By;

Edson Ndyemalila
Manager Strategic studies and Military Science
Institute of Accountancy Arusha
Mobile; 0715839693/0755839693
E-mail: endyemalila@iaa.ac.tz
/endyemalila@gmail.com
Introduction
The environment is what gives organizations their means
of survival. In the private sector, satisfied customers are
what keep an organization in business; in the public
sector, it is government, clients, patients or students that
typically play the same role. However, the environment is
also the source of threats: for example, hostile shifts in
market demand, new regulatory requirements,
revolutionary technologies or the entry of new
competitors.
Environmental change can be fatal for organizations. The
environment consist of different levels which need to be
analyzed so as to detect opportunities and threats
ENVIRONMENTAL SCANNING
SWOT Analysis.
External: Societal Environment (PESTEL)
Porter’s Diamond
Industry Analyses (Porter’s five forces);
Lifecycle model
Internal scanning Organizational Analysis; (Portfolio
Analysis – BCG matrix, Value Chain analysis.)
SWOT Analysis
A SWOT analysis is a strategic planning tool that
organizations use to identify their strengths,
weaknesses, opportunities and threats (hence the
acronym). Conducting a SWOT involves an
organization carrying out both an internal and an
external analysis. With the internal analysis an
organisation identifies it strengths and weaknesses.
Strengths are attributes of the organisation that can
help it achieve a competitive advantage.
Weaknesses on the other hand are attributes of the
organisation that would hinder it in achieving a
competitive advantage.
SWOT Analysis
Identifying opportunities and threats that potentially face
the organization is what constitutes an external analysis.
Opportunities are external conditions or situations that
could potentially benefit an organisation.
SWOT analysis is best used as a snapshot of strategic
position after the organisation has done an internal
and external analysis
SWOT Analysis
SWOT Analysis
Some of the factors that an organisation examines when
conducting a SWOT are its / current:
structure
culture
human resources: staff capabilities, training policy,
retention
financial resources
competitors
customers
government legislations
socio-economic trends
SWOT Analysis
Overall the benefits that conducting a SWOT
analysis offers are that it helps an organisation to:
match its resources and capabilities to its
competitive environment
identify strategies that it can follow to achieve a
competitive advantage
 Example . Tech1(manufactures and markets
mainframe computers)
Strengths: highly motivated and
technically competent sales
force
Weaknesses: designs of existing products are
all over three years old
Opportunities: the government is set to
introduce a tax break for
organizations that purchase
mainframecomputers
Threats: a number of micro computer
manufacturers are planning to
start manufacturing mainframe
computers
 External: Societal Environment (PESTEL)
It is essential for an organisation to effectively and
constantly analyse its external environment because, as
the environment changes, the strategies of the
organisation change. One of the best methods of
analysing the external environment is to use the PESTEL
method.
Analysing the external environment is not an easy task for
the managers of an organisation. There are innumerable
variables in existence that could potentially affect the
future of an organisation. The PESTEL method classifies
those variables within the following framework: Political,
Economic, Social, Technological, Environmental, Legal
Societal Environment (PESTEL)
1. Political
Political factors are caused by the role that the
government plays in shaping the environment
within which the organisation operates. A country’s
political system and government policy will set the
rules and regulations of the external environment
within which all organisations must operate. In turn, the
combination of these rules and regulations will create
the economic, social and political conditions that
organisations must work under.
(i) Government policies: (ii) Stability and tenure of
government: (iii) Pressure groups: (iv)
Government’s planned strategy:
Societal Environment (PESTEL).cont…
 2. Economic
Economic factors refer to the macroeconomic
factors that will shape the broader economic
environment within which the firm operates. They
represent the financial condition of the external
environment within which the organisation must
operate.
Economic factors affecting an organisation
(i) GDP; GDP is an indicator of its market size.
(ii)Taxes, (iii) Exchange rates, (iv)
Unemployment, (v) Trade factors and tariffs, (Vi)
Inflation rates (vi) Monopolistic practices
Societal Environment (PESTEL).cont…
3. Social
Social factors refer to factors such as changing
demographic patterns, changing consumer tastes and
preferences and overall societal trends. They represent
the tastes and demands of the external environment
within which the organisation must operate.
(a) Social factors affecting an organisation
(i) Population growth: (ii) Population profile and
education levels: (iii) Age and health of the
population: (iv) Disposable income levels: (v) Social
trends: (social trends in fashions, lifestyle and religion)
Societal Environment (PESTEL).cont…
4. Technological
Technological factors take into account the effect
that technology has on the way an organisation
makes and delivers its goods and services. In addition
to looking at present technology, organisations also
need to look at upcoming technology and how it will
affect the current way of business.
If these forces are significant in changing the
external environment, then the organisation may
have to significantly change the way it does
business. (i) Rate of change and new
developments in technology: (ii) Patents granted:
(iii) Diffusion of technology:
Societal Environment (PESTEL).cont…
5. Environmental
Consumers are becoming increasingly concerned with the
protection of the environment in which they live. This is, in
part as a result of the tremendous surge in media attention
directed to such issues as: climate change, carbon emission,
waste disposal and recycling, they desire that their
environment should be prevented from all harmful effects so
that it does not deteriorate over time
(a) Environmental factors affecting an organisation
(i) Trends: what are the environmental standards in the area?
How is waste disposed of? (ii) Penalties for abuse:
(iii) Competitive advantage: companies which adopt
environmentally-friendly practices such as planting trees or
adopting special measures to reduce pollution, have a
competitive advantage
Societal Environment (PESTEL).cont…
6. Legal
Legal factors represent the legislative framework
within which the organisation must operate. They
represent the “laws of the land” that the organisation
must follow. Organisations have to follow the law
framed by the legislatives and always operate within
the boundaries of the legal framework. There are
various laws which affect all organisations such as
company law, environment law, employment law, tax
law, competition law, law relating to health and safety
etc.; (i) Employment law: (ii) Business, health and
safety law, company law (iii) Marketing laws: (iv)
Monopolies / restraint of law: (v) National versus
international laws:
Porter’s Diamond
Firms operating in today’s global environments need to
understand and analyse the competitive advantage they
have over firms from other countries.
Porter argues that a country achieves a sustainable
competitive advantage when its companies / industries
achieve a sustainable competitive advantage on a global
scale. There are four factors which constitute Porter’s
Diamond. These factors suggest that there are
inherent reasons why some nations are more
competitive than others and why some industries
within nations are more competitive than others.
These factors are as follows:
firm strategy, structure and rivalry
demand conditions
related and supporting industries
factor conditions
Porter’s Diamond
Porter’s Diamond. Cont…
1. Firm strategy, structure and rivalry (i.e. conditions for
organisations and the nature of domestic rivalry)
The first factor refers to the local competitive structure
for a country’s industries. Companies that can operate and
survive in a highly competitive local environment can be
prepared to compete in the global environment. This factor
refers to how the firms manage to cope with the
competition.
2. Demand conditions (i.e. sophisticated customers in
home market)
Demand conditions refer to the sophistication of local
consumers. The more demanding and discerning a
country’s customers, the more demanding they will be on
suppliers of their local goods and services. When the
customers within the country are more demanding and
sophisticated, then organisations will be forced to ensure
their products are of high quality and differentiated from
the competition.
Porter’s Diamond. Cont..
3. Related and supporting industries
The term “related and supporting industries”
refers to the existence of organisations that serve
similar industries and can collaborate.  
4. Factor conditions (i.e. the nation's position in
factors of production, such as skilled labour and
infrastructure)Factor conditions are production for
inputs such as: human resources such as skilled
labour,money market (Bond market, repo market) /
capital market (debt market, equity market), physical
resources such as availability of good quality raw
materials ,intellectual resources such as computer,
infrastructural resources such as transport system
INDUSTRY ANALYSIS

Use Michael Porter five forces analysis in defining the

attractiveness of industries
The profitability and cash flow levels of a business are
directly affected by the competitive forces of the
industry and the stage of the industry’s lifecycle. In
order to achieve competitive success, an organization
needs to understand how these forces take shape and
how they are to be dealt with.
Strategic analysis in an organisation calls for
consideration of competitive forces in the
organisation’s industry.
Overview of Porter’s five forces
Michael Porter of Harvard University and the author of
“ Competitive Strategy (1980) developed the Strategic
Management Model known as the five forces of
competition which explains the five key factors which
must be analysed when evaluating a business's
profitability in the future.
By applying the five forces model, the market factors
can be analysed so that an organisation can make a
strategic assessment of its competitive position in a
particular market. Michael Porter's five forces
framework provides a simple outlook for assessing
and analysing the competitive strength and
position of a business organisation.
Porter’s five forces framework
There are five main factors that influence the level of
competitiveness in an industry or sector. These
factors or forces have been identified by Michael
Porter in his famous “five forces” model as the:
Threat of potential entrants
existence of substitutes
bargaining power of buyers
bargaining power of suppliers
intensity of rivalry among existing firms
Porter’s five forces model
Porter’s five forces framework.Cont..
1. Threat of new entrants
One of the biggest worries for the organisations of any
industry is the possibility that other firms will enter
their industry. The more firms that enter an
industry, the more competitive the industry is
likely to become. Example of barriers to entry include:
(a) Economies of scale;
(b) start-up costs:
(c) Switching Cost
(d) Limited access to supply / distribution channels
(e) Strong customer loyalty (f) Product
differentiation: (g) Government Policy
Porter’s five forces framework.Cont
2. Threat of substitutes
The threat of substitutes depends upon the ease at
which a customer can switch to an alternative
product. These include:
(a) Product for product substitution
It occurs because of two reasons - convergence and
availability of complementary products.
(b) Substitution of need
In this instance a new product renders an existing one
obsolete.
(c) Generic substitution
This occurs with products / services that compete for a
small portion of a customer’s disposable income.
Porter’s five forces framework.Cont
3. Bargaining power of buyers
Situations where the bargaining power of buyers will
be high are when:
There is a concentration of buyers (the industry is
dominated by just a few customers).
The cost of switching to an alternative supplier is low
and involves little risk.
The buyer has the ability to either buy products from
another company
When buyers have better information levels, they are
capable of bargaining with suppliers
Porter’s five forces framework. Cont….
4. Bargaining power of suppliers
When the bargaining power of suppliers is high, firms
normally end up paying a relatively high cost for the
raw materials and other inputs Situations where the
bargaining power of suppliers will be high are
when:
There is a concentration of suppliers and a large
number of buyers
Switching costs of a consumer are high.
When suppliers can use the substitute inputs for their
products.
Awareness of the product input differentiation
available in the market.
Porter’s five forces framework. Cont….
5. Competitive rivalry
As important as the number of firms that exist in an
industry is the intensity of rivalry that exists between
them.
The competitors are in balance (i.e. they have roughly
the same size and capabilities)
Rate of industrial growth.- mature market (a market
that is not growing).
There are high fixed costs.
Height of exit barriers. When organisations cannot
leave.
A variety of products is available.
The competitors’ responses are aggressive.
Lifecycle model
This model is a tool to analyse the effects of an
industry’s growth on competitive forces. An
industry’s evolution consists of five phases. The
stages of the lifecycle model have a significant
impact upon business strategy and performance.
Phases of lifecycle model:
development
growth
shakeout
maturity
decline
Lifecycle model
Lifecycle model
1.Development stage; There is only a few or perhaps
even only one organisation in operation. Naturally
competition is very low or non- existent. There is little
customer loyalty.
2. Growth stage; At this stage, competition has built
up as more organisations have entered the industry.
The level of competitive behaviour is not intense as the
overall market is growing. Organisations do not need to
steal customers from each other to achieve growth.
3. Shakeout stage; At this stage, the size of the market
has peaked and many more firms are now operating in
the industry. Competition intensifies as the “strong” or
efficient organisations strive to drive out the “weak” or
inefficient firms.
Lifecycle model
4. Maturity stage
The intensity of competition remains as the market
size looks set to decline. The only way for
organisations remaining in the industry to increase
sales is by stealing market share from competing
firms. Customer loyalty is high.
5. Decline stage
The intensity of competition declines as more
organisations decide to exit the industry given the
declining market size.
Resources and competences
Tangible resources are the physical assets of an
organisation such as plant, people and finance.
Intangible resources are non-physical assets such as
information, reputation and knowledge.
Typically, an organisation’s resources can be
considered under the following four broad categories:
Physical resources – such as the machines, buildings
or the production capacity of the organisation. The
nature of these resources, such as the age, condition,
capacity and location of each resource, will determine
the usefulness of such resources.
Resources and competences
Financial resources – such as capit a l , cash, debtors and
creditors, and suppliers of money (shareholders,
bankers, etc.)
Human resources – including the mix (for example,
demographic profile), skills and knowledge of
employees and other people in an organisation’s
networks
Intellectual capital – as an intangible resource – includes
patents, brands, business systems and customer
databases. An indication of the value of these is that
when businesses are sold, part of the value is ‘goodwill’.
In a knowledge-based economy intellectual capital is
likely to be a major asset of many organisations
Resources and competences
Threshold capabilities
Threshold capabilities are those needed for an
organisation to meet the necessary requirements to
compete in a given market. These could be: -
 Threshold resources required meeting minimum
customer requirements.
 Threshold competences required deploying
resources so as to meet customers’ requirements and
support particular st rategies.
Value chain analysis
If organizations are to achieve competitive advantage
by delivering value to customers, managers need to
understand which activities they undertake are
especially important in creating that value and which
are not.
According to Porter, there are two routes through
which a firm can generate superior competitive
performance:
By consistently being more innovative than its rivals
in finding ways to satisfy its customers.
By providing customers with the same quality of
product or service as rivals but at a low cost to itself.
Value chain analysis. Cont..
The organisation is split into ‘primary activities’
and ‘support activities’:
1. Primary activities
(a) Inbound logistics: receipt and handling of inputs
(b) Operations: (c) Outbound logistics: collecting,
storing and distributing the products to buyers. (d)
Marketing and sales: (e) Service:
2. Support activities
These activities support the primary activities of the
business. (a) Procurement, (b) Technology
development, (c) Human resource management
(d) Firm’s infrastructure
Value chain model
Value chain analysis. Cont..
The primary objective of these activities is to offer the
customer a level of value that exceeds the cost of the
activities, thereby resulting in a profit margin. The
quantum of a firm's margin depends on how
effectively and efficiently it can perform these
activities. The higher the customer perceives the
value of a firm’s product to be, the higher is the price
he is willing to pay.
This price, in turn, will exceed the cost of the
activities in the value chain. The firm can improve the
quality of these activities in order to generate superior
value.
Portfolio Analysis (The
growth/share (or BCG) matrix
BCG matrix
A star is a business unit which has a high market
share in a growing market.
A question mark (or problem child) is a business unit
in a growing market, but not yet with high market
share. Developing question marks into stars, with high
market share, takes heavy investment.
A cash cow is a business unit with a high market share
in a mature market. However, because growth is low,
investment needs are less, while high market share
means that the business unit should be profitable.
Dogs are business units with a low share in static or
declining markets and are thus the worst of all
combinations.