The document discusses the importance of external environmental analysis for organizations, outlining classifications of environments (mega, micro, relevant) and frameworks such as PESTLE for assessing opportunities and threats. It emphasizes the need for continuous scanning of the business environment to maintain competitive advantage. The document also includes sources of information pertinent to understanding the Indian business environment.

1. Module 02: External Environmental Analysis

2. ➢ Classification of Firm’s environment
➢ Constituents of Firm’s macro,micro and relevant environment
➢ PESTLE analysis
➢ Framework for assessing impact of opportunities and threats
Concepts Covered
2

3. External
Analysis
Internal
Analysis
Long-Term
Objectives
Generate,
Strategic
Alternatives
Evaluate,
Select
Strategy
Implement
Strategy:
Resource
Allocation
&Structure
Evaluate
Performance
& feedback
Vision
&
Mission
Comprehensive strategic management model
Implement
Strategy:
Leadership
Functional
Policies
3

4. Classification of Firm’s Environment
Mega Environment
Micro
Environment
Relevant
Environment
Internal
Environment
Firm
• Why environmental analysis is important?
4

5. Constituents of Mega Environment
Political Economic Technological Social
Regulatory
Mega Environment
• Environment→ International,regional,national
• Global economicenvironment,regionalpoliticalenvironment,nationalsocial environment
5

6. PESTLE Matrix
6

7. Marketing
Intermediaries
Market
Types
Market
Demand
Competition
Suppliers
Micro Environment
Availability of
Skilled
Manpower
Industrial
Relations
Climate
Regulatory
Provisions
Financial
Institution
Constituents of Micro Environment
• Industryenvironment → Automobile, steel,chemicals,oil and gas,textile, banking,software
7

8. Organisational Environment
Firm
Competitors
Community
Suppliers Customers
8

9. I
Major Threat
II
Moderate Threat
III
Moderate Threat
IV
Minor Threat
High
Seriousness
Low
High Low
Probability of Occurrence
Threat Matrix– Assessing Impact
➢ Assessing Impact of Opportunities & Threat
2. Environmental Analysis
9

10. I
Very Attractive
II
Moderately Attractive
III
Moderately Attractive
IV
Least attractive
High
Attractiveness
Low
High Low
Probability of Occurrence
Opportunity Matrix– Assessing Impact
➢ Assessing Impact of Opportunities & Threat
2. Environmental Analysis
10

11. ➢ Impact Matrix
2. Environmental Analysis
Trends
(Opportunities &
Threats)
Probability of
occurrences
Impact on Strategies
S1 S2 S3 S4
T1 (Economic)
T2 (Social)
T3(Technological)
T4(Political, Legal)
Impact scale:
+2 Highly favourable impact
+1 Moderately favourable impact
0 No impact
-1 Moderately unfavourable impact
-2 Highly unfavourable impact
11

12. Related to a Company
• Annual Reports
• Chairman’s speeches
• Company’s advertisement
• Company’s house journals
• Company’s executives
• NSE,BSE – the relevant volumes
Related to the environment
• Annual issues of leadingcommercial
periodicals
• CompetitionAct,2002 relatedPublications
• Articles published in leading newspapers,
journals relatedto the industry of the
company under study
• Hindu Annual Review
2. Environmental Analysis
Some useful Sources of Information on Indian Business Environment
Related to the environment (contd.)
• Times of India Directory
• Reserve Bank’s Annual Reports
• Publications of Chamber of Commerce,
trade associations andexport councils
• Commerce Annual onpublic sector
undertakings
• The Economic Scene publishedby TECES
• Data India
• Business India, India Today,Business
World
• Journals like Commerce,Economic &
Political Weekly,Journal of Industry and
Trade,Industrial Times, etc.
• Guidelines to industries
• Newspapers like EconomicTimes,
Financial Express,etc.
12

13. Conclusion
• The business environment is ever-changing and dynamic in nature. An organization needs to
scan the external environment for new opportunities and threats in a systematic and
continuous manner. This would help the organization to sustain and gain competitive
advantage.
• The various components and framework for external environmental analysis have been
discussed in this chapter including classification of firm’s environment such as mega-, micro-,
and relevant environment; PESTLE matrix and other frameworks for assessment of
environmental opportunities and threats for an organization.
13

14. References
1. Crafting and Executing Strategy – The Quest for Competitive Advantage, Concepts and Cases,
Thomson & Strickland,McGraw-HillEducation.
2. Exploring Strategy – Text and Cases, Gerry Johnson, Richard Whittington, Kevan Scholes, Duncan
Angwin, and PatrickRegner, Pearson,10th edition.
3. Strategic Management – Planning for Domestic and Global Competition, John Pearce, R.Robinson
and Amita Mital,McGraw-HillEducation,14th edition.
4. Strategic Management – An Integrated Approach, Charles Hill & Gareth Jones, Cengage Learning,
9th edition.
14