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Business Policy notes
Business Policy & Strategy

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CHAPTER 1
INTRODUCTION TO BUSINESS POLICY AND STRATEGY
CHAPTER OUTLINE
1
...
2 Meaning of Business Policy
1
...
4 Characteristics of Business Policy
1
...
6 Definitions of Strategy
1
...
8 Nature and Importance of Business Policy & Strategy

1
...
1
...
In the present day, the main goal of businesses
is developing strategy and methods which present the best service and production in a most
productive and effective way
...
So, the necessary strategies need to be
identified, formulated and properly implemented in order to succeed
...

Therefore, gradually there was a demand for a critical outlook towards the fundamental concept
of business and its relationship with rest of the environment
...
The concept of business policy
and strategy fulfilled this requirement and hence the understanding of these concepts becomes
imperative
...
2 BUSINESS POLICY: MEANING
Business policies are the guidelines formulated by an organization to govern its actions
...
It
allows the lower level management to deal with the issues and challenges without consulting
top level management every time for making decisions
...
Business as we
know means exchange of goods and services for increasing utilities
...
" Policies are general statements of principles which guide the thinking, decisionmaking and actions in an organization
...

Policies are framed by the top level management to serve as a road map for operational
decision making
...

Policies are designed, by taking opinions and general views of a number of people in the
organization regarding any situation
...
In this way, the people who come under the range of such policies will
completely agree upon its implementation
...
These have to be consistently applied over a long period of time to avoid
discrepancies and overlapping
...
3 DEFINITIONS OF BUSINESS POLICY

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R
...
Thomas: “Business Policy, basically, deals with decisions regarding the future of an
ongoing enterprise
...

Henry Mintzberb: “Policy refers to Goal-directed decisions and actions in which capabilities
and resources are matched with the opportunities and threats in the environment
...

Christensen, Steiner and others: “The study of the function and responsibilities of senior
management, the crucial problems that affect success in the total enterprise, and the decisions
that determine the direction of the organisation and shape its future
...
4 FEATURES/CHARACTERISTICS/ESSENTIALS OF BUSINESS POLICY
An effective business policy should have following elements:
1
...
If it is uncertain and
generalised, it becomes tricky and difficult for the subordinates to implement it
...
Clear: Policy should be written in clear terms
...
Use of jargons and connotations should be evaded to
leave no scope of any misunderstanding in following the policy
...
Reliable: Policy must be consistent enough so that it can be trusted and followed by
the subordinates without any doubts and questions in mind regarding its credibility
...
1
...
Uniform: An effective policy should exhibit uniformity at all levels, amongst all the
people, within an organisation
...
Suitable: The business policy should appropriately confirm to the goals and objectives
of the organisation
...

6
...

7
...

The scope should be wide
...
Flexible: Policy should be flexible in operation and application so that if deemed
necessary, subsequent changes could be made in it
...

9
...
Otherwise, it may
lead to indecisiveness and ambiguity in minds of those who would want to follow it
while making decisions
...
5 STRATEGY: MEANING AND CONCEPT
The word “strategy” is derived from the Greek word “strategos”; stratus meaning army and
“ago” meaning leading or moving, implying, ‘the art of general’
...
In the military, strategy
often refers to manoeuvring troops into position before the enemy actually gets engaged
...
Once the enemy has been engaged,
attention shifts to tactics
...
Substitute
"resources" for troops and the transfer of the concept to the business world begins to take
form
...

Together, strategy and tactics bridge the gap between ends and means
...
Strategy is an action that
managers take to accomplish the organization’s goals
...

Strategy results from the detailed strategic planning process”
The strategy is a master game plan designed for achieving the objectives of an organization
...
They are dynamic and flexible in nature
...
e
...

Strategy is the means by which objectives are deliberately and systematically pursued and
achieved over time
...

It helps the practitioners to respond thoughtfully and consciously without the need for instinct
or presumptions
...


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An intended strategy is concerned with the intentions of the company
...
Hence, intended strategies are frequently described
specifically in the organization’s business plan
...
This plan is nothing but a draft strategy that intends to keep the firm on
track
...

An emergent strategy can be defined as the one that emerges with time
...
Emergent strategies are dynamic and can result in both success
and failure depending on how effectively it is implemented
...
It is the strategy that a firm truly follows
...

In short, a Strategy is a comprehensive master plan stating how the corporation will achieve its
mission and long term objectives
...
It maximizes competitive advantage and tries to minimize competitive
disadvantages
...
6 DEFINITIONS OF STRATEGY
Moltke: “Strategy is the practical adaptation of the means placed at a general’s disposal

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to the attainment of the object in view
...
H
...
"
Clausewitz: “Strategy is the art of the employment of battles as a means to gain the objects
of war”
...

Mintzberg: “Strategy is a mediating force between the organization and its environment:
consistent patterns in streams of organizational decisions to deal with the environment”
Norman: “Strategy is the art of creating value”
Henry Mintzberg in his 1994 book, The Rise and Fall of Strategic Planning, points out
that people use "strategy" in several different ways, the most common being:
1
...

2
...

3
...

4
...

Kenneth Andrews: "Corporate strategy is the pattern of decisions in a company that
determines and reveals its objectives, purposes, or goals, produces the principal policies
and plans for achieving those goals, and defines the range of business the company is to
pursue, the kind of economic and human organization it is or intends to be, and the nature
of the economic and non-economic contribution it intends to make to its shareholders,
employees, customers, and communities
...
"
Kepner Tregoe says that strategy is "The framework which guides those choices that
determine the nature and direction of an organization
...
Glueck: “Strategy is a unified, comprehensive and integrated plan design to assure
that the basic objectives of the enterprise are achieved
...
7 FEATURES OF STRATEGY
Business Strategy has following characteristics:

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1
...

2
...
It may have to be changed or modified as per the
changing needs of the business and its environment
...

3
...
For the implementation of these strategies, the managers at the low level are expected
to act
...
Strategy relates the firm to its environment: Strategy relates the firm to its environment
predominantly the external environment in all actions whether objective setting, or actions and
resources required for its realization
...

5
...
The management will have to consider both when deciding upon
any course of action
...
Action-oriented: Strategy is relative combination of different actions
...

It may take any form because for every situation differs and, therefore, requires a somewhat
new or a different approach
...
Forward Looking: Strategy is future oriented
...
It has no
relevance to the past
...
Tactical: Strategy is often confused with tactic by people but there is a difference between
the two
...
For example, a strategy would be to double sales in a
specific region whereas a tactic would be to hire more salespeople in that region to attain that
goal
...
2
...
Measurable: If your goals are indistinct, you won’t know if you are achieving them or not
...
When we set goals, we also have to set ways to
measure them to be certain that they are being achieved
...
Actionable: Strategic goals are achievable through tactics
...
Example, an actionable goal would be to double sales revenue in
comparison to increasing the stock price by 30 percent because increasing the stock-price
would be dependent on the market
...
Clear: Strategy should be formulated din clear and specific terms
...

A strategy requires continuous and clear communication
...

12
...
It has to be
something new that is never tried before
...
Thus, strategy should involve some creativity to make it unique and
differentiate from its competitors
...
Confidential: Strategy should involve some secretive aspect in it which should be known
only to the top management of the organization
...


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14
...
The benefits received by the organization
by implementing the strategy must weigh more than the cost incurred in formulating and
executing the strategy
...
8 MINTZBERG’S 5PS OF STRATEGY
Henry Mintzberg an academician and author on business and management defined strategy as
a method or a plan chosen to bring about a desired output
...
These are called his ‘5Ps for Strategy’
...
3: 5P’s of Strategy
1
...
The strategy is made in advance of its implementation
and is followed up by actual implementation and development
...

2
...
A ploy takes advantage of opportunities that arise
...


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3
...

Strategies can be planned, but the outcome may not be what was expected
...


4
...
g
...
A position may be a niche,
providing low cost or distinctive products, or by exploiting competences to deter others in the
market
...
Strategy as Perspective: Finally, strategy can be defined in terms of the corporate
personality and culture a company has adopted over time
...
This can refer to
organisation culture
...
9
...
It deals with determining the future course of action that an organization needs
to adopt and with mobilizing the resources which would help the organization to achieve its
vision
...
Strategic Management makes
sure that goals are set, crucial issues are outlined, time and resources are pivoted, internal
environment is studied, outcomes and results are agreed upon, and the organization gets ready
for any change if required
...
All the work carried out in an organization revolves around this
particular target, and it has to align its internal resources with the external environment in a
way that goals are achieved in reasonable time
...

IMPORTANCE OF BUSINESS POLICY & STRATEGIC MANAGEMENT:

The significance of formulating strategy is evident from the fact that all managers try
to prepare and plan the activities over a long period of time
...
It
is concerned with actions to be taken

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which will provide competitive advantage to the organisation
...
By using a well-formulated
strategy a company can not only gain competitive advantage, but also it can become
the market leader
...
It should be properly formulated,
executed,

modified

or

changed

constantly

environment
...
Having a clear and focused strategy is
vitally essential for the success of any business, and without a properly-defined
strategy, one may halt or fail altogether
...


Provides a Framework for Proper Planning: Strategies provide the framework

for plans by channelling operating decisions and regularly predefining them
...
The annual plan then becomes the stepping stone toward the
accomplishment of the longer term goals
...

2
...
They make the goals
and objectives more clear and specific
...

3
...


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 Proper Planning
 Clear Direction
 Defines Accountabilities
 Organizational Effectiveness
 Prioritizes Activities
 Ongoing Decision Making
 Personnel Satisfaction
 Best Use of Resources

4
...
It is not only essential that resources are put to the best of their efficiency but
also that they are put in a way which ensures their utmost contribution to the organizational
objectives and strategies ensure that resources are deployed in a way as specified
...
Prioritizes and Aligns Activities: Strategic planning is about making choices, defining
priorities, mobilising and allocating resources to strategic initiatives in order to achieve the
desired results
...
Provides a Framework for Ongoing Decision Making: In view of the fact that all
decisions must support the strategy, the strategy and the strategic initiatives become the
reference point for further decision-making
...
Personnel Satisfaction:
Strategies contribute towards organization effectiveness by providing satisfaction to all the
people associated with the organization
...

8
...
All the pros and cons of choosing a particular course of action over
others, is weighed carefully before committing to any decision
...
10
...
It is a appropriate decisions
...

It is a means of putting a policy into effect
within certain time limits
...

Policies are uniform in nature, however
relaxations can be made for unexpected
situations
...


Deals with those decisions which have not been It is a guide to action in areas of recurring
encountered before in quite the same form, for activity
...

Always framed by the top management but sub
strategies are formulated at the middle level
...


Policy, in general
management
...


Policies are statements or a commonly
accepted understanding of decision making
...

Strategies are action oriented
...

Policies are though/decision oriented
...

Strategies are means to an end
...

Policies are guidelines
...


Strategy is concerned with uncertainties, Policy is in general concerned with the
competitive situations, and risks etc that are likely course of action to fulfil the set objectives
...


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Strategy is used to mobilize the available
resources in the best interest of the company
...


1
...
DIFFERENCES BETWEEN STRATEGY, TACTICS AND POLICY

1
...
Policies are framed by the top level management to serve as a road map
for operational decision making
...

Policies are designed, by taking opinions and general views of a number of people in
the organization regarding any situation
Strategy is a comprehensive master plan stating how the corporation will achieve its
mission and long term objectives
...
It maximizes competitive advantage and tries to minimize
competitive disadvantages
...
It should be
properly formulated, executed, modified or changed constantly

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depending on the changing environment
...

The difference between Strategy and Policy is little complex because Policies come under the
Strategies
...
Both of them are made by
the top management as well as made after a profound analysis
...
1 Introduction to SM
2
...
3 Importance of Strategic management Process
2
...
5 Factors Shaping Company's Strategy
2
...
7 Test your Knowledge

2
...
Strategic management refers to the process of framing a
strategic vision, forming the organisation’s mission, setting objectives, formulating and
executing the strategy and then making the required corrective adjustments, if any
...
The concept of
Strategic Management can be applied to both small and large organizations, as even the

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smallest organization will face competition and, by formulating and executing suitable
strategies, they can achieve sustainable competitive edge over the others
...
An
organization is said to have competitive advantage if its profitability is more in comparison to
the average profitability for all rival companies in the respective industry
...
It entails making and
implementing decisions about the future which is uncertain and could bring numerous changes
in its wake
...
The managers and
strategists must have a thorough knowledge of the general and competitive organizational
environment so that they are able to take the right decisions
...

Strategic management is a continuous process that evaluates and controls the business and the
industries in which an organization is involved
...

There are chiefly two main objectives of strategic management
...


2
...
It involves
managers making a choice of a set of strategies for the organization that will enable it to achieve
better performance
...
Beginning: Where are we at present?
2
...
Means: How are we going to get there?
4
...
Control: How can we assure arrival?

There are number of stages in strategic Management Process
...
Formulating Vision and Mission Statement (Strategic Intent)
II
...
Strategy Formulation
IV
...
Strategy Evaluation and Selection
VI
...
Strategic Intent: Strategic intent is defined as a compelling statement about where an
organization is going that briefly conveys a sense of what that organization wants to attain in
the long term
...


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Strategic intent also provides a sense of discovery meaning that it endeavours to learn about
other organizations that function in the same market with the purpose of adopting their best
practices and avoiding drawbacks, if any
...

Strategic intent can be defined as a purpose for which an organization exists
...
Strategic
intent gives an idea of what the organization desires to achieve in future
...
These are described below
...
Vision: Vision refers to the blueprint of the company’s future position
...
It is the dream of the business and an inspiration, an impetus to
the planning process
...

2
...
It
explains the reason for the existence of business
...
A mission
statement helps to identify the business, company intends to undertake
...
Business Definition: It seeks to explain the business undertaken by the firm, with respect to
the needs of the customer, target audience, and other technologies
...
The corporate restructuring also is
dependent on the business definition
...
Business Model: Business model can be understood as a strategy for the effective
functioning of the business, ascertaining sources of income, desired customer base, and
financing details
...


5
...
On the other hand, objectives are time-based measurable actions, which help in
the achievement of goals
...


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The vision, mission, business definition, and business model explains the philosophy of
business whereas, the goals and objectives are established with the purpose of achieving them
...
Environmental Analysis: Environmental analysis or scanning refers to a process of
collecting, scrutinizing and providing information for strategic purposes
...
e
...
The external environment encompasses the political, legal, technological,
economic, social and cultural forces that have a great impact on the functioning of the business
...
that play a crucial role in performing the business operations
...
After
executing the environmental scanning process, management evaluates it on a continuous basis
and strives to improve it
...
Strategy Formulation: Strategy formulation is the process of deciding the best course of
action for achieving the organizational objectives and fulfilling its mission and vision
...

Determine what resources the business currently has that can help reach the defined goals and
objectives
...
The issues
facing the company should be prioritized by their importance to your success
...
Because business and economic situations are fluid, it is critical
in this stage to develop alternative approaches that target each step of the plan
...
Corporate strategy
2
...
Functional strategy
These have been discussed in detail in the forthcoming topics
...
Strategy Implementation: Successful strategy implementation is crucial for the success
of the business unit
...
If the overall
strategy does not work with the business' current structure, a new structure should be installed
at the beginning of this stage
...
Additionally, any
resources or funding for the venture must be secured at this point
...
Strategy implementation includes designing the
organization’s structure, distribution and allocation of resources, developing decision making
process, and managing the human resources
...
Strategy Evaluation: Strategy evaluation is the last phase of strategic management
process
...
Any
successful evaluation of the strategy begins with defining the parameters to be measured
...
Determine the progress by measuring the
actual results versus the plan
...
If the strategy is not moving the company toward its goal, take
necessary corrective actions
...
During this phase, certain activities are performed to evaluate the
outcomes of the strategic decision: establishing the performance targets and tolerance limits,
measuring the deviations, and implementing the modifications
...
These steps are followed whenever a new strategic management plan
is to be created
...

2
...
It is very helpful ot organization
to obtain information from the turbulent and dynamic environment therefore they are
able to control their own destiny in a better way
...

It provides guidance to organization on any crucial or complex issue
...

It prepares the organization to face the future and act as pathfinder for various
opportunities from the environment
...
It helps organization to avoidany
costly mistake in product or in investment
...

The fundamental justification behind strategic management is to achieve persistent
competitiveness for the business which is only possible by formulation and implementation of
such strategies which would be valuable for the business
...

2
...
Every organization must address several levels, types, or
areas of strategic management
...
Different authors have described these areas, types, or levels of strategies
differently, but the critical issues can be addressed using three levels: a corporate-level strategy,
a business-unit strategy, and functional/operational strategy
...
Corporate Strategy
2
...
Functional Strategy

Figure 3
...
This strategy is for the company
and all of its business as a whole
...
At the corporate level the concern revolves around the definition of business in
which the corporation wishes to participate and the acquisition and allocation of resources to
these business units
...
It is formulated by the top managers
...
It Corporate
strategy is the overall managerial game plan for a diversified company
...
Wider in Scope: The scope of corporate strategies is wide as it applies to whole
organisation
...

2
...
Other strategies have to confirm to the overall objective of the firm formulated
at this level
...
Formulated by Top Management: Corporate strategies are formulated by top
management
...

4
...
It deals with number of strategic issues and involves lot of intellectual thinking
...
Long Term Orientation: Corporate strategies are characterised by long term orientation
...
It charts the future course of action for
the managers
...


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6
...
Everyone working at every level in the
organisation, work in coordination to achieve the overall vision of the firm
...
Flexible and Dynamic: Corporate strategies allow for flexibility to cope up with the
changes taking place in the dynamic environment
...

8
...
Business units cannot work in isolation
...

9
...
All other decisions have to stem out from the corporate strategy
...

10
...


BUSINESS STRATEGY
Business strategy defines how each individual business will attempt to achieve its mission
within its chosen area of endeavour
...

The business strategy consists of plans of action that managers adapt to use company’s
resources and distinctive competencies to gain competitive advantage over its rivals in a
market
...
The main
focus of the business strategy is on product development, innovation, integration, market
development, diversification and the like
...
Specificity: Business-level strategies are specific in nature unlike corporate strategy
which is more generalised
...
Examples of specific issues are deciding a pricing strategy and creating a product
mix
...

2
...
Examples of shortterm goals include quarterly and annual revenues, return on investments, sales and production
levels
...

3
...
It is specifically
concerned with setting objectives, goals and targets for individual business units
...

4
...
The individual business units are given the
independence from the organisation as a whole
...
This enables business-level strategies to deal mainly with the
concerns of the business unit without any intrusion from other units
...
Simplicity: Business-level strategies tend to be fairly simple in nature
...
Business-level strategies however, tend to be much simpler
...

6
...

Since it is concerned with individual business units, the scope is also restricted
...

7
...
The objectives set by mangers at this level have to be related to the overall
organisational strategy
...
Impact on SBU’s: The impact of business strategy is on respective strategic business units
...


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FUNCTIONAL STRATEGY
Functional strategy focuses on supporting the corporate and business strategies
...
Functional strategies
principally are concerned with the activities of the functional areas of a business (i
...
, human
resource, operations, finance, marketing, research & development etc
...
Just as some
businesses fail to plan from a top-level perspective, other businesses fail to plan at this bottomlevel
...
They support the desired
competitive business level strategy and are complementary each other
...
An organisation needs functional strategy for every
major business activity and the particular business unit
...

CHARACTERISTICS OF FUNCTIONAL STRATEGIES:
Functional Strategies can be characterised by number of factors
...
Operational Hierarchical Level: Functional strategy is formulated at the bottom level of
decision making
...

2
...
Functional strategies identify and coordinate short- term actions, usually
undertaken in a year or less
...
Specificity: A functional strategy is more specific than business strategy
...
Functional strategies give specific guidance to managers
responsible for accomplishing annual objectives
...
Scope: Functional strategy is narrow in scope as it deals with setting short term goals
achievable in a year or less, unlike corporate strategy which has a long term orientation
...
Well integrated: Functional or operational strategies have to confirm to overall objective
and vision of the company
...

6
...
Development of functional strategy is typically delegated
by the business-level manager to principal subordinates charged with running the operating
areas of the business
...


2
...
In
effect, strategy is a management tool for achieving strategic targets
...

Strategies exist at least at three levels: the corporate level, the business unit level, and
the functional level
...
Responsibility for strategy normally rest with a small number of
strategic managers within the organization
...

Functional managers, on the other hand, bear responsibility for specific business
functions within the organization
...


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CHAPTER 3
STRATEGIC MANAGEMENT DECISION MAKING
CHAPTER OUTLINE

3
...
2 Dimensions of Strategic Decisions
3
...
4 Strategic Decision making Process
3
...
6 Summary
3
...
1 STRATEGIC DECISION MAKING
Strategic decision making, or strategic planning, is the process of creating an organization's
mission, values, goals and objectives
...
Deciding upon a particular action plan a company also involves in
altering strategies based on observed outcomes
...

It is a managerial Process and a function of choosing a particular course of action out of several
alternative courses for the purpose of achieving the organizational goals
...

3
...
They are long term, complex decisions made by top lvel
management
...
The major dimensions of
strategic decisions are as follows:

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1
...
Hence, problems
calling for strategic decisions require to be considered by the top management
...
Large amount of Resources: Strategic Decisions involve the allocation of large amount of
company resources
...

3
...
Generally the results of strategic implementation are seen on a long term
basis and not on immediate terms
...
Future Oriented: Strategic issues are future oriented
...

5
...
As they
involve organization in totality they affect different sections of the organization with varying
degree
...
External factors: Strategic decision demand consideration of factors in the firm’s external
environment
...

7
...
Operational decisions are technical decisions which help in
implementation of strategic decisions
...

3
...


are taken daily
...


These are considered where
The future planning is
concerned
...


These are medium-period
based decisions
...


These are taken according
to strategic and operational
Decisions
...


These are related to overall
Counter planning of all
Organization
...


These are related to
production
...


These are in welfare of
employees working in an
organization
...


3
...
Using a step-by-step decisionmaking process can help the organisations make more conscious and thoughtful decisions by
organizing pertinent information and defining alternatives
...

Strategic Decision making process involves the following steps:
I
...

Strategist must realise realize that a decision needs to be taken
...
This forms the basis of further steps
...
Collection of information: After problem has been identified, relevant information is
collected before taking any decision
...
One needs to understand what kind of information is required,
what would be the best sources of information, and the possible ways of collecting it
...


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III
...
It can be done through ones judgement and past
experience or some additional information if needed is collected
...

IV
...
Evaluate whether the
problem identified in Step I would be resolved if those alternatives are used
...

In the end, the alternatives should be ranked in a priority order, based upon one’s evaluation
...
Selection of the best alternative: Once the evidence has been weighed and evaluated, the
best alternative is selected and others are rejected at this stage
...

VI
...
Necessary resources are put to use and everyone work towards the fulfilment of
the chosen decision
...
Review and Control: In the final step, the outcome of decision taken in the previous step
is evaluated
...
If the decision has not resolved the identified problem, one may have
to modify the decision, or take a new decision altogether
...


3
...
It has separate divisions which are called
SBUs or strategic business units and has to manage each of these
...
e corporate,
business and functional level
...
These three levels of strategy in the management of business are described as
follows:

Corporate level: This level includes chief executing officers and other top management
executives
...

The role of corporate level managers is to formulate strategies for the entire organization
...
Strategic decisions are long term in
nature, and are multifaceted decisions made by senior management
...
An example may be to establish a market niche in their field
...
The complexity of this level

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depends upon the number of businesses or divisions the organisation has
...
Having a strategy at this level allows the managers to weigh
the costs and benefits associated with individual business units and to decide accordingly about
investing or divesting the resources
...


Functional level: Functional level of strategy involves managers who are responsible for the
specific business functions or operations such as human resources, purchasing, product
development, finance, customer service etc
...
Functional level decisions are taken by department heads
...


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Environmental Analysis

What is Environmental Analysis?
Environmental analysis is a strategic tool
...
The analysis entails assessing the
level of threat or opportunity the factors might present
...
The analysis helps align strategies with the firm’s
environment
...
Many new things develop over time and the whole
scenario can alter in only a few seconds
...

But, you can control a lot of these things
...
All the situational factors which
determine day to day circumstances impact firms
...

There are many strategic analysis tools that a firm can use, but some are more common
...
This is a bird’s eye
view of the business conduct
...
It also helps foresee where the organization will be in the future
...
Each letter
in the acronym signifies a set of factors
...

The letters in PESTLE, also called PESTEL, denote the following things:
Political factors
Economic factors
Social factors
Technological factors
Legal factors
Environmental factor
Often, managers choose to learn about political, economic, social and technological factors
only
...
PEST is also an environmental analysis
...
STEP, STEEP, STEEPLE, STEEPLED, STEPJE
and LEPEST: All of these are acronyms for the same set of factors
...

I will discuss the 6 most commonly assessed factors in environmental analysis
...
It also reads the global
political condition’s effect on the country and business
...
These are factors
that can conclude the direction in which the economy might move
...
It helps to set up strategies in line with changes
...
Every country has a distinctive mindset
...
The social factors might ultimately affect the sales of products
and services
...
The advancement is greatly influencing businesses
...
Technology alters every minute
...
Firms should integrate when needed
...


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Firms can use these factors for their benefit:
New discoveries
Rate of technological obsolescence
Rate of technological advances
Innovative technological platforms
L for Legal factors
Legislative changes take place from time to time
...
If a regulatory body sets up a regulation for industries, for example, that law
would impact industries and business in that economy
...

I have mentioned some legal factors you need to be aware of:
Product regulations
Employment regulations
Competitive regulations
Patent infringements
Health and safety regulations
E for Environmental factors
The location influences business trades
...
The
consumer reactions to particular offering can also be an issue
...

Some environmental factors you can study are:
Geographical location
The climate and weather
Waste disposal laws
Energy consumption regulation
People’s attitude towards the environment

lOMoAR cPSD| 4349629

There are many external factors other than the ones mentioned above
...
They rely on each other
...
Its purpose is to identify the
emerging trends or early warning signals
...
Environmental scanning alerts the organization to potentially
significant forces in the external environment so that suitable strategic initiatives may be
taken before these forces become critical for the organization, Scanning is basically
exploratory in nature
...
All these factors may not be relevant to an enterprise
...
Several factors, e
...
, managerial
philosophy, age, size, power, geographic dimension, type of business of the organization
influence the selection of relevant environmental factors
...
Once the relevant factors in the environmental are identified, adequate data
about these factors are gathered so as to ascertain their emerging pattern and trends
...
Several technique are used to collect the relevant facts about
environmental factors
...

Environmental Forecasting : Forecasting is the process of estimating the relevant
events of future based on the analysis of their past and present behavior
...
Forecasting can focus on
future aspects of the environment which affects the organization
...
are used
for the purpose of forecasting
...
Some factors in the environment may entail an opportunity while others
may pose a threat to the organization
...
SWOT analysis, ETOP and other such techniques are used for environmental
diagnosis
...
2
...
Hence, a business has to study the business environment in a continuous manner
due to the following reasons:
First move advantage:
A business may get first mover advantage by identifying and exploiting the opportunities
earlier than the competitors
...

Strategy formulation:
Strategy is a long term action plan formulated and implemented for competitive advantage
...

SWOT analysis is the foundation of strategy formulation
...
Hence, environmental study or analysis is
very important for strategy formulation
...
It shows the intensity of competition
among firms that varies widely across industries
...
They form
industry environment and show the growth and profitability potentiality of a firm
...


lOMoAR cPSD| 4349629

Strategic control:
Strategic control involves re-examination of environmental assumptions to ensure the
effectiveness of strategy implementation
...
Hence, it answers
question "Are we moving in the right direction?" It aims to proactive and continuous
questioning of the basic direction of the strategy
...

Adaptation:
A business can achieve competitive advantage if it adapts with the environment and manages
itself accordingly
...
It helps to maximize the environmental opportunities and mitigate likely
threats
...
Fluctuation in business activities
adversely affects the functional areas as production, marketing, finance, and human resource
...
It
eventually provide sustainability to achieve business goals
...
Further, it
can detect the emerging trend and scenario from the environment and prepare itself to cope
with the likely changes
...

Lobbying:
A business alone cannot influence the general environment
...

Environmental study and analysis enable them to understand the environment and lobby further
to make it congenial
...
The stakeholders continue to support the

lOMoAR cPSD| 4349629

organization if it is sensitive to the organization
...
They comprise all
the factors that can affect the business of a company in any way
...
So these
environments need constant monitoring
...


Environmental scanning meaning is the gathering of information from an organizations internal
and external environments, and careful monitoring of these environments to identify future
threats and opportunities
...


lOMoAR cPSD| 4349629

Now that we know the environmental scanning meaning, let us see the purpose
...
So this way they can adapt the business to overcome the
threats and capitalize on the opportunities coming their way
...
These factors are events, trends, issues and expectations of different interested groups
...

Trends are the general tendencies or the courses of action along which events take place
...
Expectations are the
demands made by interested groups in the light of their concern for issues
...
Similarly any organization-facing environment as a complex the scanning is
absolutely essential, and strategists have to deal cautiously with process environmental
scanning
...
For this to take place, it is important to devise
an approach or a combination of different approaches, to environmental scanning
...


lOMoAR cPSD| 4349629

1
...

Information related to markets and customers, changes in legislation and regulations that have
a direct impact on an organization’s activities, government policy statements pertaining the
organization’s business and industry, etc, could be collected continuous updating such
information is necessary not only for strategic management but also for operational activities
...
Ad hoc Approach:
Using this approach, an organization may conduct special surveys and studies to deal with
specific environmental issues from time to time
...
Changes and unforeseen developments may be investigated with regard to their
impact on the organization
...
Processed-form Approach:
For adopting this approach, the organization uses information in a processed form available
from different sources both inside and outside the organization
...

Sources of Information:
A company can obtain information from different sources, but it should be ensured that the
information is correct
...
Information received form secondary sources may sometimes even misguide strategy
managers
...

The various sources from where information can be gathered include:

lOMoAR cPSD| 4349629

1
...

2
...

3
...

4
...

5
...

6
...

It is found that chronological order of information is also quite important for strategy managers
...
The information received from competitors is quite expensive but it is usually
fresh and is quite useful
...
Major events and trends in environment are studied
...
A cause and effect relationship established with regard to events and trends for long and
short term
...

3
...

4
...


lOMoAR cPSD| 4349629

Importance of Environmental Scanning
1] SWOT Analysis
As we saw previously in the environmental scanning meaning, it is a complex process
...
e
...

Let us take a brief look
...
The entrepreneur
can use this information to maximise these strengths and earn more profits
...
For the growth and stability of the company, these identified weaknesses must
be corrected without delay
...
The entrepreneur can prepare to capitalize on these
...
The company can come up with a
strategy to diffuse such threats or minimize their impact
...


Whether it is capital resources, human resources or other factors of production, their best use
and utilization is very important for any business
...


3] Survival and Growth of the Business

lOMoAR cPSD| 4349629

It is a very competitive world and for any business to survive and thrive it is a difficult task
...


It will allow the firm to prepare for future threats and opportunities while at the same time
eliminating their weaknesses and improving on their strengths
...
The planning of long-term
objectives can only occur after proper analysis and environmental scanning meaning
...


5] Helps in Decision Making
Decision making is the choice of the best alternative done by management
...
They point out all the threats and weaknesses
...
The
following process is adopted for environmental scanning
...
Study the forces and Nature of the Environment:

In the first step of environmental scanning, the forces of the environment that have got
significant bearing in the growth and development of the business should be identified
...
After this, the nature of the environmental components is studied
...
It may also be stable or volatile
...
Some business may be operating
in simple environment and others in complex
...

2
...
There are different sources through which
information on business environment may be collected
...

Mass media:
Radio, TV and Internet
...

External agencies:
Consumers, marketing intermediaries and suppliers
...

Spying and surveillance of the competitors
...
Determine the Approach of Environmental scanning:

After determining the sources of information the approach of environmental analysis should
be determined
...
They are:
Systematic approach:
Under this approach, a systematic method is adopted for environmental scanning
...
In other words, the environment is monitored in a regular way
...

Ad-hoc Approach:
Under this, specific environmental components are only analyzed through survey and study
...
It is not a continuous process
...
Normally, the information obtained from secondary sources are processed
and used as per the requirements of the business
...
Scan and Assess the Trend:

This is the final step of environmental scanning process
...
It also
detects changes that are already under way and shows the trend of the environment
...


Techniques/Methods of Environmental scanning:
Environmental scanning is a technique of detail study of the environment
...
There are different
techniques/methods of environmental scanning
...
SWOT Analysis:
S stands for strengths,
W for weaknesses,
O for opportunities, and
T for threats
...


lOMoAR cPSD| 4349629

It is a technique of environment analysis which evaluates organisation’s strengths and
weaknesses, environmental opportunities and threats and helps to formulate strategies
and achieve objectives by:
1
...
Exploiting environmental opportunities,
3
...
Minimising environmental threats
...
“A company profile depicts the
quantity and quality of a company’s principal resources and skills
...
”
SWOT analysis helps to make strategies which will overcome its weaknesses and utilize its
strengths to gain competitive advantage in the market
...

Objectives of SWOT analysis:
1
...
It highlights company’s strengths on
which strategies will be based (to exploit environmental opportunities) and weaknesses that
must be overcome
...
To compare company’s profile with that of competitors
...

Strengths and weaknesses reflect internal environment of the organisation (company profile)
and opportunities and threats reflect its external environment (environmental analysis)
...
To determine what they are, the following questions could be asked:

lOMoAR cPSD| 4349629

What advantages do you offer your customers?
What do you do better than your competitors?
Why do customers choose you over your competitors?
What are our Unique Selling Points (USPs)?
Which factors have a significant influence on the buying behaviour of your
customers?
When formulating the strengths, it is important to approach these from an internal perspective
as well as from the perspectives of the customer and the market
...
For example, if your competitor delivers a high
quality product to the market, good ingredients and sound workmanship are of the utmost
importance
...

To determine what these weaknesses are, the following questions could be asked:
What could be improved by the organization?
What should especially be avoided within the organization or project?
What are customers likely to see as our weaknesses?
What factors make us lose customers or market share?
These are difficult questions to answer and the answers may be quite confronting
...


Opportunities
These are the opportunities that present themselves for the organization or project
...


Threats
These could be possible obstacles that can negatively influence the project or organization from
the market
...

Organisational strengths can be:
1
...
Distinctive competencies
...
Such competence is not commonly possessed by all the firms
...
SWOT analysis enables the organisation discover its
distinctive competence, make strategies to exploit its strengths, explore environmental
opportunities and improve performance
...


lOMoAR cPSD| 4349629

(ii) Weakness is an attribute which restricts competitive strength of the organisation
...
Organisational weaknesses require change in objectives
which can be achieved through present skills and capabilities or investment in capabilities to
acquire organisational strengths
...

Failure to overcome organisational weaknesses results in competitive disadvantages, that is, “a
situation in which an organisation is not implementing valuable strategies that are being
implemented by competing organisations”
...

(iii) Opportunities are environmental challenges which improve organisation’s operational
efficiency
...

The external opportunities are: boom in the economy, development of new technology,
growing markets, liberal government policies, government subsidies, accelerating market
growth etc
...
They are the unfavourable environmental conditions
...

The impact of four variables (S, W, O and T) on strategy formulation is depicted through a
matrix
...
In the worst
situation, company’s weaknesses match the environmental threats
...

A brief description of four strategies is given below:
(a) SO strategy:
Company uses its strengths to take advantage of environmental opportunities
...
Environmental threats are overpowered by
opportunities
...

(c) ST strategy:
The company maximises its strengths (technological, financial, managerial etc
...
For example, company can use technological developments to face
competition in the market
...
It may require restructuring
of the firm
...

For example, we can see that a great location, strong reputation, and seasonal menu are
strengths in this particular analysis
...

2
...
It is a technique of environment
analysis where organisations make a profile of their external environment
...


lOMoAR cPSD| 4349629

It helps to identify strategic opportunities for the company
...

A firm that wants to manufacture shoes, for example, will prepare an ETOP to analyse demand
for shoes in the market, purchasing power of consumers, gender composition of market (malefemale ratio), government regulations, technology used etc
...

The Environmental factors are quite complex and it may be difficult for strategy managers to
classify them into neat categories to interpret them as opportunities and threats
...

This is achieved by brainstorming
...

Although the technique of dividing various environmental factors into specific sectors and
evaluating them as opportunities and threats is suggested by some authors, it must be carefully
noted that each sector is not exclusive of the other
...
The field force analysis goes hand in glove with ETOP,
as here also the contribution with regard to opportunities and threats posed by the environment
is also a necessary part of study
...
A comprehensive ETOP requires
subdividing each environmental sector into sub factors and then the impact of each sub factor
on the organization is described in the form of a statement
...
The table 1
provides an example of an ETOP prepared for an established company, which is in the Two
Wheeler industry
...
This example relates to a hypothetical company but the illustration is realistic based
on the current Indian business environment
...


Political (→)

No significant factor
...


Regulatory (↑)

Two Wheeler industry a thrust area for exports
...


Supplier (↑)

Mostly ancillaries and associated companies supply parts and components

Technological

Technological up gradation of industry in progress
...
The company-can capitalize on the burgeoning
demand by taking advantage of the various government policies and concessions
...

Since the company is an established manufacturer of motorbike, it has a favourable supplier as
well as technological environment
...

Though the market environment would still be favourable, much would depend on the extent
to which the company is able to ensure the supply of raw materials and components, and have
access to the latest technology and have the facilities to use it
...

The strategic managers should keep focus on the following dimensions,
1
...
Some of the impotent issues may be those related to market
share, competitive pricing, customer preferences, technological changes, economic policies,
competitive trends, etc
...
Accuracy of Data:
Data should be collected from good sources otherwise the entire process of environmental
scanning may go waste
...


lOMoAR cPSD| 4349629

3
...
It may include study of probable effects on the company’s strengths
and weaknesses, operating and remote environment, competitive position, accomplishment of
mission and vision etc
...

4
...

The optimum level of flexibility should be maintained
...

(b) Strategies must be reviewed and changed if required
...
This would enable
managers to violate strategies when it is necessary
...

3
...
The result of which is used to identify threats and weaknesses which is used in a
SWOT analysis
...

All the external environmental factors (PESTEL factors)
Political Factors
These are all about how and to what degree a government intervenes in the economy
...

It is clear from the list above that political factors often have an impact on organisations and
how they do business
...

Economic Factors
Economic factors have a significant impact on how an organisation does business and also how
profitable they are
...

These factors can be further broken down into macro-economical and micro-economical
factors
...
Governments use interest rate control, taxation policy and government expenditure
as their main mechanisms they use for this
...
This has a large
impact on B2C organisations in particular
...
These factors include – population growth, age distribution, health
consciousness, career attitudes and so on
...

Technological Factors
We all know how fast the technological landscape changes and how this impacts the way we
market our products
...
They have
become important due to the increasing scarcity of raw materials, polution targets, doing
business as an ethical and sustainable company, carbon footprint targets set by governments
(this is a good example were one factor could be classes as political and environmental at the

lOMoAR cPSD| 4349629

same time)
...
More and
more consumers are demanding that the products they buy are sourced ethically, and if possible
from a sustainable source
...
It is clear that companies need to know
what is and what is not legal in order to trade successfully
...

Example of PESTLE/PESTEL ANALYSIS

1
...
People like its features
such as easy accessibility with the app and taxi sharing
...

And now let us find out more about this company through a Pestle Analysis example
...
1 Political Factor
As mentioned above, this company has many controversies to do away with
...
For example,
people havequestions about its insurance policy
...

1
...

The company operates in a sharing economy
...

Customers can easily connect with the driver through the app
...
Customers find Uber cheaper than taxis
...
However, some countries see unfair
competition against regular taxis
...

Other companies are also under the scanner of the authorities for the same reason
...


lOMoAR cPSD| 4349629

People are also looking towards Uber to get new job opportunities
...

One thing that favours Uber is its popularity
...

Uber needs to keep doing its best
...
3 Social Factor
Uber taxi services are user-friendly and accessible
...
In a few
minutes, you will get the confirmation of your ride
...
It increased the fare charges
with its the popularity
...

1
...

People post positive views on the various social media platforms
...
Next, its app is much helpful for users
...
App also gives information like estimated
ride charges, drop off location, traffic, and weather
...

1
...
Hence,
the company needs to follow technical usage laws, labour and employee safety laws and
copyrights laws as well
...
6 Environmental Factors
The impact of Uber on the environment is not certain
...

Studies say the same when it comes to traffic congestion
...
Analysts are yet to confirm such blame
...
Its affordable
charges, ease of use have helped it in becoming popular
...

But, the company must carry on its service throughout the world
...

2
...
It deals in design,
development, and selling of footwear, clothing and other services
...
It
earned US$30
...
It made it the most valuable brand in the sports businesses
...
1 Political Factor
The political environment has a huge impact on Nike as it is globally present
...


lOMoAR cPSD| 4349629

Nike needs to keep an eye on the import and export laws of a country
...

2
...

It can target economies such as US, UK, and others
...
Nike can find the customers with good purchasing power there
...

2
...
They are increasingly playing
sports to stay fit
...

It regularly comes up with high-quality sports shoes and apparel
...

2
...
It also needs to keep an eye on the technology it
manufactures
...

R&D investment is the external technological factor that affects Nike
...

2
...

It also has to make sure it is not involved in child labour or breaking employment
rules
...

2
...

Nike is a leading brand
...
It will help them gain brand value
...

3
...


lOMoAR cPSD| 4349629

Cola Cola is a famous soft drink producer
...
It uses the finest technology in production
...
It is a renowned soft drink production
company in the world
...
The infographic below will
give you a brief on what we have discussed ahead
3
...
It should follow the rules of a country
...

Countries may prevent it from distributing its products if all rules are not followed
well
...

3
...
The company produces its
products in various countries
...
Most of its revenue comes from
beverage sales
...
Coca Cola has
realized it
...

3
...

Coca Cola has introduced more than 30 alternative flavours in Japan
...

It is more focused on offering healthy products when it comes to the US
...

Coca Cola can take the same approach in the countries such as Japan and China
...
4 Technological Factor
Coca Cola can be very effective with the use of new technologies
...

Coca Cola has a technological set up in Britain
...

Coca Cola has also used social media to increase its popularity
...

3
...
It has the rights
of all the past and future products that it develops with a patented process
...
6 Environmental Factor
Water accessibility is essential to Coca Cola to manufacture its products
...

It needs to ensure that water processing is environment-friendly
...
It is famous
for its soft drinks
...


4
...

For example, opportunities can come from new technologies that help you reach new
customers, from new funding streams that allow you to invest in better equipment, and from
changed government policies that open up new markets
...

PEST Analysis is a simple and widely used tool that helps you analyze the Political, Economic,
Socio-Cultural, and Technological changes in your business environment
...


About the Technique
Harvard professor Francis Aguilar is thought to be the creator of PEST Analysis
...
" The
name was later tweaked to create the current acronym
...


It helps you to spot business or personal opportunities, and it gives you advanced
warning of significant threats
...


It reveals the direction of change within your business environment
...


lOMoAR cPSD| 4349629

3
...


4
...


How to Use the Technique
Follow these steps to analyze your business environment, and the opportunities and threats
that it presents
...


Use PEST to brainstorm the changes happening around you
...

2
...

3
...


4
...


Step 1: Brainstorm Factors
Political Factors to Consider
When is the country's next local, state, or national election? How could this change
government or regional policy?
Who are the most likely contenders for power? What are their views on business policy,
and on other policies that affect your organization?
Depending on the country, how well developed are property rights and the rule of law,
and how widespread are corruption and organized crime? How are these situations likely to
change, and how is this likely to affect you?
Could any pending legislation or taxation changes affect your business, either
positively or negatively?
How will business regulation, along with any planned changes to it, affect your
business? And is there a trend towards regulation or deregulation?
How does government approach corporate policy, corporate social responsibility,
environmental issues, and customer protection legislation? What impact does this have, and
is it likely to change?
What is the likely timescale of proposed legislative changes?

lOMoAR cPSD| 4349629

Are there any other political factors that are likely to change?

Economic Factors to Consider
How stable is the current economy? Is it growing, stagnating, or declining?
Are key exchange rates stable, or do they tend to vary significantly?
Are customers' levels of disposable income rising or falling? How is this likely to
change in the next few years?
What is the unemployment rate? Will it be easy to build a skilled workforce? Or will
it be expensive to hire skilled labor?
Do consumers and businesses have easy access to credit? If not, how will this affect
your organization?
How is globalization affecting the economic environment?
Are there any other economic factors that you should consider?

Socio-Cultural Factors to Consider
What is the population's growth rate and age profile? How is this likely to change?
Are generational shifts in attitude likely to affect what you're doing?
What are your society's levels of health, education, and social mobility? How are
these changing, and what impact does this have?
What employment patterns, job market trends, and attitudes toward work can you
observe? Are these different for different age groups?
What social attitudes and social taboos could affect your business? Have there been
recent socio-cultural changes that might affect this?
How do religious beliefs and lifestyle choices affect the population?
Are any other socio-cultural factors likely to drive change for your business?

Technological Factors to Consider
Are there any new technologies that you could be using?
Are there any new technologies on the horizon that could radically affect your work
or your industry?

lOMoAR cPSD| 4349629

Do any of your competitors have access to new technologies that could redefine their
products?
In which areas do governments and educational institutions focus their research? Is
there anything you can do to take advantage of this?
How has infrastructure changes affected work patterns (for example, levels of remote
working)?
Are there existing technological hubs that you could work with or learn from?
Are there any other technological factors that you should consider?
Note:
There are variations of PEST Analysis that bring other factors into consideration
...

PESTLIED: Political,
Economic,
Socio-Cultural,
Technological,
Legal,
International, Environmental, Demographic
...

SLEPT: Socio-Cultural, Legal, Economic, Political, Technological
...
For
example, could it help you develop new products, open up new markets, or help you make
processes more efficient?

Step 3: Brainstorm Threats
It's also important to think about how these changes could undermine your business
...

For example, if a core part of your market is in demographic decline, could you open up other
areas of the market? Or if technology is threatening a key product, can you master that
technology and improve the product
...
Where you've identified significant risks, take appropriate
action to manage or eliminate them
...
Executive opinion method:

It is also called executive judgement method
...
A panel is formed consisting of these executives
...
Expert opinion method:

Under this environment forecasting is based an opinion of outside experts or specialist
...

This method is similar to executive opinion method
...

7
...
It involves forming a panel of experts and
questioning each member of the panel about the future environmental trend
...
This process continues
till the acceptable consensus is achieved
...
Extrapolating method:

Under this method, the past information is used to predict the future
...

9
...

10
...
Environmental
dynamics are guessed individual judgement
...


lOMoAR cPSD| 4349629

11
...
They are built on the basis of time ordered
sequence of events that have logical cause and effect relationship with each other
...




---