MB0052 Slides Unit 07

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C o n f i d e n t i a l

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Program : MBA

Semester : II

Subject Code : MB0052

Subject Name : Strategic Management

and Business Policy

Unit Number : 7

Unit Title : External Environmental Factors

Lecture Number : 1

Lecture Title : External Environmental Factors

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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

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Lecture Outline

Introduction

Environmental Factors

Scanning of Environment

Environment Forecasting

Environmental Opportunity and Threat Analysis

SWOT Analysis

Summary

Check Your Learning

Activity

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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.

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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 5

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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.

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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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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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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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7/24/2019 MB0052 Slides Unit 07


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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7/24/2019 MB0052 Slides Unit 07


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.10

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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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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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MB0052 Slides Unit 07

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