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ENVIRONMENTAL ANALYSIS
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ENVIRONMENTAL ANALYSIS
Chapter 3
THE CONCEPT OF ORGANIZATIONAL ENVIRONMENT
Business and managers are now faced with highly dynamic and ever more complex operating environments- Robert Paton
Environment of an organization consists of its surroundings-anything that affects its operations, favorably or unfavorably.
Managers can not make appropriate and sound strategy simply on the basis of their guesses and instincts.
UNDERSTANDING ENVIRONMENTAL INFLUENCES
Business managers must understand the various facets of the impacts of environment.
Managers need to recognize that external environment has many aspects that can have significant impact on the operations of a firm.
Managers need to undertake analysis environment on a regular basis.
BENEFITS OF UNDERSTANDING ENVIRONMENTAL INFLUENCES
Knowledge of environment helps managers identify the direction to which they should proceed.
Without an understanding of environment, managers are like a bicycle without a handlebar.
Managers can isolate those factors, especially in the external environment, which are of specific interest to the organization.
BENEFITS OF UNDERSTANDING ENVIRONMENTAL INFLUENCES
Managers can take preparation to deal with predicted crisis in any of the factors of the environment.
Managers can develop crisis plan. Analysis of the environment helps to achieve
organization effectiveness.
TYPES OF ORGANIZATIONAL ENVIRONMENT
Organizational environment can be classified into two broad categories:
External environmentInternal environment
ANALYSIS OF EXTERNAL ENVIRONMENT: MEANING &
NATURE
External environment consists of an organization’s external factors that affect its business indirectly.
The organization has no or little control over these factors.
The external environmental factors reside outside the organization, which lead to opportunities or threats.
TYPES OF EXTERNAL ENVIRONMENT
THE GENERAL ENVIRONMENT
The general environment includes the distant factors in the external environment that are general or common in nature.
Its impact on the operations of the firm, its competitors and customers make its analysis imperative.
PESTLED MODEL
A list of the general environmental factors is given below:
Factor-wise PESTLED Environment-wise PESTLED
Political factors Political environment
Economic factors Economic environment
Socio-cultural factors Socio-cultural environment
Technological factors Technological environment
Legal factors Legal environment
Environmental (natural) factors
Environment (natural)
Demographic factors Demographic environment
POLITICAL ENVIRONMENT
The government of a country intervenes in the national economy through setting policies/rules for business.
We see many policies like- import policy, export policy, taxation policy, investment policy, drug policy, competition policy, consumer protection policy etc.
Political stability of a country affects the operations of a business substantially.
POLITICAL ENVIRONMENT
Political instability in Bangladesh, srilanka, Nepal, Pakistan Afghanistan, Argentina can affect the operations of the business.
Government agencies and pressure groups can exercise power to influence the operation of business.
POLITICAL ENVIRONMENT
Government agencies include-Different ministriesOffice of the controller of imports and exports
Board of investmentNational Board of Revenue etc
POLITICAL ENVIRONMENT
Pressures groups include- CAB(Consumers Association of
Bangladesh) Various chambers of commerce and
industry Employers association etc.
ECONOMIC ENVIRONMENT
A country’s economic well-being affects market attractiveness.
The economy of a country can be in a situation of boom or recession or depression or recovery or it may be in a state of fluctuation.
Purchasing power depends on-IncomePricesSavingsDebtAvailability of credit
SOCIO-CULTURAL ENVIRONMENT
Socio-cultural forces include-CultureLifestyle changesSocial mobilityAttitude toward technologyPeople’s values, opinions and beliefs
SOCIO-CULTURAL ENVIRONMENT
Socio-cultural factors differ across countries in terms of- Increasing life span of population Trend toward fewer children Movement of population from rural areas
to urban areas Increasing rate of female education Entry of women in the workforce etc.
TECHNOLOGICAL ENVIRONMENT
Technological dimensions include- Information technology The internet Biotechnology Global transfer of technology etc.
TECHNOLOGICAL ENVIRONMENT
None can deny the fact that the pace of changes in these technological dimensions is extremely fast.
Technology has major impacts on product development, manufacturing efficiencies and Potential competition
The effects of technological changes occur primarily through new products, processes and materials.
LEGAL ENVIRONMENT
The legal environment consists of laws and regularity framework in a country. Labor code Factories act Industrial Relations ordinance The Contract Act The Company Law
NATURAL ENVIRONMENT
The most pertinent issues in the natural environment that strategy makers should consider include- Availability of raw materials and other
inputs Changes in the cost of energy Levels of environmental pollution The changing role of government in
environmental protection
DEMOGRAPHIC ENVIRONMENT
The demographic environment is concerned with a country’s population. It is related to-
Population's sizeAge structureGeographic distributionEthnic mixIncome distributionEducational levelHousehold patternsInter-regional movements
HOW DO ORGANIZATIONS RESPOND TO EXTERNAL
ENVIRONMENT?
LobbyingInfluencing customersInfluencing suppliersBoundary spanningEnvironmental scanningStrategic responsesOrganizational combinations
INTERNAL ENVIRONMENT: MEANING AND ELEMENTS
The factors of internal environment are-Resources of the organizationOwners/stockholdersBoard of DirectorsOrganization's cultureOrganization’s image/goodwill
AREAS USUALLY COVERED BY INTERNAL ANALYSIS
The following major specific issues need to be covered in the analysis:
Financial positionProduct and service optionProduct and service qualityMarketing capabilityResearch and development capabilityOrganization structureHuman resourcesConditions of facilities and equipmentPast and present objectives and strategies
etc.
FRAMEWORK FOR INTERNAL ANALYSIS
Strengths Weaknesses
A distinctive competences? No clear vision?
Adequate financial resources? Poor strategic direction?
Excellent competitive skills? Obsolete machinery?
Positive image of the company?
Lack of managerial talent?
Access to economies of scale? Lack of competencies?
Proprietary technology? Poor track record in strategy implementation?
Cost advantages? Falling behind R & D?
Competitive advantage? Narrow product line?
Product innovation capabilities?
Weak market image?
Good leadership and management?
Competitive disadvantages?
Achieved market leadership? Poor marketing skills?
CONDUCTING INTERNAL ANALYSIS: WHO TO DO IT?
Usually the following practices are prevalent in different organizations:
Involvement of planning departmentUse of outside consultantsForming of team