Types of environmental uncertainty:

• Simple/Static :The environment is relatively simple to understand and not undergoing

any significant change. Technological processes may be simple and markets fixed
over time e.g. raw material suppliers, mass manufacturing companies
• Dynamic: Managers need to consider the environment of the future, not just the past.
This can be done intuitively or through a structured method like scenario planning.
• Complex: The environment is difficult to comprehend. With more and more
sophisticated technology, there is an increasing move towards the conditions of
highest uncertainty. e.g. Intel vs AMD

Components of External Environment:

SWOC:
In short, a SWOC analysis asks you to list (and analyze) the following:
What’s working for your business internally right now (strengths)
What’s not working (weaknesses)
The external factors your business could capitalize on (opportunities)
The external factors that could harm your business (Challenges)
S:
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:
• patents
• strong brand names
• good reputation among customers
• cost advantages from proprietary know-how
• exclusive access to high grade natural resources
• favorable access to distribution networks
W:
The absence of certain strengths may be viewed as a weakness. For example, each of the
following may be considered weaknesses:
• 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
O:
• The external environmental analysis may reveal certain new opportunities for profit
and growth. Some examples of such opportunities include:
• an unfulfilled customer need
• arrival of new technologies
• loosening of regulations
• removal of international trade barriers
C:
Changes in the external environmental also may present threats to the firm. Some examples
of such threats include:
• shifts in consumer tastes away from the firm’s products
• emergence of substitute products
• new regulations
• increased trade barriers

PEST

P:
• Employment regulations: Will it become more expensive to employ staff
because of minimum-wage legislation, safety-at-work legislation, pension
 contributions, healthcare contributions and so on? Are tax authorities
classifying more contractors as employees?
• Government policy. Are laws a government passes in general conducive
to businesses, specifically your business?
• Tariffs. If you import materials for production and/or export finished
products to customers, how will any tariffs affect areas of your business,
such as the cost of production and pricing competitiveness?
• Taxation. What does the tax policy of the current government mean for
your business’s cash flow, tax deductions and profit margins?
• Trade restrictions. Are there sanctions (or likely sanctions) against doing
business with a country you’re targeting?
E:
• Economic growth or decline. If an economy is improving, consumers and
businesses are likely to have more cash to purchase products or services.
Economic growth triggers higher levels of investment by businesses in
general.
• Exchange rates and interest rates. Countries with more robust economies
suffer less from fluctuations in currency values (which is important if you
import or export products). In addition, these countries are more likely to
have higher interest rates that dampen local inflation
• Inflation. Higher levels of inflation erode the value of money faster. In
some cases, businesses may not be keen to pass on higher costs to
customers, so profits fall.
• Labor costs and workforce skill levels. A shortage of workers with the
skills required to perform a role will lead to rising labor costs that will
hurt profitability. Sometimes, a shortage may be severe enough to require
companies to spend more on training.

S:
• Consumer trends/tastes/fashions. There is often a substantial gap in time
between the creation of a product and its launch, so tracking trends, tastes
and fashions are important to ensuring the success of any new product.
• Education. The quality of education varies among states and countries;
lower levels of education require a greater investment in staff training.
Lower levels of education are normally matched by lower levels of pay.
• Population demographics. Does a state or a market contain the types of
staff and customers you are looking for in relative abundance?
 • Population growth rate. States or countries whose population is growing
primarily through immigration may experience slower growth in pay
rates as a result of increased competition.
• Social mobility. States or countries with larger middle classes that are
easier to enter often have higher rates of economic growth and lower rates
of income inequality.
T:
• Artificial intelligence (AI). A company may be able to optimize
efficiency and productivity through investment in AI.
• Automation and robotics. Many sectors now automate as many of their
processes as possible to use raw materials more efficiently, offer better
service to clients, and manufacture more products at a cheaper cost per
unit.
• Innovation. Given the accelerated rate of technological innovation
affecting many sectors, should you invest in innovation now to stay ahead
of the curve, or react to the innovations of competitors?
• Remote work. Do the existing technology and infrastructure allow staff to
work remotely?

Benefits:
• Identifying external opportunities and threats
• Analyzing market trends and conditions
• Developing contingency plans
• Making informed decisions and strategies
• Steps:
• Define the purpose and scope of the analysis
• Gather relevant data and information
• Analyze and interpret the data
• Develop strategies and recommendations based on the analysis

PORTERS 5 FORCES:
ORGANISATION OR INTERNAL APPRAISAL:
Organizational appraisal is the process of monitoring an organization's internal
environment to identify strengths and weaknesses that may influence the firm's
ability to achieve goals.
FACTORS;
• STRATEGY
• ENVIRONMENT
• SIZE OF THE ORGANISATION
• AGE OF THE ORGANISATION
• TECHNOLOGY

FRAMEWORK FOR ORG INTERNAL STRENGHTS:

• ORGANISATIONAL CAPABILITY
• COMPETENCIES
• SYNERGISTIC EFFECT: STRENGTH AND WEAKNESS=
ORGANISATIONAL RESOURCES+ORGANISATIONAL
BEHAVIOUR
Synergy is a method in which individuals or organizations pool their resources
and efforts to enhance value, productivity, efficacy, and performance more than
they could individually.
While 1+1=2 in math, the idea suggests that 1+1 > 2. It means working together
on a task can result in better decision-making and outcomes than working alone.
It can be both positive and negative. If a group of people or businesses
collaborates constructively to achieve a common goal, the result will be better
(positive) than if they worked alone and vice versa.

ORG CAPABILITY:
1. Finance capability-sources of fund, usage of funds, management of funds
2. Marketing capability- promotional mix
3. Operations capability-production system, operations and control system
and R&D system
4. Personnel capability: personnel system. Organisational and employee
characteristics, Industrial relations
5. Information capability- acquistion and retention of information,
processing and synthesis of information, retrieval and usage of
information, transmission and dissemination.
6. General management capability; general management system, general
managers, external relationship and organisational climate.

METHODS FOR ORG APPRAISAL:

1. Gap Analysis can be understood as a strategic tool used for analyzing the
gap between the target and anticipated results, by assessing the extent of
the task and the ways, in which gap might be bridged. It involves making
a comparison of the present performance level of the entity or business
unit with that of standard established previously.

1. Ascertain the present strategy: On what assumptions the existing

strategy is based?
2. Predict the future environment: Is there any discrepancy in the
assumption?
3. Determine the importance of gap between current and future
environment: Are changes in objectives or strategy required?
Whether it is anticipated sales, profit, capacity or overall performance,
they are always based on the past, and present figures and some amount
of guess are also involved in it. So, the occurrence of the gap is quite
natural, but if the gap is large, then it is a point to ponder because it might
have an adverse affect on the company’s future.
• Performance Gap: The difference between expected performance
and the actual performance.
• Product/Market Gap: The gap between budgeted sales and actual
sales is termed as product/market gap.
• Profit Gap: The variance between a targeted and actual profit of the
company.
 Manpower Gap: When there is a lag between required number and
quality of workforce and actual strength in the organization, it is
known as manpower gap.
GAP ANALYSIS:

• Strategic gap analysis measures the difference between an ideal

outcome and the real outcome.
• The analysis identifies the steps that must be taken to close that
gap.
• For a business or other organization, the analysis can lead to an
action plan for greater success.
Many businesses fail to plan strategically. They have the resources and
competencies to achieve their basic business targets but fail to realize their full
 poten:al. A strategic gap analysis could help such a business bridge the gap
between their current and poten:al performance levels.

FUTURE STATE,
GAP, ACTIONS TO
CLOSE GAP

2.VALUE CHAIN ANALYSIS:

The term value chain refers to the various business activities and processes
involved in creating a product or performing a service. A value chain can consist
of multiple stages of a product or service’s lifecycle, including research and
development, sales, and everything in between. The concept was conceived by
Harvard Business School Professor Michael Porter in his book The Competitive
Advantage: Creating and Sustaining Superior Performance.
Value chain analysis is a strategy tool used to analyze internal firm activities. Its
goal is to recognize, which activities are the most valuable (i.e. are the source of
cost or differentiation advantage) to the firm and which ones could be improve to
provide competitive advantage. In other words, by looking into internal activities,
the analysis reveals where a firm’s competitive advantages or disadvantages are.
The firm that competes through differentiation advantage will try to perform its
activities better than competitors would do.

Value chain analysis is a means of evaluating each of the activities in a

company’s value chain to understand where opportunities for improvement lie.

Conducting a value chain analysis prompts you to consider how each step
adds or subtracts value from your final product or service. This, in turn, can
help you realize some form of competitive advantage, such as:

• Cost reduction, by making each activity in the value chain more

efficient and, therefore, less expensive
• Product differentiation, by investing more time and resources into
activities like research and development, design, or marketing that
can help your product stand out
 Adv
• A big advantage is that the value chain is a very flexible strategy tool for
looking at your business, your competitors and the respective places in the
industry’s value system.
• The value chain can be used to diagnose and create competitive advantages
on both cost and differentiation. I’ve written about this in Using The Value
Chain To Create Competitive Advantage. .
• It helps you to understand the organisation issues involved with the
promise of making customer value commitments and promises because it
focuses attention on the activities needed to deliver the value proposition.
.
• Comparing your business model with your competitors using the value
chain can give you a much deeper understanding of your strengths and
weaknesses to be included in your SWOC analysis.
• It can be adapted for any type of business – manufacturing, retail or service,
big or small.

DISV:
• It’s very strengths of flexibility mean that it has to be adapted to a particular
business situation and that can be a disadvantage since, to get the best from
the value chain, it’s not “plug and play”.
• The format of the value chain laid out in Porter’s book Competitive
Advantage, is heavily oriented to a manufacturing business and the language
can be off-putting for other types of business.
• The scale and scope of a value chain analysis can be intimidating. It can take
a lot of work to finish a full value chain analysis for your company and for
your main competitors so that you can identify and understand the key
differences and strategy drivers.
• Many people are familiar with the value chain but few are experts in its use

INDUSTRY LIFECYCLE:

• The industry life cycle refers to the evolution of an industry or business

based on its stages of growth and decline.
• The four phases of the industry life cycle are the introduction, growth,
maturity, and decline phases.
• The industry life cycle ends with the decline phase, a period when the
industry or business is unable to sustain growth.
Structure Conduct Performance Paradigm- Model
 2. Structure - this refers to the construction, formation and the makeup of an
industrial organization. It also describes the kind of environment in which
an organization or market operates.
3. Conduct - this describes the behavior or comportment of buyers and sellers
to the structure of a market. It also refers to the way buyers and sellers
interact with each other and the way they behave.
4. Performance - this refers to the achievement or accomplishment or results
of a particular market or industry. Performance variables that are considered
in the market include product quantity, product quality, and production
efficiency.
The structure conduct performance model refers to an analytical framework that
explains the connection between economic or market structure, market conduct and
its performance. This is a concept or model in Industrial Organization Economics
that examines and describes the interaction between organization structure
(environment), organizational conduct ( behavior) and organizational performance
(achievement). The structure conduct performance model presents a causal theory
explanation of these three concepts. It presents, their strengths, characteristics as
well as downsides.
Methods of Strategic Portfolio Analysis
1.BCG:
The Boston Consulting Group matrix presents different business units or major
product lines based on their relative market share and the growth rate of the market.
The model is useful in brand marketing, strategic management and production
management and business portfolio analysis.
Market growth - Y axis : Market growth is represented by the vertical axis. The
axis is divided into two segments: more and less than 10 percent growth per year.
A market growth above 10 percent is considered high Therefore, this variable
symbolizes the attractiveness of the market.

Relative market share - X axis : Relative market share is represented by the

horizontal axis. It is company's market share divided by the share of its biggest
competitor. Relative market share serves as a measure of the company's strength in
the relevant market segment. The limiting value is at 1: a value greater than 1
implies that a company has the largest relative market share and therefore is the
market leader. A relative market share of 0.1 means that the company's sales
volume is only 10 percent of the leader's sales volume; a relative share of 10 means
that the company's strategic business unit (SBU) is the leader and has 10 times the
sales of the next-strongest competitor in that market. The highest value typically is
defined on the left, and the lowest on the right.
In portfolio matrix four types of products can be distinguished, depending on the
placement of a product-market combination in one of the four quadrants:

• Stars-These are products with a high market share in a strongly growing market. The
cash resources used for and the cash resources required by these products are both high
and therefore in principle are in balance. After some time all growth slows. This is the
reason, why stars become finally Cash Cows if they keep their market share. If they will
not be able to hold the market share, they will become Dogs.

• Cash Cows-These are products with a high market share in a market that is not growing
very much. As a result of the strong market position, they produce many cash resources,
and they require few investments because of the limited market growth.
• Question Marks-These products (also called Problem Children or Wild Cats) have a
small market share in a rapidly growing market. As the name indicates, they have unsure
and questionable situation and can create problems: they produce little but require a lot
of cash resources. If they are able to strengthen their position, they can become stars and
over time, when market growth decreases, cash cows.
• 4. Dogs-These are products with a low market share in a market that is growing very
little. Therefore, they produce little but also require few investments. That means that
the cash resources used for and the cash resources required by these products are both
low and for that reason are in balance. Dogs are worthless cash traps, they do not bring
sufficient profits for a company.
Limitations:
 • BCG matrix classifies businesses as low and high, but generally businesses can be
medium also. Thus, the true nature of business may not be reflected.

• Market is not clearly defined in this model.

• High market share does not always leads to high profits. There are high costs also
involved with high market share.

• Growth rate and rela:ve market share are not the only indicators of profitability. This
model ignores and overlooks other indicators of profitability.

• At :mes, dogs may help other businesses in gaining compe::ve advantage. They can
earn even more than cash cows some:mes.

• This four-celled approach is considered as to be too simplis:c.

GEC MATRIX:
McKinsey’s GE Matrix is a visual tool designed to help portfolio managers determine resource
allocation for multi-business portfolios.
The GE Matrix looks at two factors when scoring SBUs (Strategic Business Units) — the
strength of a particular business and the attractiveness of the industry.
Pros: Along with providing an overview of SBU performance, the GE Matrix also prescribes
three strategic paths (grow, hold, and harvest) to inform strategic decisions.
Cons: The GE Matrix only offers a snapshot of business potential, which must be
contextualized by strategic decision-makers.
The GE Matrix is a strategic framework that helps multi-business corporations manage
portfolios and prioritize
investments across
products and SBUs
(Strategic Business
Units).
• Green zone : Suggests you to ‘go ahead’, to grow and build, pushing you through
expansion strategies. Businesses in the green zone attract major investment.
• Yellow zone: Cautions you to ‘wait and see’ indicating hold and maintain type of
strategies aimed at stability.
• Red zone: Indicates that you have to adopt turnover strategies of divestment and
liquidation or rebuilding approach.
LIMITATIONS:
• No proven relationship between market attractiveness and business position.
• The relationships between different units are not taken into account.
• The core-competencies that lead to value creation are not taken into consideration.
• The approach requires extensive data gathering.
• Scoring is personal and subjective (risk of bias)
• There is no hard and fast rule on how to weight elements
COMPETITOR ANALYSIS FRAMEWORK:
• A competitive analysis framework is a model or tool marketing professionals can use to
compare their business plan or marketing strategy with their competitors’.
• This model can create a visual structure for a marketing competitive analysis.
• A competitive analysis describes a company's competitors and provides detailed
information about their sales, business strategies and marketing efforts.
• A framework gathers the information from the analysis in an organized way.
• OBJECTIVES:
• To study the market;
• To predict and forecast organization’s demand and supply;
• To formulate strategy;
• To increase the market share;
• To study the market trend and pattern;
• To develop strategy for organizational growth;
• When the organization is planning for the diversification and expansion plan;
• To study forthcoming trends in the industry;
• Understanding the current strategy strengths and weaknesses of a competitor can
suggest opportunities and threats that will merit a response;
• Insight into future competitor strategies may help in predicting upcoming threats and
opportunities.
BENEFITS:
• Identify market gaps within an industry
• Find market trends and patterns
• Analyze effective marketing strategies
• Identify measurable goals
• Organize analysis data
• Make data more visually appealing
• Focus on a specific marketing area
• APPROACHES:
STRATEGIC GROUPS:
A strategic group consists of those rival firms with similar competitive approaches and
positions in the market. The identification of strategic groups within an industry enables the
competitive structure of the industry to be redefined to compare strategies of various
competitors for similarities and differences.
They can better identify barriers to entry and exit
It can help decide which strategic group an organization should consider
entering
It helps identify strategic areas that can help gain benefits
It shows the organization’s position in the industry compared to its competitors
It identifies the best organizations in the industry
It pinpoints industry rivals