School of Business

Course Code: D1UA402T Course Name: Strategic Management

Module 2:Environment Analysis

Name of the Faculty: Dr. M C Rashid Program Name: BBA

 School of Business
Course Code: D1UA402T Course Name: Strategic Management

Topics to be Covered
• Introduction
• External environment analysis
• PESTEL Analysis
• McKinsey's 7s Framework
• Porter’s Five Forces Model
• Internal environment analysis
• The Resource-Based Model of Above-Average Returns
• VRIO Framework
• Value Chain Framework
• Competitive Rivalry and Competitive Dynamics
Name of the Faculty: M C Rashid Program Name: BBA
 School of Business
Course Code: D1UA402T Course Name: Strategic Management

Introduction

• Strategic analysis is basically concerned with the relationship between a

business and its environment.
• The environment in which business operates has a greater influence on
their successes or failures.
• There is a strong linkage between the changing environment, the
strategic response of the business to such changes and the performance.
• Identifying Opportunities and Threats
• Competitive Advantage
• Proactive Planning and Risk Management
• Informed Decision Making

Name of the Faculty: M C Rashid Program Name: BBA

 School of Business
Course Code: D1UA402T Course Name: Strategic Management

PESTEL FRAMEWORK

• Political Factors
• Economical Factors
• Socio-cultural factors
• Technological factors
• Legal Factors

Name of the Faculty: M C Rashid Program Name: BBA

 School of Business
Course Code: D1UA402T Course Name: Strategic Management

Political Factors
• Government stability
• Political values and beliefs shaping policies
• Regulations towards trade and global business
• Taxation policies
• Priorities ill social sector

Name of the Faculty: Dr. M C Rashid Program Name: BBA

 School of Business
Course Code: D1UA402T Course Name: Strategic Management

Economic Factors
• GDP/ GNP trends
• Interest rates/savings rate
• Money supply
• Inflation rate, 4.91%
• Unemployment, 7.9%
• Disposable income
• Business cycles
• Trade deficit/surplus

Name of the Faculty: Dr. M C Rashid Program Name: BBA

 School of Business
Course Code: D1UA402T Course Name: Strategic Management

Socio-Cultural Factors
• Family Structure and Values
• Religion and Festivals
• Social Stratification and Aspiration
• Language and Communication
• Evolving Gender Roles
• Rising Middle Class and Disposable Income
• Social Hierarchy and Caste System

Name of the Faculty: Dr. M C Rashid Program Name: BBA

 School of Business
Course Code: D1UA402T Course Name: Strategic Management

Technological Factors
• Bio Technology
• Process innovation
• Digital revolution
• Government spending on research
• Government and industry focus on technological effort
• New discoveries/development
• Speed of technology transfer
• Rates of obsolescence

Name of the Faculty: Dr. M C Rashid Program Name: BBA

Apple Watch Series 9
• Temperature sensing for insights into women's health, Car Crash
Detection and sleep stages to understand your sleep.
• Fitness tracking
• Family Setup
• Tell level of Oxygen in blood
• ECG
• Apple Pay
• Faster charging
• Large display
 School of Business
Course Code: D1UA402T Course Name: Strategic Management

Legal Factors
The Companies Act
Consumer Protection Act
Competition Law
Intellectual Property (IP) Laws
Environmental Regulations
Labor Laws

Name of the Faculty: Dr. M C Rashid Program Name: BBA

The Physical Environment
• The physical environment segment refers to potential and actual
changes in the physical (natural) environment and business practices
that are intended to positively respond to and deal with those
changes.
• Many now argue that climate change is a trend that organizations and
nations should carefully examine in efforts to predict any potential
effects on societies globally.
• Energy consumption is another part of the physical environment that
concerns both organizations and nations.
Operating Environment
• The operating environment includes factors in the immediate
competitive situation regarding the procurement of resources,
profitability for the company from their products and services etc.
• The operating environment consists of factors like competitive
position, customer profile, reputation among suppliers and creditors,
and an accessible labor market.
Competitive Position

• By assessing its competitor's position in the market, a firm can

improve or formulate strategies to optimize its environmental
opportunities.
• The firm must develop competitor profiles to forecast their short-
term as well as their long-term growth and profit potential.
Customer Profile
• In the present competitive world customers are considered to be
kings, because they are the ones who generate profits for the
manufacturer.
• Make them loyal towards firms
• Monitor their customer's psychology and cater to their requirements
• The construction of the customer profile includes information
pertaining to geographic, demographic, psychographic and buyer
behavior.
Suppliers and Creditors
• A business firm should maintain dependable relationships with its
suppliers and creditors for its long-term survival.
• A firm relies on its suppliers for financial support, services, materials
and equipment. In addition, it should request its suppliers and
creditors for quick delivery, liberal credit terms, or broken lot orders.
Personnel: Nature of Labor Market
• A firm must possess the ability to retain its capable employees in
order to achieve success.
• A suitable strategy must be formulated to make experienced and
knowledgeable employees dedicate themselves to the organization.
• This strategy can involve incentives, promotions, training, transfers as
per employees' requests etc.
• The personnel department must take care in recruiting people that
meet industry specifications.
 School of Business
Course Code: D1UA402T Course Name: Strategic Management

MCKINSEU'S 7s FRAMEWORK

Name of the Faculty: Dr. M C Rashid Program Name: BBA

 School of Business
Course Code: D1UA402T Course Name: Strategic Management

PORTER’S FIVE FORCES FRAMEWORK

• Threat of New Entrants

• The rivalry among competitors in the industry
• Threat of Substitutes Products
• The bargaining power of suppliers
• The bargaining power of buyers

Name of the Faculty: Dr. M C Rashid Program Name: BBA

Threat of New Entrants
• The willingness and ability of firms to enter a particular industry
depends on the barriers to entry.
• There are six such barriers economies of scale, product
differentiation, capital requirements, cost disadvantages independent
of size, access to distribution channels, and government policy.
• These influence the decision to enter a new industry.
Bargaining Power of Suppliers
• The bargaining power of suppliers determines the company's profitability
when the suppliers are able to force the price that the buyer must pay for
the product.
• Suppliers are powerful under the following circumstances:
• When the product that they sell has few substitutes and is important to the
purchasing company or buyer.
• When no single industry is a major customer for the suppliers.
• When products in the industry are differentiated to such an extent that
they are not easily substitutable and it is costly for a buyer to switch from
one supplier to another.
• Credible threat of forward integration by suppliers
Bargaining Power of Buyers
• Porter says that buyers are powerful under the following circumstances:
• When the suppliers are many and the buyers are a few and large
• When the buyers purchase in large quantities.
• When the supplier's industry depends on the buyers for a large percentage of ins total
orders
• When the buyers can switch orders between supply companies at a low cost. thereby
playing companies off against each other to force the prices
• When it is economically feasible for the buyers to purchase the input from several
companies at a time.
• When the buyers can use the threat to provide for their own needs through vertical
integration as a device for forcing down prices
Threat of Substitutes
• Substitute products can match the needs of the customer in the same
way as the original product.
• Coffee, tea and soft drinks, all serve the consumer's need for refreshment.
• Due to the existence of substitutes such as tea and soft drinks, the prices
charged by companies in the coffee industry are restricted.
• If coffee prices are hiked, customers have the option of switching over to
tea or soft drinks, which are its substitutes.
• A close substitute is a potential threat to the company's product.
• The existence of a substitute limits the price which can be charged for a
product and therefore the profitability of the company.
Rivalry among existing competitors in the
industry
• Rivalry in an industry occurs when one or more firms make an effort to increase their
market share.
• This can lead to price wars, advertising battles, launches of new products and increased
customer services and warranties.
• Some firms gain the upper hand through intense rivalry, while their competitors suffer a
fall in market share. The intensity of rivalry depends upon many factors.
• Rivalry is usually intense when there are many competitors of similar size.
• Slowdowns in industrial growth also make firms keen to grab each other's market share.
• A lack of differentiation among the products of the players in the industry also leads to
intense competition.
• The absence of switching costs can also lead to an unstable marketplace.
 School of Business
Course Code: D1UA402T Course Name: Strategic Management

INTERNAL ANALYSIS
• May create opportunity
• May bring threats
• To help control or neutralize
• Analysis of an organization's capabilities is important for strategy making
• Internal analysis helps us understand the organizational capability which
influence the evolution of successful strategies.
• Changing strategic capability better to fit a changing environment
• Stretching and exploiting the organizations capability to create
opportunities

Name of the Faculty: Dr. M C Rashid Program Name: BBA

 School of Business
Course Code: BSB01T2010 Course Name: Strategic Management

Resource Based View (RBV): Types of Resources

There are three types of resources – assets, capabilities and
competencies, which have been identified under Resource Based View
of the firm (RBV).
Strategic thinkers explaining the RBV suggest that the organizations are
collections of tangible and intangible assets combined with capabilities
to use those assets.
These help organizations develop understanding these three types of
resources and help us to know how a firm’s internal strength and
weaknesses affect its ability to compete.

Name of the Faculty: Dr. M C Rashid Program Name: BBA

 School of Business
Course Code: BSB01T2010 Course Name: Strategic Management

Assets
• The factors of production used by firms in providing its customers
with valuable goods and services are called assets.
• These assets are of two types- tangible assets and intangible assets.
• Any physical means a firm uses to provide value to its customers
form its tangible assets.
• Similarly, intangible assets are equally valuable for firms but their
physical presence cannot be felt or seen.
• For example, a brand name is a very important resource for any
organization even though it is intangible.

Name of the Faculty: Dr. M C Rashid Program Name: BBA

 School of Business
Course Code: BSB01T2010 Course Name: Strategic Management

Capabilities

• Capabilities refer to a corporation’s ability to exploit its resources.

• They consist of business processes and routines that manage the
interaction among resources to turn inputs into outputs.
• For example, a company’s marketing capability can be based on the
interaction among its marketing specialists, distribution channels, and
salespeople.
• A capability is functionally based and is resident in a particular function.
Thus, there are marketing capabilities, manufacturing capabilities, and
human resource management capabilities.
Name of the Faculty: Dr. M C Rashid Program Name: BBA
 School of Business
Competencies
Course Code:
Management
Course Name: Strategic

• A competency is a cross-functional integration and coordination of

capabilities.
• For example, a competency in new product development in one
division of a corporation may be the consequence of integrating
information systems capabilities, marketing capabilities, R&D
capabilities, and production capabilities within the division.
 School of Business
Course Code: BSB01T2010 Course Name: Strategic Management

VRIO Framework
• Valuable: Does it provide customer value and competitive advantage?
• Rareness: Does only one other competitor or preferably do no
competitors possess it at relatively the same level?
• Imitability: Do the competitors have the financial ability (viewed
in the widest sense) to imitate?
• Gillette’s razor designs are very difficult to copy, partly because the manufacturing equipment needed to
produce it is so expensive and complicated.

• Organization: Is the firm organized to exploit the resource?

Name of the Faculty: Dr. M C Rashid Program Name: BBA

VIRO Patanjali ITC Amul OLA

Valuable Cost control brand, Diversified value High quality with Low cost ride,
natural products (PP) Diversified low price, available
revenue stream everywhere,
incentive, free
ride, discount ,
promo coupon
Rare Source from farmer, Manpower hiring, Economy of scope Driver due
R&D, Ayurvedic best global talent, diligence
Manuscript fast execution Product
innovation
Imitability Association with Strong Customer Strong Supply chain Pricing and app
yoga network, E- algorithm,
Chaupal partner network,
10 Lakh drivers
Organization Unique distribution Expert planning Large distribution Rating system
channel and execution network
VRIO Framework: Google
• 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).
• It is also a rare capability, no other company uses data based employee management so extensively.
• 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.
 School of Business
Course Code: BSB01T2010 Course Name: Strategic Management

THE VALUE CHAIN FRAMEWORK

• This is the other framework most commonly used to guide analysis of
any firm’s strengths and weaknesses.
• In this framework, any business is seen as a number of linked
activities, each producing value for the customer.
• By creating additional value, the firm may charge more or is able to
deliver same value at a lower cost, either of this leading to a higher
profit margin.
• This ultimately adds to the organization’s financial performance.

Name of the Faculty: Dr. M C Rashid Program Name: BBA

 School of Business
Course Code: BSB01T2010 Course Name: Strategic Management

Primary Activities
• Inbound Logistics
• Operations
• Outbound Logistics
• Marketing and Sales
• Services

Name of the Faculty: Dr. M C Rashid Program Name: BBA

 School of Business
Course Code: BSB01T2010 Course Name: Strategic Management

Support Activities
Firm Infrastructure
Procurement
Technology Development
Human Resource Management

Name of the Faculty: Dr. M C Rashid Program Name: BBA

 School of Business
Course Code: BSB01T2010 Course Name: Strategic Management

Outsourcing
Outsourcing is the purchase of a value-creating activity or a support
function activity from an external supplier.
Not-for-profit agencies as well as for-profit organizations actively
engage in outsourcing.
Firms engaging in effective outsourcing increase their flexibility,
mitigate risks, and reduce their capital investments.
Only activities where they cannot create value or where they are at a
substantial disadvantage compared to competitors should be
outsourced.

Name of the Faculty: Dr. M C Rashid Program Name: BBA

 School of Business
Course Code: BSB01T2010 Course Name: Strategic Management

QUANTITATIVE ASSESSMENT
Financial data is only the most basic and universally accepted approach
in assessing a firm.
There are various quantitative tools for evaluating the internal
capabilities of a firm.
For evaluating financial, marketing and operating factors, ratio analysis
is a useful tool. The firm's balance sheet and income statement are
important sources from which meaningful ratios can be derived.

Name of the Faculty: Dr. M C Rashid Program Name: BBA

 School of Business
Course Code: BSB01T2010 Course Name: Strategic Management

QUALITATIVE ASSESSMENT
• Quantitative analysis alone is not sufficient to understand any
organization’s strengths and weaknesses.
• Particularly the factors related to human resources, organizational
culture and its temperament towards creativity and innovation are few
which can be understood only through qualitative information.
• Qualitative information also supplements quantitative data in
understanding basic concepts of what customers value and how they
feel about a given product.

Name of the Faculty: Dr. M C Rashid Program Name: BBA

The Human Side of Enterprise
• The human element permeates all segments and units within an organization.
• Due to this, it should be considered independently.
• Although attention has been given to the human element in each functional area,
an overall profile of the organization should view this aspect as an area in itself.
• The development and sustenance of human resources function is a major task.
• This has to be taken care of not only by top management but also by all the
executives in the organization.
• If management has succeeded here, high morale is likely to follow.
• Thus, strengths in the human resource side of the organization are crucial during
the implementation of strategy.
 School of Business
Course Code: BSB01T2010 Course Name: Strategic Management

Competitive Rivalry and Competitive Dynamics

• Firms operating in the same market, offering similar products, and
targeting similar customers are competitors.
• Google has many competitors because it competes in a number of
markets. For example, Google competes against Bing and Yahoo in the
general search market
• AT&T and Verizon in the wireless Internet market.
• Google entry into the smartphone market will compete against Apple
and Samsung, among others.

Name of the Faculty: Dr. M C Rashid Program Name: BBA

 School of Business
Course Code: BSB01T2010 Course Name: Strategic Management

A Model of Competitive Rivalry

Name of the Faculty: Dr. M C Rashid Program Name: BBA
 School of Business
Course Code: BSB01T2010 Course Name: Strategic Management

Competitor Analysis
• Competitor analysis is used to help a firm understand its
competitors.
• The firm studies competitors’ future objectives, current strategies,
assumptions, and capabilities.
• With the analysis, a firm is better able to predict competitors’
behaviors when forming its competitive actions and responses.

Name of the Faculty: Dr. M C Rashid Program Name: BBA

 School of Business
Course Code: BSB01T2010 Course Name: Strategic Management

Drivers of Competitive Behavior

Awareness
• Awareness affects the extent to which the firm understands the consequences of its
competitive actions and responses.
• A lack of awareness can lead to excessive competition, resulting in a negative effect on all
competitors’ performance.
Motivation
• A firm is more likely to attack a rival with whom low market commonality
• Responses are more likely to occur when market commonality is high.
Ability
• Without available resources a firm lacks the ability to respond, so ability means a should
have necessary resources to attack or to respond.
Name of the Faculty: Dr. M C Rashid Program Name: BBA
 School of Business
Course Code: BSB01T2010 Course Name: Strategic Management

Competitive Rivalry
• Competitive Rivalry: the ongoing set of competitive actions and
competitive responses that occur among firms as they maneuver for
an advantageous market position.

Name of the Faculty: Dr. M C Rashid Program Name: BBA

 School of Business
Course Code: BSB01T2010 Course Name: Strategic Management

Likelihood of Attack
• First-Mover Benefits
• A firm that takes an initial competitive action in order to build or
defend its competitive advantages or to improve its market position

• Organizational Size

• Quality

Name of the Faculty: Dr. M C Rashid Program Name: BBA

 School of Business
Course Code: BSB01T2010 Course Name: Strategic Management

Likelihood of Response
• In addition to market commonality, resource similarity, awareness,
motivation, and ability, firms evaluate the following three factors to
predict how a competitor is likely to respond to competitive actions:
I. Type of Competitive Action
II. Actor’s Reputation
III. Dependence on the Market
• A firm is likely to respond when the action significantly strengthens
or inaction weakens the firm's competitive position.

Name of the Faculty: Dr. M C Rashid Program Name: BBA

 School of Business
Course Code: BSB01T2010 Course Name: Strategic Management
Understanding Competitive Dynamics
The competitive scenario in the 21" century has totally changed from what it was
in last century.
Relying on old school of thought, which considered huge advertising budget and
economies of scale as tools for success, is no longer valid.
In today's world, speed to market is the key for success which is possible only
when you have latest tools to access and use information.
The new competitive mind set must have flexibility, innovation and out of box
thinking to counter the hyper volatile market.
In global market people, goods, services and ideas move freely across geographical
boundaries making markets and industries to operate in a borderless world.

Name of the Faculty: Dr. M C Rashid Program Name: BBA

 School of Business
Course Code: BSB01T2010 Course Name: Strategic Management

References
• Strategic Management and Business Policy: Globalization,
Innovation, and Sustainability, Thomas L. Wheelen, J. David Hunger,
Alan N. Hoffman, and Charles E. Bamford, 15th Edition, Pearson
Education, 2018.
• Strategic Management, Hitt Michael A, Ireland R. Duane, Hoskisson
Robert E., 12th Edition, Cengage Learning, 2016

Name of the Faculty: Dr. M C Rashid Program Name: BBA