MODULE 3:

ENVIRONMENTAL
APPRAISAL
 ENVIRONMENT
• MEANING:
Environment literally means the surroundings, external objects,
influences, or circumstances under which someone or something
exists. The environment of any organisation is ‘the aggregate of all
conditions, events and influences that surround and affect it.’
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CHARACTERISITICS OF ENVIRONMENT:
Environment is complex
Environment is dynamic
Environment is multi-faceted
Environment has a far-reaching impact
The Business Environment of an
Organization (elements of
environment)
 Conti…
The external environment encompasses a variety of sectors like
international, national, and local economy, social changes, demographic
variables, political systems, technology, attitude towards business,
energy sources, raw materials and others resources, and many other
macro-level factors. These are categorized as the general environment.

The immediate concerns of any organisation are confined to just a part

of the general environment which is of high strategic relevance to the
organisation. This part of the environment could be termed as the
immediately relevant environment or simply, the relevant environment.
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INTERNAL ENVIRONMENT
The internal environment refers to all factors within an organisation
that impact strengths or cause weaknesses of a strategic nature.
EXTERNAL ENVIRONMENT
The external environment includes all the factors outside the
organisation which yield opportunities or pose threats to the
organisation.
 EXTERNAL ENVIRONMENT
1. ECONOMIC: It consists of macro-level factors related to the means of production
and distribution of wealth that have an impact on the business of an organisation.
Some of the important factors include :
• The economic stage in which a country exists at a time such as agrarian, industrial or
post-industrial economy
• The economic structure adopted, such as a capitalistic, socialistic or mixed economy
• Economic policies such as industrial, monetary (ex: interest rate) and fiscal (ex: tax)
policies.
• Economic planning, such as five-year plans, annual budgets, etc.
• Economic indices like national income, distribution of income, rate and growth of GNP,
per capita income, disposable personal income, rate of savings and investments, value
of exports and imports, the balance of payments, etc.
• Infrastructural factors such as financial institutions, banks, modes of transportation,
and communication facilities, etc.
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2. INTERNATIONAL/GLOBAL: It consists of all those factors that operate at the
transnational, cross-cultural or across-the-border level having an impact on the business of
an organisation.
Some of the important factors include:
• Globalization, its process, content and direction
• Global economic forces, organisations, blocs, and forums (WTO, G20)
• Global trade and commerce, its processes and trends (ex: free trade)
• Global financial system, sources of financing, and accounting standards (World Bank,
International Monetary Fund)
• Geopolitical situation, equations, alliances. (ex: Russia-Ukrain war)
• Global demographic patterns and shifts (ex: aging population demand for healthcare)
• Global human resource: institutions, availability, nature and quality of skills and
expertise, mobility of labour and other skilled personnel (ex: silicon valley hiring Indian
engineers)
• Global information system, communication networks, and media.
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3. MARKET: It consists of factors related to the groups and other organisations
that compete with and have an impact on an organisation's markets and
business.
Some of the important factors includes:
• Customer or client factors such as the needs, preferences, perceptions,
attitudes, values, bargaining power, buying behaviour.
• Product factors such as the demand, image, features, utility, function, design,
life cycle, price, promotion, distribution.
• Marketing intermediary factors such as levels and quality of customer
service, middlemen, distribution channels, logistics, costs, delivery systems
and financial intermediaries.
• Competitor-related factors such as the different types of competitors, entry
and exit of major competitors, nature of competition.
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4. POLITICAL: It consists of factors related to management of public affairs by
the state including its institutions and legislations and their impact on the
business of an organisation.
Some of the important factors include:
• The political system and its features like nature of the political system,
ideological forces, political parties and centers of power.
• The political structure, its goals and stability.
• Political philosophy, government's role in business, its policies and
interventions in economic and business development.
• Political processes like operation of the party system, elections, funding of
elections, formation of governments and legislation with respect to economic
and industrial promotion and regulation.
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5. REGULATORY: It consists of factors related to planning, promotion, and
regulation of economic activities by the government that have an impact on the
business of an organisation.
Some of the important factors includes:
• The constitutional framework, directive principles, fundamental rights, and
division of legislative powers between the 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.
• Policies related to imports and exports.
• Other policies related to the public sector, small-scale industries, sick industries,
development of backward areas, control of environmental pollution and
consumer protection.
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6. SOCIO-CULTURAL: It consists of factors related to human relationships within the
society, the development, forms & functions of such a relationship and learned & shared
behaviour of groups of human beings having a bearing on the business of an organization.
Some of the important factors include:
• Demographic characteristics, such as population, its density and distribution, changes in
population and age composition.
• Socio-cultural concerns such as environmental pollution, consumerism, corruption, use of
mass media.
• Socio-cultural attitudes and values, such as expectation of society from business, social
customs, beliefs, rituals and practices.
• Family structure and changes in it, attitude towards and within the family, and family
values.
• Role and position of men, women, lesbian, gay, bisexual and transgender (LGBT)
community members, children, adolescents, and aged in family and society.
• Educational levels, awareness and consciousness of rights.
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7. SUPPLIER: It consists of factors related to the cost, reliability, and availability
of the factors of production or service that have an impact on the business of
the organization.
Some of the important factors includes:
• Cost, availability and continuity of supply of raw materials, sub assemblies,
parts and components.
• Cost, availability and the existence of sources and means for supply of
machinery, spare parts and after-sale service.
• Cost and availability of finance for implementing plans and projects.
• Cost, reliability and availability of energy used in production.
• Infrastructural support and ease of availability of the different factors of
production, bargaining power of suppliers, and existence of substitutes.
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8. TECHNOLOGICAL SECTOR: It consists of those factors related to knowledge
applied and the material and machines used in the production of goods and
services that have an impact on the business of an organization.
Some of the important factors includes:
• Sources of technology like internal sources, external sources; cost of
technology acquisition; collaboration in, and transfer of, technology.
• Technological development, stages of development, change and rate of
change of technology, and research and development.
• Impact of technology on human beings, the man-machine system, and the
environmental effects of technology.
• Communication and infrastructural technology in management.
 INTERNAL ENVIRONMENT/
ORGANZATIONAL CAPABILITY
FACTORS
1. Financial Capability:
Factors relate to the availability, usage and management of funds and all allied
aspects that have a bearing on an organisation’s capacity and ability to implement
its strategies. Some of the important factors which influence the financial capability
of any organisation are as follows:
• Factors related to sources of funds: capital and credit availability, reserves and
surplus and relationship with lenders, banks and financial institutions.
• Factors related to the usage of funds: dividend distribution and relationship with
shareholders.
• Factors related to the management of funds: Financial accounting and budgeting
systems, cost reduction and control; and tax planning and advantages.
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Strengths that support Financial Capability:
• Access to financial resources
• Amicable (exhibiting goodwill) relationship with financial institutions
• High level of credit-worthiness
• Efficient capital budgeting system
• High level of shareholder’s confidence
• Effective management control system
• Tax benefits due to various government policies.
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2. Marketing Capability
Factors relate to the pricing, promotion and distribution of products or
services, and all the allied aspects that have a bearing on an organisation’s
capacity and ability to implement its strategies. Some of the important
factors which influence the marketing capability of an organisation are as
follows:
• Product related factors : Variety, differentiation, positioning, packaging etc.
• Price-related factors: pricing objectives, changes, advantages, etc.
• Place-related factors: Distribution, transportation and logistics etc.
• Promotion-related factors: sales promotion, advertising, public relations,
etc.
• Integrative and systemic factors: Market standing, company image.
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Strengths that support Marketing Capability:
• Wide variety of products
• Better quality of products
• Sharply focused positioning
• Low prices as compared to those of similar products in the market
• High quality customer service
• Effective distribution system
• Effective sales promotion
• High-profile advertising
• Favorable company and product image
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3. Operations Capability:
Factors relate to the production of products or services, use of material
resources, and all allied aspects that have a bearing on an organisation’s
capacity and ability to implement its strategies. Some of the important factors
which influence the operations capability of an organisation are as follows:
• Factors related to the production system: Capacity, location, layout, product
or service design, degree of automation, the extent of vertical integration,
etc.
• Factors related to the operations and control system: aggregate production
planning, inventory, cost and quality control; maintenance systems and
procedures, etc.
• Factors related to the R & D system: facilities, product development, patent
rights, technical collaboration and support, etc.
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Strengths that support operations capability
• High level of capacity utilization
• Favorable plant location
• High degree of vertical integration
• Reliable sources of supply
• Effective control of operational costs
• Existence of good inventory control system
• Availability of high caliber R&D
• Technical collaboration with reputed firms abroad
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4. Personnel Capability
Factors relate to the existence and use of human resources and skills, and all allied
aspects that have a bearing on an organisation’s capacity and ability to implement its
strategies. Some of the important factors which influence the personnel capability of
an organisation are as follows:
• Factors related to the personnel system: Systems for manpower planning, selection,
development, compensation, communication and appraisal; the position of the
human resource management department within the organisation, procedures and
standards, etc.
• Factors related to organisational and employees characteristics: Corporate image,
quality of managers, staff and workers; perception about and image of the
organisation as an employer, availability of developmental opportunities for
employees, working conditions, etc.
• Factors related to industrial relations: Union-management relationship, safety,
welfare and security; employee satisfaction and morale, etc.
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Strengths that supports personnel capability:
• Genuine concern for human resources management (HRM) and
development
• Efficient and effective HRM systems
• The organisation perceived as a fair and model employer
• Excellent training opportunities and facilities
• Congenial (pleasant) working environment
• Highly satisfied and motivated workforce
• High level of organisational loyalty
• Low level of absenteeism
• Safe and salutary working conditions
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5. Information Management Capability
Factors relate to the design and management of the flow of information from outside into, and
within, an organisation for the purpose of decision making and all allied aspects that have a
bearing on an organisation’s capacity and ability to implement its strategies. Some of the
important factors which influence the information capability of an organisation are as follows:
• Factors related to acquisition and retention of information: Sources, quantity, quality and
timeliness of information, retention capacity and security of information.
• Factors related to processing and synthesis of information: Database management, computer
systems, software capability and ability to synthesize information.
• Factors related to retrieval and usage of information: availability and appropriateness of
information formats and capacity to assimilate (understand) and use information.
• Factors related to transmission and dissemination: Speed, scope, width and depth of coverage
of information, and willingness to accept information.
• Integrative, systemic and supportive factors: availability of IT infrastructure, its relevance and
compatibility to organisational needs, upgradation of facilities, willingness to invest in state-of-
the-art systems, availability of computer professionals and top management support.
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Strengths that support Information Management Capability
• Ease and convenience of access to information sources
• Widespread use of computerized information system
• Positive attitude to sharing and disseminating information
• Wide coverage and networking of computer systems
• Presence of foolproof information security systems
• Presence of buyers and suppliers conversant with IT applications
• Top management understanding of, and support to, IT and its
application within organisation
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6. General management capability
Relates to the integration, coordination and direction of the functional capabilities towards
common goals and all allied aspects that have a bearing on an organisation’s capacity and
ability to implement its strategies. Some of the important factors which influence the general
management capability of an organisation are as follows:
• Factors related to the general management system: Strategic management system,
processes related to setting strategic intent, strategy formulation and implementation,
strategy evaluation system, corporate planning system etc.
• Factors related to general managers: Orientation, risk-propensity, values, norms, personal
goals, competence, capacity for work, track record, balance of functional experience, etc.
• Factors related to external relationships: Influence on and rapport with the government,
regulatory agencies and financial institutions; public relations; commitment to sustainability,
consciousness of social responsibility; zeal for philanthropy, public image as corporate
citizen, etc.
• Factors related to organisational climate: Organisational culture, use of power, introduction,
acceptance and management of change; nature of organisational structure and controls, etc.
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Strengths that support general management capability
• Effective system for corporate planning
• Control, reward and incentive system for top managers geared to the
achievement of objectives
• Entrepreneurial orientation and high propensity for risk-taking
• Good rapport with the government and bureaucracy
• Top management conscious of sustainability impact of decisions
• Favorable corporate image
• Commonly being perceived as a good organisation to work for
• Development-oriented organisational culture
• Effective management of organisational change
 SWOT ANALYSIS
MEANING
Organisations perform SWOT analysis to understand their internal and
external environments.
Through such an analysis, the strength and weaknesses existing within an
organisation can be matched with the opportunities and threats operating
in the environment so that an effective strategy can be formulated.
An effective organisational strategy, therefore, is one that capitalizes on
the opportunities through the use of strengths and neutralizes the threats
by minimizing the impact of weaknesses to achieve pre-determined
objectives.
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STEPS IN SWOT ANALYSIS TECHNIQUE

1. Setting the objectives of the organisation or its unit
2. Identifying strengths, weaknesses, opportunities and threats
3. Asking four questions
(a) how do we maximize our strengths?
(b) how do we minimise our weaknesses?
(c) how do we capitalize on the opportunities in our external
environment?
(d) how do we protect ourselves from threats in our external
environment?
4. Recommending strategies that will optimize the answers from the four
questions
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BENEFITS OF SWOT ANALYSIS PITFALLS OF SWOT ANALYSIS
• Simple to use • Oversimplified
• Low cost • Might just turn into a list than
• Flexible and can be adapted to thinking about what is important.
varying situations • Misinterpreted to justify a previous
• Leads to clarification of issues course of action.
• Development of goal-oriented • May take a lazy course of action of
alternatives looking at strengths.
• Useful as a starting point for
strategic analysis
Conti…
Generating Strategic
Alternatives through TOWS
Matrix
EXTRA
 Example 1: Tata Motors (Automobile Industry)

Strengths (S)
•Strong brand reputation Weaknesses (W)
•Diversified product portfolio •High debt levels
•Advanced R&D capabilities •Dependency on the Indian market
Opportunities (O) Threats (T)
• Growing demand for electric vehicles • Intense competition from
(EVs) domestic and international
• Expansion into international markets players
• Government incentives for the • Fluctuating raw material prices
automobile sector
• Regulatory changes
 Strategies TATA motors (automobile industry)

SO (Strengths-Opportunities): Utilize WO (Weaknesses-Opportunities):

advanced R&D capabilities to innovate Reduce debt levels through strategic
and expand the EV portfolio, capitalizing alliances and joint ventures, enabling
on government incentives. expansion into international markets.
ST (Strengths-Threats): Leverage WT (Weaknesses-Threats):
strong brand reputation to Implement cost-saving measures
maintain market share and and diversify sourcing to manage
navigate through intense fluctuating raw material prices
competition. and mitigate regulatory risks.
END