Page 74 - DCOM506_DMGT502_STRATEGIC_MANAGEMENT

Strategic Management

Notes As observed from the above, the firm can capitalize on rising income levels, buyer loyalty
to the firm’s products and buyer’s preference for differentiated products even though the
price is high. But this would depend on the firm’s acquisition of latest technology, which
is expensive. Thus, the preparation of an ETOP provides the strategists with a clear picture
of which environmental factors have a favourable impact on the firm and which have an
unfavourable or adverse effect. With the help of an ETOP, a firm can judge where it stands
with respect to its environment, and such an understanding is helpful in formulating
appropriate strategies.

Alternative Framework for ETOP

An alternative framework to analyse the impact of threats and opportunities is explained below:
1. The Opportunity and Threat Matrices
( a) The Threat matrix

Major threats
Seriousness High Moderate threats Moderate threats
Minor threats
Low
Low

High Probability of occurrence
A company, after identifying various threats, can use its judgment to place the

threats in any one of the four cells. Thus, for an aluminum plant, erratic availability
and high cost of electrical power, can become a major threat if the probability of its
occurrence is high. Placing this threat in cell-1 would mean strategic decisions like
setting up of a captive power plant or shifting the plant to another location.
(b) The Opportunity Matrix
Attractiveness High Moderately attractive Moderately attractive
Very attractive
Least attractive
Low
High

Probability of occurrence Low
A company based on its own assessment and judgment can place the trends in
various cells. A company’s success probability with a particular opportunity depends
on whether its business strength (i.e., distinctive competence ) matches the success

requirements of the industry. For example, entry into light commercial vehicles

was an attractive opportunity for TELCO in which it had distinctive competence.
(c) The Impact Matrix: The impact of the trends (opportunities and threats ) on various
strategies can be visualized with the help of an impact matrix. This is discussed
below.

After identifying the emerging trends in mega and micro or relevant environment,
the degree of their impact can be assessed with the help of an impact scale. The
matrix enables us to have a summary view of the impact on different strategies
which a firm may be following. The strategies may relate to various functional

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