Environmental Analysis and Internal Analysis | Management Optional Notes for UPSC PDF Download

Strategic Analysis Models And Tools

• Strategic analysis means thoroughly studying a company and its surroundings to come up with a plan.
• It involves looking at various factors that affect a company's strategy.

Key Steps:

• Collecting Data: Finding and evaluating information that matters for the company's plans.

• Understanding Environments: Figuring out what's happening inside and outside the company.

• Analyzing Methods: Using different tools like Porter's five forces, SWOT analysis, and value chain analysis.

Why it Matters:

• Helps a company figure out how to grow and deal with industry challenges.
• Guides better decision-making for the company.

Simplified Approach:

• Strategic analysis is like making a roadmap for a company's future.
• It's about looking at what's going well and what could be a problem.
• We use special tools to understand the company and its surroundings better.

Scanning The Environment

Pestel Analysis

PESTEL analysis is a tool used to study and watch out for big factors outside a company that can strongly impact its performance.

It's super useful when a company is starting or going into a new country.

Purpose:

• It helps to find out what's happening around a company now.
• Identifies things that might change in the future.
• Aims to use these changes as opportunities or defend against them as threats, better than competitors.

1. Political Factors:

• Political factors encompass the influence of government policies and actions on businesses.
• This includes regulations, stability, trade policies, taxation policies, government intervention, and political stability.
• Political factors can significantly impact industries and businesses, especially those operating internationally or in heavily regulated sectors.

2. Economic Factors:

• Economic factors pertain to the broader economic conditions that can affect businesses.
• Elements such as economic growth, inflation rates, exchange rates, interest rates, unemployment rates, and disposable income of consumers fall under this category.
• These factors directly influence consumer spending patterns, business investment decisions, and overall market demand.

3. Social Factors:

• Social factors represent the characteristics, beliefs, attitudes, and lifestyles of the population.
• Demographic trends, cultural norms, values, population growth rates, age distribution, income distribution, and lifestyle choices are considered.
• Understanding social factors helps businesses tailor their products, services, and marketing strategies to specific target demographics.

4. Technological Factors:

• Technological factors refer to advancements, innovations, and changes in technology that can impact industries and markets.
• Factors such as R&D activities, automation, technological awareness, adoption rates, and disruptive technologies are analyzed.
• Businesses must adapt to technological changes to remain competitive and capitalize on emerging opportunities.

5. Environmental Factors:

• Environmental factors focus on ecological and environmental aspects that affect businesses.
• Concerns like climate change, weather patterns, natural disasters, environmental regulations, and sustainability initiatives fall under this category.
• Companies need to be mindful of their environmental footprint and align their operations with sustainable practices to meet regulatory requirements and consumer expectations.

6. Legal Factors:

• Legal factors encompass the laws, regulations, and legal frameworks that govern business operations.
• This includes employment laws, consumer protection laws, antitrust laws, intellectual property rights, health and safety regulations, and compliance requirements.
• Businesses must ensure compliance with legal requirements to avoid penalties, lawsuits, and reputational damage.

Importance of PESTEL Analysis:

• PESTEL analysis provides a comprehensive understanding of the external environment in which a business operates.
• It helps businesses anticipate changes, identify opportunities, and mitigate threats.
• By evaluating these factors, organizations can formulate strategic plans, make informed decisions, and adapt their strategies to changing market dynamics.
• PESTEL analysis is particularly valuable for new ventures, market entry strategies, and strategic planning processes.

Porter’s Five Forces Of Competitive Position Analysis

• Porter's Five Forces is a framework created by Michael E. Porter to assess the competitive strength and position of a business.
• It identifies five forces that shape the competitive landscape and attractiveness of a market.
• Helps to understand where power lies in a business scenario and evaluate competitive positions.

The Five Forces:

1. Supplier Power:

   • Determines how easily suppliers can increase prices.
   • Factors include the number of suppliers, uniqueness of their products, and switching costs for buyers.

2. Buyer Power:

   • Assess how easily buyers can lower prices.
   • Considerations include the number of buyers, their importance, and switching costs for buyers.

3. Competitive Rivalry:

   • Reflects the number and strength of competitors.
   • More competitors offering similar products reduce market attractiveness.

4. Threat of Substitution:

   • Indicates the likelihood of customers switching to alternatives.
   • Close substitutes decrease supplier power and market attractiveness.

5. Threat of New Entry:

   • Examines the potential for new competitors entering the market.
   • Profitable markets attract new entrants, reducing profitability unless there are barriers to entry.

Environment Threat And Opportunity Profile

• ETOP is a method to organize and understand the business environment. It was created by Glueck.
• It gives a summary of factors outside a business that can affect it, helping managers make strategic decisions.

Process:

• ETOP divides the environment into different sections and looks at the impact of each factor on the organization.
• It can be detailed, breaking down each section into smaller factors, or summarized, focusing on the major ones.
  

Important Dimension to Consider:

1. Issue Selection:

   • Managers should focus on important issues like market share, pricing, customer preferences, tech changes, and economic policies.
   • Selecting the right issues is crucial to avoid incorrect priorities.

2. Accuracy of Data:

   • Collect data from reliable sources to ensure the analysis is meaningful.
   • Consider factors like relevance, importance, manageability, variability, and low cost of data.

3. Impact Studies:

   • Study the impact of opportunities and threats on the company's strengths, weaknesses, competitive position, and overall mission.
   • Strive for objective assessments to make informed decisions.

4. Flexibility in Operations:

   • Acknowledge uncertainties in business situations.
   • Companies benefit from being proactive and flexible in their plans, structures, and strategies.
   • Maintaining an optimum level of flexibility is crucial.

Increasing flexibility in an organization involves several essential elements:

1. Clearly articulate the flexibility strategy so that managers can easily embrace it in unique situations.
2. Regularly review and modify strategies as needed to ensure they remain effective.
3. Anticipate and address exceptions to established strategies in advance. This allows managers to deviate from strategies when necessary.
4. While flexibility may incur costs for implementing changes and adjusting plans, it is crucial for organizations to be agile and responsive in meeting urgent challenges.

Value Chain Analysis

• Value chain analysis is a business management strategy that dissects a company's activities into primary and support activities to understand how they contribute to the creation of value for the final product or service.

Purpose and Significance:

• The primary purpose is to identify areas of a company's operations that contribute to its competitive strength.
• By understanding the value chain, businesses can make strategic decisions to optimize processes, reduce costs, and enhance differentiation.

Michael Porter's Classification:

• Michael Porter categorized the value chain into nine activities that are interrelated and contribute to a company's overall competitiveness.

Classification of Value Chain Analysis

Value Chain Analysis is grouped into primary or line activities, and support activities discussed as under:

Primary Activities

1. Inbound Logistics:

   • Involves receiving, storing, and distributing inputs (raw materials, components, etc.) needed for production.

2. Operations:

   • Focuses on the actual transformation of inputs into final products through activities such as machining, assembling, and packaging.

3. Outbound Logistics:

   • Manages the collection, storage, and delivery of finished products to customers.

4. Marketing and Sales:

   • Encompasses all activities related to promoting, advertising, selling, and creating demand for products or services.

5. Service:

   • Provides post-sale services to customers to maintain or enhance the value of the product. Includes after-sales support, financing, etc.

Support Activities

1. Procurement:

   • Involves the acquisition of inputs like materials and machinery necessary for primary activities.

2. Technology Development:

   • Focuses on research and development to improve technology, offering a competitive edge.

3. Human Resource Management:

   • Oversees activities related to staff selection, retention, promotion, transfer, performance appraisal, and dismissal.

4. Infrastructure:

   • Provides essential management services to the entire organization, including planning, finance, information management, quality control, legal, and government affairs.

Focus Areas for Analysis:

• Issue Selection:

  • Clearly define the strategy for flexibility in unique situations.
  • Regularly review and modify strategies as required.
  • Anticipate and handle exceptions to strategies beforehand.

• Accuracy of Data:

  • Collect data from reliable sources to ensure meaningful environmental scanning.
  • Consider factors such as relevance, importance, manageability, variability, and low data cost.

• Impact Studies:

  • Conduct impact studies focusing on opportunities, threats, and critical issues.
  • Evaluate effects on strengths, weaknesses, competitive position, mission, and vision.

• Flexibility in Operations:

  • Acknowledge uncertainties and devise proactive and flexible strategies in plans, structures, and operations.
  • Maintain an optimum level of flexibility.