1. MANAGEMENT POLICY AND STRATEGY SESSION - III (A)
Environmental Analysis
Prof. Sushil
Department of Management Studies
Indian Institute of Technology, Delhi
INDIA
Prof.Sushil\IITD\Session-III(A)

2. ENVIRONMENTAL ANALYSIS
Assess the Nature of Environment
Audit Environmental Influences
Identify Key Competitive Forces-Structural Analysis
Identify Strategic Position
Identify Key Opportunities and Threats
Strategic Position
Prof.Sushil\IITD\Session-III(A)

3. Prof.Sushil\IITD\Session-III(A)
Nature of Environment
How Uncertain?
What are the Relations?
Diversity
Complexity
Inter-connected
Dynamism
Prof.Sushil\IITD\Session-III(A)

4. AUDITING ENVIRONMENT INFLUENCES
Financial Policy
Capital Markets
Economic Forecasting
Economic Factors and Restructuring
Demographic Forecasting
Environmental Sensing
Socio-Cultural, Ecology
Prof.Sushil\IITD\Session-III(A)

5. AUDITING ENVIRONMENT INFLUENCES Contd…..
R&D Policy
Technology
Labour Policy and I.R.
Labour Market
Marketing Policy
Competition
Lobbying
Government
Purchasing Policy
Supplies
Resource
Prof.Sushil\IITD\Session-III(A)

6. The Firm’s External Environment
Remote Environment (Global and Domestic)
Economic
Social
Political
Technological
Ecological
Industry Environment (Global and Domestic)
Entry barriers
Supplier power
Buyer power
Substitute availability
Competitive rivalry
Operating Environment (Global and Domestic)
Competitors
Creditors
Customers
Labor
Suppliers
THE FIRM
Prof.Sushil\IITD\Session-III(A)

7. Prof.Sushil\IITD\Session-III(A)
Political Factors
Define legal and regulatory parameters within which firms must operate
Types of factors
Fair-trade decisions
Antitrust laws
Tax programs
Minimum wage legislation
Pollution and pricing policies
Administrative jawboning
Prof.Sushil\IITD\Session-III(A)

8. Prof.Sushil\IITD\Session-III(A)
Economic Factors
Concern nature and direction of economy in which a firm operates
Types of factors
General availability of credit
Level of disposable income
Propensity of people to spend
Prime interest rates
Inflation rates
Trends in growth of gross national product
Prof.Sushil\IITD\Session-III(A)

9. Prof.Sushil\IITD\Session-III(A)
Social Factors
Include beliefs, values, opinions, and lifestyles of people
Recent social trends
Entry of large numbers of women into labor market
Accelerating interest of consumers and employees in quality-of-life issues
Shift in age distribution of population
Prof.Sushil\IITD\Session-III(A)

10. Technological Factors
Focus on technological changes affecting industry
Types of changes
New products
Improvements in existing products
Manufacturing and marketing techniques
Role of technological forecasting
Foresees advancements and estimating their impact
Alerts managers to impending challenges and promising opportunities
Prof.Sushil\IITD\Session-III(A)

11. Prof.Sushil\IITD\Session-III(A)
Ecological Factors
Involve relationships among human beings and other living things and air, soil, and water
Current concerns
Global warming
Loss of habitat and bio-diversity
Air, water, and land pollution
Responsibilities of firms
Eliminating toxic by-products of current manufacturing processes
Cleaning up prior environmental damage
Prof.Sushil\IITD\Session-III(A)

12. Factors Used to Assess the International Environment
Economic Environment
Level of economic development
Population
GNP
Per capita income
Literacy level
Social infrastructure
Natural resources
Climate
Membership in economic blocs
Monetary and fiscal policies
Wage and salary levels
Nature of competition
Currency convertibility
Inflation and interest rates
Taxation system
Political System
Form of government
Political ideology
Stability of government
Strength of opposition parties
Social unrest
Political strife and insurgency
Governmental attitude towards foreign firms
Foreign policy
Prof.Sushil\IITD\Session-III(A)

13. Factors Used to Assess the International Environment
Legal Environment
Legal tradition
Effectiveness of legal system
Treaties with foreign nations
Patent trademark laws
Laws affecting business firms
Cultural Environment
Customs, norms, values, beliefs
Language
Attitudes
Motivations
Social institutions
Status symbols
Religious beliefs
Prof.Sushil\IITD\Session-III(A)

14. Forces Driving Industry Competition
Potential entrants
Threat of new entrants
Suppliers
Bargaining power
of suppliers
Industry competitors
Rivalry Among
Existing Firms
Buyers
Bargaining power
of buyers
Substitutes
Threat of substitute products or services
Prof.Sushil\IITD\Session-III(A)

15. Competitive Force: Threat of Entry
Seriousness of threat depends on
Barriers to entry
Reaction of existing firms
Economies of scale
Product differentiation
Capital requirements
Cost disadvantages independent of size
Access to distribution channels
Government policy
Prof.Sushil\IITD\Session-III(A)

16. Competitive Force: Suppliers
A supplier group is powerful if:
It is dominated by a few companies and is more concentrated than industry it sells to
Its product is unique, or differentiated, or has built up switching costs
It is not obliged to contend with other products for sale to industry
It poses a threat of integrating forward into industry’s business
Industry is not an important customer of supplier group
Prof.Sushil\IITD\Session-III(A)

17. Competitive Force: Buyers
A buyer group is powerful if:
It is concentrated or purchases in large volumes
Products purchased from industry form a component of its product, representing a significant fraction of its cost
It earns low profits, creating incentives to lower its purchasing costs
Industry’s product is unimportant to quality of buyers’ products or services
Industry’s product does not save buyer money
Buyers pose credible threat of integrating backward
Prof.Sushil\IITD\Session-III(A)

18. Competitive Force: Substitute Products
Relevance of substitutes
By placing a ceiling on prices charged, they limit profit potential of an industry
Substitutes deserving the most attention are those
Subject to trends improving their price-performance trade-off with the industry’s product
Produced by industries earning high profits
Prof.Sushil\IITD\Session-III(A)

19. Competitive Force: Rivalry Among Existing Competitors
Usually the most powerful of the forces
Weapons of competitive rivalry
Price
Quality
Product introduction
Customer service
Advertising
Prof.Sushil\IITD\Session-III(A)

20. What Causes Rivalry to be Intense?
Numerous competitors or they are roughly equal in size and power
Slow growth in industry
Product lacks differentiation or switching costs
High fixed costs or perishable product
Capacity normally augmented in large increments
High exit barriers
Rivals are diverse in strategies, origins, and “personalities”
Prof.Sushil\IITD\Session-III(A)

21. Industry and Competitive Analysis
1. What are the boundaries of the industry?
Questions involved in designing viable strategies
2. What is the structure of the industry?
3. Which firms are our competitors
4. What are the major determinants of competition?
Prof.Sushil\IITD\Session-III(A)

22. Sources of Difficulty in Defining Industry Boundaries
Evolution of industries over time creates new opportunities and threats
Industry evolution creates industries within industries
Industries are becoming global in scope
Prof.Sushil\IITD\Session-III(A)

23. Characteristics of Industry Structure
Structural attributes - Enduring characteristics giving an industry its distinctive character
Variations among industries involves examining
Concentration - Extent to which industry sales are dominated by only a few firms
Economies of scale - Savings firms within an industry achieve due to increased volume
Product differentiation - Extent to which customers perceive products of firms in industry as different
Barriers to entry - Obstacles a firm must overcome to enter an industry
Prof.Sushil\IITD\Session-III(A)

24. Objectives of Competitive Analysis
Identify current and potential competitors
Identify potential moves by competitors
Help firm devise effective competitive strategies
Prof.Sushil\IITD\Session-III(A)

25. Analysis of Operating Environment Involves . . .
Assessing firm’s competitive position via development of competitor profiles
Developing a profile of firm’s present and prospective customers
Assessing firm’s relationships with suppliers
Assessing firm’s relationships with creditors
Assessing nature of labor market, i.e. availability of human resources
Prof.Sushil\IITD\Session-III(A)

26. Criteria Used in Constructing Competitor Profiles
1. Market share
2. Breadth of product line
3. Effectiveness of sales distribution
4. Proprietary and key-account advantages
5. Price competitiveness
6. Advertising/promotional effectiveness
7. Location and age of facility
8. Capacity and productivity
9. Experience
10. Raw materials costs
11. Financial position
12. Relative product quality
13. R&D advantages/position
14. Caliber of personnel
15. General image
16. Customer profile
17. Patents and copyrights
18. Union relations
19. Technological position
20. Community reputation
Prof.Sushil\IITD\Session-III(A)

27. Prof.Sushil\IITD\Session-III(A)
Competitor Profile
Market Share
Price Competitiveness
Facilities location
Raw materials costs
Caliber of personnel
0.30 4
1.20
0.20 3
0.60 5
1.00
0.10 1
1.00 *
3.30
Key Success Factors
Weight
Rating +
Weighted Score
* Total of weights must always equal 1.00.
+ Rating scale suggested is as follows: very strong competitive position = 5 points; strong = 4; average = 3; weak = 2; very weak = 1.
Prof.Sushil\IITD\Session-III(A)

28. Objectives of Customer Profiles
Improves ability of managers to
Plan strategic operations
Anticipate changes in size of markets
Reallocate resources to support forecasted shifts in demand patterns
Two approaches to market segmentation
Traditional segmentation approach
Industrial market segmentation
Prof.Sushil\IITD\Session-III(A)

29. Major Segmentation Variables: Consumer Markets
Geographic Variables
Region
County size
City of SMSA size
Density
Climate
Psychographic Variables
Social class
Lifestyle
Personality
Prof.Sushil\IITD\Session-III(A)

30. Major Segmentation Variables: Consumer Markets (concluded)
Demographic Variables
Age
Sex
Family size
Family life cycle
Income
Occupation
Education
Religion
Race
Nationality
Behavioral Variables
Occasions
Benefits
User status
Usage rate
Loyalty status
Readiness stage
Attitude toward product
Prof.Sushil\IITD\Session-III(A)

31. Major Segmentation Variables: Industrial Markets
Demographic Variables
Industry
Company size
Location
Operating Variables
Technology
User-nonuser status
Customer capabilities
Purchasing Approaches
Purchasing-function organization
Power structure
Nature of existing relationships
General purchase policies
Purchasing criteria
Prof.Sushil\IITD\Session-III(A)

32. Major Segmentation Variables: Industrial Markets (concluded)
Situational Factors
Urgency
Specific application
Size of order
Perfect Characteristics
Buyer-seller similarity
Attitudes toward risk
Loyalty
Prof.Sushil\IITD\Session-III(A)

33. External Factor Analysis Summary (EFAS): Maytag as Example
Prof.Sushil\IITD\Session-III(A)