Unit-1_BE_Notes.pdf

Unit-1
Dimensions of Business Environment –Economic, Political, Cultural, Social, Legal,
Governmental, Technological, Natural environment – Environmental Analysis- need,
Importance, Approaches – ETOP and forecasting techniques.
Environment:
➢ Surroundings, external objects or circumstances of some existence.
➢ Environment of any organisation is the aggregate of all the conditions
influences that surround and affect it.
Characteristics:
# Environment is complex- number of factors, event, conditions arising from
different sources; existence not isolation, interact with each other to create
influences.
# Environment is dynamic- constantly change in nature. The dynamism in the
environment causes it to constantly change its shape and characteristic.
#Environment is multi-faceted- The shape and characteristic assumed depends
on the perception of observer. Change or new development viewed differently
by observers.
# Environment is far reaching impact- growth and profitability of an
organisation depends on the environment.
The Concept of Business Environment:
- All those factors that have an impact on business.
- The total of all things external to firms and industries which affect their
organisation and operation.
- According to Keith Davis, “The aggregate of all conditions, events and
influences that surround and affect business.”
- According to Arthur M Weimer, “Business environment encompasses
the climate or set of conditions, economic, social, political, or
institutional in which business operations are conducted.”

Nature of Business Environment:
a) Aggregative: It is the totality of all the external forces which influence
the working and decision-making of an enterprise.
b) Inter-related: A change in one element affects the other elements.
Economic environment influences the non-economic environment which
in turn affects the economic conditions. Example, liberalisation opened
new opportunities for private sector and foreign entrepreneurs.
c) Relative: It differs from country to country and even region to region.
The nature of economic system (capitalistic and socialistic) in a country
affects the environment of business.
d) Inter-temporal: It changes over time. In short run, it may be static but in
the long run, it does change. Example, Business environment in India
now and before 1991.
e) Uncertain: It is very difficult to forecast the future environment. When
the environment is volatile (changes very fast), uncertainty increases.
f) Contextual: It provides the macro framework within which the business
firm (a micro unit) operates. The environmental forces are largely those
given within which an individual enterprise and its management must
function. Business environment influences the working and the success
of business firms. Therefore, management of a business enterprise must
have a deep understanding and appreciation of the environment. The
changes must be continuously monitored to judge their impact on
business. Appropriate and timely steps must be taken to face the
environmental changes.
Significance of Business Environment:
The enterprises that are ready to adapt to environmental changes would be
successful. Knowledge of environmental changes is very helpful in the
formulation and implementation of business plans. A business can obtain this
knowledge through environmental scanning. Environmental scanning is the
process by which organisations monitor their relevant environment to identify
opportunities and threats affecting their business. With the help of
environmental scanning, an enterprise can consider the impact of different

events, trends, issues and expectations on its business operations. Some of the
direct benefits of understanding the environment are given below:
1. First mover advantage- Awareness of environment helps an enterprise
to take an advantage of early opportunities instead of losing them to
competitors. For example, Maruti Udyog became the leader in small car
market because it was the first to recognise the need for small car on
account of rising petroleum prices and a large middle class.
2. Early warning signal- Environmental awareness services as an early
warning signal. It makes a firm aware of the impending threat or crises
so that the firm can take timely action to minimise the adverse effects, if
any. For example, when new firms entered in the mid segment cars
(threat), Maruti Udyog increased the production of its Esteem three-
fold. Increase in production enables the company to make faster
delivery. As a result, the company captured a substantial share of the
market and become a leader in this segment.
3. Customer focus- Environment understanding makes the management
sensitive to the changing needs and expectations of consumers. For
example, Hindustan Unilever and several FMCG companies launched
small sachets of shampoo and other products realising the wishes of the
consumers. This move helped the firms to increase sales.
4. Strategy formulation- Environmental monitoring provides relevant
information about the business environment. Such information serves as
the basis for strategy making. For example, ITC realised that there is a
vast scope for growth in the travel and tourism industry in India and the
government is keen to promote this industry because of its employment
potential. With the help of this knowledge, ITC planned new hotels both
in India and abroad. Study of environment enables an organisation to
analyse its competitor’s strategies and thereby formulate effective
counter strategies.
5. Change agent- Business leaders act as agents of change. They create a
drive for change at the gross root level. In order to decide the direction
and nature of change, the leaders need to understand the aspiration of
people and other environmental forces through environmental scanning.
For example, contemporary environment requires prompt decision
making and power to people. Therefore, businesses leaders are

increasingly delegating authority to empower their staff and to eliminate
procedural delays.
6. Public image- A business firm can improve its image by showing that it is
sensitive to its environment and responsive to the aspirations of public.
Leading firms like Reliance Industries, ICICI bank and others have built
good image by being sensitive and responsive to environmental forces.
Environmental understanding enables businesses to be responsive to
their environment.
7. Continuous learning- Environmental analysis serves as broad based and
on-going education for business executives. It keeps them in touch with
the changing scenario so that they are never caught unaware. With the
help of environmental learning mangers can react in an appropriate
manner and thereby increase the success of their organisations.
Knowledge of changing environment can keep the organisation dynamic
in its approach.
Types of Business environment:
There are two broad based types of business environment- Internal and
External
Internal environment refers to all the factors existing within a business firm.
They are considered controllable. For example, a company can modify or alter
its organisation structure, policies, programmes, personnel, physical facilities
and marketing mix to suit the changes in the environment. It imparts strengths
or weaknesses. Strength is an inherent capability of enterprises which can be
used to gain strategic advantage over its competitors; Weakness means an
inherent limitation or constraint of an enterprise which creates a strategic
disadvantage.
The main internal factors which influence business decisions are as follows:
1. Culture: The values, beliefs and attitudes of the founders and top
management of the company exercise a strong influence on what the
company stands for, how it does things and what it considers important.
The value system of Narayan Murthy and its acceptance by those at the
helm of affairs have been responsible for the high ethical standards of
Infosys Technology.

2. Mission and objectives: the business philosophy and purpose of a
company guide its priorities, business strategies, product market scope
and development the private sector promoted him to launch world scale
plants in the petrochemicals and other industries- Reliance .
3. Top management structure: The composition of the board of directors,
the degree of the professionalization of management and the
organisational structure of a company has important bearing on its
business decisions. The board of directors sets the direction and
monitors the performance of the company.
4. Power structure: The internal power relationship between the board of
directors and the chief executive is an important factor. The extent of
which top management enjoys the support of shareholders and
employees at different levels also has an important bearing on decision
making and working of the company.
5. Company image and brand equity: The image and brand equity of the
company play a significant role in rising finance, forming alliances,
choosing dealers and suppliers, launching new products, entering
foreign markets, etc.
6. Human and other resources: the competence, morale and motivation of
employees play a vital role in the success of the firm. Financial position
and capital structure, distribution system and marketing competence,
R & D and technological capability, physical assets and facilities
(production capacity, technology, etc.) are other resources which
influence the competitiveness and success of a company.
External environment consists of forces and factors outside an enterprise.
They are beyond the control of the firm and thus regarded, uncontrollable. For
example, a company has no control over national income, government policies,
social forces, etc. It creates opportunities and threats for an enterprise. An
opportunity is a favourable condition whereas a threat is an unfavourable
condition in the external environment. The external environment comprises of
a) micro environment and b) macro environment.

a) Micro environment:
i) Customers- People who buy a firm’s products and services are its
customers. A business exists to create and satisfy customers. The
different type of customers could be individuals, households,
Government departments, commercial establishments, etc. The
customer environment is becoming global in the matter of
shopping due to increasing globalisation and liberalisation of the
economy.
ii) Competitors- a Company may have both direct and indirect
competitors. Direct competitors are of the other firms which offer
the same/similar products and services. Eg. Sony, LG, Samsung,
Videocon, etc. Indirect competition comes from firms vying for
discretionary income. Example, a cinema house facing indirect
competition from Casino, and other firms marketing
entertainment.
iii) Suppliers- Suppliers refer to the people and groups who supply
raw materials and components to the company. They influence

uninterrupted operations, minimise inventory carrying costs,
quality levels and costs manufacturing.
iv) Marketing intermediaries- Agents, wholesalers, and retailers
serve as a link between the company and its customers. They help
a company in promoting, selling and distributing its products to
consumers. Other examples of intermediaries are advertising
agencies, marketing research agencies and insurance companies.
v) Financiers- The shareholder, financial institutions, debenture
holders and banks provide finance to a company. Financial
capacity, policies and attitudes of financiers are important factors
for the company.
vi) Public- It includes all those groups who have an actual or potential
interest in the company, or who influence the company’s ability to
achieve its objectives. Media groups, environmentalists, NGOs and
local community are few examples.
b) Macro environment: (AKA Indirect Action Environment)
i) Political and Legal environment- elements relating to government
affairs. It serves as the regulatory framework of the business. The
main constituents of a country’s political and legal environment
are as follows:
➢ The Constitution of the country.

➢ Political organisation – organisation and philosophy of political
parties, ideology of the Government, nature and extent of
bureaucracy, influence of primary groups, business donations
to political parties, etc.
➢ Political stability- structure of military and police force, election
system, law and order situation, President’s Rule, foreign
infiltrations, etc.
➢ Image of the country and its leaders.
➢ Foreign policy-alignment or non-alignment, relations with
neighbouring countries.
➢ Defence and military policy.
➢ Laws governing business, and legal system.
➢ Flexibility and adaptability of laws- constitutional amendments
and direction of public policies.
➢ The judicial system- implementation and effectiveness of laws.
ii) Social and Cultural environment- social environment refers to the
characteristics of the society in which a business firm exists. Social
and cultural environment consists of the following:
➢ Demographic forces- size, composition, mobility and
geographical dispersal of population.
➢ Social institutions and groups
➢ Caste structure and family organisation.
➢ Educational system and literacy rates.
➢ Customs, attitudes, beliefs, values and life styles.
➢ Tastes, preferences of people, and their buying behaviour.
iii) Economic and Financial environment- It comprises the nature and
structure of the economy, the stage of economic development,
economic resources, the level of income, economic policies,
distribution of income, and so on.
➢ The nature of economic system- capitalist, socialist or mixed
economy.
➢ Economic structure – occupational distribution of labour force,
structure of national output, capital formation, investment

pattern, composition of trade, balance/imbalance between
different sectors.
➢ Economic policies – industrial policies, export-import policy,
monetary policy, fiscal policy, etc.
➢ Organisational and development of the capital market- banking
system, securities markets, etc.
➢ Economic indices- gross national product, per capita income,
rate of savings and investment, price level, balance of
payments position, etc.
➢ Product markets and factor markets- degree of competition.
iv) Technological and physical environment- The elements are
➢ Rate of technological change.
➢ Approaches to production of goods and services.
➢ New processes and equipment.
➢ Research and Development systems.
v) Natural environment-
➢ Climatic conditions.
➢ Agricultural, commercial and other natural resources.
➢ Ecological system.
➢ Levels of pollution.
vi) Global environment- the main determinants of international
environment are as follows:
➢ The state of the world economy and distribution of world
output.
➢ International economic cooperation.
➢ International market structure and competition.
➢ Barriers to international trade and investment.
➢ National economic policies of different countries.
➢ Role of multilateral economic institutions
➢ International economic laws, treaties, agreements, codes and
practices.
➢ Political system and conditions in different countries.

➢ Cultural factors in different countries.
➢ Growth and transfer of technology.
➢ Growth and spread of multinationals.
To summarise the types of environment:

Impact of Environment on Business and Strategic Decisions
1. Economic environment: The economic system prevailing in a country
determines the scope for private enterprises. The structure of the
economy in terms of contributions of agriculture, industry and services
indicates the prospects for different types of business. Reforms in
industrial and fiscal policies have led to the growth of new businesses
such as venture capital funds, mutual funds, leasing companies, etc. At
the same time Indian firms have become more vulnerable to
competition from multinational corporations and liberal imports due to
the liberal economic policy of the Government.
2. Social and cultural environment: Social consciousness among public
requires more responsible behaviour on the part of business in the
matter of environment, customer service and labour welfare. For
example, Pepsi’s Cola lost market share in some countries where the
company’s slogan ‘come alive’ translates as ‘come out of grave’ in local
language. Customs and beliefs of society shape the legal and
technological system. Example social pressures against pollution led to
antipollution laws which in turn stimulated new technology to reduce
pollution.
3. Political and legal environment: It provides the framework within which
business has to function. No business can succeed without
understanding the dynamics of the country’s political system and
without the support of public opinion. A stable and efficient political
system serves as a boost for growth of business. Political instability due
to terrorism, fall of Government, civil war, etc., restricts business
growth. Industrial policy, fiscal policy and foreign trade policy are
political decision. It determines the nature of governance. Example,
Bangalore and Hyderabad as the hub of information technology.
4. Technological, physical and natural environment: For example, a cable
TV has adversely affected radio. Digital watches destroyed business
prospects of traditional watches.

Environmental analysis
Concept of environmental analysis:
• We have to analyse the environment in which our business operate.
• Environmental monitoring and forecasting requires appropriate data
base and good analytical skills.
• An enterprise cannot achieve its objectives unless it adapts itself to
environmental changes.
• Thus, an enterprise must continuously analyse the environment and also
the changes therein which have taken place in order to formulate
strategy to overcome any negative impact of environment.
• Though all the future events cannot be anticipated, but atleast on the
basis of the environmental analysis, the managers are likely to take
better strategic decisions.
• Environmental analysis is the process through which an organisation
monitors and comprehends various environmental forces so as to
determine the opportunities and threats that lie ahead. This process is
AKA ‘environmental appraisal’ or ‘environmental scanning’.
• Environmental analysis has two broad aspects. First is environmental
search or monitoring the environment. Second is environmental
diagnosis or identifying opportunities and threats.
• Environmental search leads the identification of various forces that may
influence the enterprises. Environmental diagnosis, on the other hand
judges these factors for their positive and negative impact.
• Environmental analysis is an exploratory process undertaken to
ascertain what could happen in future. It is a holistic exercise in which
total view of the environment is taken rather than viewing the
environmental forces in a piecemeal manner. This is necessary because
different elements of business environment are interrelated and
interdependent. Environmental analysis has to be a continuous process
so that the enterprise can pick up signals in time and is not caught
unaware.

The basic goal of environmental analysis are-
➢ It shall provide an understanding of the current & potential
changes in the environment and also have a long term
perspective about the future.
➢ It shall provide important inputs for strategic decision making
(e.g. information regarding key suppliers, key markets).
➢ It must help and promote strategic thinking in the organisation,
thus increasing the source of ideas for growth of the
organisation.
Need and Importance of Business Environment Analysis:
1. To identify the strengths and weakness. Example: if production
department is aware of all the machineries related to product (strength)
and if sales department aren’t aware of sales techniques (weakness)
2. To identify opportunity. Example, during festive times, companies
coming up with festive-related products.
3. To identify threat. Example, if a company is aware about the
competitor’s strategy, that company will have an edge over the other.
4. To optimum use of resources-maximum usage and minimum wastage.
5. It helps to deal with changes.
6. It helps in effective decision making.
7. To growth and survival. Strategies that develop the business operations.
8. Makes managers aware of the linkage between an organisation and its
environment and keeps them alert and informed.
9. An organisation can gain understanding of how the industry’s
environment is being transformed.
10. Helps the planners to narrow the range of available alternatives and
eliminate options that are clearly inconsistent with forecast
opportunities or threats. The analysis permits elimination of unsuitable
alternatives and thereby concentrates on more important options.

Process of Environmental Analysis:
1. Environmental scanning:
Scanning means the process of analysing the environment for identifying
the factors which may influence the business. Its purpose is to identify
the emerging trends or early warning signals. It alerts the organisation to
potentially significant forces in the external environment so that suitable
strategic initiatives may be taken before these forces become critical for
the organisation. The critical and high priority factors must be identified.
Examples are managerial philosophy, age, size, power, geographic
dimension, type of business of the organisation influence the selection
of relevant environmental factors.
2. Environmental monitoring:
Information from the relevant environment is collected. Once the
relevant factors in the environment are identified, adequate data about
these factors are gathered so as to ascertain their emerging patterns and
trends. Monitoring is a follow up and deeper analysis of relevant
environmental forces identified through scanning. The techniques used
to collect relevant facts about environmental factors are the company
records, publications, spying and verbal talks with the employees,
customers, dealers, suppliers and competitors are the main sources of
data.

3. Environmental forecasting:
Forecasting is the process of estimating the relevant events of future
based on the analysis of their past and present behaviour. It is necessary
to anticipate future events before any strategic plans are formulated.
Forecasts are made for economic, social, political and technological
elements of environment. Several techniques like time series analysis,
econometric model, scenario building, Delphi method, etc. are used for
the purpose of forecasting.
4. Diagnosis (Assessment):
Environmental factors are assessed in terms of their impact on the
organisation. Some factors in the environment may entail an
opportunity while others may pose a threat to the organisation. The
degree of impact may also vary from one factor to another. SWOT
analysis, ETOP and other such techniques are used for environmental
diagnosis.
Limitations of Environmental Analysis:
1. Based on assumptions: All forecasts are based on certain assumptions
which may not always be true. The basic assumption behind forecasting
is that events do not change haphazardly and there is an orderly pattern
in their behaviour. This assumption may not hold good in all cases. As a
result forecasts may become unreliable.
2. Not Absolute Truth: Forecasts merely indicate the trend of future events
and may not be fully true. The various techniques of forecasting simply
project the future trends and cannot guarantee that a particular trend
will occur in future. All forecasts are wrong, and then only differ in the
degree of error. There is always a possibility of mistake.
3. Time consuming and expensive: Lot of time and money are involved in
the collection, analysis and interpretation of data for forecasting.
Therefore, forecasting is useful only to the extent that benefits expected
from it exceed the time and cost involved.
These limitations suggest that managers should take adequate precautions
while making forecasts. Assumptions should be based on all relevant facts.

Sufficient data must be collected and used. Plans must be kept flexible through
contingency planning and other means.
Approaches to Environmental analysis:
The three main approaches are:
a) Systematic approach: Under this approach, information for
environmental analysis is collected systematically. Information about the
environmental factors having a direct impact on the organisation is
collected regularly. Continuous updating enables the organisation to
monitor changes in the environment.
b) Ad hoc approach: in this approach, an organisation conducts special
surveys and studies to understand trends on the environment from time
to time. Such studies may, for example, be undertaken when the
organisation is to launch new projects or to develop new strategies.
Unforeseen developments may also be investigated with respect to their
impact on the organisation.
c) Processed form approach: Using this approach, the organisation uses
information in a processed form available from various sources both
inside and outside the organisation. When an organisation uses
information published by government agencies and private institutions,
it makes use of secondary data which is available in a processed form.
Business and forecasting techniques:
According to Fayol, “Forecasting is the essence of management. The success of
a business greatly depends upon the efficient forecasting and preparing for
future events.”
Factors critical for choice of technique for business forecasting:
➢ Purpose of forecast.
➢ Degree of accuracy desirable.
➢ Time period to be forecast.
➢ Cost and benefit of the forecast of the company.
➢ Time available for making the analysis.
➢ Component of the system for which forecast has to be made.

Classification of business forecasting techniques:
1. Qualitative techniques: (numerical data is not taken into consideration)
* Marketing research techniques- uses opinion polls and surveys to find
out the sale of a product/brand. It predominantly includes either
interview method (in-person or telephonic method) or questionnaire
response method (considered better as it has a set of predefined set of
questions which are identified correctly in the context and nature of
problem. Nature of the study is such that it presents the purpose of the
study to the customer or respondent from whom the opinions are to be
solicited.
* Past performance technique- this method will be employed if the past
performance of the organisation has been consistent and the forecaster
expects that the future will resemble the recent past business and
economic environment. In this method, the forecaster assumes that the
business and economic environment in which the organisation is
presently dealing in will remain same and nothing will change to a
greater extent. The limitation of this technique is the events which are
considered to be pivotal they may occur and the forecaster who has
taken the normal precedence of business will go in vain.
* Internal forecast- Indirect data are used for developing forecasts. On
the basis of these estimates the total forecast may be developed by the
organisation. Example: to make sales forecast, data from sales managers
< sales staff < sales men (indirect reference).
* Deductive method- The forecaster scrutinises the cause of the present
situation with their relative importance which will influence the future
volume of this activity. More dynamic as it takes both historical
sequence of events and latest developments. Drawback: relies on
individual judgement and initiative appraisal.
* Direct Vs. Indirect methods- Direct method (aka bottom-up method) is
used when the various departments of a company collects the requisite
information from bottom staff and prepares their own forecasts at the
top level. Indirect method (AKA Top-down method) where in the
forecasts for an industry or business segment as a whole is prepared
initially and thereon the individual business unit-wise or activity wise

forecast is ascertained. Thus, the success of this lies with the top
management.
* Jury of executive opinion method- the collective opinion and
judgement based upon the experience of various experts for a particular
concern is solicited. As a consequence, upon deliberations and
discussions through the consensus based approach, forecast decisions
are achieved. Merits: cooperation and coordination which utilises the
services of various experts and it is simple to operate. There is no need
to opt for detailed statistical methods. With joint responsibility it may
result to nobody’s responsibility. This may result in mere-guess work.
* Delphi method-
Homework: https://www.youtube.com/watch?v=0ap77w8FKYM
An example: https://www.youtube.com/watch?v=GkazJtDO2Fg
This technique is important for estimating demand of human resources.
The human resource Experts estimate along with reasoning. It is
continued until all experts agree on estimated human resources
requirements. It can be described as process in which the forecasts and
judgements of a selected group of experts are solicited and summarised
in an attempt to determine the future HR demand.
The following steps are followed until there is consensus or pre-
determined number of rounds.

Q. Answer Yes/no if this is a unique feature of Delphi technique?
A. It is a forecasting technique. YES
B. It keeps the Experts anonymous. YES
C. It is used for Human resource planning. YES
D. It is performed by HR team together, discussing with each other, over
the estimation. YES
2. Quantitative techniques: (numerical data is taken into consideration)
* Business Barometer method- This is also called Index Number
method. Index numbers are used to measure the condition of economy
between two or more time periods.
For example, rise in amount of investments would probably bring an
upturn in the economy, which means higher employment & income
opportunities.
Index is an indicator of future conditions of trade and industry in
general. These are very useful but it may sometimes give misleading
conclusions due to inaccurate constructions of index numbers or
changed conditions. It is necessary to modify the trend revealed by
business barometers in light of specific conditions in the light of specific
conditions influencing the judgement.
* Trend Analysis method- This technique uses the concept of Time
series Analysis when data sets are available for a longer time period and
the trend is clearly visible.

A trend can be known over a period of time which may be true for future
also. However, it is based on the assumption that past trend will
probably continue in the future.
This is considered valid for short-term time projection only. The time
series analysis should be used as the basis for forecasting when the data
available for long period of time.
* Extrapolation method- This technique is based on supposition that the
behaviour of the series in the past will continue in future also and on this
basis future is predicted. In this technique various components of the
time series are not separated, but are taken in their totality. The basic
assumptions underlying this statistical measure of forecasting includes,
there should not be sudden jumps in figures from one period to another
period and the conditions in future will not change materially. So,
extrapolation is a process of estimating a venue for some time period in
future context based upon the assumptions.
* Regression analysis method- This technique analyses two or more
inter-related series, which are used to disclose the relationship between
the two variables. Numerous variables impact the organisational
performance and simultaneously influence the economic and business
situation. The regression equation y=a +bx can be used as an instrument
to predict the value of y for a given value of x. The regression equation is
highly used in physical sciences where the data are related functionally.
However in business forecasting it may be difficult to establish
functional relationships. Thus, regression equation uses also limited
work context.
* Economic Input-Output method- This technique considers the
systematic analysis of various sectors of the economy-based industries
which are inter-related. Such an inter-related relationships in
mathematical proposition is pronounced as coefficient. Input
requirement can be forecasted on the basis of final output with a given
input-output relationship. The basis of this technique is that a various
sectors of the economy are interrelated. This technique reveals sector-

wise forecasts and is extensively used in the forecasting business events
as a data required for its application is easily available.
* Econometric method- Econometric models are statistical models
which are used in econometrics. An econometric model specifies the
statistical relationship that is believed to hold between the various
economic quantities pertaining to a particular economic phenomenon.
An economic model is said to be complete if it contains just enough
equations to predict values for all the variables in the model. Economic
activites described in the mathematical equations are referred as
econometric models. The econometric model are not very popular
because it is possible for every business to develop their own model for
the industry based economy set up.
* QUEST (Quick Environmental Scanning Technique)- Quest provides a
broad and comprehensive method for scanning the environment. It seeks to
indicate trends and events in the external environment that have critical
implications for future strategies. It is a systematic way to understand high
priority issues and to focus management’s attention quickly on strategic areas
for which more detailed analysis would be beneficial.
QUEST is based on following assumptions:
i) Individual executives in a firm have a view of the dynamics of the
changing environments which face them.
ii) In aggregate these views represent the organisation understandings
of its environment.
The steps involved in the implementation of QUEST are as follows:
i) Review current conditions in the environment.
ii) Explain purpose and methodology of the QUEST.
iii) Review futures’ literature to stimulate thinking.
iv) Define scope and boundaries of discussion.
v) Identify key issues.
vi) Select agreed list.
vii) Assess probability of occurrence of each event.
viii) Develop a Cross Impact Matrix (CIM).

ix) Analyse CIM and develop scenarios.
An example of Cross Impact Matrix is as follow:
The main benefits of QUEST are:
i) Greater awareness of environmental changes.
ii) Better strategic planning and decision-making.
iii) Better understanding of markets and competition.
iv) Improvement in resource allocation, diversification and acquisitions.
ETOP Analysis: Environment Threat and Opportunity Profile
Concept of ETOP:
• The identification of environmental issues is helpful in structuring the
environmental appraisal so that the strategies have a good idea of
where the environment opportunities and threat lie.
• Structuring the environmental appraisal is a difficult process as
environment issues does not lend themselves to a straight forward
classification into neat categories. An issue may arise simultaneously
from more than one sector of the environment.

• There are many techniques available to structure the environmental
appraisal. One such technique, suggested by Guleck, is that of preparing
an Environment Threat and Opportunity Profile (ETOP) for an
organisation.
• The preparation of an ETOP involves dividing the environment into
different sectors and then analysing the impact of each sector on the
organisation.
• A comprehensive ETOP requires subdividing each environmental sector
into sub factors and then the impact of each sub factors on the
organisation is described in the form of a statement.
• A summary ETOP may only show the major factors for the sake of
simplicity.
• For example, in case of a company in the bicycle industry, where the
main business of the company is in sports cycle manufacturing for the
domestic and export market. Make ETOP for this company.
•

• Conclusion: The preparation of ETOP provides a clear picture to the
strategists about which sectors and the different factors in each sector
have a favourable impact on the organisation. By the means of an ETOP,
the organisation knows where it stands with respect to its environment.
• Such an understanding can be of great help to an organisation in
formulating appropriate strategies to take advantage of the
opportunities and counter the threats in its environment.
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Unit-1_BE_Notes.pdf

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