Nepalese Business Environment
Environmental Analysis
Lesson 1
Contents
1.
2.
3.
4.
Concepts of Nepalese Business Environment
Components of Nepalese Business Environment
Environmental Scanning/Analysis (including some practical examples)
Environmental Analysis and its use in Strategic Management
Concept of Nepalese Business Environment
The term Business Environment is composed of two words ‘Business’ and
‘Environment’. In simple terms, the position in which a person remains busy is
known as Business. The word Business in its economic sense means human
activities like production, extraction or purchase or sales of goods that are performed
for earning profits.
On the other hand, the word ‘Environment’ refers to the aspects of surroundings.
Therefore, Business Environment may be defined as a set of conditions – Socialcultural, Legal, Economical, Political that are uncontrollable in nature and affects the
functioning of organization. A business firm is an open system. It establishes,
operate and grow in society, which is surrounded by environmental components. It
gets resources from the environment and supplies its goods and services to the
environment.
Business environment consists of all components of the surroundings of a business
organization, which affect or influence its operations and determine its effectiveness.
Environment is dynamic and it is changing with time, so it is very difficult to predict.
A organization which is operating successfully at present may not be success in the
future if that organization is unable to adapt and react to the changing environment.
So, managers need to estimate and forecast environmental influence to sustain its
business operation in a competitive environment. It is necessary to maintain regular
monitoring on environmental changes, which is helpful to grab the opportunities
available and prepare to deal with the threat and challenges.
Environment refers to all internal and external forces that influence the development,
performance and results of a business organization. Environmental forces determine
the effectiveness of an organization.
The organizational environment can help or hurt management’s efforts to attain
organizational goals as it consists of all the forces that influence the organization.
Managers in all types of organizations must consider how the environment affects
their decisions and activities so that they will be able to react or adjust to potential
threats, recognize opportunities, and plan for the future.
Business organization cannot exist and operate without environment. Every
business organization obtains inputs from environment, transforms them into outputs
and again supplies to the environment. Broadly, there are two types of environmentinternal and external.
 Keith Davis defines Business environment as “the aggregate of all conditions,
events, and influences that surround and affect a business.”
 Arthur M.Weimer “Encompasses the climate or set of conditions such as
economic, social, political or institutional in which business operations are
conducted.”
Factors affecting business decision
Components of Nepalese Business Environment
 The components of business environment can be classified into two brand
categories:
 Internal environment
 External environment

Internal environment
All condition and forces within the organization affecting a business operation is
internal environment. Such environment components can be controlled by the
management.
The component of internal environment consists of owners or shareholders, board of
directors, resources and organizational structure and organization culture. The
components of internal environment, to some extent, are controllable to the
management.
Components of Business Environment
1. Owner /Shareholders
Owners and shareholders represent ownership of the organization. They are the
investors who have direct interest in the welfare and prosperity of a business
organization. They have the legal right on the property and assets of the business. In
sole trading concerns they are known as sole proprietors, in partnership firms as
partners and in joint stock companies, they are known as shareholders. Depending
upon types of organizations and the nature of business, they are directly or indirectly
involved in management of the business.
2. Employees
They are the assets of an organization. Without the cooperation of employees and
their productivity, an organization cannot attain its expected goals. Employees tend
to differ in terms of belief, education, attitudes, and capabilities but they should focus
on the same values and goals of the organization they are part of.
Employees help create the climate within which the organization functions both
through their work ethic and work values they follow on the job. Some employees
focus on monetary incentives and some may be concerned with challenging work,
service and commitment of the organization. Employees affect the activities and
performance of the organization so organization should create a congenial working
environment for them.
3. Board of directors:
BOD also influences the business activities..They are the separate body of the
organization which represents the management aspects of the organization.
Shareholders elect a board of directors to represent them in overall management
and performance of the organisation.They set objectives, policies, plans and
strategies for the company with a common goal. Their responsibility is to run the
business in the best interest of the shareholders and other stakeholders. They are
also involved in the preparation of long term plans and business strategies of the
organization.
4. Organizational culture:
Culture is the general pattern of behavior, shared beliefs, and values that members
in an organization have in common .Culture makes people understand what the
company stands for and why it stands for. It also makes people clear on what it
considers important and how it performs the activites to address those importances.
Culture can also be understood from what people say, do, and think within an
organizational setting.
Culture is influenced by both internal and external environment factors.
Organizational culture influences the organizational change and decision making.
Culture has a major role to play in shaping managerial behavior and overall
effectiveness as well as long term success of the organization. Culture also affects
the way the managerial functions of planning, organizing, staffing, leading and
controlling
5. Organisational Structure
It influences the way how business activities are conducted. It involves individuals,
groups, division of work, job description, hierarchy of authority and responsibility as
well as coordination among the departments and individuals. It clearly defines
relationship among managers and subordinates. So, organization is the overall
framework of all these individual roles and their interrelationships, responsibilites,
authority relations and hierarchy in the organization. In this dynamic environment
organizational structure needs to be flexible to deal and adapt the changing
condition. It influences the way how business activities are conducted.
6. Organizational labor unions:
Unions in organization refers to a group of workers who unite together to bargain
with company for their common interest. Labor unions represent and protect the
employee’s rights and address their problems. Labor and management interact with
each other on various issues such as negotiation on wages, working conditions,
hours and benefits for workers. The goals of the labor unions are to improve working
conditions and wages by bringing power to the workers. Labor unions can bring
changes to the practices of the human resources and influence the decision making
.Thus, unions play a great role and affect directly or indirectly the internal
management of the organization.
7. Organizational resources
For effective operation of the business, every organization needs resources
consisting human, financial, physical and information. The success and failure of the
organization depends upon the effective and efficient utilization of these resources.
In business operations all the resources have equal importance, however,human
resources plays a major role in mobilizing other resources.
External Environment
The external environment refers to forces and institutions outside the organization
that potentially can affect the organization’s performance. The external forces such
as competitors, customers, government, technology, economy etc. can have a major
effect on the organization’s ability to achieve its goals. Managers at all level must be
aware of those external forces and pay considerable attention to help their
organizations compete effectively and survive.
 The external environment can further be classified into two categories:
1. Specific or task
2. General
1.
Specific or task environment
The task environment consists of specific organization or groups that influence an
organization’s performance. Such environments have a direct and immediate impact
on the managerial decision and actions and are directly relevant to the achievement
of organizational goals. Forces in the task environment come from the action of
suppliers, customers, new entrants, substitutes and other competitors. The task
environment is also called competitive or operating environment.
Each organization may have a unique task environment and it may change in
accordance with time and situation.
 The task environment consists of competitors, customers, suppliers, government,
pressure groups, media, financial institutions and strategic alliances.
1. Customers:
Customers purchase the products or services from the business firms or
companies, so they are the source of revenue for the organization. They represent
potential uncertainty to an organization because their tastes and preference may
change with the change in time and fashion. New products and services, new
methods of marketing and more discriminating customers have all added uncertainty
to organizations. A satisfied customer of today may not be satisfied tomorrow
through the same types of goods and services. Since, they are also sources of
ideas, opinions, information and reaction it is important to collect information about
preferences and demands of customers through market research, survey and report
from representatives.
2. Suppliers
Suppliers are the parties and the institutions that provide or supply raw materials,
machines and other resources to organizations. The management of every
organization looks for regular available of inputs or needed resources at lower
prices, better quality and quick delivery, and convert those resources into product or
services to sell.
Organisations are at disadvantage if they become overly dependent on any powerful
supplier. A supplier is powerful if the suppliers of same category resources are less
or if the supplier has many other buyers. For example: If computer companies can
only go for Microsoft for software or to Intel for microchips, those suppliers can
exercise a great deal of pressure. So, choosing the right supplier is an important
strategic decision for managers. Suppliers can affect manufacturing time, product
quality and inventory levels. The relationship between suppliers and organization
keep on changing so now a day’s close supplier-company relationship has been
used by the organization.
3. Competitors
Competitors are the business rivals that compete with the organization for
resources, market and its customer or market share. In this free market or
globalization, no business can ignore competition in market. Organization must
analyze the competition and establish a clearly defined marketing strategy in order
to increase market share and provide maximum customer satisfaction.
When organisation competes for same market and its customers at other expense,
all must react to and anticipate their competitor’s actions. Today’s business firms
face a huge competition in the market. So, managers need to work out strategies to
tackle with competitors. Information on market behavior and competitors strategies
is gathered and analyzed to identify future opportunities and threat of the firms. The
first question to consider is: Who are the competitors? Coca-cola and Pepsi are
competitors, Choudhary and Himalayan Snacks are competitor’s etc.So for a
manager a first step in understanding their competitive environment, organization
must identify their competitors. Once competitors have been identified, the next step
is to analyze how they compete. Competitors use tactics like price reductions, new
product introductions and advertising campaigns to gain advantage over their rivals.
4. Government
They are concerned with making rules and regulation for the betterment of the
business and economy of the country. They play active role to control unfair
business practices and to protect public interest. All business organizations need to
perform their business activities within the rules and regulation made by the
government. Business laws and stable government are very important for shaping
the business and economy of the country, the success of the business organization
depends on how the changing business laws and the position of the government
stable or unstable helps the business environment to form properly to help business
organization establish, grow and operate.
5. Pressure group
Pressure groups are social interest groups, which may also create problems and
difficulties in business activities. Managers must recognize such groups and
indentify their special interests. Such group includes human right activists, labor
unions associated political parties, women activists, environment protection agency,
consumer associations etc, and such groups have special interests to protect the
society as a whole by creating attention of the media if any business organizations
go against the values, culture, environment, in the society. These groups monitor
how organisations comply with government regulations at the national and local
level. Although they have no authority their public activities like strike and rally public
opinion can create pressure on government or business into making or changing
rules and practices.
6. Financial Institutions:
They are the providers of funds or capital to business houses, they are all
commercial banks, development banks, finance companies and insurance
companies to meet their short term and long term financial needs and other service
requirements. Their credit policy directly affects the operation, expansion and
diversification of business activities. Every business organization needs to maintain
good relationship with financial institutions.
7. Strategic Alliances:
 When two or more companies work together in a joint venture or other
partnership form it is called strategic alliances. Such alliances helps the
companies to gain synergy advantage as they can share expertise, technologies,
market, human and financial resources but it can result in threat to other
companies.
8. Substitute product:

Advanced technology and efficiency are the ways that companies can use to
develop substitutes for existing products. Like Buddha Airlines has good service
and market, but it also competes as a substitute with bus companies like Green
line Travels, Golden Travels and other tourist buses and rental car services such
substitute product or service can limit the another industry’s revenue potential.So
companies at present who substituted other companies product or service can
experience similar threat by new substitute product or service if they don't focus
on using strategies to protect their market share.
General Environment
 The components of general environment are as follows:
 Economic environment
 Political-legal environment
 Socio-cultural environment
 Technological environment

Economic Environment
Economic forces are related to national economic system. A number of economic
factors such as economic planning and control, national income, industrial policies,
fiscal and monetary policies, investments, savings, inflation and international
economic activities reflect economic environment.
This environment affects company’s ability to function effectively and influences their
strategic choices. Some countries have centrally planned economies controlled by
the state. In such countries, government sets the rules for business ownership
manufacturing output, supply purchasing, pricing and other economic activities,
inflation and interest rates affect the availability and cost of capital as well as the
ability to expand prices, costs and consumer demand for products.
Unemployment rates affect labor availability and the wages the firm must pay as well
as product demand. Such economic factors significantly affect business
performance.
Components of Economic Environment
Economic Policies
They are the general guidelines followed by the government for economic stability.
These policies make the economy function effectively.
Economic policies include industrial policy, commercial policy, monetary policy and
fiscal policy. Industrial policy is related to industrial development which formulates
policies and rules related to licensing, infrastructure and technology transfer.
Commercial policy focuses on trading policies which involves import and export
policy consisting of export duty, custom duty and clearance charge. Monetary
policy controlled by central bank focuses on managing supply of money in the
economy of the country. Fiscal policy made by the government related to
government revenue, expenditure and tax policy.
Economic system
It defines the institutional framework of the economic environment. It is the economic
ideology adopted by the government and has a longer impact on economy of the
nation.
Economic system indicates the economic philosophy of the government about what
and how the role and responsibility of the private, public and joint sector should be.
There are three models of economic system they are:
Open market economy focuses on private sectors of business activities. State
owned economy, the government directly involved in all the economic activities of
the nation. Mixed economy, both the state and private sectors involve in economic
activities of the country.
Economic condition
It reflects the economic position or status of the country. It is the economic strength
and weakness of the country in which organizations operate their business. Inflation,
interest rate, unemployment , per capita income, economic growth rate, business
cycle, consumer purchasing power, currency exchange rates are the other economic
factors which determines economic condition. These forces affect organizational
activities, financial performance, and the overall goal achievement process.
Capital market
It is another economic force that affects the area of financial functioning of the
organization. Development of capital markets influences the rapid development of
business activities. Capital market plays an important role in promoting economic
activity at national and global level by facilitating and expanding company’s access
to finance. They mobilize scattered monetary resources and focus on raising cheap
long term capital for the mobilization of savings. Capital market in Nepal like- NIDC
capital market, Nabil Investment, Citizen investment trust all these play vital role for
the capital accumulation for the financial sector and then to industrial sectors and
other business.
Globalization
It takes place through removal of trade barriers and integration with world economy.
Globalization helps countries to develop close economic relations. It is the
integration of national economy with the international economy through international
trade, direct foreign investment, movement of knowledge and technology. The
formation of World Trade Organization was the basis for the economic globalization.
Political-legal Environment
This environment includes the forces like political constitution, system of government
and legal policies, laws and government institutions at the national and local levels.
This environment is related to management of public affairs characterized by the
ideology of the ruling environment. The investment from the private sectors and
foreign investment increases if there is political stability in the country.If the political
risk is high in the country then there can be less investment in the business sectors.
Political forces can sometimes lead to loss of property or money especially during
revolution or change in government. In our country where legislation, regulation,
taxation, legal decisions and political policies are usually in idle due to the instability
of the government.
Constitution
It is fundamental law of the country. It is a framework or plan of governance by which
all people and activites are guided. It determines fundamental rights, principles,
policies, power of different bodies.
These rights and principles are mentioned under different acts, sections and
subsections to protect the public interest. Business firm must respect these rights
and comply with the rules because government activites to ensure that all
organizations follow the law. The government has authority to impose restrictions if
anyone violates the rules.
Political parties and philosophy
Different political parties have different principles and philosophy, so the philosophy
they adopt to run the government affects the business environment. Philosophy is an
ideology that a state has adopted.
As different political parties have different philosophy like democratic, socialism and
mixed. Democratic form of philosophy gives emphasis to private sectors. Socialism
form of philosophy, here states holds all the economic activities. Mixed form of
philosophy, both state and private sector involve in business activities
Government and Political institution:
They play major roles in formulation, implementation and monitoring of rules and
laws of the nations. It includes
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Legislature which focus on making rules, regulation and laws.
Executive focus on implementing such rules, regulation and laws.
Judiciary ensures whether rules and laws are properly implemented or not.
So, the business community must follow the rules and regulation that contributes to
develop economic activities.
Legal institutions

Legal institutions refers to different courts such as
 District courts
 Appeal courts
 Supreme courts
Socio-cultural Environment
This environment includes forces like value, attitude, belief, needs and demographic
characteristics of the societies where the organization operates. Values and attitude
shapes people’s behavior and influence the needs and wants that people seek to
fulfill through their interaction with organizations.
 The components of this environment are
1.
2.
3.
4.
5.
6.
7.
Demography- age, sex, urbanization, migration of people.
Lifestyle
Social values
Social institution-family, reference group, peers
Religion
Language
Education
Technological Environment
Technological forces include the expertise, procedures, and systems used by the
organization to make changes in the transformation process. Technological consists
of skills, operating methods, systems and tools that are designed to make work more
efficient.
It largely influences organization by creating chances in job, skills, life styles,
products, production methods and processes, information technology, automation,
computerization, biotechnology and new materials have ability to influence
organization tremendously. The development of technology gives opportunities for
business organization to compete in the ever-increasing competitive markets.The
components of technological environment are as follows:
Nature and type of technology
It describes that technology can be labor based or capital based.
 In labor based technology, human labor is used for the operation of the
organization.
 In capital based technology, sophisticated or automatic machines are used for
the operations of the organization.
 The use or adoption of technology depends on the nature and size of the
business.
 Capital based technology needs huge investment and labor based technology
needs less initial investment and requires large number of people.
Pace of technological change
Technology keeps on changing; such change in technology greatly influences
business. It may create both opportunities and threats to the organizations.
Managers must be aware of and adapt to the changing technological forces. They
should also improve the skills of their people to successfully cope with the needs of
technological changes.
Technological changes may influence organization in many ways like
1. It can make existing business outdated.
2. It can revitalize the existing business through product improvements or cost
reductions.
3. It can create entirely new business.
Research and development
It results innovation and modernization.lncreased expectations and modern lifestyles
of customers can be met through superior quality goods and services. As the time
changes and new technologies emerge, managers need to understand the needs
and demands of the customers.
In order to produce superior quality and environmental friendly goods, research and
development budget should be allocated. If the government and industries spend
adequate budget on research and development, it positively contributes to
innovation or else it would be difficult to cope with technologically changing
environment.
Technology transfer
It is the import of technology from technologically advanced countries. It can be
transferred through subsidiary establishment, joint venture, technical collaboration,
direct purchase, project support, multinational companies etc,such transfer of
technology influences organizations by new product development and product
improvement increasing efficiency and decreasing costs, improving production
systems and processes, enhancing customer needs and satisfaction.
Environment Analysis
Environment analysis is the study of the organizational environment to pinpoint
environmental factors that can significantly influence organizational operations. Such
analysis helps managers to understand what is happening both inside and outside
their organization and to increase the possibility that the organizational strategies
they develop will appropriately reflect their organizational environment. It involves
identifying the present and future opportunities and threats to and from the firms
principal constituents along firm`s economic, social, political, legal and technical
environment
William F Gluek “the process by which strategists monitors the economic, legal,
competitive, geographic, technical and social settings to determine opportunities and
threats to their firms”
Philip Kotler “Environmental Analysis is the process of assessing the emerging
trends”
There are various tools for environmental analysis. They are of various names like
1.
2.
3.
4.
5.
6.
PEST analysis
PESTLE analysis
STEEPLE analysis
SLEPT analysis
STEPE analysis
ETPS analysis
Methods of Environmental Analysis
There are various methods of environmental analysis.
Such methods are fundamentally techniques and sources of gathering the relevant
information for appraising and monitoring the environment. The most common
methods of environmental analysis, they are as follows:
1.
2.
3.
4.
5.
6.
7.
8.
Environment scanning
SWOT analysis
Business and market intelligence system
Business related publications like newspaper and journals
Business forecasting
Formal research studies
Scenario development
Benchmarking
1. Environment Scanning
Scanning is acquiring information and environmental scanning is the method or
technique of acquiring information and analyzing the trends emerging in the
environment.
Environment scanning involves monitoring changes and developments in the
environment that have potential impact on the business of an organization. Sources
for environmental scanning newspapers, journals, websites etc.
Variables considered important for environmental scanning are
1. Change in macro environment (political, legal, economic, socio cultural,
technological)
2. Structure of market
3. Nature of competition
4. Customer preference
5. Product line/items
The top management of a firm has to scan the environment to develop corporate
strategy. Scanning helps them to understand and define current environmental
realities and predict future changes.
The top management can observe the changes taking place in the external
environment through sources like journals, reports, colleagues, employees, personal
experience, meetings and conferences. Similarly changes in the internal
environment of the firm can be observed through reports, committee meetings,
memoranda, subordinate managers, employees and outsiders.
Once the top management receives this information about changes taking place in
the environment, they can assess, correlate, extrapolate and interpret the events or
signals to develop their corporate strategy
Environment Scanning Process
1. Identify the relevant forces in the environment.
2. Determine source of observation: They are determined by top management.
Source of observation from Personal experience, managers, experts, consultants,
researchers, meetings, conferences, committes and newspaper, journals and reports
and books.
3. Select Scanning methods
Scanning can be two types / ways: a) Comprehensive (all relevant factors taken into
consideration) b) Concentrated (on selected factors)
Scanning Techniques
Extrapolation methods: This technique requires information from the past to
explore the future. It includes trend analysis, forecasting, and regression
analysis.
Historical analogy: Past data can be effectively used to analyze environmental
trend.
Intuitive reasoning: “Best Guess” (rational intuition by the scanner) .Intuitive
thinking requires freethinking unconstrained by past experience and personal
biases. Individual judgment is typically used to provide the “best guess”. Here,
the validity and reliability of such judgments cannot be evaluated.
Scenario building: multiple scenarios are developed best case scenario, worst
case and most likely. Scenario is a composite picture of future.
Cross impact matrix: forecasts derived by means of various methods combined
into a well integrated and internally consistent
Network methods: contingency trees (logical relationship among environmental
trends) and relevance trees (logical relationship along with degree of
importance among environmental trends).
Model building: This approach is similar to network methods but relies more on
developing mathematical representations of the environment phenomena in
question. Simulations are good examples of model-building techniques.
Delphi technique: The Delphi technique is the systematic collection of expert
opinion in varying stages, using feedback to develop new forecasts. This
method involves questioning each member of a panel of experts concerning
some future event or trend.
4. Scan and response to data: The collected data is studied, analyzed, assessed,
interpreted, correlated and understood. They can be events, trends, issues and
expectation from stakeholders.
5. Understand, interpret, correlate, extrapolate, and decide
6. Corporate Strategy
2. Business and marketing intelligence system:
 The business and market intelligence system is used to analyze business related
and marketing information that is constantly gathered from different sources that
are outside and inside the business.
 The information analyzed is used for all the business related decision and
market related information like product pricing, development, packaging, and
promotion.
3. SWOT Analysis
 SWOT analysis is a careful evaluation of organization's internal strengths and
weaknesses as well as its environmental opportunities and threats.
Strengths:
A firm's strengths are its resources and capabilities that can be used as a basis
for developing a competitive advantage. Examples of such strengths include:
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patents
strong brand names
good reputation among customers
cost advantages from proprietary know-how
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Surplus cash
favorable access to distribution networks
Strong market share
Weaknesses:
The absence of certain strengths may be viewed as a weakness. For example,
each of the following may be considered weaknesses:
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lack of patent protection
a weak brand name
poor reputation among customers
high cost structure
lack of access to the best natural resources
lack of access to key distribution channels
Opportunities:
The external environmental analysis may reveal certain new opportunities for
profit and growth. Some examples of such opportunities include:
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an unfulfilled customer need
arrival of new technologies
loosening of regulations
removal of international trade barriers
Threats:
Changes in the external environmental also may present threats to the firm.
Some examples of such threats include:
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shifts in consumer tastes away from the firm's products
emergence of substitute products
new regulations
increased trade barriers
4. Benchmarking
It is the process of continually comparing an organization's performance against the
performance of the best organization in similar business to determine what should
be improved. Thus it is the systematic and continuous process of measuring and
comparing an organizations business processes and practice against those of the
best organizations.
Benchmarking may be internal and external. Internal benchmarking measures and
compares the processes and one of unit with the other unit of the same
organisation.External (competitors) benchmarking compares processes and practice
with the best organization
5. Business forecasting
Business forecasting is an estimate or prediction of future developments in business
such as sales, expenditures, and profits. (Usually are made by past events)

Why do we need Business forecasting?
1.
2.
3.
4.
5.
Reduces the cost
Reduces the investment risk
know about the market (have a general idea of market )
reduce the problem of decision
change the strategies of company in time
Five Forces Porter’s model
 The Five Forces model of Porter is an outside-in business unit strategy tool
that is used to make an analysis of the attractiveness (value...) of an industry
structure.
 It captures the key elements of industry competition.
Threat of New Entrants
 The easier it is for firms to enter an industry, the more likely it is for industry
prices and therefore industry profits to be low.
 Thus, the higher barrier to entry, the lower is the threat of competitors.
 With few competitons,it is easier to obtain customers and keep prices high.
Bargaining Power of Suppliers
If there are only a few suppliers of an important input then suppliers can raise the
price of that input. An expensive input result in lower profits for the firm.Firms is at a
disadvantage if they become overly dependent on any powerful suppliers.
Bargaining Power of Buyers
If only a few large customers are available to buy a firm’s output, they can bargain to
reduce the price of that output. As a result, firms make lower profits. Thus, a firm’s
ability to identify its main customers and produce goods and services they want is
crucial factor affecting its competitive position.
Threat of Substitute Products
Regularly, the output of one industry is a substitute for the output of another industry.
Firms that produce a product with a known substitute cannot demand high price for
their products. This constraint keeps their profit low.
The level of rivalry among firms in an industry
As a first step in understanding the competitive environment, a firm must identify its
competitors. The more the firms compete against one another for customers; the
lower is the level of industry profits. In intense competition, weaker firms are
eliminated, and the strong firms survive. When firms compete for the same
customers and try to win market share at the other’s expense, all must react to and
wait for their competitors' actions.
Environment Analysis and Strategic Management
The environment all over the world is undergoing radical changes. These changes are
Significant, not only because of the pace at which they are occurring, but also because
of their impact on the very system of the business firms.
During recent years, we have witnessed major changes in the political-economic
spheres. The integration of the world economy both the multilateral framework of WTO
and in regional agreements like the European Union, the SAARC,the BIMSTEC and the
ASEAN and the liberalization of economies of many Third world nations are some
examples of such changes.
Technological revolution in IT, material research, genetic engineering has expanded far
and wide.Market (product diversity, increase in volumes of transactions, globalization)
have continued to accelerate.Social values-rise of consumerism, environmental
consciousness.
The expert has revealed the following as the forthcoming business realities:
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Changing demographic; more women and minorities in the workforce.
More geographically inaccessible workforce.
Corporate governance standard and practices
Understanding sense of ethics and community
Lifestyle changes and attitudes to health, wealth, gender, work and leisure.
Environment, ecology, and health care to become even more become serious
agenda items.
 Globalism and increasing international alliances and connections
 Networking and alliances between government and education
 Added complexity in doing business in a global marketplace.
 Information technology to be set in everything we do
 Economic slowdown in many countries of the world.
Strategic Management
Strategic management has become increasingly important today for business firms
for maintaining and improving performance. Art & science of formulating,
implementing, and evaluating, cross-functional decisions that enable an
organization to achieve its objectives.
Strategic management is the study of why some firms do better than others

How to compete in order to create competitive advantages in the
marketplace
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How to create competitive advantages in the market place
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Unique and valuable
Difficult for competitors to copy or substitute
Strategic Management Process
 Strategic management process involves several steps
1. Goal formulation: Identify organization current mission, goals and strategies.
2. SWOT Analysis: Internal and external analysis.
3. Identification of strategic alternatives
4. Strategy formulation includes -vision & mission, external opportunities and
threat, internal strength and weakness, long term objective, alternative strategies,
strategy selection.
5. Strategy implementation includes-annual objectives, policies, employee
motivation, resource allocation.
6. Measurement and evaluation-internal and external review and corrective
actions.
7. Reformulation of the strategy
Use of environment Analysis in Strategic Management
Environmental analysis provides information to the business firm to identify key
opportunities and threats in its environment. Understanding the opportunities
and threats facing a firm helps managers identify realistic options from which to
choose an appropriate strategy. Such understanding may also give the business
firm competitive advantage within the industry, especially if its rivals are less positive
in the sphere.
 Environmental analysis helps the managers in finding answers to following
questions like:
1.
2.
3.
4.
5.
Where we now and where are are we headed if we maintain the same course?
What are our strength and weaknesses?
What are our market opportunities?
How effective have our present strategies been in achieving our objectives?
Have we uncovered any facts in this or the controllable force analysis that require
goals to be deleted or modified?
6. Should new goals be added?
Importance of study of Business Environment
There are three principal ways in which managers can increase their organization’s
ability to manage environment:
1. Reducing the impact of the environmental force
2. Creating an organizational structure and control system
3. Boundary spanning roles
Importance of study of Business Environment
1.
2.
3.
4.
5.
Strategy formulation
Competitive analysis
Adaptability
Stability
Dynamism