2.  Environmental analysis or scanning is a process by which organizations monitor their internal & external environment to spot opportunities & threats affecting their business  The basic purpose is to help management determine the future direction of the organization  Scanning involves reviewing & evaluating whatever information about internal & external environments can be gained from several distinct sources

3.  International Sources---- 1. World Development Report 2. World Economic Survey 3. Year Book of International Trade Statistics  Government Sources---- 1. Census of India 2. Five Year Plan Reports 3. Economic Survey

4.  Other Sources----- 1. The Bombay Stock Exchange Directory 2. Economic Times 3. Business Standards 4. Business India 5. Agricultural & Industrial Survey by The Hindu 6. Harvard Business Review etc.

5.  ETOP:  It is the acronym for Environmental Threat & Opportunity Profile  It is a summarized picture of the environmental factors & their likely impact on the organization  The preparation of ETOP helps a firm to identify the segments in a chosen field of activity, presenting excellent growth opportunities

6.  E.g., most motorcycle manufacturers in India are trying to create a niche in the high-end motor cycle market  Once this is done, the firm can find out where it stands in the field of comparison to its rivals

7. ENVIRONMENTAL FACTORSIMPACT (+) OPPORTUNITY (-) THREAT TECHNOLOGY(+) NICHE MARKET FOR HIGH-END PRODUCTS (+) VAST, GROWING, EDUCATED YOUTH PREFERRING FUEL EFFICIENT, SLEEK MODELS (+) FREE IMPORTS FROM CHEAPER MARKETS ECONOMIC(+) RISING INCOME LEVELS IN URBAN AS WELL AS RURAL MARKETS (-) PRICE COMPETITION FROM LOCAL & INTERNATIONAL BRANDS SOCIAL(+) BUYER PREFERENCE FOR SPORTY, FASHIONABLE, DURABLE MODELS (-) ROAD ACCIDENTS FORCING PEOPLE TO OPT FOR SAFER MODES OF TRANSPORT

8.  Scenario Building & Analyzing is a useful way of solving the complexity of environment  Scenarios are stories about what the future environment might hold & how a firm might respond to this  Scenarios help strategists in focusing attention on the emerging picture after thoroughly analyzing the pros & cons of a particular situation

9.  Scenarios can be developed through the following steps----- 1. Prepare the background by assessing the overall social environment 2. Select critical indicators & search for future events that may affect the key trends 3. Analyze reasons for past behavior for each trend 4. Forecast each indicator in at least three scenarios, showing the least favourable environment, the likely environment & the most favourable environment

10. 5. Write the scenario from the viewpoint of someone in the future & describe conditions then & how they developed 6. Condense the scenario for each trend to a few paragraphs

11.  Porter’s Five Forces Analysis:  According to Michael Porter, the nature & degree of competition in an industry depends on five forces

12. Threat of Substitute Products Threat of New Entrants Rivalry Among Competing Firms in Industry Bargaining Power of Buyers Bargaining Power of Suppliers Porter’s Five Forces Model of Competition Porter’s Five Forces Model of Competition

13. Threat of New Entrants Barriers to Entry Government Policy Economies of Scale Product Differentiation Capital Requirements Switching Costs Access to Distribution Channels

14. Bargaining Power of Suppliers Suppliers exert power in the industry by: * Threatening to raise prices or to reduce quality Powerful suppliers can squeeze industry profitability if firms are unable to recover cost increases Suppliers are likely to be powerful if: Supplier industry is dominated by a few firms Suppliers’ products have few substitutes Buyer is not an important customer to supplier Suppliers’ product is an important input to buyers’ product Suppliers’ products are differentiated Suppliers’ products have high switching costs Supplier poses credible threat of forward integration

15. Bargaining Power of Buyers Buyers compete with the supplying industry by: * Bargaining down prices * Forcing higher quality Buyer groups are likely to be powerful if: Buyers are concentrated or purchases are large relative to seller’s sales Purchase accounts for a significant fraction of supplier’s sales Products are undifferentiated Buyers face few switching costs Buyer presents a credible threat of backward integration Product unimportant to quality Buyer has full information

16. Threat of Substitute Products Products with similar function limit the prices firms can charge Keys to evaluate substitute products: Products with improving price/performance tradeoffs relative to present industry productsExample: Electronic security systems in place of security guards Fax machines in place of overnight mail delivery

17. Rivalry Among Existing Competitors Intense rivalry often plays out in the following ways: Jockeying for strategic position Using price competition Staging advertising battles tions Making new product introductions Increasing consumer warranties or service Occurs when a firm is pressured or sees an opportunity Price competition often leaves the entire industry worse off Advertising battles may increase total industry demand, but may be costly to smaller competitors

18. Cutthroat competition is more likely to occur when: Rivalry Among Existing Competitors Numerous or equally balanced competitors Slow growth industry High fixed costs Lack of differentiation or switching costs High storage costs High exit barriers Diverse competitors

19. STRATEGIC GROUPS Strategic groups are groups of firms that pursue similar types of strategies within the same industry Studying characteristics of every firm within an industry is extremely time consuming affair Hence, managers generally classify firms within an industry into strategic groups

20. STRATEGIC GROUPS While constructing strategic groups, care should be taken to select only those dimensions (Product Line, Breadth, Type of Technology Used, Type of Buyer Served, Type of Distribution Channel Used, Number of Markets Served etc.) that best describe the firm’s industry environment

21. STRATEGIC GROUPS Implications of Strategic Groups----  Firms within a group sell similar products to the same customers. Hence, intense rivalry exists  The strengths of five competitive forces differ across strategic groups  The closer the strategic groups are in terms of strategies pursued, the greater the rivalry between the groups  Firms within the same strategic group will tend to compete more vigorously with one another than with firms from other strategic groups

22. STRATEGIC GROUPS  Strategic groups can shift over time, so managers must continue to be aware of how firms may differ in their future competitive strategies