Tools of Environmental

Analysis

“Knowledge of what is does not open the

door directly to what should be”
-Einstein

Rojers P Joseph - IIM Ranchi

01/10/2024 1
Environmental challenges
and the evolution of SM
• Strategic management before and
after 1973

• ‘Stagflation’ in the 1970s

– Oil price shocks (1973 & 1978-
79)
– Conservatism and financial
control
– Business portfolio
management (BCG Matrix)
– Industrial organization (I/O)
view:
• The view that the external factors
are more important than the
internal factors became prominent
in the 1970s
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Rapid changes in
the remote
environment
 How much is
the impact of
Firm, Industry
& Remote
environments?

Source: Strategic
Management Insight
(2013)

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The external environment

• The micro (industry) environment

and the Macro (remote)
environment
• The macro environment of a
company changes constantly in
ways beyond the company's
control

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 Suppliers

Customers

Micro (industry) Competitors

environment
Distributors

Trade Unions etc.

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Remote (macro)
environmental
analysis
 Environmental changes and strategy: An Illustration
[A predicted shift in customer service focus in the 21 st century]

Personal Self-service Crowd

service service
2000-2010 75% 20% 5%

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 Environmental changes and strategy: An Illustration
[A predicted shift in customer service focus in the 21 st century]

Personal Self-service Crowd

service service
2000-2010 75% 20% 5%

2011-2016 50% 30% 20%

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 Environmental changes and strategy: An Illustration
[A predicted shift in customer service focus in the 21 st century]

Personal Self-service Crowd

service service
2000-2010 75% 20% 5%

2011-2016 50% 30% 20%

2017-2020 20% 40% 40%

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 Environmental changes and strategy: An Illustration
[A predicted shift in customer service focus in the 21 st century]

Personal Self-service Crowd

service service
2000-2010 75% 20% 5%

2011-2016 50% 30% 20%

2017-2020 20% 40% 40%

• If the cost of personal service is 100%, the cost of self-service

amounts to 12% and crowd service, 9%
Source: Steven Van Belleghem, 2013
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 Booking.com

• A pure online player, the

company is only focusing on:
• a) Self-service (consumer
takes care of bookings and
modifications), and
• b) Crowd service (questions
about hotels are answered by
other consumers)

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 Customer service in the
21st century

The focus is more on

filling the value gaps
assisted by technological
innovation

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 • Can executives and managers track
the changes in the external
environment and minimize their
consequences?

Rojers P Joseph - IIM Ranchi 01/10/2024 14

 Mahindra Electric Mobility
Ltd.: The Electric Vehicle
Dilemma

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 01/10/2024

• Identify the macro- and micro-environmental factors

that could influence the strategies of firms in the EV
segment in India including MEM
16
Rojers P Joseph - IIM
Ranchi
 01/10/2024

STEEPLED Analysis

• Social
• Technological
• Economic
17
• Environmental
• Political
• Legal
• Ethical
• Demographics
Rojers P Joseph - IIM
Ranchi
 01/10/2024

Macro-environmental factors (STEEPLED)

• Socio-cultural factors
– Social acceptability of EVs (T)
– Preference for SUVs (O)
18
• Technological factors
– Lack of charging stations (T)
– Range anxiety (T)
– Charging time (T)
– Lack of options for battery swapping (T)
Rojers P Joseph - IIM

– Evolving technology (still at a nascent stage) (O/T)

Ranchi
 STEEPLED
01/10/2024

• Economic factors
– Price of EVs (T)
– Increasing income levels of customers (O)
19
– Mileage factor (Kitna deti hei?) (T)
– https://www.youtube.com/watch?v=akmpsx5F2-4
– Power deficit nation (T)
• Environmental factors
– Increasing pollution levels in cities (O)
Rojers P Joseph - IIM

– Growing environmental concerns (O)

Ranchi
 STEEPLED
01/10/2024

• Political factors
– Central Govt. Policy: NEMMP, FAME, EESL, MHA (O)
– Subsidies and incentives provided to customers (O)
20
– Lack of support from state governments (T)
• Legal factors
– BS VI norms (T)
– Mandate to reduce carbon emissions (O)
Rojers P Joseph - IIM
Ranchi
 STEEPLED
01/10/2024

• Ethical factors
– Avoiding job losses (T)
– Providing clean energy (O)
21
– Tackling climate change (O)
• Demographic factors
– Rise of Indian middle class (O)
– Yuppies (O)
Rojers P Joseph - IIM
Ranchi
 01/10/2024

Micro-environmental factors

• Suppliers
– Dependence on China (T)
• Customers
22
– Increasing demand for EVs (T)
– Tie up with Ola and Uber and other taxi operators (O)
Rojers P Joseph - IIM
Ranchi
 01/10/2024

• Competitors
– Intense competition (T)
• Distributors
23
– Exclusive dealership in India for automobiles (T)
• Trade Unions
– Potential job losses
Rojers P Joseph - IIM
Ranchi
 01/10/2024

• Prepare a list of opportunities and threats for MEM in the

Indian market

24
Rojers P Joseph - IIM
Ranchi
 01/10/2024
GOVERNMENT RISING INCOME DEMAND BY CAB
Opportunities

POLICY AND LEVELS AGGREGATORS

INCENTIVES

Rojers P Joseph - IIM Ranchi

INCREASING MANDATE TO
PREFERENCE FOR REDUCE EMISSION
SUVS LEVELS

25
 Threats

Lack of charging High cost of EVs Intense competition Dependence on supply

infrastructure/ Range from China
anxiety

Evolving technology BS VI norms and the Lack of support from

resulting strain on R&D state governments
budget

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External Factor
evaluation (EFE)
Matrix

“It is not the strongest of the species

that survive, nor the most intelligent,
but the one most responsive to change”
-
Charles Darwin

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 Response of the firm to the external
environment

• External Factor Evaluation (EFE) Matrix [David, Fred R. (2011).

Strategic Management: Concepts and Cases, Prentice Hall, New
Jersey]

• External Factor Evaluation (EFE) Matrix is a strategy tool used to

examine company’s external environment by identifying the
available opportunities and threats

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 • Weights ranging from 0.0 (not important) to 1.0 (all-
important) are assigned to each factor

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 Rating scale

• Poor response: 1
• Average response: 2
• Above average response: 3
• Superior response: 4

• It is important to note that ratings are firm-based, whereas weights

are industry-based

• To determine the weighted score, each factor’s weight is multiplied

by its ratings, and the sum of all the weighted scores is calculated to
determine the total weighted score for the firm

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 External Factor Evaluation (EFE) Matrix for MEM

Opportunities Wt. Ratio Rating Ration WS

nale ale
Govt. Policy & Incentives 0.10 3 0.30
Rising income levels 0.10 3 0.30
Demand by cab aggregators 0.10 3 0.30
Preference for SUVs 0.05 3 0.15
Mandate to reduce emission levels 0.05 2 0.10

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 EFE Matrix for MEM

Threats Wt. Rationa Ratin Ration WS

le g ale
Lack of charging infra/Range Anxiety 0.10 1 0.10
High cost of EVs 0.10 3 0.30
Intense competition 0.10 3 0.30
Dependence on supply from China 0.10 1 0.10
Evolving technology 0.05 3 0.15
BS VI standards & strain on R&D budget 0.05 2 0.10
Lack of policy support from states 0.10 1 0.10
Total 1.00 2.30

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 How to interpret the EFE Matrix

• The median score is 2.5

• If the score is significantly above 2.5 the company’s
response to the changes in the external environment is
good
• If the score is below 2.5, the company’s response to
the changes in the environmental forces is poor

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Rojers P Joseph - IIM Ranchi

• The weighted EFE score of 2.3 for MEM indicates that

the company’s response to the environmental
opportunities and threats is less than adequate

01/10/2024 34
 Exercise

• Perform EFE analysis by including the competitors of MEM

such as Tata Motors, and MSIL in the EV segment

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 EFE Matrix for Tata Motors in the EV segment

Opportunities Weight Rational Rating Rational WS

e e
Govt. Policy & incentives 0.10 4 0.40
Rising income levels 0.10 3 0.30
Demand by cab aggregators 0.10 1 0.10
Mandate to reduce emission levels 0.10 3 0.30

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Rojers P Joseph - IIM Ranchi

• It may be noted that

“Preference for SUVs”
may not be viewed as an
opportunity by TM and
MSIL

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 EFE Matrix for Tata Motors in the EV segment

Threats Weight Rati Rational WS

ng e
Lack of charging infra/Range Anxiety 0.10 3 0.30
High cost of EVs 0.10 3 0.30
Intense competition 0.10 3 0.30
Dependence on supply from China 0.10 1 0.10
Evolving technology 0.05 3 0.15
BS VI standards & strain on R&D budget 0.05 2 0.10
Lack of policy support from states 0.10 1 0.10
Total 1.00 2.45

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Rojers P Joseph - IIM Ranchi

• The weighted EFE Score of 2.45 for TM indicates that

the company’s response to the environmental
opportunities and threats is not adequate, though it is
slightly better than the response by MEM

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 EFE Matrix for MSIL in the EV segment

Opportunities Weight Rationa Rating Ratio WS

le nale
Govt. Policy & incentives 0.10 1 0.10
Rising income levels 0.10 1 0.10
Demand by cab aggregators 0.10 1 0.10
Mandate to reduce emission levels 0.10 1 0.10

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 EFE Matrix for MSIL in the EV segment

Threats Weight Ratio Rating Ratio WS

nale nale
Lack of charging infra/Range Anxiety 0.10 1 0.10
High cost of EVs 0.10 1 0.10
Intense competition 0.10 1 0.10
Dependence on supply from China 0.10 1 0.10
Evolving technology 0.05 1 0.05
BS VI standards & strain on R&D budget 0.05 1 0.05
Lack of policy support from states 0.10 1 0.10
Total 1.00 1.00

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Rojers P Joseph - IIM Ranchi

• The weighted EFE Score of 1.00 for MEM indicates

that the company’s response to the environmental
opportunities and threats is grossly inadequate
• The rating reflects MSIL’s position in 2019 with respect
to EVs

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 Advantages of EFE
Rojers P Joseph - IIM Ranchi

1) Easy to understand for everyone inside or outside the company

2) The matrix is easy to use as it does not require extensive
expertise, time and efforts to build
3) Focuses on the key external factors to take the most appropriate
action according to its external environment
4) The matrix can be multi-purpose; The EFE, combined with IFE,
can be used to build SWOT analysis, IE matrix, GE-McKinsey
matrix, or for benchmarking

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 Limitations of EFE
01/10/2024

1) Doesn’t directly help in strategy formulation; other tools must

be used for that
2) Factors are too broad
44
– Each factor must be as specific as possible to avoid any
possible confusion regarding where the factor should be
assigned
3) The matrix is stagnant at certain point in time (static model);
however, both external forces and organization are evolving
Rojers P Joseph - IIM

continuously
Ranchi