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 farreaching 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 resourceinstitutions, 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,IndiaA
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
threat andAppraisal
opportunity
Environmental

(ETOP) for an organization.

profile

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