Unit 2nd

Organization environment-
An organization environment involves forces, both internal and external, that
affect the operations, performance and outcome of the organization.

Internal Environment
The internal environment consists of elements within the organization that are
generally under its control:

1. Men (Human Resources):

• Employees’ skills, attitudes, and productivity.
2. Machine (Technology and Equipment):
• Machinery, tools, and technology used in operations.
3. Material (Resources and Raw Materials):
• Raw materials and resources needed for production.
4. Money (Financial Resources):
• Financial capital available for operations and growth.
5. Management:
• Organizational processes and policies for directing and controlling
resources.

External Environment

The external environment includes factors outside the organization that

influence its performance and are usually beyond its control. It is divided into
the task environment (micro environment) and the broad environment (macro
environment).

Task Environment (Micro Environment)

Directly affects the organization’s operations:

1. Customers:
• Buyers of products or services.
2. Suppliers:
• Providers of raw materials and components.
3. Competitors:
• Other organizations offering similar products or services.
4. Distributors:
• Intermediaries delivering products to customers.
5. Regulators:
• Government agencies imposing regulations and standards.
Broad Environment (Macro Environment)

Broader societal forces affecting the micro environment:

1. Economic Environment:
• Economic conditions like inflation and growth.
2. Technological Environment:
• Technological advancements and innovations.
3. Political and Legal Environment:
• Government policies and legal regulations.
4. Sociocultural Environment:
• Cultural and demographic aspects of society.
5. Environmental (Ecological) Environment:
• Ecological and environmental concerns.
6. Global Environment:
• International factors and global markets.

Analysis of external environment:

Analyzing the external environment is crucial for strategic planning and involves understanding
the broader forces that affect an organization. This analysis is typically divided into two main
areas: the general environment and the competitive environment.

General Environment

The general environment encompasses broader societal factors that impact all organizations,
typically analyzed using the PESTEL framework:

1. Political Factors:
• Government policies, political stability, tax regulations, trade restrictions, and political
trends.
2. Economic Factors:
• Economic growth, interest rates, exchange rates, inflation, unemployment rates, and
overall economic health.
3. Sociocultural Factors:
• Cultural trends, demographics, population growth rates, lifestyle changes, and
consumer attitudes.
4. Technological Factors:
• Innovations, technological advancements, R&D activities, automation, and
technological infrastructure.
5. Environmental Factors:
• Ecological aspects, environmental regulations, sustainability initiatives, and climate
change impacts.
6. Legal Factors:
 • Laws, regulations, consumer protection, employment laws, health and safety
regulations, and industry-specific regulations.

Competitive Environment
The competitive environment includes factors that directly affect an organization’s competitive
position within its industry, often analyzed using Porter’s Five Forces model:
1. Threat of New Entrants (Barrier to Entry): New entrants can bring new capacity, innovation,
and competition, making it harder for established firms to maintain market share. Barriers to
entry, such as high capital costs or regulations, can limit new entrants.
2 . Bargaining Power of Suppliers: Suppliers with significant bargaining power can negotiate
higher prices, better quality, or more favorable terms, affecting a company's profitability.

3. Bargaining Power of Buyers: Buyers with significant bargaining power can negotiate lower
prices, better quality, or more favorable terms, also affecting profitability.

4. Threat of Substitute Products or Services: Substitute products or services can attract

customers away from a company's offerings, reducing demand and revenue.

5. Competitive Rivalry Among Existing Firms: Intense competition among existing firms can
lead to lower prices, higher advertising and promotion expenses, and innovation, making it
harder to maintain market share.

Analysis of internal environment

SWOT Analysis

External Attributes (Related to outside of the organization)

1. Opportunities:
• These are external factors that the organization can exploit to its advantage.
• Examples: Market growth, new technologies, strategic partnerships, regulatory changes
that favor the industry.
2. Threats:
• These are external challenges that could cause trouble for the organization.
• Examples: New competitors, changing consumer preferences, economic downturns,
regulatory hurdles.
Internal Attributes (Related to inside of the organization)

3. Strengths:
• These are internal capabilities that give the organization an advantage over
competitors.
• Examples: Strong brand reputation, skilled workforce, robust financial position,
innovative products.
4. Weaknesses:
• These are internal limitations that hinder the organization’s ability to achieve its
objectives.
• Examples: Outdated technology, limited resources, poor location, weaknesses in the
supply chain.

Value Chain Analysis

Value Chain Analysis is a strategic tool used to identify the primary and support activities that
create value for a business and analyze how these activities contribute to the company’s
competitive advantage.

Primary Activities

These are the core activities involved in creating a product or service and delivering it to the
customer.

1. Inbound Logistics:
• Activities related to receiving, storing, and distributing inputs . This includes materials
handling, warehousing, inventory control, and transportation.
2. Operations:
• Activities involved in transforming inputs into the final product. This includes:
• 4Ms of Marketing:
• Men: Skilled labor and workforce efficiency.
• Machines: Machinery and equipment used in production.
 • Materials: Quality and availability of raw materials.
• Methods: Processes and techniques employed in production.
3. Outbound Logistics:
• Activities related to distributing the final product to customers. This includes:
• Channel Types:
• Direct Distribution: Selling directly to consumers without intermediaries.
• Indirect Distribution: Involving intermediaries like wholesalers and retailers.
• Channel Levels:
• Exclusive Distribution: Limited outlets, often high-end.
• Intensive Distribution: Widely available through many outlets.
4. Marketing and Sales:
• Activities that provide the means by which buyers can purchase the product and induce
them to do so. This includes:
• 4Ps of Marketing:
• Product: The goods or services offered.
• Place: Distribution channels and locations where products are sold.
• Promotion: Advertising, sales promotion, and communication strategies.
• Price: Pricing strategy and competitive pricing.
5. Service:
• Activities that maintain and enhance the product’s value after the sale. This includes
customer support, repair services, installation, training, and warranty and guarantee policies.

Support Activities

These activities support the primary activities and each other by providing infrastructure,
technology, human resources, and procurement functions.

1. Procurement:
• Activities involved in acquiring the raw materials and other inputs used in the value
chain. This includes vendor selection, purchase negotiations, and purchase contract
management.
2. Human Resource Management (HRM):
• Activities related to recruiting, hiring, training, developing, and compensating
employees. This also includes employee relations and performance management.
3. Technology Development:
• Activities related to the development and application of technology to support the
value chain activities. This includes R&D, product and process improvement, and technological
advancements.
4. Firm Infrastructure:
• Activities that provide the company’s general management, planning, finance,
accounting, legal, and quality management functions. This includes organizational structure,
control systems, company culture, and overall strategic management.
Balanced scorecard:
The Balanced Scorecard (BSC) is a strategic management tool used to measure and provide
feedback on an organization’s performance. It helps organizations translate their vision and
strategy into actionable objectives across four perspectives: financial, customer, internal business
processes (operation), and learning and growth (organization). Here is an overview of each
perspective:

1. Financial perspective: The financial perspective ensures the organization’s financial health
and profitability by tracking metrics such as revenue growth and profit margins.
2. Customer perspective: The customer perspective evaluates the organization’s performance
from the viewpoint of its customers, focusing on satisfaction, retention rates, and market share.
3. Operation perspective: The internal business processes perspective aims to optimize
internal processes critical to delivering value to customers, emphasizing process efficiency, cycle
times, and quality rates.
4. Organization perspective: The learning and growth perspective enhances the organization’s
capability to sustain continuous improvement and innovation, focusing on employee satisfaction,
retention, training, and development.