MGT368.

16 LECTURE 5 BUSINESS
ENVIRONMENT ANALYSIS
KRISHNA BISWAS (GPB)
BUSINESS ENVIRONMENT

Business Environment: internal + external factors that influence a

company's operating situation.
 Factors may include:
 clients and suppliers
 its competition and owners
 improvements in technology
 laws and government activities
 market, social and economic trends.
 Types of Business
Environment

Internal environment External

environment
(i) Man
(ii) Machine
(iii) Material
(iv) Material
(v) Management

Micro Macro environment

environment
(a) Human resources to
include jobs, hygiene,
security
(b) Company Board
(c) Management structure
(a) Government
(b) Political factors
(c) Social factors
(d) Cultural factors
(e) Demographic factors
(f) Economic factors
ENVIRONMENT ANALYSIS
ENVIRONMENT ANALYSIS

 Several popular frameworks exist & frequently used together.

 Porter's Five Forces: understanding where power lies in a
business situation
 PESTEL analysis: political, economic, social, environmental, legal
and technological factors affecting a business
 SWOT analysis: strengths, weaknesses, opportunities and threats
affecting a business, both internally and externally
PORTER’S FIVE FORCES

 Understand where power lies in a business

situation
 Identify whether new products, services or
businesses have the potential to be profitable.
 Evaluate current competitive position and strength
of moving into a new market
 Capitalize on strengths, improve situations of
weakness, avoid taking wrong strategies
PORTER’S FIVE FORCES: SUPPLIER & BUYER POWER

Supplier Power: how easy it is to drive up prices

 number of suppliers of each key input
 the uniqueness of their product or service
 their strength and control over you
 the cost of switching from one to another
Buyer Power: how easy it is for buyers to drive prices down
 the number of buyers
 the importance of each individual buyer
 the cost to them of switching
PORTER’S FIVE FORCES: COMPETITION & THREAT OF
SUBSTITUTION

Competitive Rivalry: the number and capability of your competitors.

 Offer equally attractive products and services
 Customers may switch to better G & S
 Lack of option = tremendous strength.

Threat of Substitution: customers to find a different way of doing

what you do
 If substitution is easy and substitution is viable, then this weakens
your power.
PORTER’S FIVE FORCES: THREAT OF NEW ENTRY

Threat of New Entry: ability of companies to enter your market

 Costs little in time or money to enter your market
 Have little protection for your key technologies
 Strong and durable barriers to entry = favorable position and take fair advantage
of it.
PESTLE ANALYSIS
PESTLE ANALYSIS
PESTLE ANALYSIS

 Audit of an organization's environmental influences = guide strategic decision –

making
 Better placed than competitors to respond to changes
 Understand the wider ‘meso-economic’ and ‘macro-economic’ environments in
which they operate
 meso-economic: we operate and have limited influence or impact
 macro-environment: all factors that influence an organization but are out of its direct
control
 Maximize the opportunities and minimize the threats
 Strategic analysis = detect and understand the broad, long term trends
PESTLE: POLITICAL

Political: the extent to which a government may influence the economy or a certain industry
environment (economic environment) to a great extent. Political factors include
 Trading policies
 Government changes
 Shareholder and their demands
 Funding,
 Governmental leadership
 Lobbying
 Foreign pressures
 Conflicts in the political arena
PESTLE: ECONOMIC
Economic: factors are determinants of an economy’s performance that directly impacts a
company and have resonating long term effects. Economic factors include
 Disposable income
 Unemployment level
 Foreign exchange rates
 Interest rates
 Trade tariffs
 Inflation rate
 Foreign economic trends
 General taxation issues
 Taxation changes specific to product/services
 Local economic situation and trends
PESTLE: SOCIAL

Social: scrutinize the social environment of the market, and gauge determinants

like cultural trends, demographics, population analytics etc. Social factors includes:
 Ethnic/religious factors • Consumer opinions and
attitudes
 Advertising scenarios
• Views of the media
 Ethical issues • Law changes affecting social
factors
 Consumer buying patterns
• Change in Lifestyle
 Major world events • Brand preferences
• Working attitude of people
 Buying access
• Education
 Shifts in population • Trends
• History
 Demographics
 Health
PESTLE: TECHNOLOGICAL
Technological: factors pertain to innovations in technology that may affect the operations of the industry and the market
favorably or unfavorably. This includes
 Technological development
 Research and development
 Trends in global technological advancements
 Associated technologies
 Legislations in technological fields
 Patents
 Licensing
 Access into the technological field
 Consumer preferences
 Consumer buying trends
 Intellectual property and its laws
 How mature a certain technology is
 Information technology
 Communication
PESTLE: LEGAL
Legal: factors have both external and internal sides. There are certain laws that
affect the business environment in a certain country while there are certain policies
that companies maintain for themselves. These factors includes
 Employment law
 Consumer protection
 Industry-specific regulations
 Competitive regulations
 Current legislation home market
 Future legislation
 Regulatory bodies and their processes
 Environmental regulations
PESTLE: ENVIRONMENTAL
Environmental: factors that influence or are determined by the surrounding environment.
Factors of a business environmental analysis include but are not limited to climate, weather,
geographical location, global changes in climate, environmental offsets etc. These factors are
 Ecological
 Environmental issues
 International
 National
 Stakeholder/ investor values
 Staff attitudes
 Management style
 Environmental regulations
 Customer values
 Market value
SWOT
ANALYSIS
SWOT ANALYSIS: STRENGTHS & WEAKNESSES

Strengths:
 What advantages does your organization have? Weaknesses:
 What do you do better than anyone else?  What could you improve?
 What unique or lowest-cost resources can you  What should you avoid?
draw upon that others can't?  What are people in your market likely to
 What do people in your market see as your
see as weaknesses?
strengths?
 What factors lose you sales?
 What factors mean that you "get the sale"?
 Again, consider this from an internal and
 What is your organization's Unique Selling
Proposition (USP)? external basis: Do other people seem to
perceive weaknesses that you don't see?
 Consider your strengths from both an internal
Are your competitors doing any better
perspective, and from the point of view of your
than you?
customers and people in your market.
SWOT ANALYSIS: OPPORTUNITIES & THREATS

Opportunities: Threats
 What good opportunities can you spot?  What obstacles do you face?

 What interesting trends are you aware  What are your competitors doing?

of?  Are quality standards or specifications

 Changes in technology and markets on for your job, products or services
changing?
both a broad and narrow scale.
 Is changing technology threatening your
 Changes in government policy related
position?
to your field.
 Do you have bad debt or cash-flow
 Changes in social patterns, population
problems?
profiles, lifestyle changes, and so on.
 Could any of your weaknesses seriously
 Local events. threaten your business
STAKEHOLDER ANALYSIS
STAKEHOLDER ANALYSIS

Stakeholder Analysis: identify the key people who have to be won over.
The benefits of using a stakeholder-based approach are that:
• Use the opinions of powerful stakeholders to shape projects at an early stage =
support from key stakeholders + improve quality of project
• Help you to win more resources = increased likelihood of projects being
successful
• Key stakeholder fully understand what you are doing and understand the benefits
of your project = provide support actively when necessary
STAKEHOLDER ANALYSIS
Step 1: Identify Key Stakeholders
STAKEHOLDER ANALYSIS
Step 2: Prioritize your stakeholders