PGPM Sem III(Class of 2013)Business Strategy I (2012-2013) Enviornmental Scanning Part I

Macroenviornment,Industry Analysis,Firm Analysis,CSF

Shreeniwas V Bidwai

Adjunct Professor

Understanding the Factors that Determine a Company’s Situation

• Diagnosing a company’s situation has two facets

– Assessing the company’s external ormacro-environment

• Industry and competitive conditions

• Forces acting to reshape this environment

– Assessing the company’s internal ormicro-environment

• Market position and competitiveness

• Competencies, capabilities, resource strengthsand weaknesses, and competitiveness

From Thinking Strategically about theCompany’s Situation to Choosing a Strategy

Thinking Strategically about a Company’s Macro-environment

• A company’s macro-environment includes all relevant factors and influences outside its boundaries

Diagnosing a company’s external situation involves assessing strategically important factors that have a bearing on the decisions a company’s makes about its– Direction– Objectives– Strategy– Business model

Requires that company managers scan the external environment to– Identify potentially important external developments– Assess their impact and influence– Adapt a company’s direction and strategy as needed

The Components of a Company’s Macro-environment

Which are the factors and forces in a company’s macro environment having the biggest strategy-shaping impact?

The company’s immediate industry and competitive environment

What is COMPETITIVE STRATEGY ?

‘Competitive Strategy’ encompasses:-• Dealing exclusively with a company’s business approach and actions to

compete successfully• Specific efforts to please customers• Offensive and defensive moves to counter maneuvers of rivals.• Responses to prevailing market conditions• Initiatives to strengthen market position.

“Competitive strategy is about being

different. It means deliberately choosing

to perform activities differently or to

perform different activities than rivals to

deliver a unique mix of value.”

• Michael Porter, Harvard Business School

PORTERS’ GENERIC STRATEGY APPROACH

Overall cost leadership strategy through cost minimization

Focus

Differentiation

CSF(CRITICAL SUCCESS FACTORS)• Continuous upgrading of

existing models and introduction of new models.

• Suzuki technology.• High productivity • World class manufacturing

and Quality.• Economies of scale.• Strong dealer network.• Extensive service network

all over the country with utmost customer satisfaction.

• Excellent advertising and mass communication efforts.

• Brand Equity.• Large range of models.• Timely market feedback as a

result of continuous research.

• Quality Program ‘Kaizen’.• Hire Purchase Scheme.• Design Expertise –

Introduction of new car models to meet the changing preference of the buyers.

• Planned relationship marketing to upgrade product purchases.

STRATEGIC ANALYSIS

Porter’s Five Forces Model for

Indian Passenger Car Industry

INDUSTRY LEVEL ANALYSIS

• Porter’s Industry Analysis: Five Forces Model

The effective formulation of strategy needs a clear understanding of competition. Competition in an industry is determined not only by existing competitors but also by other market forces such as customers, suppliers, potential entrants, and the existence of substitute products.

Understanding the level of competition is important because the level of profits depends to a large extent upon the level of competition.

The strategist’s goal then is to position the firm in such a way that it is not vulnerable to the attacks of competitors. The position should give the firm

enough space to defend itself confidently.

BuyersSuppliers

Substituteproducts

Potentialentrants

Industry competitors

Rivalry amongexisting firms

Threat ofnew entrants

Bargaining powerof suppliers

Bargaining powerof buyers

Threat ofsubstitutes

Porter's Five Forces ModelPorter's Five Forces Model

Source: Michael E. Porter Competitive Strategy: Techniques for Analyzing Industries and Competitors, (The Free Press, 1980)

STRATEGIC ANALYSIS

PESTEL ANALYSIS

PEsT

E

L

OLITICAL

CONOMICAL

OCIAL

ECHNOLOGICAL

NVIRONMENTAL

EGAL

Macro – environmental influences – the PESTEL framework

• Political Government stability Taxation policy Foreign trade regulations Social welfare policies

• Sociocultural factors Population demographics Income distribution Social mobility Lifestyle changes Attitudes to work and leisure Consumerism Levels of education

• Economic Factors Business cycles GNP trends Interest rates Money supply Inflation Unemployment Disposable income

• Technological Government spending on research Government and industry focus on

technological effort New discoveries / development Speed of technology transfer Rates of obsolescence

1.What environmental factors are affecting the organization?2.Which of these are the most important at the present time?In next2/3 Years?

Macro – environmental influences – the PESTEL framework

• Environmental Environmental protection

laws Waste disposal Energy consumption

• Legal Monopolies legislation Employment law Healthy and safety Product safety

1. What environmental factors are affecting the organization?2. Which of these are the most important at the present time? In

the next few years?

Macro – environmental influences – the PESTEL framework

• There are many factors in the macro-environment that will effect the decisions of the managers of any organization.

• Tax changes, new laws, trade barriers, demographic change and government policy changes are all examples of macro change

• It is particularly important that PESTEL is used to look at the future impact of environmental factors, which may be different from their past impact.

POLITICAL

• Many developed countries have offered a mix of credits and

tax subsidies as incentives for consumers to trade in old cars

for newer and more fuel efficient and eco friendly cars.

• Deregulation of petrol prices has happened.

• There is proposal to levy additional excise duty of Rs 80,000

for diesel cars.

• Additional duties on passenger cars in the offing in coming

Budget for 2012-13.

•

ECONOMIC

• Demographic Dividend -growing no. of young citizens with

higher disposable incomes.

• Rapidly growing Indian Automotive markets.

• Demand for export of small cars from India to developed

countries.

• Raw Material cost is the key cost constituent in four wheeler

industry.

• Inflation, Fluctuations in Fuel Prices & Interest Rates hike

by RBI.

SOCIAL

• The rising awareness of social status and changing

customer preference.

• Some of the 50 million existing users of 2 wheeler

will up grade to 4 wheelers.

TECHNOLOGY

• Need for more R&D efforts to develop efficient compact and

mid compact car engines and hybrid cars.

• Tata Nano (1 lakh car) is a successful example for

indigenous design with technological innovation.

• Honda – Civic is the only imported car in India deploying

hybrid technology. This may be followed by others.

• Cars which can use alternate fuels like Diesel, CNG, LPG,

Ethanol blended petrol are being manufactured in India

now.

ENVIRONMENT• Environment - Indian and global emerging markets for

various models of cars particularly small cars.

• Reduction in CO2 emission.

• All players will be under pressure to introduce Euro-IV

and Euro-V compliant features in all their cars. In

addition ELV regulations will have to be imposed by

Govt. of India on the auto industry.

LEGAL

• All players would be under pressure to give more attention to

safety and environmental features and compliance(emission

norms) of laws and regulations enacted time to time (eg.

Bharat IV)

Macro – environmental influences – the PESTEL framework

• There are many factors in the macro-environment that will effect the decisions of the managers of any organization.

• Tax changes, new laws, trade barriers, demographic change and government policy changes are all examples of macro change

• It is particularly important that PESTEL is used to look at the future impact of environmental factors, which may be different from their past impact.

Thank you