FUNDAMENTAL OF ENVIRONMENTAL ANALYSIS

Organizational Environment; is the set of all factors both outside & inside the organization that can affect its progress toward attaining organizational goals.
Environmental Monitoring; A process of gathering information regarding companies external environment, analyzing it and forecasting the impact Environmental Analysis; is the process of monitoring the organizational environment to identify both present & future threats & opportunities that may influence the firms ability to reach its goal. Purpose of Environmental Analysis To assess the organizational environment so that management can react to it appropriately & thereby enhance organizational success. To improve managements ability to respond to critical issues in the environment. To explore future conditions of organizational environment & to incorporate what it learns into organizational decision making. To identify current emerging issues that are significant to the company, assign priorities to these issues, & develop a plan for handling each of them.

Environmental Analysis Role In Organizational Planning

The policy oriented role; it seems to be broadest in scope and the most loosely related to formal organizational planning. The integrated strategy planning role; it seems to emphasize a close relationship between environmental analysis and formal organizational planning. The function oriented role; it seems the most specifically targeted at particular organizational issues.
ROLE Policy Oriented Integrated Strategic Planning Functional Oriented SCOPE Broadest RELATIONSHIP Loosely Related Close Relationship PURPOSE / ISSUE Formal organizational planning, keeping management inform about major emerging trend. Make Mgrs & Div Mgrs aware about issues with a view to; Prepare environmental forecasts Generate basic assumptions Provide information about a specific functional issue & its improvement.

Focused

Specifically Targeted

Close Relationship

Environmental Structure
The General Environment; consisting of economic, technological, political & legal and social components. The Operating Environment; consisting of supplier, competition, customer, labour and international components. The Internal Environment; covers marketing, financial, personnel and production aspects.
Environment Scope Implications Control Type Nature of Organizational Environment Structure General Environment Broad Little immediate application No

Operating Environment
Internal Environment

Relatively Specific
Specific

More immediate application

Immediate

Very Little
Yes

ENVIRONMENTAL STRUCTURE
The General Environment
Economic Component; Marketing executives need to know which stage of business cycle the economy currently is & how the marketing programme will be effected. Therefore companys marketing programmes be changed from one stage of the business cycle to another. Social Component; Describes the characteristics of the society in which the organization exists. Literacy rate, educational levels, age , geographic distribution(demography), believes, values, lifestyle (VALA) and mobility of population are its factors. Managers have to identify such changes. Political Component; It comprises of those elements related to governmental affairs. It includes the type of government , government attitude towards industries, lobbying efforts by interests groups etcetera. Legal Component; How laws, legislation & tariffs will effect the business environment and the legislation that has been passed. These prescribe the rules and laws that industry & society must follow. Technology Component; the market trend and ability to absorb the technological changes.

MACROENVIRONMENTAL FORCES EVALUATION

Economic Conditions Stage of Business Cycle Marketing executives need to know which stage of business cycle the economy currently is in because companys marketing programmes be changed from one stage of the business cycle to another. A marketing programme is affected by the following economic factors: Prosperity is a period of economic growth, organizations tend to expand their marketing programmes by adding new products & entering new markets. Recession is a period of retrenchment for consumers & business. Some consumers cut back on eating out & entertainment outside the home. Resultantly firms catering to these needs face serious marketing challenges. Recovery is period when economy is moving from recession to prosperity. Inflation A rise in prices goods and services represents inflation when price rise at a faster rate than personal incomes, consumer buying powers declines. Inflation rates affect government policies, consumer psychology and marketing programmes. Interest Rates Another external economic factor that influence marketing programme. Once interest rate is higher consumer tend not to make long term purchases

ENVIRONMENTAL STRUCTURE
The General Environment
Economic Component Social Component: Describes the characteristics of the society in which the organization exists. Literacy rate, educational levels, age , geographic distribution(demography), believes, values, lifestyle (VALA) and mobility of population are its factors. Managers have to identify such changes.

Demographic Segmentation
Age and Life Cycle Stage; consumer wants and abilities change with age. Therefore the age and lifecycle stages are important variable to define segment. Life Stage defines a persons major concern. These life stages present opportunities for marketers to help people to cope with their major concern. Gender: Men & women have different attitudes and behave differently, based partly on gentle make up and partly on socialization. Income; income segmentation is a long standing practice in a variety of products and services. Income determines the ability of consumers to participate in the market exchange and hence a basic segmentation rational. Gender differentiation has long been applied to product categories e.g. clothing, hairstyling, cosmetics and magazines. Some products have been positioned more masculine of feminine. Generation; each generation is profoundly influenced by the time it grows up- the music, movies, politics and defining events of that periods. Demographers call these generations groups cohorts. Members share the same major cultural, political and economic experiences and have similar outlooks and values. Social Class; social class has a wrong influences on preferences in cars, clothing, home furnishing, leisure activities.

LABELED GENERATIONS
TYPE 0F GENERATION Silent Generation Baby Boomers BUYING PREFERANCES

Generation X or Baby Busters

PERIOD People born before 1946 People born between 1946 to 1966; 20 years following WW-II 40 Million people born between 1966 & 1976

NATURE

Generation Y or Echo Boomers or Millennium Generation

* Entered workplace during recession. * Labeled as cautious & pessimistic. People born between *Sizable target market. Homogeneous & 1977 to 1997; children *Relatively, optimistic & receptive to a single of Baby Boomers; 71 materialistic. marketing appeal. Million

WHY DO WE CALL THE LAST ONE GENERATION Y?

a cartoonist explains it eloquently below...Learned something new today

Value & Lifestyle

Innovators successful, sophisticated, active, take charge people with high self esteem. Purchasers often reflect cultivated tastes for relatively upscale, niche oriented products and services. Thinkers mature, satisfied and reflective people who are motivated by ideals and who value order, knowledge and responsibility. They seek durability, functionality and value in products. Achievers successful, goal oriented people who focus on career and family. They favor premium products that demonstrate success to their peers. Experiencers young, enthusiastic, impulsive people who seek variety and excitement. They spend comparatively high proportion of income on fashion, entertainment and socializing.

Political-Legal Environment
Components of Political-Legal Environment: Consists of laws, government agencies and pressure groups that influence and limit organizations and individuals. Major Trends in Political & Legal Environment Increase in Business Legislation Growth in Business Interest Groups Safety: The right to be protected against the marketing of goods and services that are hazardous to life and property. Information: To protect the consumers against the unfair trade practices. Choice: The right to choose the variety of product and services at competitive prices. Representation: The right to heard and be assured that the consumers interests are received due considerations at appropriate forum. Redressal: The right to choose redressed against unfair and restrictive trade practices and exploitation of consumers. Consumer Education: The right to consumer education.

Technological Environment
Technological Environment: In this technological arena, marketers should take account of the accelerating pace of technology change, opportunities for innovation, varying R&D budgets and the increased governmental regulation Creative Destruction: Every new technology is a force for creative destruction Trends in Technology; Marketers should take account : Accelerating Pace of Change: The time between the appearance between the new ideas and their successful implementation is all but disappearing, so is the time between introduction and peak production. Unlimited Opportunities for Innovation: Some of the most exciting work today is to take part in bio-technology, computers, micro-electronics and robotics. Varying R&D Budget: Increasing opportunities emerging as a result of globalization are forcing companies to increase R&D effort. Increased Regulation of Technological Change: Governments have expanded their agencies powers to investigate and ban potentially unsafe products.

EXAMPLES OF GENERAL ENVIRNOMENTAL FACTORS

ECONOMIC COMPONENT Gross National Product Corporate Profits Inflation Rate Productivity Employment Rates Interest Rates Tax Rates Consumer Income Dept & Spending LEGAL COMPONENT Environment Acts Occupational Acts Monopoly Acts Various Labour Laws Treaties with Foreign Nations Patent Trademark Laws Laws Affecting Business Firms SECP Laws SOCIAL COMPONENT Demography Educational Level & Literacy Rates Customs, Norms, Values, Beliefs, Lifestyle, Age, Geographic Distribution POLITICAL COMPONENT Type of Government in Existence Government Attitude Toward Various Industries Lobbying Efforts by Interest Groups Progress Towards Legislation TECHNOLOGY COMPONENT Employment of Robots for Improving Productivity Create Competitive Advantage Automation & Computerization

ENVIRONMENTAL STRUCTURE
The General Environment
Economic Component Social Component Political Component Legal Component Technology Component

The Operating Environment

Customer Component; Characteristics of Customers, Target markets , Develop Profile of Target Customers Competitive Component; Understanding competitors is a key factor in developing strategy, so analyzing competitive environment is a fundamental challenge to management. Competitive Analysis, Focus of Competition, Gaining Competitive Advantage are the key factors.

THE COMPETITIVE COMPONENT

Competitors; Rival organizations provide goods or services to the same set of customers. Competitive Analysis-Purpose; is to help management appreciate strengths, weaknesses and capabilities of existing and potential competitors and predict what strategies they are likely to adopt. Competition Brand Competition come from marketers of directly similar product Substitute Product satisfy the same need General Type of competition in which every company is rival for the customers limited buying power. Competitive Advantage; is the companys ability to perform in one or more ways the competitors cannot or will not match.

Differential Advantage; is the products characteristics due to which it enjoys a competitive edge over competing products.

Competitive Analysis Porters Five Forces Model; Porters five forces model of competitive analysis is a widely used approach for developing business level strategies.

Potential Entrants

Threat of new entrants Bargaining Power of buys Buys

Bargaining Power of suppliers Suppliers

INDUSTRY COMPETITORS

Revelry Among Existing Firms Threat of substitute products or services

Substitutes

PORTERS FIVE FORCES MODEL

RIVALARY AMONG COMPETITIVE (Existing) FIRMS

DESCRIPTION As rivalry among competitive firms increases, industry profit declines, in some cases to the point where an industry becomes inherently unattractive. IMPLICATIONS Intensity of Rivalry Increases; Competitors become more equal in size and capability Demand of industry products decline Competition Increases When consumers switch brands easily When barriers of leaving market are high When mergers & acquisition are common When rival firms are diverse in strategies, culture & origin When new firms can enter industry easily STRATEGY EMPLOYED Price Competition Advertising Battles New product introduction & Additional Services Enhancing Quality & Adding Features Extending warranties

BARGAINING POWER OF CONSUMERS

DESCRIPTION IMPLICATIONS STRATEGY EMPLOYED Higher quality Negotiate selling price Warranty coverage / Extended warranties Accessory package Special services

Consumers ability to influence market & competition. Bargaining power of consumer is higher when products are standard and undifferentiated,

Whenever the bargaining power of consumer is substantial rival firms efforts are focused to gain consumers loyalty.

DEVLOPMENT OF SUBSTITUTE PRODUCTS

DESCRIPTION IMPLICATIONS STRATEGY EMPLOYED
Increases capacity and market penetration

In many industries firms Puts a ceiling on price, are in close competition higher price may compel with produces of substitute consumers to switch to products in other substitute products industries. The competitive Ceiling potential return & strength of substitute industry profit product is best measured Performance alternative by inroad into market offered by substitute share those products obtain

BARGAINING POWER OF SUPPLIERS

DESCRIPTION IMPLICATIONS STRATEGY EMPLOYED

Supplier can be a competitive threat and at times control the market.

Raise the price and reduce the quality. Reduce the profitability in an industry. Affects the intensity of competition in an industry.

Firms may pursue a backward integration strategy to gain control or ownership of suppliers.

POTENTIAL ENTRY OF NEW COMPETITORS

DESCRIPTION Also called the Threat to new entrants. A firm entering an industry brings new capacity and an increase desire to gain market share and profits. Whenever, a firm can easily enter a particular industry, the intensity of competitiveness among firms increase. IMPLICATIONS The higher the entry barriers, less likely are the success chances. Need to gain economics of scale quickly Need to gain tech & specialized knowhow Lack of experience Strong customer loyalty Strong brand preferences Large capital requirements Government regulatory policies & tariffs Potential saturation market STRATEGY EMPLOYED New firms sometimes enter industry with higher quality products, lower prices and substantial marketing resources.

ENVIRONMENTAL STRUCTURE
The General Environment
Economic Component Social Component Political Component Legal Component Technology Component

The Operating Environment

Customer Component; Characteristics of Customers, Develop Profile of Target Customers Competitive Component; Competitive Analysis, Focus of Competition, Gain Competitive Advantage Labour Component; Factors Influencing Workers Suppliers, Skill & Desired Wage Rates Supplier Component; Includes all variable providing resources, credit terms etcetera are purchased & transformed into final goods & services. These factors are important in managing an organization effectively & efficiently.

SUPPLIER COMPONENT
Suppliers People or firm that supply the goods or services required by a producer to make what it sells are critical to marketing success & vital part of its marketing environment. Marketing Intermediaries Intermediaries are independent business organizations that directly aid in the flow of goods between a marketing firm and its markets. Types of intermediaries are: Middlemen wholesalers & retailers. Facilitating Organizations transportation, warehousing & financing Channel of Distribution intermediaries operate between a company & its markets and between a company and its suppliers. Value Chain Collectively the company, suppliers and its intermediaries comprises a value chain. It is easy to comprehend the value added by manufacturer but it is difficult to detect the value added by other members of the value chain

ENVIRONMENTAL STRUCTURE
The General Environment
Economic Component Social Component Political Component Legal Component Technology Component

The Operating Environment

Customer Component; Characteristics of Customers, Develop Profile of Target Customers Competitive Component; Competitive Analysis, Focus of Competition, Gain Competitive Advantage Labour Component; Factors Influencing Workers Suppliers, Skill & Desired Wage Rates Supplier Component; Includes all variable providing resources which are purchased & transformed into final goods & services. International Component; Legal Environment, Economic Environment, Cultural Environment, Political System.

IMPORTANT ASPECTS OF INTERNATIONAL COMPONENT OF AN ORGANIZATIONS OPERATING ENVIRONMENT

Legal Environment Legal Tradition Effectiveness of Legal System Treaties with Foreign Nations Patent Trademark Laws Laws Effecting Business Firms Economic Environment Level of Economic Development Population Gross National Product Per Capita Income Literacy Level Social Infrastructure Natural Resources Climate Cultural Environment Customs, Norms, Values, Beliefs Languages Attitudes Motivations Social Institutions Status Symbols Religious Beliefs Political System Form of Government Political Ideology Stability of Government Strength of Opposition Parties Social Unrest Foreign Policy Government Attitude Toward Foreign Firms

ENVIRONMENTAL STRUCTURE
The General Environment
Economic Component Social Component Political Component Legal Component Technology Component Customer Component Competitive Component Labour Component Supplier Component International Component

The Operating Environment

The Internal Environment

ORGANIZATIONS INTERNAL ENVIRONMENT ASPECTS

Organizational Aspects Marketing Aspects Financial Aspects

Personnel Aspects Production Aspects

ORGANIZATIONS INTERNAL ENVIRONMENT ASPECTS

Organizational Aspects Communication Network Organizational Structure Span of Control Hierarchy of Objectives Policies, Procedures, Rules Ability of Management Team

ORGANIZATIONS INTERNAL ENVIRONMENT ASPECTS

Organizational Aspects Communication Network Organizational Structure Span of Control Hierarchy of Objectives Policies, Procedures, Rules Ability of Management Team Marketing Aspects; Development of Marketing Programme Strategy Market Segmentation Choosing Value Proposition Marketing Mix Elements

Development of Marketing Programme / Strategy

Market Segmentation; Process of dividing the total market for a good or service and several smaller groups such that members of each group are similar with respect to factors that influence demand. The basis of market segmentation are Geographic, Demographic, Psychographic & Behavioral factors. Choosing Value Proposition; Company must decide how it will serve target customers? How it will position and differentiate itself in the market place. Positioning; arranging for a product to occupy a clear distinctive & desirable place relative to competing products in the minds of target customers. Differentiation; actually differentiating the market offering to create superior value. Marketing Mix (4Ps) & Elements; A combination of the four elements product, pricing structure, distribution system and promotional activities used to satisfy the needs of an organizations target market & achieve its marketing objectives.

ORGANIZATIONS INTERNAL ENVIRONMENT ASPECTS

Organizational Aspects Communication Network Organizational Structure Span of Control Hierarchy of Objectives Policies, Procedures, Rules Ability of Management Team Marketing Aspects; Development of Marketing Programme Strategy Market Segmentation Choosing Value Proposition Marketing Mix Elements

Financial Aspects: Finance department arrange the capital to produce and market the products. personnel Aspects: Train the existing manpower and select / hire additional resources. Production Aspects: Develop production processes, techniques, capacity and technology to meet targets effectively & efficently.

ORGANIZATIONS INTERNAL ENVIRONMENT ASPECTS

Organizational Aspects Communication Network Organizational Structure Record of Success Hierarchy of Objectives Policies, Procedures, Rules Ability of Management Team Marketing Aspects Market Segmentation Product Strategy Promotion Strategy Distribution Strategy Financial Aspects Liquidity Profitability Activity Investment Opportunity
Personnel Aspects Labor Relations Recruitment Practices Training Programmes Performance Appraisal System Incentive Systems Turnover & Absenteeism Production Aspects Plant Facility Layout R&D Use of Technology Purchasing of Raw Materials Inventory Control Use of Sub-contracting

PERFORMING ENVIRONMENTAL ANALYSIS

Determining the Relevance of Environmental Levels; Determining the relevance to the organization of various environmental levels, as well as various strategic issues, can help improve the quality of environmental analysis regard less of method used. Implementing Environmental Techniques; Techniques to help management in developing a worthwhile environmental analysis.
Environmental Scanning; is a technique whereby the manager reviews information derived from various levels of organizational environment in order to keep abreast the critical environmental issues and events. Threat & Opportunity Analysis; not only helps managers organize environmental information but also focuses them to formulate conclusions based on the information. Environmental Forecasting; is a technique whereby managers attempt to predict the future characteristics of the organizational environment which help the firm deal with the environment of tomorrow.

Evaluating the Environmental Analysis Process; Environmental analysis activities are performed in organizations to help them to achieve their goals effectively & efficiently. These analysis are more instrumental than others in helping organizations achieve their goals.

DETERMINING THE RELEVANCE OF STARTEGIC ISSUES

A strategic issue is an environmental factor, (either inside/outside the organization) is likely to have an impact on its ability to meet its objectives. Certain organizations are more sensitive to certain strategic issues than others. Manager should determine the sensitivity of their organization to various environmental factors is to design & implement an internal system. Therefore management should focus on analyzing the environmental level & in long run should understand, how environmental levels & relationships among them influence organizational operations.

GUDELINES FOR ENVIRONMENTAL ANALYSIS

DETERMINING THE RELEVANCE OF ENVIRONMENTAL LEVELS. All levels do not affect an organization equally, organization levels exhibit different degree of relevance. To determine the relevance the organizations size & its degree of involvement in international business is considered : LARGE SIZE ORGANIZATION. A large size organization is more involved in international business, variables in the general environments become more relevant to successful management. SMALLER ORGANIZATION. Such organizations are less likely to be involved in international business, & factors in the general environment tend to be less relevant to its successful management. Operating &internal environment are generally considered relevant to success regardless of organizations size or its involvement in international business. ORGANIZATION Multinational Company Large National Company Medium Size Company Small Size Company Very Small Company HIGH Internal General Operating Internal General Operating Internal, Operating Internal Operating Internal Operating MEDIUM General REDUCED General General

ENVIRONMENTAL ANALYSIS TECHNIQUES

Environmental Scanning: Is a process of gathering information about events & their relationships within an organizations internal & external environments. Scanning involves reviewing & evaluating information about internal & external environments, can be gleaned from several sources. Purpose of Environmental Scanning. To help management determine the future direction of the organization. Methods of Environmental Scanning Irregular Scanning Systems. These systems pay little attention to future environmental events &focus mainly to identify event that has already taken place. Regular Scanning Systems. These systems revolve around a regular review of environment. Which is made annually. The focus of the system is retrospective, but some thought is given to future conditions. Continuous Scanning Systems. Constantly monitor components of organizational environment. These systems tend to be more futuristic than irregular/regular system.

ENVIRONMENTAL FORECASTING
It is the process of determining, what conditions will exist within on organizations environment at same future tine. To ensure future environmental success companies determine future environmental conditions. Environmental forecasts commonly made include economic, social, political & technological forecasts. Methods of Environmental Forecasting are: Expert Opinion Trend Exploitation Trend Correlation Dynamic Modeling Cross Impact Analysis
Multiple scenarios Demand/hazard forecasting

METHODS OF ENVIRONMENTAL FORECASTING

Expert opinion, knowledgeable people are selected and asked to assign importance and probability rating to various possible future developments. The most refined version, the Delphi method, puts experts through several rounds of event assessment, where they keep refining their assumptions and judgments. Trend extrapolation, Researchers fit best-fitting curves through past time series to serve as a basis for extrapolation. This method direction of movement. Trend correlation. Researchers correlate various time series in the hope of identifying leading and lagging relationships that can be used for forecasting. Dynamic modeling. Researchers build sets of equations that attempt to describe the underlying system. The coefficient in the equations are fitted through statistical means. Econometric models of more than three hundred equations for example are used to forecast changes in the US economy. Cross-impact analysis. Researchers identify a set of key trends (those high in importance / or probability). The question arises: if event A occurs, what will be the impact on other trends?. The results are then used to build sets of domino chains with one event triggering others. Multiple scenarios. Researchers build pictures alternative futures, each internally consistent & with a certain probability of happening. The purpose of the scenarios is to stimulate contingency planning. Demand/hazard forecasting. Researchers identify major event that would greatly affect the firm. Each event is rated for its convergence with several major trends taking place in society and for its appeal to each major public group in the society. The higher the events convergence and appeal, the higher its probability of occurring the highest scoring events are then researched further.