Unit-2 BBA 6TH SEM STRATEGIC MANAGEMENT

SCANNING THE ENVIRONMENT

Business:

It means conducting some activities like sale, purchase, manufacturing etc to achieve some
objectives such as growth, profits etc.

Environment:

Businesses to have some surrounding (Internal & External) & that surrounding is environment
of the business like demand, supply, competition etc make environment of business.

Business Environment:

Businesses environment is conducting set of activities to achieve objectives of business (See

Note) by working & interacting with surrounding elements or environment.

Business organization will take input from environment and will process it and convert it into
output that output will be given to the customer and in return business organization will get
surplus which will either be stored or used.

Objectives of business

a. Profitability
b. Efficiency
c. Growth
d. Survival
e. Stability
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Relationship between Organization & their Environment

/ \

Internal Analysis External Analysis

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Strengths Weaknesses

Internal environment Opportunities Threats

Factor
sector For Telecom External environment Factor For telecom sector
Strength-Good Customer Opportunity-Growing Customer Demand
Base
Threats-Competition
Weakness
–Poor
Technology

Relationship between Organization & their Environment

Characteristics of Business Environment: (C.D.M.A)

 Complex(C)
 Dynamic(D)

 Multi Faced(M)
 A far reaching Impact(A)
 Unit-2 BBA 6TH SEM STRATEGIC MANAGEMENT

a) COSMIC Analysis for Scanning MICRO Environment. Elements of Micro

Environment
This is also known as the task environment and affects business and marketing in the daily
operating level. When the changes in the macro environment affect business in the long run, the
effect micro environmental changes are noticed immediately. Organizations have to closely
analyze and monitor all the elements of micro environment in order to stay competitive.

MICRO ENVIRONMENT Micro environment: consist of suppliers, consumers, marketing

intermediaries, etc. These are specific to the said business or firm and affects it’s working on
short term basis.

 Consumer/Customer
 Organization
 Suppliers
 Market
 Intermediaries
 Competitors
 Unit-2 BBA 6TH SEM STRATEGIC MANAGEMENT

Consumers/Customers

According to Peter Drucker the aim of business is to create and retain customer. Customers are
the people who pay money to acquire an organization's products. The products may be both
in form of goods or services. The organizations cannot survive without customers. They will
cease to exist. Customers may or may not be a consumer. Consumer is the one who ultimately
consumes or uses the product or service. A father may buy a product as a customer for his
daughter who will be a consumer. A consumer occupies the central position in the marketing
environment. The marketer has to closely monitor and analyse changes in consumer tastes and
preferences and their buying habits.
 Who are the customers/consumers?
 What benefits are they looking for?
 What are their buying patterns?

Organization
Individuals occupying different positions or working in different capacities in organizations
consists of individuals who come from outside. They have different and varied interests. In micro
environment analysis, nothing is important as self-analysis by the organization itself.
Understanding its own strengths and capabilities in a particular business, i.e., understanding a
business in depth should be the goal of firm’s internal analysis. The objectives, goals and
resource availabilities of a firm occupy a critical position in the micro environment.
An organization has several non-specific elements of the organization's surroundings that may
affect its activities. These consists of specific organizations or groups that are likely to influence
an organization. These are:

 Owners:
 Board of directors:
 Employees
 Unit-2 BBA 6TH SEM STRATEGIC MANAGEMENT

Suppliers
Suppliers form an important component of the micro environment. The suppliers provide raw
materials, equipment, services and so on. Large companies rely on hundreds of suppliers to
maintain their production. Suppliers with their own bargaining power affect the cost structure of
the industry. They constitute a major force, which shapes competition in the industry. Also
organizations have to take a major decision on “outsourcing” or “in-house” production
depending on this supplier environment.

Market
The market is larger that customers. The market is to be studied in terms of its actual and potential
size, its growth prospect and also its attractiveness. The marketer should study the trends and
development and the key success factors of the market he is operating. Important issues are :

 Cost structure of the market.

 The price sensitivity of the market.

 Technological structure of the market

 The existing distribution system of the market.
 Is the market mature?

Intermediaries
Intermediaries exert a considerable influence on the business organizations. They can also be
considered as the major determining force in the business. In many cases the consumers are not
aware of the manufacturer of the products they buy. They buy product from the local retailers or
big departmental stores such as Big bazaars, Subhiksha and Vishal Mega Mart that are
increasingly becoming popular in some big cities.
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Competitors
Competitors are the other business entities that compete for resources as well as markets.
Competition shapes business. A study of the competitive scenario is essential for the marketer,
particularly threats from competition. Following are a few of major questions that may be
addressed for analysing competitions:

 Who are the competitors?

 What are their present strategy and business objective?
 Who are the most aggressive and powerful competitors?

Competition may be direct or indirect. Direct competition is between organizations, which are in
same business activity. At the same time competition can also be indirect. For example,
competition between a holiday resort and car manufacturing company for available discretionary
income of affluent customers is indirect competition.

b) PESTLE Analysis for Scanning MACRO Enviroment

The term PESTLE is used to describe a framework for analysis of macro environmental factors.
PESTLE analysis involves identifying the political, economic, socio-cultural, technological,
legal and environmental influences on an organization and providing a way of scanning the
environmental influences that have affected or are likely to affect an organization or its policy.
‘PESTLE analysis is an increasingly used and recognized term, replacing the traditional
framework for monitoring environment known as PEST analyses. PESTLE is an acronym for:

P- Political E-
Economic
S- socio-cultural
T- Technological
L- Legal
E -Environmental
 Unit-2 BBA 6TH SEM STRATEGIC MANAGEMENT

The PESTLE analysis is a simple to understand and quick to implement. The advantage of this
tool is that it encourages management into proactive and structured thinking in its decision
making.

The Key Factors

 Political factors are how and to what extent a government intervenes in the economy
and the activities of corporate. Political factors may also include goods and services
which the government wants to provide or be provided and those that the government
does not want to be provided. Furthermore, governments have great influence on the
health, education and infrastructure of a nation.

 Economic factors have major impacts on how businesses operate and take decisions.
For example, interest rates affect a firm's cost of capital and therefore to what
extent a business grows and expands. Exchange rates affect the costs of exporting goods
and the supply and price of imported goods in an economy. The money supply,
inflation, credit flow, per capita income, growth rates have a bearing on the business
decisions.

 Social factors affect the demand for a company's products and how that company
operates.

 Technological factors can determine barriers to entry, minimum efficient production

level and influence outsourcing decisions. Furthermore, technological shifts can affect
costs, quality, and lead to innovation.

 Legal factors affect how a company operates, its costs, and the demand for its products.

 Environmental factors affect industries such as tourism, farming, and insurance.

Growing awareness to climate change is affecting how companies operate and the
products they offer--it is both creating new markets and diminishing or destroying
existing ones.
 Unit-2 BBA 6TH SEM STRATEGIC MANAGEMENT

On the basis of these, it should be possible to identify a number of key environmental influences,
which are in effect, the drivers of change.

These are the factors that require to be considered in the matrix. Then transpose the final items
that we have identified from your list to a PESTLE matrix.

Difference between Micro Environment & Macro Environment3

S.N Micro Environment Macro Environment

1 It refers to the forces that are very close to the It refers to the all forces that are
company & affect its ability to do routine part of the larger periphery and
functions. distantly affect organization
& micro environment
2 It Includes COSMICS It Includes PESTLE
3 Element of micro environment are specific to the Element of macro environment
said business & affects it’s working on short term are general environment &affect
basis the working of all the
firms in an industry
 Unit-2 BBA 6TH SEM STRATEGIC MANAGEMENT

STRUCTURAL ANALYSIS OF COMPETITIVE ENVIRONMENT

Let's take a look at Porter's Five Forces in more detail.

1. Competitive Rivalry
The first of Porter's Five Forces looks at the number and strength of your competitors. Consider
how many rivals you have, who they are, and how the quality of their product compares with yours.

In an industry where rivalry is intense, companies attract customers by cutting prices aggressively
and launching high-impact marketing campaigns. This can make it easy for suppliers and buyers
to go elsewhere if they feel that they're not getting a good deal from you.

On the other hand, where competitive rivalry is minimal, and no one else is doing what you do,
then you'll likely have tremendous competitor power, as well as healthy profits.

Example

If you were setting up a haulage business, you'd likely be entering a crowded market. You'd have
to consider many potential rivals, how much they charged, and whether they were able to discount
deeply. You'd also need to think about their resources: you might be setting up to compete with
international logistics companies, as well as local competitors

Remember that at this point the analysis should focus on your potential rivals. Only start thinking
about your own offer when you've got your data together on the competition.

Note that Michael Porter developed his Four Corners Model all about competitor behavior. You
can find out more about that in our article.

2. Supplier Power
Suppliers gain power if they can increase their prices easily, or reduce the quality of their product.
If your suppliers are the only ones who can supply a particular service, then they have considerable
supplier power. Even if you can switch suppliers, you need to consider how expensive it would be
 Unit-2 BBA 6TH SEM STRATEGIC MANAGEMENT

to do so.

The more suppliers you have to choose from, the easier it will be to switch to a cheaper alternative.
But if there are fewer suppliers, and you rely heavily on them, the stronger their position – and
their ability to charge you more. This can impact your profitability, for example, if you're forced
into expensive contracts.

Example

Let's say your business idea was to manufacture electronic devices. You'd have to assess your
supply options for a range of specialist components. If one supplier dominated the components
market, then they could raise their prices without worrying about their own competitors. This might
affect the viability of your product.

3. Buyer Power
If the number of buyers is low compared to the number of suppliers in an industry, then they have
what's known as "buyer power." This means they may find it easy to switch to new, cheaper
competitors, which can ultimately drive down prices.

Think about how many buyers you have (that is, people who buy products or services from you).
Consider the size of their orders, and how much it would cost them to switch to a rival.

When you deal with only a few savvy customers, they have more power. But if you have many
customers and little competition, buyer power decreases.

Example

Buyer power is a significant factor in food retail. Think of large supermarkets that operate in a
crowded, highly competitive market. This market has changed dramatically with the arrival of
cheap, no-frills food discounters. Shoppers have strong buyer power here. That's why supermarkets
have coupon schemes, loyalty cards, and aggressive discounting – to capture the largest share of
 Unit-2 BBA 6TH SEM STRATEGIC MANAGEMENT

buyers.

These organizations in turn have strong buyer power with their own suppliers, using their influence
to drive down the cost of food at the manufacturing level.

Tip
Judging how to price your product to attract the customers you want, and to protect your brand,
requires great skill. Find out more in our article about Kotler's Pricing Strategies.

4. Threat of Substitution
This refers to the likelihood of your customers finding a different way of doing what you do. It
could be cheaper, or better, or both. The threat of substitution rises when customers find it easy to
switch to another product, or when a new and desirable product enters the market unexpectedly.

Example

If your organization makes medical instruments, you may find your position being threatened by
the rise of 3D printing. This enables instruments to be made from a wide range of materials,
sometimes at a fraction of the cost of traditional methods. If a competitor gets it right, it can weaken
your position and threaten your profitability.

5. Threat of New Entry

Your position can be affected by potential rivals' ability to enter your market. If it takes little money
and effort to enter your market and compete effectively, or if you have little protection for your
key technologies, then rivals can quickly enter your market and weaken your position.

However, if you have strong and durable barriers to entry, then you can preserve a favorable
position and take fair advantage of it. These barriers can include complex distribution networks,
high starting capital costs, and difficulties in finding suppliers who are not already committed to
competitors.
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Existing large organizations may be able to use economies of scale to drive their costs down, and
maintain competitive advantage over newcomers.

If it costs customers too much to switch between one supplier and another, this can also be a
significant barrier to entry. So can extensive government regulation of an industry.

Example

Even industries that seem to be well protected against new entry can prove to be vulnerable. For
many years, high-volume air travel was in the hands of a relatively small number of established
airlines. The barriers to entry were formidable. Start-up costs were high, routes and take-off slots
were mostly grabbed by the big operators, and the industry was strictly regulated.

Even so, some small operators did manage to break into the market, mostly by offering no-frills,
low-cost travel to popular destinations, and taking advantage of reduced regulation. These smaller,
more agile operators now hold strong positions in the industry, particularly in short- to medium-
haul travel.
The Five Forces are brought together in figure 1, below.