexpected risks & damages. What obstacles do you face? what are your competitors ? is changing technology threatening? cash flow problems could any of your weakness is seriously threatening to your business?

29. ETOP Analysis ( Environment Threats & Opportunities Profile) It is a statement which describes about environmental factors & it also reveals & deals with opportunities & threats of an organization.

30. Steps involved in ETOP Analysis Identification of relevant environmental factors a) internal b) external. 2) Assessing the relevant environmental factors 3) Assessing the impact of factors a) opportunities b) threats 4) Combined importance & impact factors. 5)Remedies or solutions.

31. VALUE CHAIN ANALYSIS VALUE ANALYSIS: it’s a strategy tool used to analyze internal firm activities. Its goal is to recognize, which activities are the most valuable to the firm & which could be improve to provide competitive advantages. value chain represents the internal inputs into outputs. Firm engages in when transforming inputs into output. Analyze reveals the information where a firms competitive advantages or disadvantages are: is displays total value and value activity. a) primary activities b) supporting activities

32. What are all the primary activities? Inbound Logistic: 1) receiving materials: 2) material handling ( LIFO,FIFO) 3) Transportation 4) Inventory control etc B) Outbound Logistic: 1) order process 2) Physical distribution 3) warehousing C) Operational Activities: 1) assemble all the requirement 2) installation of Machinery and its proper utilization 3)Fabrication 4) Maintaining

33. Marketing Activities: 1) pricing 2) Advertisement 3) Market Segmentation 4) Promotion 5) Target 6) Distribution Services: 1) Installation 2) Repairs of other maintenance.

34. b) Supporting Activities: Infrastructure Accounting Finance Planning General Management Legal support HRM Recruitment, Selection Training and Development Compensation Technological Development Product Design etc.

35. Core & Distinctive Competencies: A company ‘ competence’ is the product of organizational learning & experience and represents real proficiency in performing an internal activity. A core competency concept was given by C.K. Prahalad is a well performed internal activity that is central to company’s competitiveness and Profitability.

36. Core competency is a systematic combination of multiple resources & skills that distinguish a firm in the market place. Therefore, these are the foundation of companies competitiveness. Distinctive competence is a competitively valuable activity that a company performs better than its rivals.

37. Core and distinctive competency refers to collective learning in the organization especially coordination and diversified production skills and integrated multiple strength of technology. It is effective way to aid to the organization in the tasks of:

38. Restructuring ( modification) Man power ( work force) Technology Organizational Structure

39. Role & Significance of Core & Distinctive Competency: Ensures continuous up gradation of organisational activities It helps to compete with the competitors It facilitates to attain the requirements of ultimate users It converts weakness into strengths and threats into opportunities. It helps to stay for long peroid in the particular line of business on profitable basis.

40. Resources and Capabilities: