Environmental & Competitive Analysis for Strategic Management

Strategic Management
Unit 2
Environmental AnalysisMANU H NATESH MBA, M.Com. BMSCCM
E-mail: manu@bmsec.ac.in

Contents of the unit
• Strategically relevant components of internal
and external environment
• Industry and competitive analysis
• analysis of resources and competitive
capabilities
• environmental scanning techniques.
MANU H NATESH MBA, M.Com. BMSCCM

Environmental Scanning - Internal & External Analysis
of Environment
• . Environmental scanning refers
to possession and utilization of
information about occasions,
patterns, trends, and
relationships within an
organization’s internal and
external environment.

• It helps the managers to decide the future
path of the organization. Scanning must
identify the threats and opportunities existing
in the environment. While strategy
formulation, an organization must take
advantage of the opportunities and minimize
the threats. A threat for one organization may
be an opportunity for another.

Internal analysis

Internal analysis of the environment
• is the first step of environment scanning.
Organizations should observe the internal
organizational environment. This includes
employee interaction with other employees,
employee interaction with management,
manager interaction with other managers, and
management interaction with shareholders,
access to natural resources, brand awareness,
organizational structure, main staff,
operational potential, etc

External environment

external analysis
Three correlated environment should be studied
and analyzed —
• immediate / industry environment
• national environment
• broader socio-economic environment /
macro-environment

industry environment
needs an appraisal of the competitive
structure of the organization’s industry,
including the competitive position of a
particular organization and it’s main rivals.
Also, an assessment of the nature, stage,
dynamics and history of the industry is
essential. It also implies evaluating the effect
of globalization on competition within the
industry.

national environment
needs an appraisal of whether the national
framework helps in achieving competitive
advantage in the globalized environment

macro-environment
includes exploring macro-economic, social,
government, legal, technological and
international factors that may influence the
environment. The analysis of organization’s
external environment reveals opportunities
and threats for an organization.

SWOT ANALYSIS

SWOT Analysis –
Definition, Advantages and Limitations
• SWOT is an acronym for Strengths, Weaknesses,
Opportunities and Threats. By definition, Strengths (S) and
Weaknesses (W) are considered to be internal factors over
which you have some measure of control. Also, by
definition, Opportunities (O) and Threats (T) are considered
to be external factors over which you have essentially no
control.
• SWOT Analysis is the most renowned tool for audit and
analysis of the overall strategic position of the business and
its environment. Its key purpose is to identify the strategies
that will create a firm specific business model that will best
align an organization’s resources and capabilities to the
requirements of the environment in which the firm
operates

Strengths
• Strengths are the qualities that enable us to accomplish the
organization’s mission. These are the basis on which continued
success can be made and continued/sustained.
• Strengths can be either tangible or intangible. These are what you
are well-versed in or what you have expertise in, the traits and
qualities your employees possess (individually and as a team) and
the distinct features that give your organization its consistency.
• Strengths are the beneficial aspects of the organization or the
capabilities of an organization, which includes human
competencies, process capabilities, financial resources, products
and services, customer goodwill and brand loyalty. Examples of
organizational strengths are huge financial resources, broad product
line, no debt, committed employees, etc.

Weaknesses
• Weaknesses are the qualities that prevent us from accomplishing
our mission and achieving our full potential. These weaknesses
deteriorate influences on the organizational success and growth.
Weaknesses are the factors which do not meet the standards we
feel they should meet.
• Weaknesses in an organization may be depreciating machinery,
insufficient research and development facilities, narrow product
range, poor decision-making, etc. Weaknesses are controllable.
They must be minimized and eliminated. For instance - to overcome
obsolete machinery, new machinery can be purchased. Other
examples of organizational weaknesses are huge debts, high
employee turnover, complex decision making process, narrow
product range, large wastage of raw materials, etc.

Opportunities
• Opportunities are presented by the environment within which our
organization operates. These arise when an organization can take
benefit of conditions in its environment to plan and execute
strategies that enable it to become more profitable. Organizations
can gain competitive advantage by making use of opportunities.
• Organization should be careful and recognize the opportunities and
grasp them whenever they arise. Selecting the targets that will best
serve the clients while getting desired results is a difficult task.
Opportunities may arise from market, competition,
industry/government and technology. Increasing demand for
telecommunications accompanied by deregulation is a great
opportunity for new firms to enter telecom sector and compete
with existing firms for revenue.

Threats
• Threats arise when conditions in external
environment jeopardize the reliability and
profitability of the organization’s business. They
compound the vulnerability when they relate to
the weaknesses. Threats are uncontrollable.
When a threat comes, the stability and survival
can be at stake. Examples of threats are - unrest
among employees; ever changing technology;
increasing competition leading to excess capacity,
price wars and reducing industry profits; etc.

Advantages of SWOT Analysis
• It is a source of information for strategic planning.
• Builds organization’s strengths.
• Reverse its weaknesses.
• Maximize its response to opportunities.
• Overcome organization’s threats.
• It helps in identifying core competencies of the firm.
• It helps in setting of objectives for strategic planning.
• It helps in knowing past, present and future so that by
using past and current data, future plans can be
chalked out.

SWOT ANALYSIS FRAMEWORK

Limitations of SWOT Analysis
There are certain limitations of SWOT Analysis
which are not in control of management. These
include-
• Price increase;
• Inputs/raw materials;
• Government legislation;
• Economic environment;
• Searching a new market for the product which is
not having overseas market due to import
restrictions; etc.

Internal limitations may include-
• Insufficient research and development
facilities;
• Faulty products due to poor quality control;
• Poor industrial relations;
• Lack of skilled and efficient labour; etc

Industry and competitive analysis,

industrial analysis
• An industrial analysis is used to examine the past
trends in an industry, the current demand and
supply mechanics, and the future outlook of the
industry. It also acts as a guide to investors on the
viability of investing in a company.
• The analysis is useful in offering
recommendations in case an
unexpected development happened in the
industry. An industrial analysis takes time and it is
very complicated.

THE STEPS OF AN INDUSTRIAL ANALYSIS
1. Review available reports
2. Approach the correct industry
3. Future predictions.
4. Competitor analysis

Competitor analysis

Competitor analysis
• Know your position in the industry
• Identify opportunities and threats within the
industry
• Highlight the strengths and weaknesses of
your organization
• Pinpoint the areas where strategic
changes will lead to high returns

Competitor analysis
• Competitor analysis is the process where you
identify your greatest competitors and
evaluate their strategies to find out what their
strengths and weaknesses are and how they
relate to your product or service. This analysis
removes you from your comfort zone but also
places you on the path to success if you do it
well.

PERFORMING A COMPETITOR
ANALYSIS
Goal of competitor analysis
• Identify competitor strategies and actions
planned
• Determine the competitor to compete with
• Predict a competitors reaction to your actions
• How to use the behaviour of the competitor
for your firm’s advantage

Competitor analysis is important in gathering
information about competitors and then using this
information to predict the behaviour of competitors
Michael Porter came up with a strategy for analyzing
competitors. It is based on four key aspects:
• Competitor objectives
• Competitor assumptions
• Competitor capabilities
• Competitor strategy

CONDUCTING AND PREPARING YOUR COMPETITOR
ANALYSIS
• Conduct research
• Gather competitive information
• Analyze competitive information
• Determine your own competitive position

Conduct research
• Who are my competitors?
• What makes them my competitors? Is it the products or services that they sell?
• Do I stand a chance to compete with them?
• What market share do they hold?
• Which strategies have they used in the past?
• What strategies are they using now?
• What are the threats that they face?
• In what ways do the customers see them positively and negatively? How can I take
advantage of the negative customer reviews?
• How long have my competitors been in business?
• How do they advertise their products and services and what is the frequency of
the adverts?
• Do they provide me with an opportunity that I can take advantage of?
• What is the strength or weaknesses of my competitors?
• How can you rate your competitors regarding;
– Employees
– Pricing incentive
– Customer service
– Resources
– Quality of service or products
– Hours of operation?

Gather Competitive Information
• Sales brochure
• Your sales team
• Other employees
• Consider the customer service
• Advertising
• Trade associations
• Annual Reports
• Newspaper and magazine articles
• Direct observation
• Your competitors

Analyze Competitive Information
• Market share
• Product evaluation
• difference between you and your competitors
o Company morale/ personnel motivation
o Financial resources
o Operational efficiencies
o Strategic partnerships
o Product line breadth

Determine your own competitive
position
• New players
• Future competition
• Shakeups
• Barriers to entry – Form of barriers includes;
– Market saturation – When there are already enough
people offering the same service in the market, new
businesses will fear to enter as the competition is already
too high.
– High investment requirements – Only businesses who can
afford the high investments can penetrate the business.
This locks out small companies from entering the market.
• Patents –

COMPETITOR ANALYSIS USING
PORTER’S FIVE FORCES MODEL

Approaches to Environmental
Scanning:
• 1. Systematic Approach:
• Under this approach, information for environmental
scanning is collected systematically. Information
related to markets and customers, changes in
legislation and regulations that have a direct impact on
an organization’s activities, government policy
statements pertaining the organization’s business and
industry, etc, could be collected continuous updating
such information is necessary not only for strategic
management but also for operational activities.

• 2. Ad hoc Approach:
• Using this approach, an organization may conduct
special surveys and studies to deal with specific
environmental issues from time to time. Such
studies may be conducted, for instance, when
organization has to undertake special projects,
evaluate existing strategy or devise new
strategies. Changes and unforeseen
developments may be investigated with regard to
their impact on the organization

• Processed-form Approach:
• For adopting this approach, the organization
uses information in a processed form available
from different sources both inside and outside
the organization. When an organization uses
information supplied by government agencies
or private institutions, it uses secondary
sources of data and the information is
available in processed form.

Sources of Information:
A company can obtain information from different sources, but it should be
ensured that the information is correct
1. An internal document viz, files, records, management information system,
employees, standards, drawings, charts, etc.
2. Trade directories, journals, magazines, newspapers, books, newsletters,
government publications, annual reports of companies, case studies, etc.
3. Internet, television, radio news etc.
4. External agencies like customers, suppliers, inspection agencies, marketing
intermediaries, dealers, advertisers, associations, unions, government
agencies, share holders, competitors, etc.
5. Market research reports, consultants, educational institutions, testing
laboratories etc.
6. Spying considered as a powerful way of extracting information from other
companies.
information is correct.

Environmental & Competitive Analysis for Strategic Management

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