Lesson 4 – Defining Mission, Goals and Objectives

4.1. Concept of Environment

 Environment literally means the surroundings, external objects, influences or circum un-
der which someone or something exists.
 Environment refers to all external forces which have a bearing on the functioning of
business.
 Although there are many factors the most important of the sectors are socio-economic,
technological, supplier, competitor and
 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 In-
dia’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.

Importance of Business Environment

1. Environment is Complex: The environment consists of a number of factors, events,
conditions and influences arising from different sources. All these interact with each
other to create new sets of influences.
2. It is Dynamic: The environment by its very nature is a constantly changing one. The
varied influences operating upon it impart dynamism to it and cause it to continually
change its shape and character.
3. Environment is multi -faceted: The same environmental trend can have different ef-
fects on different industries. For instance, GATS is an opportunity for some companies
but threat for others.
4. It has a far-reaching impact: The environment has a far-reaching impact on organisa-
tions in that the growth and profitability of an organisation depends critically on the envi-
ronment in which it exists.
5. Its impact on different firms with in the same industry differs: A change in environ-
ment may have different bearings on various firms operating in the same industry. In the
pharmaceutical industry in India, for instance, the impact of the new IPR (Intellectual
Property Rights) law will different for research-based pharmacy companies such as
Ranbaxy and Dr. Reddy’s Lab and will be different for smaller pharmacy companies.
6. It may be an opportunity as well as a threat to expansion: Developments in the gen-
eral environment often provide opportunities for expansion in terms of both products
and markets.
Example: Liberalization in 1991 opened lot of opportunities for companies and HLL took
the advantage to acquire companies like Lakme, TOMCO, KISSAN etc. Changes in en-
vironment often also pose a serious threat to the entire industry. Like Liberalization does
pose a threat of new entrants to Indian firms in the form of Multi National Corporation
(MNCs).
7. Changes in the environment can change the competitive scenario: General envi-
ronmental changes may alter the boundaries of an industry and change the nature of its
competition. This has been the case with deregulation in the telecom sector in India.
Since deregulation,every second year new competitors emerge, old foes become
friends and M&As follow every new regulation.
 8. Sometimes developments are difficult to predict with any degree of accuracy:
Macroeconomic developments such as interest rate fluctuations, the rate of inflation,
and exchange rate variations are extremely difficult to predict on a medium or a long
term basis. On the other hand, some trends such as demographic and income levels
can be easy to forecast.

4.2. Porter’s Five Force Analysis Notes

In 1979, the Harvard Business Review published the article “How Competitive Forces Shape
Strategy” by the Harvard Professor Michael Porter. It started a revolution in the strategy field.
In subsequent decades, “Porter’s five forces” have shaped a generation of academic research
and business practice.

The Five Forces model developed by Michael E. Porter has been the most commonly used an-
alytical tool for examining competitive environment. According to this model, the intensity of
competition in an industry depends on five basic forces. These five forces are:
1. Threat of new entrants
2. Intensity of rivalry among industry competitors
3. Bargaining power of buyers
4. Bargaining power of suppliers
5. Threat of substitute products and services.

Forces that Shape Competition

1. The Threat of New Entrants: The first of Porter’s Five Forces model is the threat of new
entrants. New entrants bring new capacity and often substantial resources to an industry
with a desire to gain market share. Established companies already operating in an industry
often attempt to discourage new entrants from entering the industry to protect their share of
the market and profits. Particularly when big new entrants are diversifying from other mar-
kets into the industry, they can leverage existing capabilities and cash flows to shake up
competition. Pepsi did this when it entered the bottled water industry, Microsoft did when it
began to offer internet browsers, and Apple did when it entered the music distribution busi-
ness.
The threat of new entrants, therefore, puts a cap on the profit potential of an industry. When
the threat is high, existing companies hold down their prices or boost investment to deter
new competitors. And the threat of entry in an industry depends on the height of entry barri-
ers (i.e. factors that make it costly for new entrants to enter industry) that are present and
on the retaliation from the entrenched competitors. If entry barriers are low and newcomers
 expect little retaliation, the threat of entry is high and industry profits will be moderate. It is
the threat of entry, not whether entry actually occurs, that holds down profitability.

2. Barriers to entry: Entry barriers depend on the advantages that existing companies have
relative to new entrants. There are seven major sources:
(a) Economies of scale: These are relative cost advantages associated with large vol-
umes of production, that lower a company’s cost structure. The cost of product per unit de-
clines as the volume of production increases. This discourages new entrants to enter on a
large scale. If the new entrant decides to enter on a large-scale to obtain economies of
scale, it has to bear high risks associated with a large investment.
(b) Product differentiation: Brand loyalty is buyer’s preference for the differentiated prod-
ucts of any established company. Strong brand loyalty makes it difficult for new entrants to
take market share away from established companies. It reduces threat of entry because the
task of breaking down well-established customer preferences is too costly for them.
(c) Capital requirements: The need to invest large financial resources in order to compete
can deter new entrants. Capital may be necessary not only for fixed assets, but also to ex-
tend customer credit, build inventories and fund start-up losses.
(d) Switching costs: Switching costs are the one-time costs that a customer has to bear to
switch from one product to another. When switching costs are high, customers can be
locked up in the existing product, even if new entrants offer a better product. Thus, the
higher the switching costs are, the higher is the barrier to entry. Enterprise Resource Plan-
ning (ERP) software is an example of a product with very high switching costs. Once a
company has installed SAP’s ERP system, the cost of moving to a new vendor are astro-
nomical.
(e) Access to distribution channels: The new entrant’s need to secure distribution chan-
nelfor the product can create a barrier to entry. The established companies have already
tied up with distribution channels. For example, a new food item may have to displace oth-
ers from the supermarket shelf via price breaks, promotions, intense selling efforts or some
other means. The more limited the wholesale or retail channels are, tougher will be the en-
try into an industry.
(f) Cost disadvantages independent of size: Some existing companies may have advan-
tages other than size or economies of scale. These are derived from:
(i) Proprietary technology
(ii) Preferential access to raw material sources
(iii) Government subsidies
(iv) Favorable geographical locations
(v) Established brand identities
(vi) Cumulative experience
New entrants may not have these advantages.
(g) Government policy: Historically, government regulations have constituted a major en-
try barrier into many industries. The government can limit or even foreclose entry into in-
dustries, with such controls as license requirements and limits on access to raw materials.
The liberalization policy of the Indian government relating to deregulation, delicensing and
decontrol of prices opened up the economy to many new entrepreneurs.

3. Expected Retaliation: How new entrants believe that the existing companies may react
will also influence their decision to enter or stay out of an industry. If reaction is vigorous
and protracted enough, the profit potential in the industry can fall below the cost of capital
for all participants. Existing companies often use public statements to send massages to
new entrants about their commitment to defending market share. New entrants are likely to
fear expected retaliation if:
(a) Existing companies have previously responded vigorously to new entrants
 (b) Existing companies possess substantial resources to fight back
(c) Existing companies seem likely to cut prices to protect their market share
(d) Industry growth is slow, so newcomers can gain volume only by taking the market share
from existing companies.

An analysis of entry barriers and expected retaliation is obviously crucial for any company
contemplating entry into a new industry. The challenge is to find ways to surmount the entry
barriers without nullifying the profitability of the industry.
4. Intensity of Rivalry among Competitors: The second of Porter’s Five-Forces model is
the intensity of rivalry among established companies within an industry. Rivalry means the
competitive struggle between companies in an industry to gain market share from each
other. Firms use tactics like price discounting, advertising campaigns, new product intro-
ductions and increased customer service or warranties. Intense rivalry lowers prices and
raises costs. It squeezes profits out of an industry. Thus, intense rivalry among established
companies constitutes a strong threat to profitability. Alternatively, if rivalry is less intense,
companies may have the opportunity to raise prices or reduce spending on advertising etc.
which leads to higher level of industry profits. The intensity of rivalry is greatest under the
following conditions:
(a) Numerous competitors or equally powerful competitors: When there are many competi-
tors in an industry or if the competitors are roughly of equal size and power, the intensity of
rivalry will be more. Any move by one firm is matched by an equal countermove. In such
situations rivals find it hard to avoid poaching business.
(b) Slow industry growth: Slow industry growth turns competition into fight because the only
path to growth is to take sales away from a competitor.
(c) High fixed but low marginal costs: This creates intense pressure for competitors to cut
prices below their average costs even close to their marginal costs, to steal customers.
(d) Lack of differentiation or switching costs: If products or services of rivals are nearly iden-
tical and there are few switching costs, this encourages competitors to cut prices to win
new customers. Years of airline price wars reflect these circumstances in that industry.
(e) Capacity augmentation in large increments: If the only way a manufacturer can increase
capacity is in a large increment, such as building a new plant, it will run that new plant at full
capacity to keep its unit costs low. Such capacity additions can be very disruptive to the
supply/demand balance and cause the selling prices to fall throughout the industry.
(f) High exit barriers: Exit barriers keep a company from leaving the industry. Exit barriers
can be economic, strategic or emotional factors that keep firms competing even though
they may be earning low or negative returns on their investments. If exit barriers are high,
companies become locked up in a non-profitable industry where overall demand is static or
declining. Excess capacity remains in use, and the profitability of healthy competitors suf-
fers as the sick ones hang on.

5. Bargaining power of buyers: The third of Porter’s five competitive forces is the bargaining
power of buyers. Bargaining power of buyers refers to the ability of buyers to bargain down
prices charged by firms in the industry or driving up the costs of the firm by demanding bet-
ter product quality and service. By forcing lower prices and raising costs, powerful buyers
can squeeze profits out of an industry. Thus, powerful buyers should be viewed as a threat.
Alternatively, if buyers are in a weak bargaining position, the firm can raise prices, cut costs
on quality and services and increase their profit levels. Buyers are powerful if they have
more negotiation leverage than the firms in the industry, using their clout primarily to pres-
sure price reductions. According to Porter, buyers are most powerful under the following
conditions:
(a) There are few buyers: If there are few buyers or each one does bulk purchases, then
they have more bargaining power. Large buyers are particularly powerful in industries like
 telecommunication equipment, off-shore drilling, and bulk chemicals. High fixed costs and
low marginal costs increase the pressure on rivals to keep capacity filling through dis-
counts.
(b) The products are standard or undifferentiated: If the products purchased from the firm
are standard or undifferentiated, the buyers can easily find alternative sources of supplies.
Then buyers can play one company against the other, as in commodity grain markets.
(c) The buyer faces low switching costs: Switching costs lock the buyer to a particular firm.
If switching costs are low, buyers can easily switch from one firm’s product t another.
(d) The buyer earns low profits: If the buyer is under pressure to trim its purchasing costs,
the buyer is price sensitive and bargains more.
(e) The quality of buyer’s products: If the quality of buyer’s product is little affected by in-
dustry’s products, buyers are more price sensitive. Most of the above sources of buyer
power can be attributed to consumers as a group as well as to industrial and commercial
buyers. The buying power of retailers is determined by the same factors, with one important
addition. Retailers can gain significant bargaining power over manufacturers when they can
influence consumers. Purchasing decisions as they do in audio components, jewellery, ap-
pliances, sporting goods etc., are examples.

6. Bargaining power of suppliers: The fourth of Porter’s Five Forces model is the bargain-
ing power of suppliers. Suppliers are companies that supply raw materials, components,
equipment, machinery and associated products. Powerful suppliers make more profits by
charging higher prices, limiting quality or services or shifting the costs to industry partici-
pants. Powerful suppliers squeeze profits out of an industry and thus, they are a threat. For
example, Microsoft has contributed to the erosion of profitability among PC makers by rais-
ing prices on operating systems. PC makers, competing fiercely for customers, have limited
freedom to raise their prices accordingly. A supplier’s bargaining power will be high under
the following conditions:
(a) Few suppliers: When the supplier group is dominated by few companies and is more
concentrated than the firms to whom it sells, an industry is called concentrated. The suppli-
ers can then dictate prices, quality and terms.
(b) Product is differentiated: When suppliers offer products that are unique or differentiated
or built-up switching costs, it cuts off the firm’s options to play one supplier against the
other. For example, pharmaceutical companies that offer patented drugs with distinctive
medical benefits have more power over hospitals, drug buyers etc.
(c) Dependence of supplier group on the firm: When suppliers sell to several firms and the
firm does not represent a significant fraction of its sales, suppliers are prone to exert power.
In other words, the supplier group does not depend heavily on the industry for revenues.
Suppliers serving many industries will not hesitate to extract maximum profits from each
one. If a particular industry accounts for a large portion of a supplier group’s volume or
profit, however, suppliers will want to protect the industry through reasonable pricing.
(d) Importance of the product of the firm: When the product is an important input to the
firm’s business or when such inputs are important to the success of a firm’s manufacturing
process or product quality, the bargaining power of suppliers is high.
(e) Threat of forward integration: When the supplier poses a credible threat of integrating
forward, this provides a check against the firm’s ability to improve the terms which it pur-
chases.
(f) Lack of substitutes: The power of even large, powerful suppliers can be checked if they
compete with substitutes. But, if they are not obliged to compete with substitutes as they
are not readily available, the suppliers can exert power.

7. Threat of substitute products: The fifth of Porter’s Five Forces model is the threat of sub-
stitute products. A substitute performs the same or a similar function as an industry’s prod-
 uct. Video conferences are a substitute for travel. Plastic is a substitute for aluminum. E-
mail is a substitute for a mail. All firms within an industry compete with industries producing
substitute products. For example, companies in the coffee industry compete indirectly with
those in the tea and soft drink industries because all these serve the same need of the cus-
tomer for refreshment. The existence of close substitutes is a strong competitive threat be-
cause this limits the price that companies in one industry can charge for their product. If the
price of coffee rises too much relative to that of tea or soft drink, coffee drinkers may switch
to those substitutes. Thus, according to Porter, “substitutes limit the potential returns of an
industry by placing a ceiling on the prices firms in the industry can profitably charge”. For
example, the price of tea puts a ceiling on the price of coffee. To the extent that switching
costs are low, substitutes may have a strong effect on the profitability of an industry. The
more attractive is the price/performance ratio of substitute products, the more likely they af-
fect an industry’s profits. In other words, when the threat of substitutes is high, industry
profitability suffers. If an industry does not ward off the substitutes through product perfor-
mance, marketing, price or other means, it will suffer in terms of profitability and growth po-
tential in the following circumstances:
(a) It offers an attractive price and performance: The better the relative value of the substi-
tute, the worse is the profit potential of the industry. For example, long distance telephone
service providers suffered with the advent of Internet-based phone services.
(b) The buyer’s switching costs to the substitutes is low: For example, switching from a pro-
prietary, branded drug to a generic drug usually involves minimum switching costs. Strate-
gists should be particularly alert to changes in other industries that may make attractive
substitutes. For example, improvements in plastic materials prompted the automobile

4.3. Industry Analysis

Each business operates among a group of firms that produce competing products or services
known as an “industry”. An industry is thus a group of firms producing similar products or ser-
vices. By similar products we mean products that customers perceive to be substitutes for one
another.

Framework for Industry Analysis

Industry analysis covers two important components:
1. Industry environment
2. Competitive environment

The following are the aspects to be covered in the above analysis:

Industry Analysis
1. Industry Features: Industries differ significantly. So, analyzing a company’s industry be-
gins with identifying the industry’s dominant economic features and forming a picture of the
industry landscape. An industry’s dominant economic features include such factors as:
(a) Overall size
(b) Market growth rate
(c) Geographic boundaries of the market
(d) Number and sizes of competitors
(e) Pace of technological change
(f) Product innovations etc.

Getting a handle on an industry features promotes understanding of the kinds of strategic

moves that managers should employ. For example, in industries characterized by one
product advance after another, a strategy of continuous product innovation becomes a con-
dition for survival.
Example: Video games, computers and pharmaceuticals.
2. Industry Boundaries: All the firms in the industry are not similar to one another. Firms within
the same industry could differ across various parameters, such as:
(a) Breadth of market
(b) Product/service quality
(c) Geographic distribution
(d) Level of vertical integration
(e) Profit motives

3. Industry Environment: Based on their environment, industries are basically of two types:
(a) Fragmented Industries: A fragmented industry consists of a large number of small or
medium-sized companies, none of which is in a position to determine industry price.
Many fragmented industries are characterized by low entry barriers and commodity type
products that are hard to differentiate.
(b) Consolidated Industries: A consolidated industry is dominated by a small number of
large companies (an oligopoly) or in extreme cases, by just one company (a monopoly).
These companies are in a position to determine industry prices. In consolidated indus-
tries, one company’s competitive actions or moves directly affect the market share of its
rivals, and thus their profitability. When one company cuts prices, the competitors also
cut prices. Rivalry increases as companies attempt to undercut each other’s prices or
offer customers more value in their products, pushing industry profits down in the
process. The consequence is a dangerous competitive spiral.

According to Michael Porter, industries can be categorized into:

Emerging industries: Are those in the introductory and growth phases of their life
cycle.
Mature industries: Are those who reached the maturity stage of their life cycle.
Declining industries: Are those in the transition stage from maturity to decline.
Global industries: Are those with manufacturing bases and marketing operations in
several countries.
Competition varies during each stage of industry life cycle.

4. Industry Structure: Defining an industry’s boundaries is incomplete without an understanding

of its structural attributes. Structural attributes are the enduring characteristics that give an in-
dustry its distinctive character. Industry structure consists of four elements:

(a) Concentration: It means the extent to which industry sales are dominated by only a few
firms. In a highly concentrated industry (i.e. an industry whose sales are dominated by a hand-
ful of firms), the intensity of competition declines over time. High concentration serves as a
barrier to entry into an industry, because it enables the firms to hold large market shares to
achieve significant economies of scale.

(b) Economies of scale: This is an important determinant of competition in an industry. Firms

that enjoy economies of scale can charge lower prices than their competitors, because of their
savings in per unit cost of production. They also can create barriers to entry by reducing their
prices temporarily or permanently to deter new firms from entering the industry.

(c) Product differentiation: Real perceived differentiation often intensifies competition among
existing firms.
(d) Barriers to entry: Barriers to entry are the obstacles that a firm must overcome to enter an
industry, and the competition from new entrants depends mostly on entry barriers.
5. Industry attractiveness: Industry attractiveness is dependent on the following factors:
(a) Profit potential
 (b) Growth prospects
(c) Competition
(d) Industry barriers etc.
6. Industry performance: This requires an examination of data relating to:
(a) Production
(b) Sales
(c) Profitability
(d) Technological advancements etc.
7. Industry practices: Industry practices refer to what a majority of players in the industry do
with respect to products, pricing, promotion, distribution etc. This aspect involves issues relat-
ing to:
(a) Product policy
(b) Pricing policy
(c) Promotion policy
(d) Distribution policy
(e) R&D policy
(f) Competitive tactics.
8. Industry’s future prospects: The future outlook of an industry can be anticipated based
on such factors as:
(a) Innovation in products and services
(b) Trends in consumer preferences
(c) Emerging changes in regulatory mechanisms
(d) Product life cycle of the industry
(e) Rate of growth etc.

Competitive Analysis
Competitive analysis basically addresses two questions:
1. Which firms are our competitors?
2. What factors shape competition in industry?

4.4. Competitive Analysis

The degree of competition in an industry is influenced by a number of forces. To establish a
strategic agenda for dealing with these forces and grow despite them, a firm must understand:
1. How these forces work in an industry?
2. How they affect the firm in its particular situation?

The essence of strategy formulation is coping with competition. Intense competition in an in-
dustry is neither a coincidence nor a bad luck. It is rooted in its underlying economics. There
are two theories of economics – theory of monopoly and theory of perfect competition. These
represent two extremes of industry competition. In a monopoly context, a single firm is pro-
tected by barriers to entry, and has an opportunity to appropriate all the profits generated in the
industry.
In a “perfectly competitive” industry, competition is unbridled and entry to the industry is easy.
This kind of industry structure, of course, offers the worst prospects for long-run profitability.
The weaker the forces collectively, however, the greater the opportunity for superior perfor-
mance in terms of profit.
4.4.1. Whatever their collective strength, the corporate strategist’s goal is to find a position in
the industry where his or her company can best defend itself against these forces or can
influence them in its favour. The strategist must delve below the surface and analyze the
underlying sources of competition. Knowledge of these underlying sources of competition
helps:
1. To provide the groundwork for a strategic agenda.
 2. To highlight the competitive strengths and weaknesses of the company.
3. To animate the positioning of the company in its industry.
4. To clarify the areas where strategic changes may yield the greatest payoff and
5. To highlight the sources of greatest significance, either as opportunity or thereat.

4.5. Environmental Scanning

Environmental analysis or scanning is the process of monitoring the events and evaluating
trends in the external environment, to identify both present and future opportunities and threats
that may influence the firm’s ability to reach its goals.

Features of Environmental Analysis

In the context of a changing environment, the process of environmental analysis is very well
comparable to the functions of radar. From this analogy, it is possible to derive three important-
features of the process of environmental analysis (Ian Wilson).
1. Holistic Exercise
Environmental analysis is a holistic exercise in the sense that it must comprise a total view
of the environment rather than a piecemeal view of trends. It is a process of looking at the
forest, rather than the trees
2. Continuous Activity
The analysis of environment must be a continuous process rather than a one – shot deal.
Strategists must keep on tracking shifts in the overall pattern of trends and carry out de-
tailed studies to keep a close watch on major trends.
3. Exploratory Process
Environmental analysis is an exploratory process. A large part of the process seeks to ex-
plore the unknown terrain and the dimensions of possible future. The emphasis must be on
speculating systematically about alternative outcomes, assessing probabilities, questioning
assumptions and drawing rational conclusions.

Techniques of Environmental Scanning

1. Verbal and written information: Verbal information is generally obtained by direct talk
with people, by attending meetings, seminars etc, or through media. Written or documen-
tary information includes both published and unpublished material.
2. Search and scanning: This involves research for obtaining the required information.
3. Spying: Although it may not be considered ethical, spying to get information about com-
petitor’s business is not uncommon.
4. Forecasting: This involves estimating the future trends and changes in the environment.

For the above purpose, firms use a number of tools and techniques depending on their
specific requirements in terms of quality, relevance, cost etc.

Some of the techniques which are generally used for carrying out environmental analysis
are:
1. PESTEL analysis
2. SWOT analysis
3. ETOP
4. QUEST
5. EFE Matrix
6. CPM
7. Forecasting techniques
(a) Time series analysis
(b) Judgmental forecasting
(c) Expert opinion
 (d) Delphi’s technique
(e) Multiple scenario
(f) Statistical modeling
(g) Cross-impact analysis
(h) Brainstorming
(i) Demand/hazard forecasting

The above techniques are briefly discussed below:

1. PESTEL Analysis
PESTEL Analysis is a checklist to analyse the political, economic, socio-cultural, technolog-
ical, environmental and legal aspects of the environment.
2. ETOP
Environmental Threats and Opportunities Profile (ETOP) gives a summarized picture of
environmental factors and their likely impact on the organisation. ETOP is generally pre-
pared
as follows.
1. List environmental factors: The different aspects of the general as well as relevant
environmental factors are listed. For example, economic environment can be divided
into rate of economic growth, rate of inflation, fiscal policy etc.
2. Assess impact of each factor: At this stage, the impact of each factor is assessed
closely and expressed in qualitative (high, medium or low) or quantitative factors (1, 2,
3). It is to be noted that not all identified environmental factors will have the same de-
gree of impact. The impact is assessed as positive or negative.
3. Get a big picture: In the final stage, the impact of each factor and its importance is
combined to produce a summary of the overall picture. An example of ETOP is given
below:

3. EFE Matrix
Just like ETOP, the External Factor Evaluation Matrix (EFE Matrix) helps to summarize and
evaluate the various components of external environment. The EFE Matrix can be devel-
oped in five steps:
1. List 10 to 20 important opportunities and threats.
2. Assign a weight to each factor from 0.0 (not important) to 1.0 (most important). The
higher the weight, the more important is the factor to the current and future success of
the company.
3. Assign a rating to each factor 1(poor), 2 (average), 3 (above average), 4 (superior). The
rating indicates how effectively the firm’s current strategies respond to that particular
factor.
4. Multiply each factor’s weight by its rating to determine a weighted score.
 5. Finally, add the individual weighted scores for all the external factors to determine the
total weighted score for the organisation.

4. QUEST
QUEST (Quick Environment Scanning Technique) is a four step process, which uses sce-
nario building for environmental analysis.
The four steps are:
1. Managers make observations about major events and trends in the environment.
2. They speculate on a wide range of issues that are likely to affect the future of the busi-
ness enterprise.
3. A report is prepared summarizing the issues and their implications to the firm, together
with 2 to 3 scenarios.
4. The report and the scenarios are reviewed by strategists, based on which they identify
feasible options.
Thus, QUEST helps in generating feasible alternative strategies for consideration of the
management.

5. Competitive Profile Matrix (CPM)

This is a competitor analysis, which focuses on each company against whom a firm com-
petes directly. It helps to identify the strengths and weaknesses of the major competitors of
the firm, vis-à-vis the firm. Generally, the Critical Success Factors (CSFs) are compared. In
addition, other factors that can be compared are breadth of product line, sales, distribution,
production capacity and efficiency, technological advantages etc. Using the format shown
in Table, a firm can prepare competitor profile matrix.
6. Forecasting Techniques
Various techniques are used to forecast future situations. Important among these are:
1. Time series analysis: Extrapolation is the most widely practiced form of forecasting.
Simply stated, extrapolation is the extension of present trends into the future. It rests on
the assumption that the world is reasonably consistent and changes slowly in the short
run. They attempt to carry a series of historical events forward into the future.
2. Judgemental forecasting: This is a forecasting technique in which employees, cus-
tomers, suppliers etc., serve as a source of information regarding future trends. For ex-
ample, sales representatives may be asked to forecast sales growth in various product
categories based on their interaction with customers.
3. Expert opinion: This is a non-quantitative technique in which experts in a particular
area attempt to forecast likely developments. Knowledgeable people are selected and
asked to assign importance and probability rating to various future developments.
4. Delphi Technique: This is a forecasting technique in which the opinion of experts in the
appropriate field are obtained about the probability of the occurrence of specified
events. The responses of the experts are compiled and a summary is sent to each ex-
pert. This process is repeated until consensus is arrived at regarding the forecast of a
particular event.
5. Statistical modeling: It is a quantitative technique that attempts to discover causal fac-
tors that link two or more time series together. They use different sets of equations. Re-
gression analysis and other econometric methods are examples.
6. Cross-impact Analysis: By this analysis, researchers analyze and identify key trends
that will impact all other trends. The question is then put: “If event A occurs, what will be
the impact on all other trends”. The results are used to build “domino chains”, with one
event triggering others.
7. Brainstorming: Brainstorming is a technique to generate a number of alternatives by a
group of 6 to 10 persons. The basic ground rule is to propose ideas without first men-
tally evaluating them. No criticism is allowed. Ideas tend to build on previous ideas until
a consensus is reached. This is a good technique to create ideas.
8. Demand/Hazard forecasting: Researchers identify major events that would greatly af-
fect the firm. Each event is rated for its convergence with several major trends taking
place in society and its appeal to a group of the public; the higher the event’s conver-
gence and appeal, the higher its probability of occurring.