ETOP Analysis

Environmental scanning is the monitoring, evaluating, and disseminating of information from the external and internal environment to key people within the corporation or organization. Business environment analysis is a regular business feature. It results in a quantity of information related to forces in the environment. It usually relates to events, trends, issues, natural calamities and expectations. ETOP analysis (environmental threat and opportunity profile) is the process of gathering information about events and their relationships within an organization’s internal and external environments. The basic purpose of environmental scanning is to help management determine the future direction of the organization. Structuring of environmental issues is necessary to make them meaning full for strategy formulation.

Understanding of management strategy or organization policy and effectiveness is not as easy; it requires looking at how company is griped with challenges, looking at the threats and opportunities and finding solutions for facing it. It requires proper evaluation on the position of an organization, whether the adopted strategy is working well and if not why and how should it progress ahead. Strategies are means of operationally signing a policy for goals and objective. For company to function very well and to be productive to its maximum standard effective strategy should not be impeded.  Sometimes very micro and neglected issues mar the strategy.

ETOP involves dividing the environment into different sectors. Each sectors can be subdivided into sub sectors. For example oil & gas  sector can be broken down into sub-sectors such as exploration & production, integrated oil & gas, oil equipment & services, pipelines, renewable energy equipment, alternative fuels producers, oil equipment, services & distribution, alternative energy etc. ETOP further analyzes the impact of each sector and sub-sector on the organization. For example, GE Oil & Gas as an existing organization in this sector requires to scan the environment from an industry perspective: O&NG industry is divided into three major sectors – upstream, midstream and downstream. The upstream sector is a term commonly used to refer to exploration, recovery and production of O&NG. In industry jargon it is simply called Exploration and Production (E&P). The downstream sector is a term commonly used to refer to the refining of crude oil and the selling and distribution of natural gas and products derived from crude oil. The midstream industry processes, stores, markets and transports commodities such as crude oil, natural gas, natural gas liquids (liquefied natural gas such as ethane, propane and butane) and Sulphur.

An organization’s internal environment consists of the elements within the organization, including current employees, management, the organization’s culture which is defined by operating procedures and employee behavior. Though some elements affect the organization as a whole, others affect only the management. A manager’s philosophical or leadership style directly impacts employees. Traditional managers give explicit instructions to employees, while progressive managers empower employees to make many of their own decisions. Changes in philosophy and leadership style are under the control of the manager. Unlike the external environment of a business, the internal environment can be controlled. It is important to recognize potential opportunities and threats outside company operations. However, managing the strengths of internal operations is the key to business success. Leadership matters a lot in controlling the internal environment.

The external environment of an organization are those factors outside the company that affect the company’s ability to function. Some external elements can be manipulated by company marketing, while others require the organization to make adjustments. Organizations need to monitor the basic components of a firm’s external environment, and keep a close watch on it at all times. The external environment consists of customers, government, economy and competition.

Managing image of an organization is most important in the external environment. Corporate image, or reputation, describes the manner in which a company, its activities, and its products or services are perceived by outsiders. In a competitive business climate, many businesses actively work to create and communicate a positive image to their customers, shareholders, the financial community, and the general public. A company that bungles or ignores its image is likely to encounter a variety of problems. Once an organization gets into reputation problems, it goes on growing like weeds in a garden.

Opportunities and Threats: External opportunities provide an organization with a means to improve its performance and competitive advantage in a market environment. Some opportunities can be foreseen, such as being able to expand a franchise into a new city. When organizations can think far ahead, they can create some opportunities

External threats are anything in the outside environment that can adversely affect its performance or achievement of its goals. Ironically, stronger organizations can be exposed to a greater level of threats than weaker organizations, because success raises envy and competition which a successful organization needs to fight to get ahead. Examples of external threats include new and existing regulations, new and existing competitors, new technologies that may make products or services obsolete, unstable political and legal systems in foreign markets and economic downturns. When organizations are alert and have enough resource they can turn a threat into an opportunity, such as a new technology that may displace one of the key products but also provides an opportunity for new product development.

For GE Oil & Gas the opportunities are:

• According to figures released by America’s Cambridge Energy Research Associates, India is home to around 64 trillion cubic feet of unexplored gas at various locations. This gas can be extracted, and supplied into houses and production units to trigger country’s growth.
• Demand for oil and gas in India will keep on increasing due to country’s rising energy needs.
• Oil and gas majors like Cairn, ONGC and Reliance have lined up plans for huge investments in-order to increase oil and gas production in the country, which has fuelled the growth.
• GE oil & gas can grow from within by focusing on niche products and markets where its larger rivals aren’t a factor.
• GE specializes in growth areas such as drilling equipment and compressors.
• GE is cash rich company. It aspires to continue to develop technology overlaps between the businesses it has.
• Narendra Modi government is planning to set up several power plants. It is considering setting up gas based power generation projects in states like- Madhya Pradesh, Odisha and Uttar Pradesh. While it plans to set up thermal power plants in states like Andhra Pradesh, Chhattisgarh, West Bengal, Jharkhand and Bihar which produce coal, this is indeed good news.

 For GE Oil & Gas the threats are:

• The environmental pressure and market demand that oil companies experience today force them to explore new industries, i.e. renewables.
• State owned oil and gas companies like ONGC and Oil India limited are market leaders in the country. However, they are facing tough competition in oil exploration and production from private players like Reliance, Essar, Adani, etc.
• Analysts are doubtful GE Oil & Gas can achieve enough weight without acquisitions to be a major player in the industry.
• GE Oil & Gas needs to get bigger and develop a clearer strategy if it hopes to keep up with its larger competitors.
• The Oil & Gas sector need to emphasize on R&D. India is weak in it.
• Currently, Dehradun based University of Petroleum and Energy Studies is considered as the only private University which offers PHD, post graduate and undergraduate courses in energy and petroleum. This University aims to create professionals who can serve India’s rapidly growing oil and gas Industry.

This is how ETOP analysis provides clarity of which sector and sub sectors have favorable impact on the organization. It helps interpret the result of environment analysis due to which an organization can assess its competitive position.