TOOLS OF STRATEGIC ANALYSIS

• Environment - Overview
• Micro Environmental Factors
• Macro Environmental Factors
• SWOT Analysis
• VRIO Analysis
• Resource-based View (RBV)
• Value chain analysis
Learning Outcome
Apply basic tools of strategic analysis to an organisation situation, bearing in mind external and internal
contextual variables.

Business Environment
• Environment of any organization can be considered
as "the aggregate of all conditions, events and
influences that surround and affect it".
• Business Environment means a collection of all
individuals, entities and other factors, which may or
may not be under the control of the organisation,
but can affect its performance, profitability, growth
and even survival.
• “The combination of internal and external factors
that influence a company’s operating situation.

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Environmental Scanning
Environmental scanning is the ongoing tracking of trends and occurrences in an
organization’s internal and external environment that bear on its success,
currently and in the future. The results are extremely useful in shaping goals and
strategies.
Environment must be scanned so as to determine development and forecasts of
factors that will influence organizational success.
The purpose of the scan is the identification of opportunities and threats affecting
the business for making strategic business decisions. As a part of the
environmental scanning process, the collects information regarding its
environment and analyzes it to forecast the impact of changes in the environment.
This eventually helps the management team to make informed decision
https://www.vedantu.com/commerce/environmental-scanning

1.Environmental scanning allows an organization to have
current information about its external environment and
develop coping strategies.
2.It enables companies to quickly identify and exploit
opportunities before their competitors, counter threats before
they grow into bigger issues and also position the company to
meet the demand of the commercial landscape.
3.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.
Importance of Environmental Scanning
https://www.upcounsel.com/environmental-scanning-definition

How Often Should Organizations Perform
Environmental Scanning?
The number of environmental scans a company should perform depends on its needs. If an organization is active
in a highly dynamic and technology-driven environment, the company needs to consistently track trends and
developments in its industry and apply the results to develop improved strategies and processes. However,
organizations operating in less dynamic environments may only require environmental scans once in a while.
PepsiCo has been able to successfully use its knowledge of the changing environment in the food and beverage
industry towards healthier and functional foods to increase its bottom-line and boost its footprint in the
environment. The long-term strategy of the company's CEO is to make Pepsi one of the biggest brands in the
nutrition business. To achieve this, the company has acquired Naked, a big name in the functional food and
beverage subsector and is increasing R&D to create healthier food ingredients that will be more acceptable by an
increasing health conscious buying public and regulatory agencies. Not many companies have been able to adapt
successfully as PepsiCo.
At Procter & Gamble (P&G), for example, team members of various brand management teams work with key people
from the sales and market research departments to research and write a 'competitive activity report' once in every
three months for each product category to have in depth understanding about the product.

Types of Business environment
Macro-environment
the major uncontrollable,
external forces (economic,
demographic, technological,
natural, social and cultural,
legal and political) which
influence a firm's decision
making and have an impact
upon its performance.
Micro-environment
the factors or elements in a
firm's immediate environment
which affect its performance
and decision-making; these
elements include the firm's
suppliers, competitors,
marketing intermediaries,
customers, publics etc

https://studiousguy.com/difference-between-micro-and-macro-environment/

Micro Environmental Factors
Micro-environment has a direct impact
on routine business activities and
associated with business at a small-scale.
It consists of different forces that are
specific to a particular business and are
capable to influence daily operations and
performance of the business for a shorter
period.
https://www.mageplaza.com/blog/micro-and-macro-factors-affect-your-business.html
Elements of micro environment:

Customers: Customers being the king of any business are the final
receivers of products or services. They are central to any organization as
they contribute to generating revenue by attracting more customers. So
the marketing strategy of an organization is required to be focused on
existing customer retention and attracting potential customers by
satisfying their needs and preferences. After-sales service and more
value-added services also play a key role in increasing the customer
base.
For example, In today’s digital era most of the customers share their
positive or negative reviews about the product or services of a brand on
different social media channels. This influences the buying decision of
other customers as well because a lot of people are using social media
for different purposes. So satisfied and happy customer always increases
the brand value of a business and contributes to increasing customer
base and more loyal customers of the organization.

Suppliers: These provide resources to businesses like raw material, machinery
or equipment, etc. Their actions can create an impact on the organization’s
strategy as they provide necessary inputs for production. In the absence of
timely and adequate services, the production process may delay that result in
more production time and fewer sales.
For example, the marketing strategy of business gets affected in case of
increased raw material prices by suppliers. It will further increase the final
product prices. So it is very much required to maintain a healthy liaison with
suppliers to gain a competitive advantage over competitors.

Shareholders: Shareholders are those who invest their
money in a company and also own shares of it. By doing so,
they attain ownership in the company. Ultimately, they are
eligible for return on investment on their share. This makes
organizations liable to forward benefits to them from
profits. Organizations also pay dividends to keep the
interest of shareholders. So, to make the right balance
between the stakes of shareholders and own interest is an
essential aspect for the organization.
For example, shareholders may expect an increase in their
share in the organization’s profit that can affect an
organization in the future. So, better and strong
relationships with shareholders are required for success in
the long-run.

Competitors: Competitors or rivals of businesses can directly affect
business strategies. So, it is very much required to conduct a
competitive analysis of competitors to a competitive advantage that
includes the knowledge of their USP (Unique selling point) of
product and service offered. Also, a business can remain in a
competitive position by offering products or services better than
competitors.
For example, Wow! Momos brand’s USP lies in its diverse range of
momos of different flavors that give it a competitive advantage over
its competitors.

Employees: Organizations can achieve objectives through skilled employees
who are also experts in their areas. By hiring the right employees and
providing adequate training and development opportunities to them,
organizations can ensure success.
For example, Different departments of an organization like finance,
production, purchase, HR, etc. can be more productive if these have
competent staff having adequate skills and knowledge in their respective
domains. In case of incorporating new technology in an organization to
increase the efficiency of staff; training on how to use that technology is
required to be given to employees so that they can use the new technology
in a better and productive way.

Media: Media channels also play an important role in the way
organizations market themselves. Media has become the necessity of
any business for promotional activities of its products and services.
So, organizations are required to maintain a healthy relation and
status with the media people. The company’s negative image in the
media may result in heavy losses. That’s why organizations now
have separate PR (Public relations) department to handle media
related activities smoothly and positively. Also, organizations need
to find alternative ways to reach their audience or customers to
create a positive brand image among them.
For example, Different media channels are being used for this, i.e.
newspaper advertisements, television mediums, social media
platforms like Youtube, Facebook, Twitter, Instagram, Linkedin, etc.

Macro Environmental Factors
The macro-environment of an
organization is related to its general and
external environment that impacts the
working style, decision-making process,
strategy, and performance of the
business. The macro-environment is a
dynamic environment that has a
changing tendency. It has external
factors that an organization can’t
control.
https://marketing-insider.eu/macro-environment/

Demographic Environment
• Demographic factors such as population growth, age
composition, family size, family life cycle, income
level and religion have significant implications for
business.
• The demographic environment differs from country
to country, region to region and from time to time.
• Size of the population, growth rate of the population,
literacy level, distribution on the basis of religion and
age, workforce composition and their mobility are
aspects of demographic environment.

Socio-Cultural Environment
• Socio-Cultural environment consists of culture,
traditions, beliefs, values and lifestyles of people in a
society. These factors determine what the people will
buy and consume.
• Culture is the result of complex factors such as
religion, language, education and upbringing. Core
cultural values are usually deep rooted and cannot be
changed easily.
• A social class is identified by income, occupation,
lifestyle and class norms

Technological Environment
• Technology has far reaching impact on business in
terms of improved products, improved processing,
usage of new raw materials and new product
development. Some of the factors, which operate in
technological environment are:
• Sources of technology such as indigenous R&D,
foreign source, cost of transfer and collaboration of
technology, and cost of technology acquisition.
• Technology development, rate of change of
technology and stages of technology development.
• Impact of technologies on human beings, impact on
environment, man-machine interface.

Economic Environment
Industry and business depend heavily on economic environment.
The survival of business and industry mainly depends on the
purchasing power of the people and purchasing power is largely
a product of economic environment.
Some of the factors of economic environment are:
1) The economic structure adopted i.e. capitalistic, socialistic or
mixed economy
2) The economics policies like industrial policy, fiscal policy and
monetary policy.
3) The economic planning like five year plans, annual budgets
etc.
4) Infrastructure factors like banks, transportation methods and
financial institution and communication facilities.
5) Economic indices like money supply, disposable personal
income, savings rate, GNP, interest rate, exchange rate, tax rate,
inflation rate, growth rate of the economy, income distribution,
balance of payment position, wholesale price index etc.

Environmental factor
Environmental forces in the Macro Environment are
important since they are about the natural resources
which are needed as inputs by marketers or which are
affected by their marketing activities. Also,
environmental concerns have grown strongly in recent
years, which makes the ecological force a crucial factor
to consider. For instance, world, air and water pollution
are headlines every marketer should be aware of. In
other words, you should keep track of the trends in the
ecological environment.
Important trends in the ecological environment are the
growing shortage of raw materials and the care for
renewable resources. In addition, increased pollution,
but also increased intervention of government in
natural resource management is an issue

Political Environment
Political Environment is the state, government and its
institutions and legislations and the public and private
stakeholders who operate and interact with or influence the
system. The political atmosphere should be good and very
stable for a firm to operate successfully.
The government plays a crucial role as the planner, promoter
and regulator of economic activity. The political philosophy of
the ruling party at the Center and the political philosophy of
the State influence the government's decision related to
business.
If the policies of government are stable and better then
businesses would get impacted in a positive way and vice
versa. Changes in government often results in changes in
policy.

SWOT Analysis
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.
• Strength: After analysis of the internal environment of a company, we will be able
to identify the strengths that give the company a competitive advantage.
• Weakness: Study of the internal environment also point out the weaknesses of the
company. For the growth and stability of the company, these identified weaknesses
must be corrected without delay.
• Opportunity: Analysis of the external environment helps with the identification of
possible opportunities.
• Threats: Analysis of the external environment will also help in the identification of
any business threats from competitors or any other factors. The company can come
up with a strategy to diffuse such threats or minimize its impact.
https://www.managementstudyguide.com/swot-analysis.htm

• SWOT Analysis of Google
https://www.managementstudyguide.com/swot-analysis-of-
google.htm
• SWOT Analysis of Starbucks
starbucks.htm
• SWOT Analysis of Blackberry
blackberry.htm
• SWOT Analysis of Amazon
amazon.htm
• SWOT Analysis of IKEA
https://www.managementstudyguide.com/swot-analysis-of-ikea.htm
• SWOT Analysis of Nike
https://www.managementstudyguide.com/swot-analysis-of-nike.htm
• SWOT Analysis of Microsoft
microsoft.htm
• SWOT Analysis of China Mobile
Examples

Porter’s Five Forces Model
https://www.visual-paradigm.com/tutorials/five-forces-analysis-
tutorial/
Porter Five Forces provides tools for in-depth analysis of the
company’s industry, helping companies understand the
competitive environment, correctly grasp the five competitive
forces facing the company and formulate a strategy that is
beneficial to the company’s competitive position.
In general, the Potter Five Forces model has the following
characteristics:
• Competition-oriented
• Studying existing industries
• Pay attention to the profit potential of the industry

Risk of entry by potential competitors:
Potential competitors refer to the firms which are not currently
competing in the industry but have the potential to do so if given a
choice. Entry of new players increases the industry capacity, begins a
competition for market share and lowers the current costs. The threat of
entry by potential competitors is partially a function of extent of
barriers to entry. The various barriers to entry are-
• Economies of scale
• Brand loyalty
• Government Regulation
• Customer Switching Costs
• Absolute Cost Advantage
• Ease in distribution
• Strong Capital base

Rivalry among current competitors:
Rivalry refers to the competitive struggle for market share between
firms in an industry. Extreme rivalry among established firms poses a
strong threat to profitability. The strength of rivalry among established
firms within an industry is a function of following factors:
Extent of exit barriers
Amount of fixed cost
Competitive structure of industry
Presence of global customers
Absence of switching costs
Growth Rate of industry
Demand conditions

Bargaining Power of Buyers:
Buyers refer to the customers who finally consume the product or the
firms who distribute the industry’s product to the final consumers.
Bargaining power of buyers refer to the potential of buyers to bargain
down the prices charged by the firms in the industry or to increase the
firms cost in the industry by demanding better quality and service of
product. Strong buyers can extract profits out of an industry by
lowering the prices and increasing the costs. They purchase in large
quantities. They have full information about the product and the
market. They emphasize upon quality products. They pose credible
threat of backward integration. In this way, they are regarded as a
threat.

Bargaining Power of Suppliers:
Suppliers refer to the firms that provide inputs to the industry.
Bargaining power of the suppliers refer to the potential of the suppliers
to increase the prices of inputs( labour, raw materials, services, etc) or
the costs of industry in other ways. Strong suppliers can extract profits
out of an industry by increasing costs of firms in the industry. Suppliers
products have a few substitutes. Strong suppliers’ products are unique.
They have high switching cost. Their product is an important input to
buyer’s product. They pose credible threat of forward integration.
Buyers are not significant to strong suppliers. In this way, they are
regarded as a threat.

Threat of Substitute products:
Substitute products refer to the products having
ability of satisfying customers needs effectively.
Substitutes pose a ceiling (upper limit) on the
potential returns of an industry by putting a
setting a limit on the price that firms can charge
for their product in an industry. Lesser the
number of close substitutes a product has,
greater is the opportunity for the firms in
industry to raise their product prices and earn
greater profits (other things being equal).

• Porter’s Five Forces Analysis of Virgin Atlantic
https://www.managementstudyguide.com/porters-
five-forces-analysis-of-virgin-atlantic.htm
• Porters Five Forces Analysis of China Mobile
five-forces-analysis-of-china-mobile.htm
• Porter’s Five Forces Analysis of the Airlines
Industry in the United States
five-forces-analysis-of-airlines-industry-in-united-
states.htm
• Porter’s Five Forces Analysis of Samsung
five-forces-analysis-of-samsung.htm
Examples

VRIO Analysis
VRIO framework is the tool used to analyze firm’s internal resources and capabilities to find out if they can be
a source of sustained competitive advantage.
Valuable
A resource is deemed as Valuable if it adds value to the company – either allowing it to take advantage of
opportunities or mitigate the threats. Within a , Valuable resources may be mentioned under Strengths and
relate to the Opportunities and Threats. It could be a particular feature that differentiates you, a department
that performs well.
Rarity
A resource is judged on the rarity, which is often the easiest and least subjective part of VRIO. It can come
down to simply if this resource is easily acquired by competitors, by yourself, or if it’s easy to replace
completely.
Inimitable
If a resource can be imitated comes down to the how easily an organisation can substitute or copy out a
resource. For example, you might be able to copy a particular feature in a product, or a particular marketing
approach, but it’d be difficult to copy a brand or historic database of customer trends.
Organized
This area is around organizing the company to maximise the potential from the resource – is it generating the

VRIO Analysis
VRIO framework is the tool used to analyze firm’s internal
resources and capabilities to find out if they can be a source of
sustained competitive advantage.
Each resource of the business can be mapped on those four
categories by answering Yes or No. Depending on these
answers, the result is a judgement of each resource as:
•Competitive Disadvantage
•Competitive Parity
•Temporary Competitive Advantage
•Unused Competitive Advantage
•Sustainable Competitive Advantage

Google’s VRIO framework from the HR perspective
Value: Use human capital management data to hire and retain innovative, productive employees. These employees
consistently create some of the most popular consumer products and services in the world.
Rarity: No other companies are using data-based employee management so extensively.
Imitability: Data-based human capital management is both costly and difficult to imitate, at least for the near future.
Companies have to build the software and invest in training their on the new technology and strategy.
Organized: Google is organized to capture value from this capability. The IT department has the skills to collect and maintain
the data, while HR and team leaders are trained on how to use the data to hire, promote, manage, and improve performance
of employees.

Google’s ability to manage their people effectively is a source
of both differentiation and cost advantages. Unlike other
companies, which rely on trust and relationship in people
management, Google uses data about its employees to
manage them. This capability allows making correct (data
based) decisions about which people to hire and the best
way to use their skills. As a result, Google is able to hire
innovative employees that are also very productive ($1
million in revenue per employee). Besides being valuable, it
is also a rare capability because no other company uses data
based employee management so extensively. Is it costly to
imitate? It is costly to imitate, at least, in the near future.
First, companies should build the highly sophisticated
software, which is both costly and hard to do. Second, HR
managers should be trained to make data based decisions
and forget their old management methods. Is Google
organized to capture value from this capability? Certainly, it
has trained HR managers that know how to use the data and
manage people accordingly. It also has the needed IT skills to
collect and manage the data about its employees.
A real-life VRIO framework example is Google.

Resource-based View (RBV)
The resource-based view or RBV is a strategy formulated by
organizations to understand the elements of the business for a
long-term competitive advantage. This theory emerged during
the 1980s-1990s from the major works of B Wernerfelt,
Hamel, Prahalad, and others.
They stated that- ‘to have an edge over the competition, the
organization should look into the potential of the company’s
internal resource pool rather than seeking the external
competitive environment’.
The RBV model explains that it is significant to accept and
fulfill external or new opportunities using existing resources
innovatively by acquiring new niche skills. As a result, the
internal analysis of resources should be empowered to achieve
higher organization prowess in the RBV framework.

Resource-based View (RBV)
There are two types of assets in the RBV model: tangible and intangible assets.
Tangible Assets
The tangible assets are the physical resources of the firm that are quantifiable. It includes products, machinery,
equipment, capital, infrastructure, etc. They can be easily acquired by competitors in identical assets and offer a
less competitive advantage in the long run.
Intangible Assets
Intangible assets are resources that are owned by respective organizations and which do not have a physical
presence. It includes brand presence, intellectual property, goodwill, trademarks, etc. Unlike tangible assets,
intangible assets are built over a long time and cannot be replicated by competitors.
Invariably, intangible resources remain within a business and are the primary source of sustainable competitive
advantage.
https://www.saviom.com/blog/using-the-resource-based-view-strategy-for-competitive-advantage/

Value chain analysis
Value chain represents the internal activities a firm engages in when
transforming inputs into outputs.
Value chain analysis is a way to visually analyze a company's business
activities to see how the company can create a competitive advantage
for itself.
Value chain analysis helps a company understands how it adds value
to something and subsequently how it can sell its product or service
for more than the cost of adding the value, thereby generating a profit
margin.
Value chain analysis (VCA) is a process where a firm identifies its
primary and support activities that add value to its final product and
then analyze these activities to reduce costs or increase differentiation.

Primary activities
The first are primary activities which include the five main activities. All five activities are directly involved in the
production and selling of the actual product. They cover the physical creation of the product, its sales, transfer to the
buyer as well as after sale assistance. The five primary activities are inbound logistics, operations, outbound
logistics, marketing & sales and service. Even though the importance of each category may vary from industry to industry,
all of these activities will be present to some degree in each organization and play at least some role in competitive
advantage.
https://www.business-to-you.com/value-chain/

Support Activities
The second category is support activities. They go across the primary activities and aim to coordinate and support
their functions as best as possible with each other by providing purchased inputs, technology, human resources
and various firm wide managing functions. The support activities can therefore be divided
into procurement, technology development (R&D), human resource management and firm infrastructure. The
dotted lines reflect the fact that procurement, technology development and human resource management can be
associated with specific primary activities as well as support the entire value chain.
https://www.business-to-you.com/value-chain/

TOOLS OF STRATEGIC ANALYSIS

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