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Environmental AppraisalEnvironmental Appraisal
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Characteristics of EnvironmentCharacteristics of Environment Environment is complex: It comprise of
surroundings, external subjects, influences thataffect the organization
Dynamic: Continuous change take place
(shape, size and character) Multi faceted: Ex, new development is taken
as opportunity by some organization whileother consider it as threat.
Environment has far reaching impact:growth of industry and profitability greatlydepend on the changes taking place in theexternal environment
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Environmental AppraisalEnvironmental Appraisal
y External environment: factors outside the
organization which provide opportunity
and pose threatto organization
y Internal environment refers to the factors
with in the organization which enhances
strength and minimizes Weakness.
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SWOTSWOT
y Opportunity: Favorable conditions which
strengthen/ consolidates organization
position.
y Threat: Unfavorable org. environment
creating risk for organization ex: newcompetitors
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y Strength: Inherent capacity of an
organization which has strategic
advantage over its competitors. Ex:
superior R&D
yWeakness: Inherent limitation or
constraints creating strategic disadvantage
ex: overdependence of single product lineis risky for a company in crisis time.
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Factors for environment appraisalFactors for environment appraisal
y To draw the clear picture of opportunitiesand threat, necessary to appraise the
environment
Strategist related factor: Since strategist plays
a central role formulation of strategies.Their
characteristic such as age, education,
experience, motivational level, style
Organizational related factors: Nature of
business, size & complexity and market nature
Environmental related factors: Nature of
environment such as: complexity, volatility and
diversity.
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Step 1: Environmental ScanningStep 1: Environmental Scanning
y The process by which organization
monitor their relevant environment to
identify opportunity & threats affecting
their business:
Event: Important and specific occurrence in
environment area like gas leakage in union
carbide Trends:These are the general tendencies or
course of action along which event takes
place ex: focus on safety measures
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y Issues:These are the current concern
arising in response to event & trend ex;
event arising of environmental pollution
y Expectations:These are the demands
made by interested groups with respond
to issues Ex: general public expects Govt.
to make the legislation/ rules & regulationabout safety measures in public interest
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Organizational Appraisal
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REQUIREMENTS FORREQUIREMENTS FOR
ORGANIZATIONALORGANIZATIONALAPPRAISALAPPRAISAL
Organization capability- Capacity & ability to use distinctive
competencies to excel in a
particular field
- Ability to use its S & W to exploit O
& T in its external environment
Organization resources
- Physical & humancost, availability - strength / weakness
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ORGANIZATIONALAPPRAISALORGANIZATIONALAPPRAISAL
Organization behavior
Identity character of an organization
leadership, Mgt. Philosophy, values, culture, Qly
of work environment, Organization climate,
organization politics etc.Resource Behavior
Distinctive competence - Any advantage a company has
over its competitor- it can do something which theycannot or can do better- opportunity for an organization
to capitalize - low cost, Superior Quality, R&D skills
etc.
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METHODS & TECHNIQUES USEDMETHODS & TECHNIQUES USED
FORORGANIZATIONALAPPRAISALFORORGANIZATIONALAPPRAISAL
Comprehensive, long term
Financial Analysis - Ratio Analysis, EVA,ABC
Key factor rating - Rating of different factorsthrough different questions
Value chain analysis
VRIO framework
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METHODS & TECHNIQUES USED FORMETHODS & TECHNIQUES USED FOR
ORGANIZATIONALAPPRAISALORGANIZATIONALAPPRAISAL
BCG, GE Matrix , McKinsey 7S
Balanced ScorecardCompetitive Advantage Profile
Strategic Advantage profile
Internal FactorAnalysis Summary
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ORGANIZATIONALAPPRAISALORGANIZATIONALAPPRAISAL
Organizational Capability Profile (OCP) - Weakness(-5),
Normal(0), Strength(5)Financial Capability Profile
(a) Sources of funds
(b) Usage of funds(c) Management of funds
Marketing Capability Profile
(a) Product related
(b) Price related
(c) Promotion related
(d) Integrative & Systematic
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ORGANIZATIONALAPPRAISALORGANIZATIONALAPPRAISAL
Operations Capability Factor(a) Production system
(b) Operation & Control system
(c) R&D system
Personnel Capability Factor(a) Personnel system
(b) Organization & employee characteristics
(c) Industrial Relations
General Management Capability
(a) General Management Systems
(b) External Relations (c) Organization climate
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EXAMPLES OF ORGANIZATIONALEXAMPLES OF ORGANIZATIONAL
CAPABILITYPROFILECAPABILITYPROFILE
Financial Capability
Bajaj - Cash Management
Reliance - high investor confidence
Marketing CapabilityHindustan Lever- Distribution Channel
IDBI/ICICI Bank- Wide variety of products
Tata - Company / Product Image
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EXAMPLES OF ORGANIZATIONALEXAMPLES OF ORGANIZATIONAL
CAPAB
IL
ITYPR
OFIL
ECAPAB
IL
ITYPR
OFIL
EOperations Capability
Lakshmi machine works - absorb imported technology
Balmer & Lawrie - R&D -New specialty chemicals
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EXAMPLES OF ORGANIZATIONALEXAMPLES OF ORGANIZATIONAL
CAPABILITY PROFILECAPABILITY PROFILE
General management capability
Malayalam Manaroma
largest selling newspaper
Unchallenged leadership - Unified, stable
Best edited & most professionally produced
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VRIO FRAMEWORKVRIO FRAMEWORK
Resource- asset, competency, skill,knowledge
e.g. patents, brand name,
y Value : Does it provide competitive advantage?
y Rarity: Do other competitors possess it?
y Imitability: Is it costly for others to imitate?
y Organisation : Is the firm organised to exploit the
resource?
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VRIO FRAMEWORK . . .VRIO FRAMEWORK . . .
y A resource is an asset, skill, competency or
knowledge controlled by the corporation.
y A resource is a strength if it providescompetitive advantage
y e.g. patents, brand name, economies of scale,
idea-driven, standardized mass production
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ETOP (EnvironmentalThreatETOP (EnvironmentalThreat
Opportunity Profile)Opportunity Profile)y Environmental Sectors
Social
PoliticalEconomic
Regulatory
Market
SuppliersTechnological
Customer preference for sports cycles,
which are fashionable
No significant factor
Growing affluence among urban consumer potential
is high
Bicycle industry a thrust area for export, industry
growth 7 to 8%, product 30%
Mostly ancillaries & associated companies supplies
parts & componentsTechnological up gradation of industry in progress
Favorable
impact
Neutral
impact
unfavorable
impact
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y This analysis helps the strategist to
understand about the various factors that
can have positive impact on the growth of
the industry
y This would further help the organization
in formulating better strategies
ETOP (EnvironmentalThreatETOP (EnvironmentalThreat
Opportunity Profile)Opportunity Profile)
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SAP (strategic advantage profile)SAP (strategic advantage profile)
y Based on the details ofOCP it is easy to
prepare SAP.
y SAP provide a picture of critical areas
which can have a relationship of the
strategic posture of the firm in the future
y In this upward arrow denotes Strength,
denotes weakness. Denotes neutralposition.
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SAP (Strategic Advantage Profile)SAP (Strategic Advantage Profile)
Capability factor Competitivestrength and weakness
Finance High cost of capital
Marketing Fierce competition in the industry, companyposition is secure
Operation plant and machinery in excellent condition,
ancillaries & associated parts are available
Personal quality of managers and workers
comparable with that in competitive companies
General Management sound and proactive decision making
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Significance ofSAPSignificance ofSAP
y SAP indicates that strategists initiate
action to cove the gaps and use the
companys strength with respect to the
environmental threats and opportunities(ETOP)