Environmental Appraisal

Strategic Management

Environment

The environment of any organization is "the aggregate of all conditions, events and influences that surround and affect

it".

Characteristics of Environment

Environment is complex :-The environment consists of a number of factors, events, conditions, and influences arising from different sources. All these do not exist in isolation but interact with each other to create entirely new sets of influences

Environment is dynamic. The environment is constantly changing in nature. Due to the many and varied influences operating, there is dynamism in the environment, causing it to change its shape and character continuously

Environment is multi-faceted. What shape and character an environment will assume depends on the perception of the observer. A particular change in the environment, or a new development, may be viewed differently by different observers. This is seen frequently when the same development is welcomed as an opportunity by one company while another company perceives it as a threat.

Environment has afar-reaching impact. The environment has a far-reaching impact on organizations. The growth and profitability of an organization depends critically on the environment in which it exists. Any environmental change has an impact on the organization in several different ways

External & Internal Environment

The external environment includes all the factors outside the organization which

provide opportunities or pose threats to the organization. The internal

environment refers to all the factors within an organization which impart strengths or cause weaknesses of a

strategic nature

An opportunity is a favorable condition in the organization's environment which enables it to consolidate and strengthen its position. An example of an opportunity is a growing demand for the products or services that a company provides.

A threat is an unfavorable condition in the organization's environment which creates a risk for, or causes damage to, the organization. An example of a threat is the emergence of strong new competitors who are likely to offer stiff competition to the existing companies in an industry.

A strength is an inherent capacity which an organization can use to gain strategic advantage. An example of a strength is superior research and development skills which can be used for new product development so that the company can gain a strategic advantage.

A weakness is an inherent limitation or constraint which creates strategic disadvantages. An example of a weakness is over dependence on a single product line, which is potentially risky for a company in times of crisis

SWOT Analysis

Business firms undertake SWOT analysis to understand their external and internal environmental SWOT which is the acronym for strengths, weakness, opportunities and threats, is also Known as WUTS-UP or TOWS analysis

ENVIRONMENTAL SECTORS

Market Environment – Customer or client factors, such as, the needs,

preferences, perceptions, attitudes, values, bargaining power, buying behavior and satisfaction of customers

– Product factors, such as, the demand, image, features, utility, function, design, life cycle, price, promotion, distribution, differentiation, and the availability of substitutes of products or services.

Marketing intermediary factors, such as, levels and quality of customer service, middlemen, distribution channels, logistics, costs, delivery systems, and financial intermediaries.

Competitor-related factors, such, as the different types of competitors, entry and exit of major competitors, nature of competition, and the relative strategic position of major competitors.

Technological Environment

The technological environment consists of those factors that are related to the knowledge applied and the materials

and machines used in the production of goods and services which have an

impact on the business of an organization

Important factors in the technological environment

1.Sources of technology, like company sources, external sources, and foreign sources; cost of technology acquisition; collaboration in and transfer of technology

2 Technological development, stages of development, change and rate of change of technology, and research and development

Impact of technology on human beings, the man-machine system, and the envi ronmental effects of technology

Communication and infrastructural technology in management Strategists can ill afford to ignore the technological environment, as technology

Supplier Environment

Cost, availability and continuity of supply of raw materials, subassemblies, parts and components

Cost and availability of finance for implementing plans and projects

Cost, reliability and availability of energy used in production 4. Cost, availability and dependability of human resources

Cost, availability and the existence of sources and means for the supply of plants and machinery, spare parts and after-sales service

Infrastructural support and ease of availability of the different factors of production, the bargaining power of suppliers, and the existence of substitutes.

The supplier environment occupies a dominant position in strategy formulation because of the fact that India is a developing country with problems of scarcity of Capital and appropriate raw material resources.

Economic Environment

The economic stage at which a country exists at a given point of time

The economic structure adopted, such as, a capitalistic, socialistic or mixed economy

Economic policies, such as, industrial, monetary and fiscal policies

Economic planning, such as, five-year plans, annual budgets, and so on

Economic indices like national income, distribution of income, rate and growth of GNP, per capita income, disposable personal income, rate of savings and investments, value of exports and imports, the balance of payments, etc. and so on

Infrastructural factors, such as, financial institutions, banks, modes of transportation, communication facilities, and so on

Regulatory Environment

The constitutional framework, directive principles, fundamental rights, and division of legislative powers between central and state governments

Policies related to licensing, monopolies, foreign investment, and financing of industries.

Policies related to distribution and pricing, and their control

Policies related to imports and exports Other policies related to the public

sector, small-scale industries, sick industries, development of backward areas, control of environmental pollution, and consumer protection

Some of the important areas of regulation Industrial policy-making, development and regulation,

and licensing Regulation over corporate management and

avoidance of industrial sickness Regulation of monopolies and restrictive trade

practices Regulation of foreign trade, capital, technology, and

exchange Regulation of money and capital markets, and stock

exchanges

Regulation of pricing and distribution Commodity exchange and its regulation Protection of patents and trademarks Regulation through environmental and consumer

protection Regulation of employment conditions through labor

legislation; welfare, social security, and safety measures; maintenance of industrial relations; trade unionism; and workers' participation in management

Political Environment

The political environment consists of factors related to the management of public affairs and their impact on the

business of an organization

The political system and its features, like the nature of the political system, ideological forces, political parties and centers of power

The political structure, its goals and stability Political processes, like the operation of the

party system, elections, funding of elections, and legislation with respect to economic and industrial promotion, and regulation

Political philosophy, government's role in business, and its policies and interventions in economic and business development

Socio-cultural Environment

The socio cultural environment consists of factors related to human relationships

within a society; the development, forms and functions of such a relationship;

and the learnt and shared behavior of groups of human beings which have a

bearing on the business of an organization

Demographic characteristics, such as, population, its density and distribution, changes in population and age composition, inter-state migration and rural- urban mobility, and income distribution

Socio-cultural concerns such as environmental pollution, consumerism, corruption, use of mass media, the role of business in society, and consumerism

Socio-cultural attitudes and values, such as, expectation of society from business, social customs, beliefs, rituals and practices, changing lifestyle patterns, and materialism

Family structure and changes in it, attitude towards and within the family, and family values

The role and position of men, women, children, adolescents, and the aged in family and society

Educational levels, awareness and consciousness of rights, the work ethic of the members of society, and the attitude towards minority and disadvantaged groups

International Environment

The international (or global) environment consists of all those factors that operate at the transnational, cross-cultural, and across-the-border level which have an

impact on the business of an organization

Globalization, its process, content, and direction Global economic forces, organizations, blocs,

and forums Global trade and commerce, its process and

trends Global financial system, sources of financing,

and accounting standards Geopolitical situation, equations, alliances, and

strategic interests of nations

Global demographic patterns and shifts Global human resource—institutions, availability,

nature and quality of skills and expertise, mobility of labour and other skilled personnel

Global information systems, communication networks, and media.

Global technological and quality systems and standards

Global markets and competitiveness Global legal system, adjudication and arbitration

mechanisms

ENVIRONMENTAL SCANNING

The methods and techniques employed by the organizations to monitor their environment and to gather data to derive information about the opportunities and threats that affect their

business. The process by which organizations monitor their relevant

environment to identify opportunities and threats affecting their business is known as

environmental scanning.

Factors to be Considered for Environmental Scanning Events are important and specific occurrences taking

place in different envi ronmental sectors Trends are the general tendencies or the courses of

action along which events take place Issues are the current concerns that arise in

response to events and trends Expectations are the demands made by interested

groups in the light of their concern for issues

Approaches to Environmental Scanning

Systematic approach. Under this approach, information for environmental scanning is collected systematically. Information related to markets and customers, the changes in legislation and regulations which have a direct impact on an organization's activities, government policy statements pertaining to an organization's business and industry, and so on, could be collected continuously to monitor changes and take the relevant factors into account. Continuously updating such information is necessary not only for strategic management but also for operational activities.

Ad hoc approach :-Using this approach, an organisation may conduct special surveys and studies to deal with specific environmental issues from time to time. Such studies may be conducted, for instance, when an organisation has to undertake special projects, evaluate existing strategies, or devise new strategies. Changes and unforeseen developments may also be investigated with regard to their impact on the organization

Processed-form approach. To adopt this approach, an organisation uses infor mation in a processed form, available from different sources both inside and outside the organisation. When an organisation uses information supplied by government agencies or private institutions, it uses secondary sources of data and the information is available in a processed form.

Sources of information Documentary or secondary sources of

information, like, different types of publications. These could be newspapers, magazines, journals, books, trade and industry association newsletters, government publications, annual reports of competitors, companies, and so on

Mass media such as radio, television and the internet

Internal sources, like, company files and documents, management information systems, databases, company employees, and so on

External agencies, like, customers, marketing intermediaries, suppliers, trade associations, government agencies, and so on

Formal studies conducted by employees, market research agencies, consult ants and educational institutions

Spying and surveillance through ex-employees of competitors, industrial espionage agencies, or by planting 'moles' in rival companies

Sources of Information for Environmental Scanning in India

  International publications

– Intergovernmental and international agencies like UN, UNESCO, ILO, WHO, UNDP, FAO, World Bank, OECD and others are a rich source of international statistical data. World Development Report, World Eco nomic Survey, Statistical Yearbook of UN, International Trade Statistics Yearbook of UN, among others are some examples of major interna tional publications

International private data agencies such as country-rating agencies like Standard & Poor, Moody's, and others provide.ranking of countries with regard to their attractiveness for foreign investments.

2. Government publications

Governmental information sources such as the Census of India reports, five-year plan reports, statistical abstracts of Indian Union, and others provide valuable macro-level data useful for planning purposes. Statisti cal abstracts and statistical handbooks are published by several central and state government agencies. The main drawbacks are the delay in availability of the data and the fact that the data available has to be adapted for its particular use.

Periodic reports like economic surveys, annual surveys of industries, annual reports of ministries, and so on, which provide current data and reflect governmental thinking and priorities.

Occasional reports brought out by various statutory agencies, such as, guidelines to industries, policies related to specific industry, export-im port policies, and so on, which are relevant for business and industry. RBI's Department of Statistics also publishes valuable occasional pa pers related to different aspects of the economy and industry.

References, such as,India—A Reference Annual published by the Min istry of Information, contains comprehensive information on the geo graphic and demographic features of India, its political and social institutions, economy and culture, plans, programmes, and so on.

Institutional publications

The Bombay Stock Exchange Directorycontains valuable and timely sta tistical and financial data related to public limited companies (PLCs), besides latest information on statutory and other regulations.

The Centre for Monitoring India Economy (CMIE), which is a private in stitution, provides publications which contain comprehensive and timely information on economic indices

An example of one of the several industrial directories brought out in India is Kothari's Industrial Directory of India, published by Kothari En terprises, Chennai. It contains analyses of several industries and com panies, besides general information on the economy and industry.

Publications of market research agencies such as the National Council for Applied Economic Research (NCAER), a statutory agency, provide extensive contemporary data on the demographic profile of customers that cgn be used for strategic and market planning

Periodicals and newspapers Online databases and systems Industrial espionage agencies

Methods and Techniques used for Environmental Scanning

LeBell and Krasner have outlined nine groups of techniques :– single-variable extrapolation, – theoretical-limit envelopes, – dynamic modes, mapping, – multivariable interaction analysis, – unstructured expert opinion, – structured expert opinion, – structured inexpert opinion, and – unstructured inexpert speculation.5

Environmental Appraisal

QUEST (Quick environmental scanning technique), as proposed by B Nanus.7 QUEST is a four-step process which uses scenario-writing for scanning the environment and identifying strategic options. The four steps involved in applying this technique are:

1 Strategists make observation about the major events and trends in their industry

2. Then they speculate on a wide range of important issues that might affect the future of their organizations by scanning the environment broadly and comprehensively

3. The QUEST director prepares a report summarizing the major issues and their implications, and three to five scenarios incorporating the major themes of the discussion

4 The report and scenarios are reviewed by a 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

Factors Affecting Environmental Appraisal

Strategist-related factors. There are many factors related to the strategist, which affect the process of environmental appraisal. Since strategists play a central role in the formulation of strategies, their characteristics such as age, education, experience, motivation level, cognitive styles, ability to withstand time pressures and strain, and so on, have an impact on the extent to which the) are able to appraise their organization's environment, and how well they are able to do it.

Organization-related factors. Like those of the strategists, many characteristics of an organization also have an impact on the environmental appraisal process. These characteristics are the nature of business the organization is in, its age, size and complexity, the nature of its markets, and the products or services that it provides.

Environment-related factors. The nature of the environment facing an organization determines the way its appraisal could be done. The nature of the environment depends on its complexity, volatility or turbulence, hostility, and diversity.

Structuring Environmental Appraisal   Environmental threat and opportunity profile

(ETOP) for an organization.– The preparation of ETOP involves dividing the

environment into different sectors and then analyzing the impact of each sector on the organization.

– A comprehensive ETOP 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