Program

MBA

Semester

II

Subject Code

MB0052

Subject Name

Strategic Management
and Business Policy

Unit Number

Unit Title

External Environmental Factors

Lecture Number :

Lecture Title

External Environmental Factors

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Unit-7 External Environmental Factors

External Environmental Factors

Objectives :

Analyse the major factors of environment that impact a business

Explain the techniques of environmental scanning

Discuss environment forecasting.

Distinguish between environmental threat and opportunity (ETOP)

analysis and SWOT analysis
In this unit, we will discuss the environmental factors, the
external environment for formulating and implementing corporate
strategies. Environmental opportunity and threat analysis, and we
will also discuss the SWOT7 analysis.

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Unit-7 External Environmental Factors

Lecture Outline

Introduction
Environmental Factors
Scanning of Environment

Environment Forecasting
Environmental Opportunity and Threat Analysis
SWOT Analysis

Summary
Check Your Learning
Activity
3

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Unit-7 External Environmental Factors

Introduction

Companies have internal competences or capabilities that enable

them to face, among others, the external environment for
formulating and implementing corporate strategies.

The external environment does not refer only to the

macroeconomic environment or broad macro-parameters like
socio-economic factors, government policy and legislations.

Analysis of the external environment consists of identification of

opportunities and threats, and exploiting opportunities and

meeting threats based on organizational strengths and
weaknesses. Companies that do this effectively on a regular basis

become successful.
4

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Unit-7 External Environmental Factors

Environmental Factors

Good business management is not only a matter of how an individual deals

with the factors they can control but about how they respond to the things
they cannot. The major environmental factors a business strategist should
reckon with are:
Political factors
Economic factors
Sociological factors
Government policies/controls
Technology
Competition

Intermediaries
Suppliers

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Unit-7 External Environmental Factors

Scanning of Environment

Environmental scanning can be defined as the study and

interpretation of the political, economic, social and technological
events and trends which influence a business, an industry or even
a total market

Scanning is a continuous process because it involves analysing

changes and sometimes even forecasting the impact of
developments in the environment. Some call it external audit.

The factors which need to be

considered for environmental
scanning are events, trends, issues

and expectations of the different

interest groups.

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Unit-7 External Environmental Factors

Environment Forecasting

To understand the emerging or evolving environment better, some have

suggested environmental forecasting.

Any forecasting is a hazardous job; and, so is environmental forecasting.

But, forecasting is a better approximation than not knowing anything about
the future. That is the reason why forecasting has become inseparable from
economic and business analysis.

Gap analysis should logically be the starting point fo environmental

forecasting.

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Unit-7 External Environmental Factors

Environmental Opportunity and

Threat Analysis

There are many methods for environmental appraisal. One such method,
suggested by Glueck (1984), is preparation of an environmental threat and
opportunity profile (ETOP) of an organization. Desired states or outcomes
are objectives. Goals are objectives that are scheduled for attainment
during planned period. __ By Ackoff

ETOP requires dividing each environmental sector further into subsectors

and, then, assessing the impact of each subsector on the organization.

Preparation of ETOP enables planners and strategists to identify specific

sectors or subsectors which have clear impact on the organization either as

an opportunity or a threat.

ETOP can also help to analyse the nature and intensity of impact of different
sectors or subsectorsfavourable or unfavourable.

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Unit-7 External Environmental Factors

SWOT Analysis

A company should have required strengths or competence. A

company also needs to know its weaknesses in terms of
competence, because weaknesses may affect its capability to take
advantage of an opportunity or negotiate a threat.

Simultaneously with environmental analysis or appraisal,

organizations also need to assess their internal strengths and
weaknesses. This is done through SWOT analysis.

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Unit-7 External Environmental Factors

Summary

Major environmental factors are: political factors, economic

factors, sociological factors, government policies/controls,
technology, competition intermediaries and suppliers.

To understand the emerging or evolving environment better,

some have suggested environmental forecasting. For environment
forecasting, Gap analysis is a good starting point.

Simultaneously with environmental analysis or appraisal (ETOP or

EFEM), organizations also need to assess their internal strengths

and weaknesses to exploit opportunities and negotiate threats.
This is done through SWOT analysismatching organizational

strengths and weaknesses with environmental opportunities and

threats.
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Unit-7 External Environmental Factors

Check Your Learning

1. Define Gap analysis.

Ans: Gap analysis is projections, over time, of the gap between the desired
change in strategic parameters like sales, profitability, market share, etc.,
and actual change with continuation of present strategy, that is, not
responding to changes in the environment.
2.

What is Forecasting?

Ans: Forecasting: Estimate or prediction of future developments in business

such as sales, expenditures, and profits.
3.

Define SWOT analysis.

Ans: SWOT analysis is a tool used by organizations to match their internal

strengths and weaknesses with factors of the environment.

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Unit-7 External Environmental Factors

Activity

Choose a company an automobile, cell phone or FMCG producer and

conduct an environmental scanning on its behalf. You will need to express
various environmental factors in terms of events, trends, issues and
expectations in an interaction matrix.

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