Unit - 2

External Analysis ● Environmental factors influence corporate social

responsibility (CSR), sustainability initiatives, and
PESTEL Analysis
consumer preferences for eco-friendly products.
It is a strategic tool used by organisations to assess
the external factors that may impact their business 6. Legal Factors:
environment and influence strategic decision-making. ● Relates to laws, regulations, and legal frameworks
By analysing these factors comprehensively, that impact businesses and industries.
organisations can identify opportunities and threats, ● Includes factors such as employment laws, health and
anticipate changes, and adapt their strategies to safety regulations, consumer protection laws, and
remain competitive and achieve long-term success. intellectual property rights.
● Legal factors affect business operations, compliance
1. Political Factors:
requirements, and risk management strategies.
● Refers to the influence of government policies, political
stability, and regulations on businesses.
External/Internal Factor Evaluation Matrix
● Examples include taxation policies, trade tariffs,
The External Factor Evaluation Matrix (EFE) is a tool
political stability, government intervention, and
which helps strategists to summarise and evaluate
regulatory frameworks.
the PESTEL factors.
● Political factors can affect market entry, business
operations, and investment decisions. 1.List key external factors: Once the PESTEL is
performed, key external factors are identified. In this
2. Economic Factors:
all the factors (10 or 20) are included which determine
● Relates to the macroeconomic conditions that impact
the opportunities and threats (strengths and
businesses and consumer behaviour.
weaknesses) for the organisation. Then the listing of
● Includes factors such as economic growth rates,
all the opportunities and threats is done using
inflation, exchange rates, interest rates, and
percentages, ratios etc.
unemployment levels.
● Economic factors influence consumer spending, 2.Assign weight to each factor: This is the second step
investment decisions, business profitability, and where each factor is assigned weight ranging from 0.0
market demand. (not so important) to 1.0 (very important). These
weights depict the relative importance to each factor.
3. Social Factors:
These weights are determined by comparing
● Refers to societal trends, cultural norms,
successful competitors with unsuccessful ones or
demographics, and lifestyle changes that affect
through a group discussion in the organisation. The
consumer behaviour.
sum of all weights should be 1.0. These are industry
● Includes factors such as population demographics,
based.
social attitudes, lifestyle trends, consumer preferences,
and health consciousness. 3.Assign rating to each factor: A rating of 1 to 4 factors
● Social factors influence product preferences, market is assigned. This is done to show the effectiveness of
segmentation, and marketing strategies. the organisation’s present strategic response to the
factor. The rating scale is depicted as below:
4. Technological Factors:
1 = Poor response
● Relates to technological advancements, innovation,
2 = Average response
and digital disruption that impact industries and
3 = Above average response
business operations.
4 = Superior response.
● Includes factors such as research and development
Ratings are organisation based.
(R&D) activity, automation, digitalization, and
technological infrastructure. 4.Determine a weighted score: This is the fourth step
● Technological factors drive changes in products, and it involves multiplying weight of each factor by its
services, processes, and business models. rating.

5. Environmental Factors: 5.Determine the total weight score: This is the last step
● Refers to ecological trends, environmental to be performed and in this step a score of the
sustainability, and climate change considerations that weighted score of each variable is considered and this
affect businesses. gives the total weighted score of the organisation.
● Includes factors such as environmental regulations,
climate change impacts, resource scarcity, and
sustainable practices.
 Porter’s Five Forces independent customers will have an easier time
charging higher prices to increase profitability.
Porter's Five Forces is a business analysis model that
helps to explain why various industries are able to V. Threat of Substitutes:
sustain different levels of profitability. Porter's Five Substitute goods or services that can be used in place
Forces Model helps managers and analysts of a company's products or services pose a threat.
understand the competitive landscape that a Companies that produce goods or services for which
company faces and to understand how a company is there are no close substitutes will have more power
positioned within it. The Five Forces model is widely to increase prices and lock in favourable terms. When
used to analyse the industry structure of a company close substitutes are available, customers will have
as well as its corporate strategy. the option to forgo buying a company's product, and a
company's power can be weakened.
I. Competition in the industry
The first one is the number of competitors and their
Internal Analysis
ability to undercut a company. The larger the number
of competitors, along with the number of equivalent SWOT Analysis
products and services they offer, the lesser the power SWOT analysis is a strategic planning and strategic
of a company. Suppliers and buyers seek out a management technique used to help a person or
competitor if they are able to offer a better deal or organisation identify Strengths, Weaknesses,
lower prices. Conversely, when competitive rivalry is Opportunities, and Threats related to business
low, a company has greater power to charge higher competition or project planning.
prices and set the terms of deals to achieve higher
sales and profits. Strengths (S) and Weaknesses (W) are considered to
be internal factors over which you have some
II. Potential of New Entrants into an industry
measure of control and Opportunities (O) and Threats
A company's power is also affected by the force of
(T) are considered to be external factors over which
new entrants into its market. The less time and
you have no control.
money it costs for a competitor to enter a company's
market and be an effective competitor, the more an 1. Strengths
established company's position could be significantly ● Strengths are the qualities that enable us to
weakened. An industry with strong barriers to entry is accomplish the organisation’s mission.
ideal for existing companies within that industry since ● These are the basis on which continued success can
the company would be able to charge higher prices be made and continued/sustained.
and negotiate better terms. ● Strengths can be either tangible or intangible.
● These are what you are well-versed in or what you
III. Power of Suppliers
have expertise in, the traits and qualities your
The next factor is how easily suppliers can drive up
employees possess (individually and as a team) and
the cost of inputs. It is affected by the number of
the distinct features that give your organisation its
suppliers of key inputs of a good or service, how
consistency.
unique these inputs are, and how much it would cost
● Strengths are the beneficial aspects of the
a company to switch to another supplier. The fewer
organisation or the capabilities of an organisation,
suppliers to an industry, the more a company would
which includes human competencies, process
depend on a supplier. As a result, the supplier has
capabilities, financial resources, products and
more power and can drive up input costs and push for
services, customer goodwill and brand loyalty.
other advantages in trade. On the other hand, when
● Examples of organisational strengths are huge
there are many suppliers or low switching costs
financial resources, broad product line, no debt,
between rival suppliers, a company can keep its input
committed employees, etc.
costs lower and enhance its profits.
2. Weaknesses
IV. Power of Customers:
● Weaknesses are the qualities that prevent us from
Customers have the ability to drive prices lower. It is
accomplishing our mission and achieving our full
affected by how many buyers or customers a
potential.
company has, how significant each customer is, and
● These weaknesses deteriorate influences on
how much it would cost a company to find new
organisational success and growth.
customers or markets for its output. A smaller and
● Weaknesses are the factors which do not meet the
more powerful client base means that each customer
standards we feel they should meet.
has more power to negotiate for lower prices and
● Weaknesses in an organisation may be depreciating
better deals. A company that has many, smaller,
machinery, insufficient research and development
facilities, narrow product range, poor
 decision-making, etc. Weaknesses are controllable. By combining the external environment’s
They must be minimised and eliminated. opportunities and threats with the internal
● For instance - to overcome obsolete machinery, new organisation’s strengths and weaknesses,
machinery can be purchased. Other examples of management can come up with four basic strategies:
organisational weaknesses are huge debts, high
employee turnover, complex decision making 1.WT situation: Mini-Mini strategy:
process, narrow product range, large wastage of raw ● The company in this case has little development
materials, etc. opportunities. It operates in a hostile environment
and its potential for change is small.
3. Opportunities
● It does not have significant strengths, which could
● Opportunities are presented by the environment
withstand threats.
within which our organisation operates.
● The aim of the Mini-Mini strategy is to minimise both
● These arise when an organisation can take
weaknesses and threats.
advantage of conditions in its environment to plan
● Mini-Mini strategy boils down to a pessimistic
and execute strategies that enable it to become
scenario such as the liquidation of a company or in an
more profitable.
optimistic situation – to strive for survival by merging
● Organisations can gain competitive advantage by
with another organisation.
making use of opportunities.
● Organisations should be careful and recognize the
2.WO situation: Mini-Maxi strategy:
opportunities and grasp them whenever they arise.
● In this situation the company has more
Selecting the targets that will best serve the clients
vulnerabilities (weaknesses), but its environment
while getting desired results is a difficult task.
provides plenty of opportunities to resolve that.
● Opportunities may arise from market, competition,
● The Mini- Maxi strategy attempts to minimise the
industry/government and technology.
weaknesses and to maximise the opportunities.
● Increasing demand for telecommunications
● The strategy should include the exploitation of these
accompanied by deregulation is a great opportunity
opportunities while reducing or correcting
for new firms to enter the telecom sector and
weaknesses within the organisation.
compete with existing firms for revenue.
● Outsourcing activities or acquiring another company
4. Threats with the right resources could be an option for
● Threats arise when conditions in an external example
environment jeopardise the reliability and
profitability of the organisation’s business. They 3.ST situation: Maxi-Mini strategy:
compound the vulnerability when they relate to the ● In this case we see a strong company operating in a
weaknesses.Threats are uncontrollable. hostile environment.
● When a threat comes, stability and survival can be ● The aim of a Maxi-Mini strategy is to maximise the
at stake. strengths of a company while minimising the threats
● Examples of threats are - unrest among employees; through these strengths.
ever changing technology; increasing competition ● A company with strong financial capabilities and
leading to excess capacity, price wars and reducing cost-reducing skills, could lower its prices to drive out
industry profits; etc. competition.

TOWS Analysis 4. SO situation: Maxi-Maxi strategy:

● Any company would like to be in a position where it
A TOWS Analysis is an extension of the SWOT can maximise both strengths and opportunities.
Analysis framework that identifies your Strengths, ● Such an enterprise can lead from strengths, utilising
Weaknesses, Opportunities and Threats but then its resources to take advantage of the opportunities
goes further in looking to match up the Strengths the market is offering.
with Opportunities and the Threats with ● Companies in these situations could think about
Weaknesses. expanding internationally or diversifying their product
portfolio to boost revenues.
The main purpose of a TOWS Analysis is to:
● Reduce threats
● Take advantage of opportunities
● Exploit strengths
● Remove weaknesses
 Porter’s Value chain analysis Accounting, legal, administrative, and general
Value chain in eCommerce explains how an idea is management are examples of necessary
transformed into a consumable product and delivered infrastructure that businesses can use to their
to the end consumer. advantage.

The value chain can be divided into two categories: II. Human resource management:
a.Primary activities This is how well a company recruits, hires, trains,
b.Support activities motivates, rewards and retains its workers. People
are a significant source of value. So, companies can
create a clear advantage with good HR practices.

III. Technology Development:

These activities relate to managing and processing
information, as well as protecting a company's
knowledge base. Minimising information technology
costs, staying up to date with technological advances,
and maintaining technical excellence are sources of
value creation.

IV. Procurement
This is what the organisation does to get the
Primary activities: resources it needs to operate. This includes finding
They relate directly to the physical creation, sale, vendors and negotiating the best prices.
maintenance and support of a product or a service.
They consist of the following: Core competencies are the unique capabilities and
strengths that distinguish an organization from its
I.Inbound Logistics:
competitors and enable it to deliver value to
These are all processes related to receiving, storing,
customers. These competencies represent the
and distributing inputs internally. The supplier
collective knowledge, skills, technologies, and
relationships are a key factor in creating value here.
resources that form the foundation of an
II.Operations: organization's competitive advantage. Core
These are the transformation activities that change competencies are typically deep-rooted and difficult
inputs into outputs that are sold to customers. Here, for competitors to imitate or replicate easily. They
the operational systems create value. contribute to the organization's sustained success and
market leadership.
III.Outbound Logistics:
These activities deliver the products or services to the
Competitive advantage refers to the unique position
customer. These include collection, storage and
that an organization holds in the marketplace,
distribution systems and they may be internal or
allowing it to outperform competitors, generate
external to the organisation.
superior value for customers, and achieve higher
IV.Marketing & Sales: profitability. Competitive advantage can be derived
These are the processes used to persuade clients to from various sources, including cost leadership,
purchase from your company instead of the differentiation, innovation, customer service
competitors. The benefits offered and how well the excellence, and market positioning. Organizations
communication takes place are the sources of value leverage their core competencies to establish and
here. sustain competitive advantage by offering products,
services, or solutions that are perceived as superior
V.Service:
by customers or provide better value for money
These are the activities related to maintaining the
compared to alternatives in the market.
value of the product or service to the customers once
it has been purchased.
Importance of Organisational Capabilities:
Support Activities: Organizational capabilities refer to the collective
These activities support the primary activities. Each skills, knowledge, resources, processes, and
support or secondary activity can play a role in each competencies possessed by an organization that
primary activity. enable it to perform tasks, achieve objectives, and
create value for stakeholders.
I. Firm infrastructure:
These are a company’s support systems and the
functions that allow it to maintain daily operations.
1.Competitive Advantage: differentiation, positioning organizations for
● Organisational capabilities represent the collective long-term success.
skills, knowledge, processes, and resources that
6.Employee Engagement and Performance:
enable an organisation to achieve its goals and
● Organizational capabilities promote employee
objectives.
engagement, satisfaction, and performance by
● By leveraging unique capabilities, organisations can
providing a supportive and empowering work
gain a competitive advantage in the marketplace.
environment.
● Capabilities such as innovation, operational efficiency,
● Capabilities such as leadership development, talent
customer service excellence, and product quality
management, and learning culture foster employee
differentiate organisations from competitors and drive
growth, motivation, and commitment.
business success.
● Engaged and high-performing employees contribute
2.Adaptability and Resilience: to organizational success by leveraging their skills
● Organisational capabilities enable adaptability and and expertise to deliver exceptional results.
resilience in the face of changing market dynamics,
technological advancements, and external Porter's Diamond Theory of National Advantage.
disruptions.
● Organisations with strong capabilities can respond
quickly to emerging opportunities and threats, adjust
strategies, and pivot operations as needed.
● Adaptive capabilities help organisations stay agile,
responsive, and competitive in dynamic environments,
ensuring long-term viability and sustainability.

3.Value Creation:
● Organisational capabilities are instrumental in
creating value for customers, stakeholders, and
society.
● Capabilities such as innovation, customer-centricity,
and operational excellence allow organisations to
deliver products, services, and experiences that meet
or exceed customer expectations.
● Value-creating capabilities drive customer
satisfaction, loyalty, and market success, contributing
to revenue growth, profitability, and organisational The individual points on the diamond and the
growth. diamond as a whole affect four ingredients that lead
4.Strategic Alignment: to a national comparative advantage. These
● Organisational capabilities align with strategic ingredients are:
objectives and priorities, guiding resource allocation,
decision-making, and performance management. 1. the availability of resources and skills,
● Capabilities help organizations focus on areas where 2. information that firms use to decide which
they can excel and achieve strategic goals effectively. opportunities to pursue with those resources
● Strategic alignment ensures that organizational and skills,
efforts are directed towards activities that generate 3. the goals of individuals in companies,
the greatest value and contribute to the achievement 4. the pressure on companies to innovate and
of long-term objectives. invest.

5.Innovation and Growth: The points of the diamond are described as follows.
● Organizational capabilities foster innovation and fuel I. Factor Conditions
growth by enabling organizations to develop new ● A country creates its own important factors such as
products, services, and business models. skilled resources and technological base.
● Capabilities such as R&D, technology adoption, and ● The stock of factors at a given time is less important
collaboration facilitate the creation of innovative than the extent that they are upgraded and deployed.
solutions that address evolving customer needs and ● Local disadvantages in factors of production force
market trends. innovation. Adverse conditions such as labor
● Innovative capabilities drive organizational growth, shortages or scarce raw materials force firms to
expansion into new markets, and competitive develop new methods, and this innovation often
leads to a national comparative advantage.
II. Demand Conditions
● When the market for a particular product is larger
locally than in foreign markets, the local firms devote
more attention to that product than do foreign firms,
leading to a competitive advantage when the local
firms begin exporting the product.
● A more demanding local market leads to national
advantage.
● A strong, trend-setting local market helps local firms
anticipate global trends.

III. Related and Supporting Industries

● When local supporting industries are competitive,
firms enjoy more cost effective and innovative inputs.
● This effect is strengthened when the suppliers
themselves are strong global competitors.

IV. Firm Strategy, Structure, and Rivalry

● Local conditions affect firm strategy. For example,
German companies tend to be hierarchical. Italian
companies tend to be smaller and are run more like
extended families. Such strategy and structure helps
to determine in which types of industries a nation's
firms will excel.
● ​In Porter's Five Forces model, low rivalry made an
industry attractive. While at a single point in time a
firm prefers less rivalry, over the long run more local
rivalry is better since it puts pressure on firms to
innovate and improve. In fact, high local rivalry results
in less global rivalry.
● Local rivalry forces firms to move beyond basic
advantages that the home country may enjoy, süch as
low factor costs.