UNIT II -- ENVIRONMENTAL SCANNING

Environment scanning helps the signals of potential changes in the environment. It also detects
the changes that are already under way. It normally reveals ambiguous, incomplete, or
unconnected data and information. It involves a detailed and micro study of the environment.
Hence, it is also called the X-ray of the environment. The environment uncertainty, complexity
and dynamism are studies to assess the trend of environment. It is the base of environment
analysis. It is normally done when there is high level of uncertainty in the environment. It is a
continuous process.

It also helps to evaluate the long term strategic plan that will be aligned with future business
conditions. The scanning system should be aligned with the organizational context. Hence, a
scanning system designed for a volatile environment may be inappropriate for a stable
environment. Many organizations even use special software and internet for environment
scanning.

From the above discussion, it may be concluded that environmental scanning is a

continuous process of study and analysis of environment to detect the emerging trend in the
environment.

TYPES OF ENVIRONMENTAL SCANNING:

Environmental scanning is a process of obtaining information from the environment. It helps

prepare an organization to exploit the business opportunity by developing a sound resource base.
Further, it also assists in preparing scenarios and to adjust with changes. Environmental scanning
may be done in two ways as mentioned below:

Centralized scanning:

If some specific environmental components are only analyzed, it is called centralized scanning.
Under this, the important components which are likely to exert considerable impact to the
business are only analyzed. For example, if economic conditions are only studies, it is termed as
centralized scanning. Since specific components are only scanned, this is economical. Likewise,
it helps to save time as well. However, it is not a comprehensive method due to the study of
specific components only.

Comprehensive scanning:

"If all the components of environment are analyzed in a detailed and micro way, it is called
comprehensive environmental scanning."

PROCESS OF ENVIRONMENTAL SCANNING:

Environmental scanning is a useful managerial tool for assessing the environmental trend. The
following process is adopted for environmental scanning.

1. 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. They
may be political, economic, sociology-cultural, technological, legal, physical environment and
global components. After this, the nature of the environmental components is studied. The nature
of environment may be simple or complex. It may also be stable or volatile. The nature of the
environment affects a firm's ability to predict the future. Some business may be operating in
simple environment and others in complex. When there is a high level of uncertainty and
complexity in the environment, environmental scanning becomes more critical.

2. Determine the sources of Information:

After studying the process and nature of the environment, the sources of collecting information
from the environment should be determined. There are different sources through which
information on business environment may be collected. They are as follows:

Secondary sources:

Newspapers, book, research articles, industrial and trade publications, government publication,
and annual report of the competitors.

Mass media:
Radio, TV and Internet

Internal sources:

Internal reports, management information system, data network, and employee.

External agencies:

Consumers, marketing intermediaries and suppliers

Formal studies:

Formal research and study by employee, research agencies, and educational institutions.

Spying and surveillance of the competitors

3. Determine the Approach of Environmental scanning: (ALSO EXPLAINED AT LAST)

After determining the sources of information the approach of environmental analysis should be
determined. There are mainly three approaches to environmental scanning. They are:

Systematic approach:

Under this approach, a systematic method is adopted for environmental scanning. The
information regarding market and customer, government policy, economic and social aspects are
continuously collected. In other words, the environment is monitored in a regular way. The
timeliness and relevance of such information enhances the decision making capacity of the
management.

Ad-hoc Approach:

Under this, specific environmental components are only analyzed through survey and study. Ad-
hoc approach is useful for collecting information for specific project, evaluating the strategic
alternative or formulating new strategies. It is not a continuous process.

Processed form approach:

Under this, the information collected from internal and external sources are used after processing
them. Normally, the information obtained from secondary sources are processed and used as per
the requirements of the business.

4. Scan and Assess the Trend:

This is the final step of environmental scanning process. It involves a detailed and micro study of
the environment to identify the early signals of potential changes in the environment. It also
detects changes that are already under way and shows the trend of the environment. The trend
should be assessed in terms of opportunities and threats.

TECHNIQUES/METHODS OF ENVIRONMENTAL SCANNING:

Environmental scanning is a technique of detail study of the environment. It is done to assess the
trend of the environment and prepare the organization accordingly. There are different
techniques/methods of environmental scanning. They are discussed below:

1. Executive opinion method:

It is also called executive judgment method. Under this environment is forecasted on the basis of
opinion and views of top executives. A panel is formed consisting of these executives.

2. Expert opinion method:

Under this environment forecasting is based an opinion of outside experts or specialist. The
experts have better knowledge about market conditions and customer taste and preferences. This
method is similar to executive opinion method. However, it uses external experts.

3. Delphi method:

This method is extension of expert opinion method. It involves forming a panel of experts and
questioning each member of the panel about the future environmental trend. Later, the responses
and summarized and returned to the members for assessment. This process continues till the
acceptable consensus is achieved.

4. Extrapolating method:
Under this method, the past information is used to predict the future. Different methods used to
extrapolate the future are time series, trend analysis and regression analysis.

5. Historical analogy:

Under this, the environmental trends are analyzed with the help of other trends which are parallel
to historical trend.

6. Intuitive reasoning:

Under this, rational and unbiased intuition is used for environmental scanning. Environmental
dynamics are guessed individual judgment. Reliability of this method is questionable.

7. Scenario building:

Scenarios are the pictures of possible future. They are built on the basis of time ordered sequence
of events that have logical cause and effect relationship with each other. Scenarios are built to
address future contingencies.

8. Cross-impact matrix:

Under this, environmental forecasts through various methods are combined to form and
integrated and consistent description of future. Cross impact matrix is used to assess the internal
consistency of the forecasts.

IMPORTANCE OF ENVIRONMENTAL SCANNING:

Signals threats: It provides an early signal of threats, which can be defused or minimized if
recognized well in advance.

Customer needs:

It signals an organization to the changing needs and requirements of the customers.

Capitalize opportunities:

It helps an organization capitalize opportunities earlier than the competitors.

Qualitative information:

It provides a base of objective qualitative information about the environment that can be utilized
for strategic management.

Intellectual simulation:

It provides intellectual stimulation to managers in their decision making.

Image:

It improves the image of the organization as being sensitive and responsive to its environment.

Process of Environmental Analysis:

Scanning:

Environmental scanning involves the study of the general environment. It helps to identify the
early signals of potential changes in the environment. It also detects changes that are already
under way. It normally reveals ambiguous, incomplete, or unconnected data and information.
The scanning system should be aligned with the organizational context. Hence, a scanning
system designed for a volatile environment may be inappropriate for a stable environment. Many
organizations even use special software and internet for environmental scanning.

Monitoring:

Monitoring involves observation of environmental changes to see the trend. It detects meaning in
different environmental events and trends.

Scanning and monitoring are particularly important when a firm competes in a highly volatile
environment. They help gather knowledge about markets and other components.

Forecasting:

Scanning and monitoring are concerned with events and trends in the general environment at a
point in time. Forecasting involves developing feasible projections of what might happen and
how quickly. It is done on the basis of changes and trends. Forecasting is a challenging work.
Assessing:

Assessing determines the timing and significance of the effects of environmental changes and
trends that have been identified. It specifies the implications of that understanding. Assessing
connects the data and information with competitive relevance. Equally important is interpreting
the data and information to determine the trend as opportunity or threat for the organization.

IMPORTANCE OF THE STUDY OF BUSINESS ENVIRONMENT: (Other points

explained in class)

It is necessary for a business to understand the environmental forces and conduct business
accordingly. 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. It provides a sustainable competitive advantage to the business.

Strategy formulation:

Strategy is a long term action plan formulated and implemented for competitive advantage. They
are formulated and implemented considering the internal as well as external factors. SWOT
analysis is the foundation of strategy formulation. It examines strengths, weakness, opportunities
and threats of the firm relative to the competitors and helps to develop different strategic
alternatives and select the most suitable. Hence, environmental study or analysis is very
important for strategy formulation.

Competitive analysis:

Competitive analysis is also called industry analysis. It shows the intensity of competition among
firms that varies widely across industries. In involves analysis of rivalry among competing firms,
potential entry of new competitors, potential development of substitute products, bargaining
power of suppliers and bargaining power of consumers. They form industry environment and
show the growth and profitability potentiality of a firm. Hence, study of business environment is
crucial for competitive analysis.

Strategic control:

Strategic control involves re-examination of environmental assumptions to ensure the

effectiveness of strategy implementation. It is an early warning system. 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. In this way, environmental analysis serves as the basis of
strategic control.

Adaptation:

A business can achieve competitive advantage if it adapts with the environment and manages
itself accordingly. Adaptation refers to the adjustment with the emerging environmental
conditions and trend. It helps to maximize the environmental opportunities and mitigate likely
threats.

Stability and sustainability:

Stability is business activities is important for sustainability. Fluctuation in business activities

adversely affects the functional areas as production, marketing, finance, and human resource. For
stability, a business should monitor its environment regularly and adjust accordingly. It
eventually provide sustainability to achieve business goals.

Dynamism:

A firm can collect information from the environment if it studies it continuously. Further, it can
detect the emerging trend and scenario from the environment and prepare itself to cope with the
likely changes. It enhances competitive advantage of the firm.

Lobbying:

A business alone cannot influence the general environment. However, the environment may be
influenced through formation of organized body like industry and trade federations.
Environmental study and analysis enable them to understand the environment and lobby further
to make it congenial.

Public image:

A business firm can improve its image by showing that it is sensitive to its environment and
responsive to the aspirations of the public. The stakeholders continue to support the organization
if it is sensitive to the organization. Stakeholders support enhances organizational effectiveness.

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ADDITIONAL EXPLANATION

APPROACHES USED FOR ENVIRONMENTAL SCANNING

The external environment in which an organization exists consists of a bewildering variety of

factors. These factors are events, trends, issues and expectations of different interested groups.
Events are important and specific occurrences taking place in different environmental sectors.

Trends are the general tendencies or the courses of action along which events take place. Issues
are the current concerns that arise in response to events and trends. Expectations are the demands
made by interested groups in the light of their concern for issues.

By monitoring the environment through environmental scanning, an organization can consider

the impact of the different eve trends, issues and expectations on its strategic management
process. Similarly any organization-facing environment as a complex the scanning is absolutely
essential, and strategists have to deal cautiously with process environmental scanning.

The effort has to be to deal with it is such a manner that unnecessary time and effort is not
expended, while important facts are not ignored. For this to take place, it is important to devise
an approach or a combination of different approaches, to environmental scanning.

Approaches to Environmental Scanning:

The experts have suggested three approaches, which could be adopted for, sort out information
for environmental scanning.
1. Systematic Approach:

Under this approach, information for environmental scanning is collected systematically.

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.

2. Ad hoc Approach:

Using this approach, an organization may conduct special surveys and studies to deal with
specific environmental issues from time to time. Such studies may be conducted, for instance,
when organization has to undertake special projects, evaluate existing strategy or devise new
strategies. Changes and unforeseen developments may be investigated with regard to their
impact on the organization.

3. 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. When an organization uses
information supplied by government agencies or private institutions, it uses secondary sources of
data and the information is available in processed form.

SOURCES OF INFORMATION FOR ENVIRONMENT SCANNING:

A company can obtain information from different sources, but it should be ensured that the
information is correct. The correct source should be tapped for specific information for more
accuracy. Information received form secondary sources may sometimes even misguide strategy
managers.

Hence it is important that information should be verified for correctness before it is processed
and decisions are taken based on it.

The various sources from where information can be gathered include:

1. An internal document viz, files, records, management information system, employees,
standards, drawings, charts, etc.

2. Trade directories, journals, magazines, newspapers, books, newsletters, government

publications, annual reports of companies, case studies, etc.

3. Internet, television, radio news etc.

4. External agencies like customers, suppliers, inspection agencies, marketing intermediaries,

dealers, advertisers, associations, unions, government agencies, share holders, competitors, etc.

5. Market research reports, consultants, educational institutions, testing laboratories etc.

6. Spying considered as a powerful way of extracting information from other companies.

It is found that chronological order of information is also quite important for strategy managers.
Usually information received from government agencies is quite complex since processing takes
more time. The information received from competitors is quite expensive but it is usually fresh
and is quite useful.

COMPETITIVE STRUCTURE ANALYSIS: MEANING AND LEVELS OF

COMPETITION

Meaning:

Undoubtedly one of the major contributions in recent years to our understanding of the ways in
which the competitive environment influences strategy has been provided by Porter Porter’s
works is based on the idea that competition in an industry is rooted in its underlying economics,
and competitive forces that go well beyond the established combatants in a particular industry.
Porter has also emphasized that the first determinant of a firm’s profitability is the attractiveness
of the industry in which it operates.

Take the example of India’s booming retailing industry. Organized retailing m India occupies
only 3 per cent of the total market volume (which is estimated to be around Rs8 lakh crores
annually). Organized retailing is currently growing at 30 per cent per annum.
The second determinant is competition: here the average shopper spends 45 per cent of his/her
monthly budget on food and grocery items and no national brands are operating except Food-
world and Spencer that too in a fistful of places like Bangalore, Hyderabad, Chennai, Kolkata
and Mumbai. In this scenario a company like Reliance considered its market position and
ventured into retailing as part of its diversification strategy.

The second central question in competitive strategy is a firm’s relative position within its
industry. Positioning determines whether a firm’s profitability is above or below the industry
average Here Reliance Fresh should take Fab mall, Big Bazaar, Subhiksha, Apna Bazaar,
Monday to Sunday, Daily Fresh (family mart), Kovai Fresh, Namdhari Fresh, Food-world and
Spencer’s into consideration while framing its positioning strategy in the south. The basis of
above average performance by Reliance Fresh is the sustainable competitive advantages gained
through contract farming and backward integration with suppliers by providing stable bulk
business.

This is what led Porter to suggest that the nature and intensity of competition within any
industry is determined by the interaction of five key forces:

1. The threat of new entrants

2. The power of buyers

3. The threat of substitutes

4. The extent of competitive rivalry and

5. The power of suppliers

Porters Five Competitive Forces

The model of the Five Competitive Forces was developed by Michael E. Porter in the 1980s.
Since that time it has become an important tool for analyzing an organization’s industry structure
in strategic processes. Porter's model is based on the insight that a corporate strategy should
meet the opportunities and threats in the organization’s external environment. Especially,
competitive strategy should be based on an understanding of industry structures and the way they
change. Porter has identified five competitive forces that shape every industry and every market.
These forces determine the intensity of competition and hence, the profitability and
attractiveness of an industry. The objective of corporate strategy should be to modify these
competitive forces in a way that improves the position of the organisation. Porter's model
supports analysis of the driving forces in an industry. Based on the information derived from the
Five Forces Analysis, management can decide how to influence or to exploit particular
characteristics of their industry. The Five Competitive Forces are typically described as follows.

Definition: The five forces model of analysis was developed by Michael Porter to analyze the
competitive environment in which a product or company works.

Description: There are five forces that act on any product/ brand/ company:

Threat of new entrants

This force determines how easy (or not) it is to enter a particular industry. If an industry is
profitable and there are few barriers to enter, rivalry soon intensifies. When more organizations
compete for the same market share, profits start to fall. It is essential for existing organizations to
create high barriers to enter to deter new entrants. Threat of new entrants is high when:

• Low amount of capital is required to enter a market;

• Existing companies can do little to retaliate;
• Existing firms do not possess patents, trademarks or do not have established brand
reputation;
• There is no government regulation;
• Customer switching costs are low (it doesn’t cost a lot of money for a firm to switch to
other industries);
• There is low customer loyalty;
• Products are nearly identical;
• Economies of scale can be easily achieved.

Bargaining power of suppliers

Strong bargaining power allows suppliers to sell higher priced or low quality raw materials to
their buyers. This directly affects the buying firms’ profits because it has to pay more for
materials. Suppliers have strong bargaining power when:

• There are few suppliers but many buyers;

• Suppliers are large and threaten to forward integrate
• Few substitute raw materials exist;
• Suppliers hold scarce resources;
• Cost of switching raw materials is especially high.

Bargaining power of buyers

Buyers have the power to demand lower price or higher product quality from industry producers
when their bargaining power is strong. Lower price means lower revenues for the producer,
while higher quality products usually raise production costs. Both scenarios result in lower
profits for producers. Buyers exert strong bargaining power when:
 • Buying in large quantities or control many access points to the final customer;
• Only few buyers exist;
• Switching costs to other supplier are low;
• They threaten to backward integrate;
• There are many substitutes;
• Buyers are price sensitive.

Threat of substitutes

This force is especially threatening when buyers can easily find substitute products with
attractive prices or better quality and when buyers can switch from one product or service to
another with little cost. For example, to switch from coffee to tea doesn’t cost anything, unlike
switching from car to bicycle.

Rivalry among existing competitors

This force is the major determinant on how competitive and profitable an industry is. In
competitive industry, firms have to compete aggressively for a market share, which results in low
profits. Rivalry among competitors is intense when:

• There are many competitors;

• Exit barriers are high;
• Industry of growth is slow or negative;
• Products are not differentiated and can be easily substituted;
• Competitors are of equal size;
• Low customer loyalty.

OR DETAILED EXPLANATION OF PORTE’S MODEL

Michael Porter (Harvard Business School Management Researcher) designed various vital
frameworks for developing an organization’s strategy. One of the most renowned among
managers making strategic decisions is the five competitive forces model that determines
industry structure. According to Porter, the nature of competition in any industry is personified in
the following five forces:

i. Threat of new potential entrants

ii. Threat of substitute product/services

iii. Bargaining power of suppliers

iv. Bargaining power of buyers

v. Rivalry among current competitors

FIGURE: Porter’s Five Forces model

The five forces mentioned above are very significant from point of view of strategy formulation.
The potential of these forces differs from industry to industry. These forces jointly determine the
profitability of industry because they shape the prices which can be charged, the costs which can
be borne, and the investment required to compete in the industry. Before making strategic
decisions, the managers should use the five forces framework to determine the competitive
structure of industry.

Let’s discuss the five factors of Porter’s model in detail:

1. Risk of entry by potential competitors: Potential competitors refer to the firms which
are not currently competing in the industry but have the potential to do so if given a
choice. Entry of new players increases the industry capacity, begins a competition for
market share and lowers the current costs. The threat of entry by potential competitors is
partially a function of extent of barriers to entry. The various barriers to entry are-

• Economies of scale

• Brand loyalty

• Government Regulation

• Customer Switching Costs

• Absolute Cost Advantage

• Ease in distribution

• Strong Capital base

2. Rivalry among current competitors: Rivalry refers to the competitive struggle for
market share between firms in an industry. Extreme rivalry among established firms
poses a strong threat to profitability. The strength of rivalry among established firms
within an industry is a function of following factors:

• Extent of exit barriers

• Amount of fixed cost

• Competitive structure of industry

• Presence of global customers

• Absence of switching costs

• Growth Rate of industry

 • Demand conditions

3. Bargaining Power of Buyers: Buyers refer to the customers who finally consume the
product or the firms who distribute the industry’s product to the final consumers.
Bargaining power of buyers refer to the potential of buyers to bargain down the prices
charged by the firms in the industry or to increase the firms cost in the industry by
demanding better quality and service of product. Strong buyers can extract profits out of
an industry by lowering the prices and increasing the costs. They purchase in large
quantities. They have full information about the product and the market. They emphasize
upon quality products. They pose credible threat of backward integration. In this way,
they are regarded as a threat.

4. Bargaining Power of Suppliers: Suppliers refer to the firms that provide inputs to the
industry. Bargaining power of the suppliers refer to the potential of the suppliers to
increase the prices of inputs( labour, raw materials, services, etc) or the costs of industry
in other ways. Strong suppliers can extract profits out of an industry by increasing costs
of firms in the industry. Suppliers products have a few substitutes. Strong suppliers’
products are unique. They have high switching cost. Their product is an important input
to buyer’s product. They pose credible threat of forward integration. Buyers are not
significant to strong suppliers. In this way, they are regarded as a threat.

5. Threat of Substitute products: Substitute products refer to the products having ability
of satisfying customer’s needs effectively. Substitutes pose a ceiling (upper limit) on the
potential returns of an industry by putting a setting a limit on the price that firms can
charge for their product in an industry. Lesser the number of close substitutes a product
has, greater is the opportunity for the firms in industry to raise their product prices and
earn greater profits (other things being equal).

The power of Porter’s five forces varies from industry to industry. Whatever be the industry,
these five forces influence the profitability as they affect the prices, the costs, and the capital
investment essential for survival and competition in industry. This five forces model also help in
making strategic decisions as it is used by the managers to determine industry’s competitive
structure.
Porter ignored, however, a sixth significant factor- complementaries. This term refers to the
reliance that develops between the companies whose products work is in combination with each
other. Strong complementary might have a strong positive effect on the industry. Also, the five
forces model overlooks the role of innovation as well as the significance of individual firm
differences. It presents a stagnant view of competition.

Use of the Information from the Five Forces Analysis

The Five Forces Analysis provides insights on profitability. Thus, it supports decisions about
entry to, or exit from, an industry or a market segment. It can also be used to compare the
impact of competitive forces on your own organisation, with the impact on competitors.
Remember that competitors may have different options to react to changes in competitive forces
from their different resources and competencies. This may influence the structure of the whole
industry. When used in conjunction with a macro environmental analysis (external factors),
which reveals drivers for change in an industry, Five Forces Analysis can reveal insights about
the potential future attractiveness of the industry.

Competition at various levels:

It is possible to see competition operating at four levels:

1. Competition consists only of those companies offering a similar product or service to the
target market, utilizing a similar technology, and exhibiting similar degrees of vertical
integration, e. g Reebok, Adidas and Nike (in sportswear and shoes).

2. Competition consists of all companies operating in the same product or service category Malls
like Garuda and Forum in Bangalore; PVR Cinema and Innox in theatres, banks like HDFC,
ICICI and SBI with their retail, corporate and investment banking service; and insurance
companies like HDFC Life, SBI Life, ICICI Prudential and ICICI Lombard.

3. Competition consists of all companies manufacturing or supplying products which deliver the
same service (Nokia, Motorola and Sony Ericsson in the GSM handset market).
4. Competition consists of all companies for cornering the same spending power of the target
group (Visa and MasterCard) while making electronic payment either through credit or debit
card. This may be for various purpose like travel ticket, hotel and utility bills and so on.

It should be apparent from above that marketing strategies need not only identify those
competitors who reflect the same general approach to the market, but also consider those who
‘interact’ the with company suppliers in each market, who possibly approach it from a different
perspective, and who ultimately might pose either a direct or an indirect threat.

As part of this, one need also to identify potential new entrants to the market and, where it
appears necessary, develop contingency plans to neutralize their competitive effect. Taking all
facts into consideration, leads to two distinct viewpoints on competition: the industry point of
view and the market point of view

ENVIRONMENTAL THREAT AND OPPORTUNITY PROFILE (ЕТОР)!

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. A matrix of
comparison is drawn where one item or factor is compared with other items after which the
scores arrived at are added and ranked for each factor and total weight age score calculated for
prioritizing each of the factors.

This is achieved by brainstorming. And finally the strategy manger uses his judgment to place
various environmental issues in clear perspective to create the environmental threat and
opportunity profile.

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.

Each of the major factors pertaining to a particular sector of environment may be divided into
sub-sectors and their effects studied. 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.
ETOP Preparation:

The preparation of ETOP involves dividing the environment into different sectors and then
analyzing the impact of each sector on the organization. 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.

A summary ETOP may only show the major factors for the sake of simplicity. The table 1
provides an example of an ETOP prepared for an established company, which is in the Two
Wheeler industry.

The main business of the company is in Motor Bike manufacturing for the domestic and exports
markets. This example relates to a hypothetical company but the illustration is realistic based n
the current Indian business environment.

Table 1: Environmental Threat and Opportunity Profile (ETOP) for a Motor Bike
company:

Impact of each sector

Environmental
Sectors

Social (↑) Customer preference for motorbike, which are fashionable,

easy to ride and durable.

Political (→) No significant factor.

Economic (↑) Growing affluence among urban consumers; Exports potential high.

Regulatory (↑) Two Wheeler industries a thrust area for exports.

 Market (↑) Industry growth rate is 10 to 12 percent per year, For motorbike growth

rate is 40 percent, largely Unsaturated demand.

Supplier (↑) Mostly ancillaries and associated companies supply parts and components,

REP licenses for imported raw materials available.

Technological Technological up gradation of industry in progress.

(↑)
Import of machinery under OGL list possible.

As shown in the table motorbike manufacturing is an attractive proposition due to the many
opportunities operating in the environment. The company-can capitalize on the burgeoning
demand by taking advantage of the various government policies and concessions. It can also take
advantage of the high exports potential that already exists.

Since the company is an established manufacturer of motorbike, it has a favorable supplier as

well as technological environment. But contrast the implications of this ETOP for a new
manufacturer who is planning to enter this industry.

Though the market environment would still be favorable, 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 preparation of an ETOP
provides a clear picture for organization to formulate strategies to take advantage of the
opportunities and counter the threats in its environment.

The strategic managers should keep focus on the following dimensions,

1. Issue Selection:

Focus on issues, which have been selected, should not be missed since there is a likelihood of
arriving at incorrect priorities. Some of the impotent issues may be those related to market share,
competitive pricing, customer preferences, technological changes, economic policies,
competitive trends, etc.

2. Accuracy of Data:

Data should be collected from good sources otherwise the entire process of environmental
scanning may go waste. The relevance, importance, manageability, variability and low cost of
data are some of the important factors, which must be kept in focus.

3. Impact Studies:

Impact studies should be conducted focusing on the various opportunities and threats and the
critical issues selected. 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. Efforts should be taken to make assessments more objective wherever
possible.

4. Flexibility in Operations:

There are number of uncertainties exist in a business situation and so a company can be greatly
benefited buy devising proactive and flexible strategies in their plans, structures, strategy etc.
The optimum level of flexibility should be maintained.

Some of the key elements for increasing the flexibility are as follows:

(a) The strategy for flexibility must be stated to enable managers adopts it during unique
situations

(b) Strategies must be reviewed and changed if required.

(c) Exceptions to decided strategies must be handled beforehand. This would enable managers to
violate strategies when it is necessary.

(d) Flexibility may be quite costly for an organization in terms of changes and compressed plans;
however, it is equally important for companies to meet urgent challenges.