STRATGY FORMULATION

1. ENVIRONMENTAL APPRAISAL

Concept of Environment
Environment means surroundings, external objects, influences or circumstances under which someone exists. The environment of any organisation is the aggregate of all conditions, events and influences that surround and affect it.

CHARACTERISTICS OF ENVIRONMENT
1.Environment is complex- it contain no. of factors,

events, conditions and influences arising from different

sources. They all interact with each other to form entirely new sets of influences.

2.Environment is Dynamic- it is constantly changing

in nature. Due to many influence operating, there is

dynamism in the environment causing it to

continuously change its shape and character.

CHARACTERISTICS OF ENVIRONMENT
3. Environment is multi-faceted- a particular

change in the environment , or a new development

may be viewed differently by different observers.

Hence the same development is viewed as

opportunity by one organisation while as a threat

by another organisation.

CHARACTERISTICS OF ENVIRONMENT
4. Environment has a far-reaching impact- the

growth and profitability of the organisation depends

upon the environment in which it exists. Any

organizational change has an impact on the

organization in several different ways.

INTERNAL AND EXTERNAL ENVIRONMENT

The internal environment refers to all factors within an organization that impact strengths or cause weaknesses of a strategic nature. The external environment includes all the factors outside the organization which provide

opportunities or pose threats to the organization.

INTERNAL ENVIRONMENT
1. Strength is an inherent capacity which an

organisation can use to gain strategic advantage e.g.

good reputation among customers, resources, assets,

people, experience, knowledge, data .

2. Weakness is an inherent limitation or constraint

which creates strategic disadvantages e.g gaps in

capabilities, financial deadlines, low morale , etc.

EXTERNAL ENVIRONMENT
3. Opportunity is a favorable condition in the organization's environment which enables it to consolidate and strengthen its position. E.g. economic boom, favorable demographic shifts, arrival of new technologies, favorable global influences.

EXTERNAL ENVIRONMENT
4. Threat is an unfavorable condition in the organization's environment which creates a risk for, or causes damage to , the organization. E.g economic downturn, demographic shifts, new competitors, unexpected shifts in consumer tastes.

SWOT ANALYSIS
SWOT analysis, evolved during the 1960s at

Stanford Research Institute, is a very popular

strategic planning technique having applications

in many areas including management.

Organizations perform a SWOT analysis to

understand
environments.

their

internal

and

external

SWOT analysis technique

Following are the steps of SWOT analysis technique: 1. Setting the objectives of the organization or its unit 2. Identifying its strengths, weaknesses, opportunities and threats 3. Asking four questions a) How do we maximise our strentghs? b) How do we minimise our weaknesses ?

SWOT analysis technique

c) How do we capitalize on the opportunities in our external environment? How do we protect ourselves from threats in our external environment? 4. Recommending strategies that will optimize the answers from the four questions.

ENVIRONEMENTAL ANALYSIS & ENVIRONMENTAL DIAGNOSIS

Environmental Analysis is the process by which strategists continuously monitor the environment in search of opportunities and threats. The strategic decisions emanating from such an analysis comprise the environmental diagnosis process.

ENVIRONEMENTAL ANALYSIS & ENVIRONMENTAL DIAGNOSIS

General
Political Economic Socio-cultural Technological Task (Industry) Customers Suppliers Competition Substitutes New entrants Global trends

Analyze
1. Define the current strategy and spell the underlying assumptions. 2. Forecast the future environment. 3. Perform a gap analysis between step 1 & 2 4. Based on the gap analysis identify the need for strategy reformulation.

Need of Environmental Analysis

1. They can uncover many issues that has an affect on the organizations mission and goals. 2. They might use it to increase their profits ratio. 3. They can know that whether the market is going as they expected it. 4. By using latest technique of the computer intelligence, the businesses get information about their rivals. 5. Many of the third party services who provide this to other companies are doing environmental scanning.

Issues of Appraisal of external Environmental

1. The environment is so complex that it interact with each other and firm`s internal factors. 2. It is difficult to make sense of this diverse impulses . 3. Developments in the general environment often demolish existing industries . 4. They may alter the boundaries of an industry or change the nature of its competition. 5. Even firms within the same industry feel the impact of environmental changes in varying degrees.

Steps in Environmental Appraisal

Step 1: THE strategist attempts to have a bird`s eye view of the nature of the environement the number of elements and their composition , the level of uncertainty, the pace of change and the simplicity.

Steps in Environmental Appraisal

Step 2: Auditing the environmental influences to isolate the key macro elements from the not so important ones, by using scenarios, PEST analysis, etc. and relate these forces to the growing trends of globalisation , consumerism, environmental awareness, etc.

Steps in Environmental Appraisal

Step 3: Focus on the task environment i.e the explicit consideration of the industry within which the firm operates, the competitive battleground. Models such as the five forces analysis conceptualized by Michel Porter are useful in this process.

Five Force Analysis

Supplier Power Barriers to Entry Rivalry Threat of Substitutes

Buying power

Steps in Environmental Appraisal

Step 4: Paint a picture of the view that emerges from the prior three steps. This view must encapsulate the really significant developments and forces that affect the firm strategically, and their interconnections.

Steps in Environmental Appraisal

Step 5: competitive analysis of the firm and its
strategic position within the industry. Techniques

such as strategic group analysis , mapping of firms

in terms of similarities and dissimilarities of the

most profitable segments and the probable

approach of each player in relation to each

segment can prove to be useful.

ENVIRONMENTAL SCANNING
Definition:

It can be difined as the process by which

organisations monitor ther relevant

environment to identify opportunities and threats affecting their business for the purpose of taking strategic decisions.

Factors inflencing environemental scanning

Events are important and specific occurences taking place in different environemental sectors . Trends are the general tendencies or the cources of action along which events take place. Issues are the current concerns that arise in response to

events and trends.

Expectations are the demands made by interested

groups in the light of their concern for issues.

Approaches to environmental scanning

1. Systematic 2. Ad hoc Approach 3. Processed- form approach

Marketing Environment
This consists of A) Task Environment B) Broad Environment a) Task Environment- This includes the actors
engaged in producing, distributing & promoting the offering i.e. the company, suppliers, distributors, dealers & the target customers. In service suppliers include marketing research agencies, advertising agencies, banking& insurance companies, transportation companies & telecommunication companies.

B) Broad Environment It consists of Six components1) Demographic environment 2) Economic Environment 3) Physical Environment 4) Technological Environment 5) political-legal Environment 6)Social- cultural Environment & Developments in these environments

Demographic Environment
The study of human population in terms of size, density, location, age, sex, race, occupation & their statistics.

Economic Environment
Factors including the effects of general economic conditions buying power willingness to spend spending patterns types of competitive structure competitive tools and competitive behaviour that influence both marketers and consumers` decisions activities

General economic Conditions

Business cycle: fluctuations in the economy that follow the general pattern of prosperity, recession, depression & recovery. Prosperity: A period during which unemployment is low and total income is relatively high. Recession: A period during which unemployment rises and total buying power declines.

 Depression: A period during which unemployment is relatively high , wages are very low, total disposable income is at a minimum and consumers lack confidence in the economy.

Political and legal Environment

Laws , government agencies and pressure groups that influence and lomit various organizations and individuals in a given society.

Legal Forces
Precompetitive legislation: Laws enacted to preserve competition and to end various practices deemed unacceptable by society. Office of fair trading: UK govt. office set up to oversee

reading practices of organizations and individual in the UK.

Competition Commission: An independent body in the UK that investigates monopolies to determine whether they operate against the public interest.

 Consumer Protection Legislation, In the UK Fair Trading Act(1973) Sale of goods Act(1979),etc. Growth of public interest groups Consumer Association: a Private organization, funded by members subscriptions, that works to furthe consumer interests. Increased emphasis on ethics and socially responsible actions.

Technological Environment
Technology: the knowledge of how to accomplish tasks and goals. Forces that create new technologies, creating new product & market opportunites.

Issues for accepting new technology Fast pace of technologies change

High R & D budgets

Concentration on minor Improvements

Increased regulation
Effect of technology on society Effect of technology on marketing Technology assessment

Physical Environment
Natural resources that are needed as inputs by marketers or that are affected by marketing activities. issues shortage of raw materials Increased pollution Government intervention in natural resource management

Social/ cultural/ green forces

Cultural Environment: institutions and other forces that affect society`s basic values perceptions preferences and behaviours. Societal / Green Forces: individuals and groups and the issues engaging them that pressure marketers to provide high living standards and

enjoyable lifestyles through socially and enjoyable

lifestyles through socially responsible decisions

and activities.

Cultural Environment
Persistence of cultural values: core and secondary beliefs Shifts in secondary cultural values people`s view of themselves people`s views of others People`s views of organizations People`s views of society People`s views of nature People`s views of the universe.

Social Environment
Living standards and quality of life.
Green movement: the trend arising from society`s

concern about pollution, water disposal ,

manufacturing processes and the greenhouse effect Consumer movement: a diverse collection of independent individuals , groups and organizations seeking to protect the rights of consumers.

International Environment
Globalisation, its process, content and direction. Global economic forces. Global trade and commerce, its process and trends Global financial system, sources of financing. Global financial shifts Global legal system Global markets and competitiveness.

Market environment
Customers of client factors such as needs, preferences , perceptions. Product factors such as demand, image, features , utility, function, design, life cycle. Marketing intermediary factors levels and quality of customer service. Competition-related factors such as different types of customers, etc.

Regulatory environment
The constitutional framework, directive principles,
fundamental rights and division of legislative powers

between central, State and local governments.

Policies related to licensing, monopolies, foreign

investment and financing of industries.

Policies related to distribution and pricing and their

control.

Supplier environment
Cost, , availability of finance for implementing plans and projects. Cost and availability and reliability of energy used in production. Cost, availability and the existence of sources and means for supply of plants and machinery , spare parts and after-sales service. Infrastructural support and ease of availability of the diffrenet factors of production, bargaining power os suppliers and existence of susbstitutes