External Environment Analysis

EXTERNAL ENVIRONMENT
ANALYSIS
SUBMITTED BY : DEEKSHA SHASTRI
MBA 4 TH SEMESTER
ROLL NO. 01035103918
ENVIRONMENT ANALYSIS
 Introduction
 Need & Importance of environment analysis
 Process of Environmental analysis
 Limitation of environment analysis
 Types of environment
ENVIRONMENT ANALYSIS
 Environment analysis is describe as the process which examines all of the components ,
internal or external, that has an influence on the performance of the organization.
 The internal components indicate the strengths and weakness of the business entity
whereas the external components represent the opportunities and threats outside the
organization.
 Finally, the environmental analysis is awareness of the organizations to the success.

NEED & IMPORTANCE OF ENVIRONMENT
ANALYSIS
 They help the managers to achieve the organizational objective effectively than other
organizations.
 An enterprise cannot achieve its objectives unless it adapts itself to environmental

change.
 Systematic analysis enables the managers to predict the future and to have enough
time for other activities. This minimizes the time pressure of the managers.
PROCESS OF ENVIRONMENT ANALYSIS
 Identifying environment factor: first of all, the factors which influence the business
entity are to be identified, to improve its Position in the Market. the identification is
performed at various levels i.e. company level, market level and global level.
 Scanning and selecting relevant and key factors: scanning implies the process of
critically examining the factor that highly influence the business ,as all the factors
identified in the previous step effects the entity with the same intensity.
 Defining variables for analysis: in this step, a careful analysis of all environmental
factor is made to determine their effect on different business levels and on the
business as a whole. Different tools available for the analysis include benchmarking,
Delphi technique and scenario building.
 Using different methods ,techniques and tools: some of the methods are scenario
building, benchmarking and network methods. Some of the Techniques are
brainstorming, survey, historical enquiry. some of the analytical tools are made mean,
median, mode, frequency.
Contd……..
 Forecasting environmental factor : after identification, examination and analysis,

lastly the impact of the variables is to be forecasted.
 Designing profiles: internal areas are recorded in strategic advantage profile (SAP) ,
and external areas are recorded in environmental threat and opportunity profile
(ETOP). These two profiles are designed and combined in to one.
 Strategic position and reporting writing : after analysis of business environment a

strategist knows the actual situation and can make some future forecasting based on
the environmental analysis.
LIMITATIONS OF ENVIRONMENTAL ANALYSIS
 Lack of forewarning of unforeseen events: it does not predict the future. It does not
eliminate uncertainty for the organization also.
 No assurance as to organization effectiveness: it does not ensure organizational

effectiveness. It acts only as inputs in strategy development and testing.
 Not fully reliable: normally, people too much reliable on the information collected
through environmental scanning. But in practice ,it is not so , when there is
overloading of information ,one is likely to get confused.
 Absence of strategic approach: success of any organization lies in adventure and

strategic risk-taking.so this analysis should be strategically done.
TYPES OF ENVIRONMENT
EXTERNAL ENVIRONMENT
 Factors outside the organization which provide opportunity or pose threats to the
organization .
 Factors that can impact the ability of a business or investment to achieve its strategic
goals and objective.
 Uncontrollable factors
 Classified into three categories
• General environment
• Industry environment
• Competitive environment
GENERAL ENVIRONMENT
Influence the industry and firms inside the industry.
Firms cannot directly control these but collect information and formulate strategies.
 Six segments
• Demographic element
• Economic element
• Political/legal element
• Socio-cultural element
• Technological element
• Global element
ECONOMIC ELEMENT
The economic environment constitutes of economic condition, economic policies, and the
economic system that is important to external factors of business.
Economic environment refer to the nature and direction of the economy within which
business organization are to operate.
• Inflation rate
• Interest rates
• Trade deficit or surplus
• Personal savings rate
• Business savings rates
• Gross domestic product
• Budget deficit or surplus
POLITICAL AND LEGAL ELEMENT
Refer to the political, government and legal environment. It has close relationship with the
economic system and economic policy.
This refer to set of laws , regulations , which influence the business Organizations and their
operations.
• Laws
• Taxation
• Monopolies
• Political pluralism
• Political philosophy
• Judicial system
DEMOGRAPHIC ELEMENT
Demographic refer to study of the population.
Demographic factors are as below:
• Size of population
• Growth rate
• Family size
• Educational level
• Age composition
• Sex composition
TECHNOLOGICAL ELEMENT
Technological forces or factors could be said to be the most pervasive in the environment .
Technology refer to the application of knowledge base which science provides. It is a
well established fact that information and communication technology has
revolutionized business operation.
• Product innovation
• R & D spending
• Quick diffusion of technology
• Application of knowledge
• Focus of private and government-supported R & D expenditure
• New communication technologies
• Product obsolescence
GLOBAL ELEMENTS
The global environment includes geographic and ecological factors that influence the
business operations. These factors include the availability of natural resources, weather
and climatic condition, location aspect, topographical factors, etc.
• Forex
• Treaties
• WTO
• UN
• Trade barriers
SOCIO-CULTURAL ELEMENT
Socio-cultural environment is an important factor that should be analysed while

formulating company business strategies. these include people’s attitude to work and
wealth, ethical issues , role of family, marriage , religion and education and the social
responsibilities of business.
• Women in work
• Work force diversity
• Cultural values
• Attitude towards life and quality of life and products
• Education
• Materialist aspects
INDUSTRY ENVIRONMENT
Influence the firm directly and its competitive action :
• Threat of new entrants
• Bargaining power of suppliers
• Bargaining power of buyers
• The threat of product substitute
• Intensity of rivalry
These 5 forces determine industry profit potential
Position your firm to influence these and defend your firm from influence of these
Competitive environment
 Competitive analysis- in similar industries- jet and king fisher

 What drives the competitor-as shown by its future objectives
 What competitor is doing and can do –as revealed by its current strategies
 What competitor believes about the industry –as shown by its assumption
 What the competitors capabilities areas shown by its strengths and weakness
ANALYSING THE EXTERNAL
ENVIRONMENT
Firm study the external environment in order to:
• Identify opportunities and threats in the marketplace.
• We will centre on this when formulating strategies, as well as the internal strengths
and weakness.
• Avoid surprise
• Respond appropriately to competitors moves.
• A major challenge is to gather accurate market intelligence in a timely fashion, and
transform it into usable knowledge to gain a competitive advantage over other firms.
Thank you

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EXTERNAL ENVIRONMENT

 Finally, the environmental analysis is awareness of the organizations to the success.

 An enterprise cannot achieve its objectives unless it adapts itself to environmental

 Forecasting environmental factor : after identification, examination and analysis,

 Strategic position and reporting writing : after analysis of business environment a

 No assurance as to organization effectiveness: it does not ensure organizational

 Absence of strategic approach: success of any organization lies in adventure and

Socio-cultural environment is an important factor that should be analysed while

 Competitive analysis- in similar industries- jet and king fisher

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