NM4602

Management
Principles

Week 2 – Business Environment

Boddy (2020) Chapter 3

Andy Greenhill
Brunel University London Pathway College
Learning Outcomes
By the end of this topic, learners will be able to:
• evaluate industry attractiveness using Porter’s five forces model
• identify environmental factors that impact an organisation

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 Environmental
influences

Figure 3.1 Environmental influences on the

organisation
Boddy (2020) p66

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 Opening Question 1

1. Imagine a friend of yours comes to you with a business idea.

They want to know if you think that they will be able to make a
lot of money in this industry.

What would you want to know about the market (industry)

before making a recommendation?

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 Porter’s Five Forces

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 Industry Attractiveness – Porter

Threat of New
Entrants

Competitive
Supplier Power Buyer Power
Rivalry

Threat of
Substitution

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 Threat of new entrants

Fewer new entrants = more profit

• Entry barriers include:
• high costs of equipment and facilities;
• lack of distribution facilities;
• customer loyalty to established brands;
• small companies lack economies of scale;
• legal barriers.

Industries with high entry barriers (low threat of new entrants) include
telecommunications where limited licenses are available.

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 Intensity of rivalry amongst competitors

Greater rivalry = less profit

• Rivalry increases when:
• many firms, but none dominant;
• market growing slowly, so firms fight for share;
• high fixed costs encourage overproduction;
• Products are similar so switching is easy.

Examples of industries with high competitive rivalry include

airline and steel industries.

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 Power of buyers (customers)

Greater power of buyers = less profit

• Power of buyer increases if:
• buyer takes high percentage of seller’s sales;
• many alternative products or sellers available;
• product is a high percentage of buyer’s costs, creating incentive to
seek alternatives;
• cost of switching to other seller’s is low.

Examples include products sold online, and major supermarkets like

Walmart, Tesco.

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 Bargaining power of industry suppliers

High power of supplier = less profit

• Power of supplier is high if:
• company takes small percentage of sales;
• few alternative products or suppliers (distinctive product keeps buyers
loyal);
• product a low percentage of company’s costs, little incentive to seek
alternatives;
• cost of switching suppliers high.

Examples include aircraft manufacturers and some business software

providers.

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 Threat of substitutes

Easy to substitute = less profit

• Substitutes = Products in other industries that can perform a

similar function.
• Substitution becomes easier if:
• buyers willing to change buying habits;
• technological developments enable new
products and services.

For example, airlines and Bullet Trains/Hyperloop.

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 Porter’s Five Forces - Example

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 Opening Question 2

2. What factors outside of a business or industry will have an

impact on the success of a company?

What happened to companies like Blockbuster Video and

Research In Motion (Blackberry)?

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 PESTLE Analysis - Introduction

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General environment

Boddy (2020)
Figure 3.5 p76
Identifying
environmental
influences – PESTEL
analysis

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 Political and economic

Political
• Governments shape what businesses can do
• Taxation, pollution, regulation
• Businesses lobby to influence government, but impact can be
limited
Economic
• Wealth and stage of development
• Wage levels, interest rates, consumer confidence
• Managers time investment to suit economic growth prospects.

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 Social and technological

Socio-cultural
• Demographic trends
• Family structures
• Consumer tastes

Technological
• Physical infrastructure
• Transportation
• Communications technologies (e.g. 5G)

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 Environmental and legal

Environmental (natural)
• Natural resources, pollution and the effects of climate change on
business (threats and opportunities).

Legal
• The framework within which companies operate
– employment, financial or governance regulations.

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 Using PESTEL internationally

Figure 4.2 An international PESTEL analysis

 The socio-cultural context

Meaning of culture
• Patterns of basic assumptions and ways of behaving that groups
(including nations) develop and transmit to new members.
Context and culture
• High-context – meaning depends on shared experience and
understanding
• Eg. Japan, Arab countries, Southern Europe
• Low-context – meaning is clear and explicit
• Eg. US, Germany, Scandinavia.

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Summary
Learning Outcomes
By the end of this topic, learners will be able to:
• evaluate industry attractiveness using Porter’s five forces model
• identify environmental factors that impact an organisation

Brunel University London Pathway College #DiscoverBrunel

 Thank You

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