Page 55 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Unit 4: External Assessment

Introduction Notes

At a time of fast growth, rapid changes and cut throat comatetion as exists in about all industries,
it is a challenge for the companies to establish a strategic agenda for dealing with these contending
currents and to grow despite them.
A company must understand how the above currents work in its industry and how they affect
the company in its particular situation. For this a very useful tool is used by the analysts. The
name of this tool is external analysis.

External assessment is a step where a firm identifies opportunities that could benefit it and
threats that it should avoid. It includes monitoring, evaluating, and disseminating of information
from the external and internal environments to key people within the corporation.

4.1 Concept of Environment

Environment literally means the surroundings, external objects, influences or circumstances
under which someone or something exists. The environment of any organisation is “the aggregate
of all conditions, events and influences that surround and affect it.” Davis, K, The Challenge of
Business, (New York: McGraw Hill, 1975), p. 43.

Environment refers to all external forces which have a bearing on the functioning of business.
Jauch and Gluecke has defined environment as “The environment includes factors outside the
firm which can lead to opportunities or a threat to the firm. Although there are many factors the
most important of the sectors are socio-economic, technological, supplier, competitor and govt.”
The recent changes in tariff rates have changed the toy industry of India with the market now
being dominated by Chinese products. A slight change in the Reserve Bank of India’s monetary
policy can increase or decrease interest rates in the market. A slight shift in the government’s
fiscal policy can shift the whole demand curve towards the right or the left.

Example: Hindustan Lever Limited (HLL) took advantage of the new takeover and
merger codes and acquired brands like Kissan from the UB group, TOMCO (Tata Oil Mills
Company) and Lakme from Tata and Modern Foods from the government, besides many other
small takeovers and mergers.
The new moguls of the Indian business are those who predicted the changes in the environment
and reacted accordingly. Azim Premji of Wipro, Narayana Murthy of Infosys, Subhash Goyal of
ZEE, the Ambanis of Reliance, L.N. Mittal of Mittal Steel, Sunil Mittal of Bharti Telecom are
some of them.
Even a small businessman who plans to open a small shop as a general merchant in his town
needs to study the environment before deciding where he wants to open his shop, the products
he intend to sell and what brands he wants to stock.
The relation between a business and an environment is not a one way affair. The business also
equally influences the external environment and can bring about changes in it. Powerful business
lobbies for instance, actively work towards changing government policies.
The business environment is not all about the economic environment but also about the social
and political environment. Politically, after the Congress government came to power at the
center with the support of the CPI in May 2004, the whole process of disinvestments took a U-
turn. Similarly, a new sociological order in India today has created a market for fast foods,
packaged foods, multiplexes, designer names, Valentine day gifts and presents, and gymnasiums
and clubs etc.

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