This study material helps to students who are studying the Strategic Management

1. Basavaraj M Naik Teaching Assistant,
Rani Channamma University, Belagavi.
Department of Studies in Commerce
PG Centre, Jamkhandi.
Mail: basunaik221@gmail.com

2. Unit 2 Environmental Analysis &
Diagnosis:

3. Environmental Analysis
• Environmental analysis: it is the use of
analytical chemistry and other techniques to
study the environment. The purpose of this is
commonly to monitor and study levels of
pollutants in the atmosphere, rivers, & other
specific settings.
• Environmental Diagnosis: The identification of
the nature of an illness or other problem by
examination of the symptoms.

4. Concept Of Business Environment:
• Business Environment refers to the factors and forces that affects or
influences over the functions or activities of business.
• FEATURES OF BUSINESS ENVIRONMENT:
• It may be internal or external environment
• It is complex in nature
• It is dynamic in nature
• It differs from place to place and country to country
• It decides the fate of the organisation
• It is source for business strategies
• Environment needs adoptability
• Environment includes both opportunities & threads
• Environmental imapcts or uncertain
• Environmental impact in various forms.

5. Concept of Business Environment:
• Mainly business environment is classified into
two categories they are:
• Internal Business Environment
• External Business Environment.

6. Internal Business Environment
includes:
• Vision, Mission of the organization
• Objectives, goals of the organization
• Value system of the organization
• Nature of the organization
• Physical assets and equipments
• Technological Capabilities
• Marketing resources and facilities
• Financial strength of the organization
• Management perception & behavior

7. • Company perception & behavior.
• Company procedures, norms and philosophy.
• Board of Directors & Employees
• Management values
• Stakeholders Goals
• Resource of the organisation
• Information system
• Working style of the organisation
• Structure of the organisation
• Strategies of the org.

8. • All these are the components of internal environment and these are controllable
by the management, and also some of them are semi controllable.
• External Business Environment:
• A) Political Environment & Legal Environment
• 1) Different political parties and philosophies
• 2)Regulations & Deregulations
• 3)political conditions of the country
• 4)consumer related regulations
• 5)Tax related regulations
• 6)Budegetory controls
• 7)Policies relating to exports & imports
• 8)Accounting & Auditing systems
• 9) Levels of subsidies & incentives
• 10) Availability of concessional finance
• 11) Industrial finance, plants, sheds & markets

9. B) Economic Environment:
• Economic resources of the country
• Economic conditions of the people
• Economic policies of the country
• Per capita income of the citizen
• Status of agriculture resources.
• Infrastructure development of the country
• Financial institutions
• Industrial policies of the country
• Investment policies of the country
• GDP of the country
• Other economic conditions and movements

10. 3)Sociological & cultural
environment
• Values & beliefs
• Customs traditions
• Tastes & patterns
• Life styles
• Family structures
• Religious beliefs
• Gender preferences
• Geographical heritages
• Superstitions (unscientific beliefs).
• Behaviors of stakeholders
• Celebrations of various festivals etc.

11. 4) Technological Environment :
• Technology developments
• New technologies
• Sources & technologies 1) internal 2) external
• Cost of technology
• Impact of technology on manpower, products,
and markets, production etc.
• Some of the technologies will be prohibited
• Some environmental friendly technologies will be
entertained.
• Investment on R&D etc.

12. Environment Scanning & Appraisal:
• Environmental Scanning is the process of
gathering information about the events and their
relationships within an organisations internal and
external environments. The basic purpose of
environmental scanning is to help the
management to determine the future directions
of an organisation.
• Environmental appraisal: Its the process of
identifying the opportunities & threats facing an
organisation. It measures the impact of future
environmental changes to the organisation.

13. Organisational Appraisal
• OA is the process of monitoring an organisations internal
environment to identify strength and weaknesses that may
influence the firms ability to achieve the goals.
• OA Includes:
• 1) identifying strength & weaknesses
• 2)Strategic cost analysis
• 3) analysis of organisational structure
• 4) right person in right place.
• 5)Effective methods of motivation
• 6)Effective leadership
• 7) Qualitative & quantitative analysis
• 8) setting up of industry standards & Bench marking.

14. Strategic Advantages& diagnosis:
• Strategic advantage analysis looks at positive
points that differentiate our business from
competitors.
• This may be brand goodwill, or reputation
geographical location, intellectual property and
so on.
• Strategic advantage analysis would look to what
unique strengths the company has and whether
these strength are likely to sustainable for long
period or not.

15. • For example: ownership of more sophisticated
equipment than competitors; is not a strategic
advantage, because competitors can buy it
tomorrow itself.
• So using all the available unique capabilities of
an organisation is strategic advantages
diagnosis.

16. Concept of competitive advantage
• A condition or circumstance that puts a company
in a favourable or superior position.
• A superiority gained by an organisation when it
can provide the same value as its competitors but
at lower price, or can change higher prices by
providing greater value through differentiation.
• Competitive advantage refers to the organisation
have an edge over the competitors and getting
more customers & earnings.

17. Key Terms:
• Benchmarking is the practice of comparing business processes and performance
metrics to industry bests and best practices from other companies.
• The main objectives of the Indian Factories Act, 1948are to regulate the working
conditions in factories, to regulate health, safety welfare, and annual leave and enact
special provision in respect of young persons, women and children who work in
the factories.
• The objective of the Industrial Disputes Act is to secure industrial peace and harmony
by providing mechanism and procedure for the investigation and settlement
of industrial disputes by conciliation, arbitration and adjudication which is provided
under the statute.
• The term “strategic advantages” refers to those marketplace benefits that Experiment a
decisive influence on an organization's likelihood of future success.
These advantages frequently are sources of an organization's current and
future competitive success relative to other providers of similar products.
•

18. • Porter's Five Forces Framework is a tool for
analyzing competition of a business. It draws
from industrial organization (IO)
economics to derive five forces that
determine the competitive intensity and,
therefore, the attractiveness (or lack of it) of
an industry in terms of its profitability. An
"unattractive" industry is one in which the
effect of these five forces reduces overall
profitability.

19. Analysis of Michael Porter’s five force
model:
• Porter five forces framework is a tool for analyzing
competition of business. He identified five factors that are
influence on business decisions. it provides structural
analysis of an industry. He proposed that the state or
position of competition in an industry is depends on five
basic factors.
• Porter’s five forces model is an analysis tool that uses five
industry forces to determine the intensity of competition in
an industry and its profitability level.
• Five forces model was created by M. Porter in 1979 to
understand how five key competitive forces are affecting an
industry. The five forces identified are:

21. • 1) Threat of new entrants.
• This force determines how easy (or not) it is to enter a particular industry.
If an industry is profitable and there are few barriers to enter, rivalry soon
intensifies. When more organizations compete for the same market share,
profits start to fall. It is essential for existing organizations to create high
barriers to enter to deter new entrants. Threat of new entrants is high
when:
• Low amount of capital is required to enter a market;
• Existing firms do not possess patents, trademarks or do not have
established brand reputation;
• There is no government regulation;
• Customer switching costs are low (it doesn’t cost a lot of money for a firm
to switch to other industries);
• There is low customer loyalty;
• Products are nearly identical;
• Economies of scale can be easily achieved.

22. • 2) Bargaining power of suppliers.
• Strong bargaining power allows suppliers to sell higher
priced or low quality raw materials to their buyers. This
directly affects the buying firms’ profits because it has
to pay more for materials. Suppliers have strong
bargaining power when:
• There are few suppliers but many buyers;
• Suppliers are large and threaten to forward integrate;
• Few substitute raw materials exist;
• Suppliers hold scarce resources;
• Cost of switching raw materials is especially high.

23. • Bargaining power of buyers. Buyers have the power to demand lower
price or higher product quality from industry producers when their
bargaining power is strong. Lower price means lower revenues for the
producer, while higher quality products usually raise production costs.
Both scenarios result in lower profits for producers. Buyers exert strong
bargaining power when:
• Buying in large quantities or control many access points to the final
customer;
• Only few buyers exist;
• Switching costs to other supplier are low;
• They threaten to backward integrate;
• There are many substitutes;
• Buyers are price sensitive.
•

24. • Threat of substitutes. This force is especially
threatening when buyers can easily find
substitute products with attractive prices or
better quality and when buyers can switch from
one product or service to another with little cost.
For example, to switch from coffee to tea doesn’t
cost anything, unlike switching from car to
bicycle.
•

25. • Rivalry among existing competitors. This force is
the major determinant on how competitive and
profitable an industry is. In competitive industry,
firms have to compete aggressively for a market
share, which results in low profits. Rivalry among
competitors is intense when:
• There are many competitors;
• Exit barriers are high;
• Industry of growth is slow or negative;
• Products are not differentiated and can be easily
substituted;
• Competitors are of equal size;
• Low customer loyalty.

26. SWOT ANALYSIS:
SWOT analysis refers to the study of internal strength and
weakness and external opportunities and threats of an
organization.
Strength: it is an inherent capacity which an organization can
use to gain strategic advantage. Ex: Reputation, Brand,
resources, people, experiences etc.
1 what advantage does your organization have?
2) what do you do better than any one else?
3) what unique or lowest cost resources can you drawn
upon that other can not?
4) what quality is prefered by your customer in your
product?
5) what are your total uniquesness?

27. Weakness:
• It is an inherent limitation or constraint which
creates strategic disadvantages.
• Ex: Financial deadliness, low moral, conflicts,
assets problem.
• What would you improve?
• What should be avoid?
• Why customers are refusing your product?
• Are your competitors doing anything better than
you ?

28. Opportunities
It is the favorable and profitable
conditions from the external environment to an
organization.
• What would opportunities can you spot?
• What interesting trends are going on?
• Useful changes may going on like;
1)changes in technology
2) changes in govt policy
3)changes in social patterns, population, life
style etc.

29. Threats:
• It is an unfavorable and uncontrollable condition
which are reasons to unexpected risks &
damages.
What obstacles do you face?
what are your competitors ?
is changing technology threatening?
cash flow problems
could any of your weakness is seriously
threatening to your business?

30. ETOP Analysis
( Environment Threats & Opportunities Profile)
It is a statement which describes about
environmental factors & it also reveals & deals
with opportunities & threats of an
organization.

31. Steps involved in ETOP Analysis
1) Identification of relevant environmental
factors
a) internal b) external.
2) Assessing the relevant environmental factors
3) Assessing the impact of factors
a) opportunities b) threats
4) Combined importance & impact factors.
5)Remedies or solutions.

32. VALUE CHAIN ANALYSIS
• VALUE ANALYSIS: it’s a strategy tool used to analyze
internal firm activities. Its goal is to recognize, which
activities are the most valuable to the firm & which could
be improve to provide competitive advantages.
• value chain represents the internal inputs into outputs.
Firm engages in when transforming inputs into output.
• Analyze reveals the information where a firms competitive
advantages or disadvantages are:
is displays total value and value activity.
a) primary activities
b) supporting activities

33. What are all the primary activities?
A) Inbound Logistic:
1) receiving materials:
2) material handling ( LIFO,FIFO)
3) Transportation
4) Inventory control etc
B) Outbound Logistic:
1) order process
2) Physical distribution
3) warehousing
C) Operational Activities:
1) assemble all the requirement
2) installation of Machinery and its proper utilization
3)Fabrication
4) Maintaining

34. D) Marketing Activities:
1) pricing
2) Advertisement
3) Market Segmentation
4) Promotion
5) Target
6) Distribution
E) Services:
1) Installation
2) Repairs of other maintenance.

35. b) Supporting Activities:
• Infrastructure
• Accounting
• Finance
• Planning
• General Management
• Legal support
• HRM
• Recruitment, Selection
• Training and Development
• Compensation
• Technological Development
• Product Design etc.

36. Core & Distinctive Competencies:
• A company ‘competence’ is the product of
organizational learning & experience and
represents real proficiency in performing an
internal activity.
• A core competency concept was given by C.K.
Prahalad
• is a well performed internal activity that is
central to company’s competitiveness and
Profitability.

37. Core competency is a systematic combination of
multiple resources & skills that distinguish a
firm in the market place. Therefore, these are
the foundation of companies competitiveness.
• Distinctive competence is a competitively
valuable activity that a company performs
better than its rivals.

38. • Core and distinctive competency refers to
collective learning in the organization
especially coordination and diversified
production skills and integrated multiple
strength of technology.
• It is effective way to aid to the organization in
the tasks of:

39. • Restructuring ( modification)
• Man power ( work force)
• Technology
• Organizational Structure

40. Role & Significance of Core &
Distinctive Competency:
• Ensures continuous up gradation of
organisational activities
• It helps to compete with the competitors
• It facilitates to attain the requirements of
ultimate users
• It converts weakness into strengths and
threats into opportunities.
• It helps to stay for long peroid in the particular
line of business on profitable basis.

41. Resources and Capabilities: