PRINCIPLES OF

ENTREPRENEURSHIP
MADABA, Raphael
Business Management Department
Institute of Accountancy Arusha (IAA)
 Topic 2
Situational Analysis and Business
Environment
 Sub topics
 Meaning of Situational analysis and business
environment
 Classify the business environment
 Conduct SWOT analysis for business
opportunities
 Describe Porters Five Forces model for
analyzing proximity environment
 Describe the Components of Marketing
information system
 Situational analysis and business
environment
Situational Analysis: is the process of finding a fit
between external opportunities & internal
strengths while working around external
threats & internal weaknesses.
S Strength
SWOT analysis W Weakness
O Opportunity
T Threats
cont…
Situational analysis is also performed by scanning the
business environment.
Business Environment
Business Environment refers to the range of internal
and external factors/elements (environmental
forces/variables) that affect or influence business.

Business Environment Scanning is the process of careful

monitoring an organization’s internal and external
environments for detecting early signs of opportunities
and threats that may influence it’s current and future
plans.
cont…
Importance of Business Environment Analysis
i. Enables the firm to identify opportunities and
get the first mover advantage
ii. Helps the firm to identify threats and early
warning signals.
iii. It helps in taping useful resources
iv. Assisting the firm in planning.
v. It helps to improve business performance
Categories of business environment

Business environment exists in two major

categories:
 The external environment
It is made up by environmental
conditions/factors outside the
organizational boundaries.
 The internal environment
Constitute environmental
forces/conditions/factors within the
organization.
cont…
 Internal environment Micro environment

Natural
Environment
Economic
Suppliers Social/Cultural
Partners
Customers
Company
Legal Regulators
Competitors
Labor supply Political

Technological

 Macro environment
cont…
 External environment constitutes a range of
factors/conditions located outside the
organizational boundaries.
 Moreover, the external environment is sub-
divided into:
 Macro environment (general or broad
environment)
 Micro environment (task environment)
cont…
 MACRO ENVIRONMENT
The general or macro environment
consists of the broad environmental trends
and patterns that will affect all firms, but
will be more relevant to some than others.
Such trends are largely outside the control
of individual organizations.
Key environmental elements in the macro
environment include:
Political-legal, Economical, Social-
cultural, Technological, Natural
environment and.
cont…

These forces affect the organisation in two ways:

 First, they exert direct pressure on the firm
 Second, they exert indirect pressure on
the organisation by causing the elements of
the task environment to exert their influence
on organisation’s operations.
cont…
Economic Environment
Key aspects of the economic environment
usually include the following :
 Resources - human, financial, physical and
informational - that the organisation needs to
support its operations;
 Economic domain - socialistic, communistic,
capitalistic, etc. - within which the
organisation operates;
cont…
 Economic factors - which gauge the
environment’s economic health e.g. national
income and product, economic growth, savings,
investments, prices, wages, productivity,
government domestic and international
economic activities, and balance of payments. 
 Other key economic factors include inflation,
interest rates, currency exchange rates and
fluctuations, unemployment, per capital income
and consumer purchasing power.
cont…
Political- Legal Environment
The political-legal forces consist of
governmental and legal policies, laws, and
institutions at the national, state, and local levels
that influence people and organisations. 
Included in this category are legislation,
regulation, taxation, legal decisions, and
political policies that may be enacted by the
government of the country in question.
cont…
The political legal dimension is important to the firm
because it:
 Imposes certain legal constraints on the business

organization, by defining the activities that are

permitted to undertake and the manner in which
they may promote them;
 Define the business climate by the constraints they

impose and by the activities they permit.

 Define the rules by which businesses must

operate, e.g. the requirements of the Money

Laundering Act of 2006 in Tanzania.
cont…
 Provide operating parameters for what is seen
by some as a rather imperfect market-place that
cannot govern itself.
 Has the potential to provide the stability
needed for long-term business planning,
including the creation of strategic business
units and new products.
cont…
Examples of regulatory bodies in Tanzania
include:
 Health and safety legislations (enforced by
TFDA)
 Quality/standard regulations (enforced by TBS)
 Tax laws and other dues on business e.g.,
Income tax, VAT (enforced by TRA)
 Fair competition regulations.
cont…
Socio-Cultural environment
Socio-cultural forces refer to the values,
attitudes, perceptions, needs, and demographic
characteristics of the societies in which
the organisation operates.
Everyone is influenced by the customs,
traditions, beliefs, and values that are inculcated
by society and its complex cultures.
cont…
Socio-cultural forces include but, of course, not
limited to the following:
The urban–rural divide
There is an increasing variation in income, wealth
and social behaviour that is likely to create
marketing opportunities in the personal and
corporate sectors.
People in towns are becoming more cosmopolitan
with a western outlook and taste, sophisticated
lifestyle and increased incomes compared to rural
areas. This will affect marketing strategies in terms
of product development, pricing and delivery.
cont…
Changing demographics
There has been a notable increasing educated
working class in Tanzania and these are likely
to become market targets for organizations.
At the same time the increasing retiring
population as well as the impact of
HIV/AIDS is likely
reduce productive workforce.
cont…
Growth in self-employment
The national economies of Tanzania have devised
policies that encourage self-employment and
formalization of the informal sector activities.
In particular, financial institutions might need to
embark on developing marketing strategies for
micro financing and the promotion and support of
small business start ups by way of incubation and
advisory services.
.
cont…
Increasing women employment
In Tanzania, there is a great awaking and
interest in career development among women.
There is evident rush for college and university
education, and competition for office
employment, managerial and political positions
as well as self-employment.
Recognising this, smart firms are developing
special products for women and special lending
facilities for working women entrepreneurs.
cont…
Technological environment
This include processes by which the organisation
uses to transform inputs into outputs.
They include the expertise, knowledge,
procedures, techniques, and systems used by
organisations to make the transformation
process.
Fuelled by scientific research and industrial
breakthroughs, technological forces define new
industries and provide organisations with tools
and opportunities to compete more effectively.
cont…
The technological dimension provides the
knowledge, systems, processes, equipment, and
software that facilitate the organisation’s
efficiency and effectiveness.
In the service sector in general and financial
services in particular, technological
developments are potentially of great
importance, not only because of their
implications for new product development and
operating efficiency, but also because of their
new role in controlling and standardizing
service quality.
cont…
Individual assignment
Question
Select any registered business firm operating in
Tanzania main land, describe the technological
impacts on the business operations of the selected
firm.
The assignment should be:
a) Printed in not less than three pages excluding
the cover page
b) Submitted on 5th of April, 2022.
cont…
Natural or physical environment
Natural environmental factors include weather
and climate change. Weather changes can
have an impact on many business industries such
as farming, fishing, tourism, manufacturing, etc.
Favorable environmental changes may lead to
business opportunities but unfavorable
environmental changes may lead to business
challenges.
cont…
 MICRO (TASK/MARKET) ENVIRONMENT
The micro environment covers factors that may
have a direct impact on firm’s operations
when interacting with its market.
Before deciding corporate strategy, businesses
should carry out a full analysis of micro
environment.
Micro environment variables include:
Customers, Suppliers, Labor suppliers, Competitors,
Partners and Regulators.
cont…
Suppliers
Suppliers are individuals and organizations who
provide the physical and nonphysical resources
used as inputs to produce goods and services. 
Physical resources include equipment and raw
materials, etc. Nonphysical resources include
services, finance, energy, information and labour.  
Stockholders and private investors are some
sources of capital for the organization.
Magazines, newspapers, and researchers are
among the organization’s information sources.
cont…
Employment agencies are suppliers of human
resources.
When considering suppliers, most organizations
will be concerned with the number, size and
bargaining strength of their suppliers; their ability
to guarantee regular supplies, stable prices and
quality.
cont…
Customers
Customers are those individuals and/or
organizations in the environment that acquire
goods and/or services from the firm.
Customers are a key force in the task
environment because their purchase or use of
products determines whether the firm succeeds
or fails. 
The purpose of any business is to create and
keep customers. 
cont…
As customer demand increases,
organizations have the opportunity to
increase its market share. When demand
declines, the firm must alter its offerings or
seek other markets.
Understanding customers is clearly of
considerable importance in terms of
developing a marketing strategy and the
behaviour and motivation of these
customers.
cont…
Labour Supply
Labour is a term that collectively represents
those people who may potentially be employed
to work for the organisation. 
All organizations require a supply of qualified
personnel who are appropriately trained in
their tasks.
This supply of labour is influenced by the
economy, unemployment, socio-cultural factors,
technological development, regulators and
unions.
cont…
In part, this scarcity of labour stems from
intense competition among public and private
sector organisations that want to hire from the
same labour pool. 
Moreover, demographic trends such as age,
education (literacy rate) etc. in the general
environment have a lot to do with the people
who are in the labour supply at any given time. 
cont…
Partners
The task environment of an organisation also
includes partners. 
Partners are two or more organisations that
work together in a formal or informal
arrangement that helps them achieve goals
more effectively.
Organisations seek temporary or permanent
partners for a variety of reasons:
• Risk sharing; partners can share the risk of a
particular project or product;
cont…
• Partners can pool their resources and accomplish
together what they cannot do alone; and
• Partners may have special knowledge of a
technology or an  industry where the
organisation needs to introduce a new product or
enter a new market.
An example of a partnership arrangement is where
five banking organizations in Tanzania - Twiga
Bancorp, Azania Bancorp, Tanzania Investment
Bank, Dar es Salaam Community Bank, and Akiba
Commercial Bank – have partnered together to
establish the ‘UMOJA SWITCH’, a shared ATM
network.
cont…
Competitors
Competitors are rival organizations that
provide goods or services to the same set of
customers/market or that vie for the same
resources needed by the organization. 
Clearly there is a need for any organization to
develop an awareness and understanding of its
competitors, their strengths and weaknesses
and the essence of their strategic approach.
cont…
Competition in any market can occur at a
number of different levels.
There are two sorts of competition namely; 
Intratype occurs between organizations within
the same basic activity. For example, where two
local banks are locked in intratype competition
for depositors and borrowers of money. 
Intertype exists between different types of
organizations.  For example, consider the savings
market.  
cont…
At a macro level banks are involved in intertype
competition with a whole variety of consumer
goods industries for consumers’ income.
At a micro level banks compete with insurance
companies, pension funds, money shops, and
money lenders. 
cont…
Regulators
Regulators comprise all those entities that have the
potential to regulate, control or otherwise influence
the organisation’s operations. They include
governmental agencies, officials, and special interest
groups who create, influence, or enforce legal
guidelines and policies that affect organisational
activities. 
The government creates many regulatory agencies
that are usually given the task of protecting the public
from undesirable business practices and/or to protect
organisations from each other.
cont…
These regulators have greater influence on
corporate policies, procedures and business
practices. Although political-legal forces are part
of the general environment, regulators are part
of the task environment because it is their
influence that directly determines what
immediate impact the legislative and regulatory
guidelines will have on the organisation. 
Among the key regulatory agencies are Bureau
of Standards and Inland Revenue Authorities. 
cont…
Any analysis of the market environment must also
give some consideration to the role of special interest
groups (publics).
Special interest groups are not formed by the
government; they consist of individuals or
organisations who voluntarily band together to
influence the actions of other organizations.
They refer to a variety of groupings whose opinions
and attitudes will have some bearing on the success
of an organization.
An understanding and awareness of the attitudes of
these groups will enable the business firm to
consider how best to present itself to public.
cont…
Internal environment
The internal environment is the area in which
the firm can exercise greatest control. Generally,
the analysis of the internal environment requires
an understanding of the nature of the following
aspects:
Corporate culture – i.e. the attitudes and beliefs of
personnel at all levels of the organization.
cont…
 Organization structure 
This explains how the internal structures are
designed and likely to condition various aspects
of the development of firm’s strategies.
 Personnel 
The quality of staff available to implement the
firm’s strategies and/or major training and
recruitment programmes available to develop a
body of staff with the requisite skills to
undertake desired organizational change.
cont…
 Internal marketing and communication 
This describes how well internal marketing and
systems of information and communication are
established and designed to reduce competitive
and cross-activity jealousies within the firm.
The use of marketing audits is one technique
which is of considerable use in helping the firm
to understand the internal environment. 
Marketing audit is a systematic analysis and
evaluation of the organisation’s marketing
position and performance.
cont…
Marketing audit will mainly focus on the
relevant marketing activities of the organization,
the following may be singled out as being of
particular importance:
 Marketing capabilities 

Organization of the marketing department; the

organisation’s image/reputation; strengths of
product brands and; extent of brand loyalty
among customers.
cont…
 Performance evaluation
What are the actual achievements of marketing?
Are sales meeting forecasts? Is advertising
presenting the desired/planned message?
 Competitive effectiveness 
What is the source the firm’s competitive
advantage? This will require some analysis and
understanding of competitors, the markets they
are targeting and the particular features they
use to their advantage.
 SWOT analysis for business
opportunities
 SWOT analysis is a strategic analytical tool
useful to evaluate internal and external
environment in the form of ascertaining
strength, weaknesses, Opportunities and
Threats.
S stands for Strength
Strength can be skills, assets or other resources
and abilities possessed by the company which
gives power or competitive edge over rival
companies in the market or industry.
cont…
W stands for weakness
These are situations or conditions which give a
company a disadvantage position in the
industry in which it operates.
e.g. Lack of clear strategic direction, lag behind
in R&D or
technological changes, lack of qualified and
competent staff etc,.
cont…
O stands for Opportunity
An opportunity is any attractive event, trend, or
situation in which the company would enjoy
benefit by pursuing it.
E.g. - A market vacated by ineffective
competitors, Emergence of new and useful
technology, Government regulations or policies
favorable to businesses, etc.
cont…
T stands for Threat
This is a challenge posed by unfavorable trend
or development in the environment that would
lead to the decline of the company’s position.
e.g. –Entry of a new competitors in your market
segment, rising sales of substitute products,
changing buyers’ needs and preferences.
cont…
Importance of SWOT analysis
 It is an essential tool for managers and

investors to systematically strategize the

decision-making.
 SWOT analytic results help businesses build on

their strengths, explore new opportunities, and

work to reduce or remove any potential market
risks.
cont…
 It is a current state analysis, because it is carried
out to determine the strengths and weaknesses,
opportunities and threats.
 It is a future situation analysis, because it is an
analysis or research technique for determining
and predicting future situations.
 Porters Five Forces model

The five forces design and model was created

by Michael Porter to:
 Strengthen firm’s performance
 Solve various problematic issues
 Measure the industry’s competitive nature
 Develop corporate strategies appropriately
The frame-work lets the firm to analyze and
explore the major forces that influence and
determine the industry’s profitability.
 .

Potential
Entrants

Threat of new entrant

Supplier Buyer
Bargaining power Rivalry Bargaining power
Suppliers among Buyers
existing firms

Threat of substitute product

Substitutes
cont…
Porter identified his five forces by dividing
them into:
i. Horizontal forces: Threat due to new entrants;
Threat due to Substitutes; and Competitive
rivalry.
ii. Vertical forces: Buyer’s bargaining power;
and Customer’s bargaining power.
cont…
Thus, Porter’s five forces are:
i. Competitive rivalry
ii. Threat of new entrants
iii. Threat of substitutes
iv. Bargaining power of suppliers
v. Bargaining power of buyers
The five forces help shape industry success by
overcoming competition.
cont…
Competitive rivalry
It indicates the intensity of rivalry in the
prevailing actors within the industry. In case
any additional firms compete, it will result in
more competitive pressure that will affect prices
and profits.
Due to a selection choice offered for many
quality products in the market, there prevails a
direct competition, whereby customers get an
option to simply select the best product they
prefer from a different company very easily.
cont…
In which situations, high competition prevails?
High competitive rivalry exists when:
 Similar type products are available in one
market.
 The competitor companies maintain similar
strategies
 The products have identical features,
offering similar benefits
 Industrial growth is slow
 Low barriers exist for new entrants
cont…
Threat of new entrants
The competitive threat is not merely from the
prevailing business players but may come from
probable new entrants.
When the industry shows profits, it attracts new
companies. Unless the barriers to entry prevails,
new companies can easily enter the market and
change the industry dynamics.
The specific industry dynamics can restrict the
new entrants, and they are known as barriers to
entry
cont…
The entry barriers can stem from:
 Having access to innovative infrastructure
and technology
 Knowledge gained from patents and
proprietary rights
 Need for very high initial investment
 Large costs of switching of loyal customers
 Problems in securing raw materials and
problems to access effective distribution
channels
cont…
Threat of substitutes
A substitute product is the product that
performs the same or a similar function as an
industry’s product by a different means.
When substitution is high:
 Industry’s profitability suffers.
 Buyers propensity to substitutes
 The depreciation of industry’s product
quality
 Easy of substitution
cont…
Bargaining power of customers (buyers)
This is the ability of customers to put the industry
under pressure, which also affects the customer's
sensitivity to price changes.
Under this force, potential factors are:
 Buyers to firm ratio
 Buyers information availability
 Buyers price sensitivity
 Availability of existing substitute products
cont…
Bargaining power of suppliers
Supplier becomes more strong if there is:
 limited number of suppliers

 large number of customers

 few substitutes available in the market.

 high degree of inputs differentiation.

 relatively strong distribution channel

cont…
For example, if you are making biscuits and
there is only one person who sells flour, you
have no alternative but to buy it from the
person. Suppliers may refuse to work with the
firm or charge excessively high prices for
unique resources.
cont…
How to apply Porter’s five forces model
When performing the task or market or industry’s
environment analysis, three basic steps need to be
taken:
 Gathering data and information

The firm must collect information regarding the

industry in applying the model (five forces) to
further classify that information.
cont…
 Results analysis
After gathering adequate information, there is a
need to analyze and identify factors affecting the
industry, because each industry has different
factors and issues affecting them.
 Strategy formulation

The factors generated from the analysis that affect

the industries can be transformed into relevant
strategies that apply to improve the firm.
 PESTEL Analysis
An external analysis entails a critical assessment
of the firm’s external environmental factors. 
These factors include legal, ethical, political,
economic, social, technological influences faced
by the firm. 
Taking the first letter of each one of these
factors it is convenient to abbreviate them as
PESTEL factors.
(refer to the business environment analysis-
macro factors)
 Marketing Information System
Information is a basic input in decision making.
Decision makers need relevant, accurate and timely
information to make strategic, operational and
tactical decisions on various aspects of business.
It is the marketing information systems that
provide this information.
However, the development of a marketing
information system is inevitable in order to process
gathered data into information and ensuring that it
is made available timely to marketing decision
makers.
cont…
MIS can be defined as the structured,
interacting complex of persons, machines and
procedures designed to generate an orderly
flow of pertinent information, collected from
both intra-and extra-firm sources for use as the
basis for decision making in specified
responsibility areas of marketing management 
(Pezzullo).
cont…
MIS can also be defined as a system that
“consists of people, equipment, and procedures
to gather, sort, analyse, evaluate, and distribute
needed, timely, and accurate information to
marketing decision-makers”.  (Phillip Kotler)
The components of MIS
A firm’s marketing information system usually
consists of four main components: 
 Internal Records System,
cont…
 Marketing Intelligence System,
 Marketing Research System, and
 Marketing Decision Support System.

Internal Records System (Internal Database)

The most basic information system used by
marketing managers is the “internal records
system” or internal database”. 
cont…
Internal records information” is information
gathered from sources within the organization
to evaluate marketing performance and to
detect marketing problems and opportunities.
This information may be largely derived from
accounting database and may include reports
on sales, prices, accounts opening and closures,
customers’ financial information and so on.

 
cont…
Marketing Intelligence System (External Database)
While the internal records system supplies
marketing managers with results data, the
marketing intelligence system supplies
managers with happenings data. 
Marketing intelligence information is everyday
information about developments in the
marketing environment that helps marketing
managers prepare and adjust marketing plans.
cont…
A marketing intelligence system thus can be
described as a set of procedures and sources
used by organization managers to obtain their
everyday information about pertinent
developments in the marketing environment.
The marketing intelligence system can be
regarded as the “external database” because it
covers all types of information collected from
external sources. 
cont…
It may take the form of press cuttings, trade
journals, discussions and information from
competing organizations or subscriptions to
some specified external database.
Marketing Research System
The marketing research system is that
component of the MIS which gathers
information by means of deliberate
planned focused studies on specific marketing
problems facing the firm. 
cont…
Besides information from internal and marketing
intelligence sources, marketing managers often
need focused studies of specific problems and
opportunities.
For example, they may need a market survey, a
product-preference test or an advertising-
effectiveness study.
Marketing research information is used to identify
and define marketing opportunities and problems,
to generate, refine, and evaluate marketing
actions; to monitor marketing performance; and to
improve understanding of the marketing process.
 cont…
Marketing Decision Support System
This consists of a series of analytical techniques
which enable marketing managers to process,
interpret and make full use of information
provided by the other three sources. 
Various statistical tools, decision models, systems
and the use of microcomputer software and high
level programming may be integrated in the
marketing decision support system depending on
the marketing decision-maker’s information
needs.
 
cont…
The role of MIS is to:
 Assess the manager’s information needs;
 Develop the needed information; and
 Distribute the information in a timely fashion
to the marketing managers.
 The needed information is developed through
the firm’s internal records system, marketing
intelligence system, marketing research system,
and marketing decision support system.
END