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Environmental Appraisal

2nd Year MBA Group 3: Jayshree Bharti (2011MB0013) Moumita Barman (2011MB0014) Megha Thacker (2011MB0016) Veeresh Tripathi (2011MB0017) Akhilesh Kumar Singh (2011MB0018)

Environmental Appraisal is the process of identifying opportunities and threats facing an organization.

Concept of Environment
Environment

literally means the surroundings, external objects, influences or circumstances under which someone or something exists. environment of any organization is the aggregate of all conditions, events and influences that surround and affect it.

The

Characteristics of Environment
Environment

is complex Environment is dynamic Environment is multi-faceted Environment has a far-reaching impact

External Environment
Includes

all the factors outside the organization which provide opportunities or pose threats to the organization.

Internal Environment
Refers

to all the factors within an organization which impart strengths or cause weaknesses of a strategic nature.

SWOT Analysis

It is a systematic approach to understanding the environment. Business firms undertake SWOT analysis to understand the external and internal environment. It is also known as WOTS-UP analysis. Through such an analysis, the strengths and weaknesses can be matched with the opportunities and threats operating in the environment so that an effective strategy can be formulated.

Example: Environmental influences on the instant foods industry

Components of Environment
Political

Economic
Social/cultural Technological Legal Environmental

Political Factors

Specific election results Specific politicians voted in or out of office Political ideological mood of country or region Opportunities for lobbying Political/business leaders positions on industryrelated issues Government spending focus and levels Government policies on industry-related issues Governmental regulatory vigor Government role in meeting societal needs Media reports

Economic Factor
At global, national and regional levels Interest rates Stock market prices Venture capital deals (IPOs, M&As) Government budget deficit or surplus Inflation rates Consumer income, disposable income, and debt Employment and unemployment levels Tax rates Economic cycle stage (boom vs recession) Global economic metrics Specific effects of economic trends

Social and Cultural Factors


Characteristics traditions, lifestyles, values, ideals, aspirations, principles, ethics, attitudes, beliefs, biases, opinions, tastes, political views, and behavioral patterns People current customers, prospective customers, influencers of customers, ends users, employees, suppliers, shareholders, bondholders, lenders, government regulators, politicians, media, general public.

Technological Factors
New capabilities, equipment, and systems in: Clinical treatment and procedures (drugs, medical devices, diagnostic tests, surgical procedures, treatment regimens) Researching and developing clinical technologies Gathering, recording, and communicating clinical data (EMR, EHR, CPOE systems) Gathering and disseminating nonclinical data (cost, quality, satisfaction, patient logistics)

Legal Factors

Existing laws (long established, how are they interpreted and enforced) New laws (recently enacted, how will they be interpreted and enforced) Proposed legislation (working their way through the legislature, likely impact on industry and organization)

Environmental Factors
Example:
Global

warming, believed by most people to be due to carbon dioxide and other greenhouse gases produced by industrial activity, cars, and other forms of travel.

Example
Toyota is one of the pioneers. It has developed hybrid petrol / electrical cars that use kinetic energy to charge a battery which is used as a supplement to the normal engine, thus significantly improving petrol consumption and reducing emissions in built-up areas where traffic speeds are slow.

Environmental Scanning
It

is the process by which organizations monitor their relevant environment to identify opportunities and threats affecting their business.

Approaches to Environment Scanning


Systematic

approach Ad hoc approach Processed-form approach

Systematic Approach

Under this approach, information for environmental scanning is collected systematically. Information related to markets and customers, changes in legislation and regulations that have a direct impact on an organization's activities, govt. policy statements pertaining to the organization's business and industry, etc. could be collected continuously to monitor changes and take the relevant factors into account.

Ad hoc Approach
Using

this approach, an organization may conduct special surveys and studies to deal with specific environment issues from time to time. Such studies may be conducted when an organization has to undertake special projects, evaluate existing strategies or devise new strategies.

Processed-form Approach
For

adopting this approach, the organization uses information in a processed form available from different sources both inside and outside the organization.

Sources of Information for Environmental Scanning


Documentary

information publications. Mass media Internal sources External agencies Formal studies

or secondary sources of like different types of

Methods and Techniques Used for Environmental Scanning


Trend

analysis Regression analysis The Delphi technique Benchmarking MIS of the firm QUEST (Quick environmental technique)

scanning

QUEST

Proposed by B. Nanus. It is a four-step process which uses scenario-writing for scanning the environment and identifying strategic options. 1. Strategists make observations about the major events and trends in the industry. 2. Then, they speculate on a wide range of important issues that might affect the future of their organizations by scanning the environment. 3. The QUEST director prepares a report summarizing the major issues and their implications. 4. The report and scenarios are reviewed by the group of strategists who identify feasible strategic options to deal with the evolving environment. The options are ranked and teams are designated to develop strategies.

Environmental Appraisal

Glueck suggested a technique for environmental appraisal i.e. ETOP (Environmental Threat and Opportunity Profile). It involves dividing the environment into different sectors and then analyzing the impact of each sector on the organization. It requires subdividing each environmental sector into sub factors and then the impact of each sub factor on the organization is described in the form of a statement. A summary ETOP may show the major factors for the sake of simplicity.

ETOP for a bicycle company


Environmental sectors Social Political Economical Legal Technological Impact of each sector Customer preference for sports cycles which are fashionable, easy to ride and durable. No significant factor. Growing affluence among urban consumers; exports potential high. Bicycle industry a thrust area for exports. Technological up gradation of industry in progress; introduction of mountain bike and commuter folding bikes. Environmental factors such as a renewed interest in healthy lifestyles and the desire to reduce pollution.

Environmental

Up arrows indicate favourable impact, down arrows (if used) indicate unfavourable impact, while horizontal arrows indicate a neutral impact.

Michael Porters Five Forces Model of Competition


Threat of New Entrants Threat of Substitute Products

Bargaining Power of Suppliers


Bargaining Power of Buyers Rivalry among Existing Competitors

Michael Porters Five Forces Model of Competition

Threat of New Entrants: 1. New entrants are always a powerful source of competition. 2. The new capacity and product range they bring in throw up new competitive pressure. 3. The bigger the new entrants, the more severe the competitive effect. 4. New entrants also place a limit on prices and affect the profitability of existing players.

Determinants:
1. 2. 3.

4.
5.

Govt. policy Access to distribution Switching costs Brand identity Economies of scale

Threat of Substitute Products:

1.
2. 3.

4. 5.

Substitute products is a latent source of competition in an industry. In many cases they become a major constituent of competition. Substitute products offering a price advantage and/or performance improvement to the consumer. They can drastically alter the competitive character of an industry. Substitutes usually limit the prices and profits in an industry.

Determinants:
1. 2. 3.

Relative price performance of substitutes Switching costs Buyer potential to substitutes

Bargaining

Power of Suppliers:

1.
2. 3.

Suppliers exercise considerable bargaining power over companies. The more specialised the offering from the supplier, greater is his clout. The bargaining power of suppliers determines the cost of raw materials and other inputs of the industry and, therefore, industry attractiveness and profitability.

Bargaining Power of Buyers:

The bargaining power of the buyers influences not only the prices that the producer can charge but also influences in many cases, costs and investments of the producer because powerful buyer usually bargain for better services which involve costs and investment on the part of the producer. 2. Determinants: Buyer volume, Buyer information, Ability to backward integrate, etc.
1.

Rivalry among Existing Competitors:

For any player, the competitors influence prices as well as the costs of competing in the industry, in the production facilities, product development, advertising, sales force, etc. 2. Rivalry Determinants: Industry growth, product differences, brand identity, switching goals, exit barriers, corporate stakes, etc.
1.

Ch2-34

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