Unit 2: Environmental scanning & appraisal
Strategy Management notes · PTU syllabus (BBA601-18)
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Unit summary
Strategy begins with a clear view of the environment outside and the capabilities inside. This unit covers external and internal environment analysis, the PEST framework, SWOT, ETOP and QUEST techniques, Porter's Five Forces model, and methods of organisational appraisal such as value chain, resource-based view and financial analysis.
After this unit you can
- Explain environmental scanning and the components of the environment
- Apply PEST, SWOT, ETOP and QUEST techniques
- Analyse an industry with Porter's Five Forces model
- Appraise an organisation's internal capabilities
PTU syllabus topics
- External and internal environment analysis
- PEST framework
- SWOT
- ETOP and QUEST techniques
- Porter's Five Forces Model
- methods for organisational appraisal
Rivalry among existing firms
Threat of new entrants
Bargaining power of buyers
Bargaining power of suppliers
Threat of substitutes
Topic 1
Environmental scanning
Environmental scanning is monitoring, evaluating and disseminating information from the external and internal environments to key people in the organisation.
Internal
Resources, capabilities, structure, culture
External – Micro (task)
Customers, competitors, suppliers, intermediaries, publics
External – Macro (general)
Political, economic, social, technological, ecological, legal
- Approaches: systemic (continuous), ad hoc (special studies), processed-form (secondary data).
- Sources: government reports, industry associations, news, market research, competitors' annual reports, employees and customers.
Topic 2
PEST (PESTEL) analysis
Political
Government stability, tax policy, trade rules, FDI policy
Economic
GDP growth, inflation, interest rates, exchange rates
Social
Demographics, lifestyle, education, culture
Technological
Innovation, automation, digitalisation, R&D
PESTEL adds Environmental (climate, sustainability) and Legal (labour, consumer, competition laws).
Example
PEST for an Indian EV maker: Political — FAME and PLI subsidies; Economic — rising fuel prices; Social — growing environmental awareness; Technological — falling battery costs.
Topic 3
SWOT, ETOP and QUEST
SWOT analysis
Strengths
Internal positives — brand, technology, skilled staff
Weaknesses
Internal negatives — high cost, weak distribution
Opportunities
External positives — new markets, policy support
Threats
External negatives — new rivals, regulation, substitutes
- TOWS matrix turns SWOT into strategies: SO (use strengths to seize opportunities), WO (overcome weaknesses using opportunities), ST (use strengths to counter threats), WT (defensive, minimise weaknesses and avoid threats).
ETOP (Environmental Threat and Opportunity Profile)
- Lists environmental sectors (economic, market, technological, supplier, government, social) and rates the impact of each as an opportunity (↑), threat (↓) or neutral.
- Gives a quick, structured summary of the environment for a specific business.
| Sector | Impact | Example (for a two-wheeler maker) |
|---|---|---|
| Economic | ↑ Opportunity | Rising rural incomes |
| Market | ↓ Threat | Shift to electric scooters by start-ups |
| Technological | ↑ Opportunity | Cheaper batteries for own EV range |
| Government | ↑ Opportunity | PLI scheme for auto components |
| Supplier | ↓ Threat | Semiconductor shortages |
QUEST (Quick Environmental Scanning Technique)
Developed by Burt Nanus; a quick, low-cost way for senior managers to scan the environment.
- 1Preparatory work
Identify issues and participants
- 2First workshop
Brainstorm trends and events; rate impact
- 3Analysis
Staff prepare scenarios
- 4Second workshop
Discuss scenarios and strategic options
- 5Report
Summary of issues and options for planning
Topic 4
Porter's Five Forces model
Threat of new entrants
Barriers: economies of scale, capital, brand, regulation
Bargaining power of suppliers
High when few suppliers, unique inputs, switching costs
Bargaining power of buyers
High when buyers are concentrated, products standardised
Threat of substitutes
Alternatives from other industries
Rivalry among existing competitors
Many rivals, slow growth, high fixed costs, low differentiation
- The stronger the forces, the lower the industry's profit potential.
- Complementors are sometimes added as a sixth force.
Example
Indian airline industry: low barriers to start (aircraft leasing), powerful suppliers (Boeing, Airbus, fuel), price-sensitive buyers, substitutes (Vande Bharat trains), intense rivalry — so profits are thin.
Exam tip
Draw the five-forces diagram with rivalry in the centre — the diagram alone earns marks.
Topic 5
Organisational appraisal
Organisational appraisal assesses internal strengths and weaknesses to identify the organisation's capabilities and core competencies.
Methods and techniques
- Value chain analysis (Porter): primary activities (inbound logistics, operations, outbound logistics, marketing and sales, service) and support activities (firm infrastructure, HRM, technology development, procurement) — find where value and cost are created.
- Resource-based view / VRIO: a resource gives sustained advantage if it is Valuable, Rare, Inimitable and the firm is Organised to exploit it.
- Core competence (Prahalad and Hamel): a bundle of skills that gives access to many markets, adds value for customers and is hard to imitate (Honda's engines).
- Financial analysis: ratios — profitability, liquidity, leverage, efficiency.
- Functional analysis: marketing, finance, operations, HR, R&D capability.
- Benchmarking: comparing with the best performers.
- Balanced scorecard: financial, customer, internal process, learning and growth perspectives.
- Strategic Advantage Profile (SAP): summary of the firm's strengths and weaknesses across functional areas — paired with ETOP.
Looks at
Resources and capabilities
Environment outside the firm
Finds
Strengths and weaknesses
Opportunities and threats
Tools
Value chain, VRIO, SAP, ratios
PEST, Five Forces, ETOP, QUEST
Key terms
- Environmental scanning
- Monitoring the environment to identify opportunities and threats
- ETOP
- Profile of environmental opportunities and threats facing a firm
- QUEST
- A quick, workshop-based environmental scanning technique
- Five Forces
- Porter's model of industry competition
- Core competence
- A distinctive capability that gives competitive advantage
Quick revision
- PEST/PESTEL for the macro environment.
- SWOT → TOWS strategies (SO, WO, ST, WT).
- ETOP rates environmental sectors; QUEST uses two workshops.
- Five forces: entrants, suppliers, buyers, substitutes, rivalry.
- Internal appraisal: value chain, VRIO, core competence, SAP, ratios.
Important exam questions
Practice questions written to the PTU exam pattern for this unit's syllabus: short answers (Section A style) and long answers (Sections B and C style).
Short-answer questions
- Q1.What is environmental scanning?
- Q2.Explain PEST analysis.
- Q3.What is a TOWS matrix?
- Q4.What is ETOP?
- Q5.Name Porter's five forces.
- Q6.What is VRIO?
Long-answer questions
- Q1.Explain the components of the business environment and the process of environmental scanning.
- Q2.Explain SWOT, ETOP and QUEST techniques with examples.
- Q3.Explain Porter's Five Forces model with a suitable industry example.
- Q4.Discuss the methods of organisational appraisal.
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