GCE Business

Business Analysis Tools

Learning Objectives

To understand how to analyse the external

environment using SWOT, PESTLE and
Porter’s Five Forces
SWOT
SWOT Analysis

A tool used to analyse the internal and external

environment, considering the positive and
negative factors that might impact them for each
and how this should shape their strategy
Example - New pie business
PESTLE
PESTLE Analysis

A tool used to gain a macro picture of an external environment for a

particular organisation

 By analysing the six key factors, organisations can gain insight into the
external influences which may impact their strategy and business decisions
 It allows HR and senior managers to assess any risks specific to their
industry and organisation, and use that knowledge to inform their decisions
PESTLE Analysis
Pros and Cons
Example - Nike
Example - Uber
Activity
Create a SWOT or PESTLE analysis for one business
of your choice
Porter’s Five Forces
A model that identifies and
analyses five competitive forces
that shape every industry and
helps determine an industry's
weaknesses and strengths.

It was created to explain why

the profitability of industries
varied considerably
Why Use Porter’s Five Forces?

 Porter’s Five Forces analysis can be used to guide business strategy to

increase competitive advantage

 It can help businesses boost profits but they must continuously monitor any
changes in the five forces and adjust their business strategy

 Can be used to measure competition intensity, attractiveness, and profitability

of an industry or market
Competitive Rivalry

 This refers to the number of competitors and their ability to undercut a company

 The larger the number of competitors, along with the number of equivalent
products and services they offer, the lesser the power of a company

 If rivalry is intense (e.g. existing businesses compete fiercely with each other)
this is likely to push prices down and reduce the profits of the businesses
Competitive Rivalry

 Suppliers and buyers seek out a company's competition

if they are able to offer a better deal or lower prices

 Conversely, when competitive rivalry is low, a company

has greater power to charge higher prices and set the
terms of deals to achieve higher sales and profits
Buyer Power

 The ability that customers have to drive prices lower

 If the customers of the businesses are very powerful (e.g.

because there are only a few of them so they know the
businesses need them as customers) they will be able to push
down prices and reduce the profits of the businesses in the
industry
Buyer Power

 A company that has many, smaller, independent customers will

have an easier time charging higher prices to increase
profitability

 It is affected by how many buyers or customers a company has,

how significant each customer is, and how much it would cost a
company to find new customers or markets for its output
Supplier Power

 This refers to how easily suppliers can drive up the costs of

a business

 It is affected by the number of suppliers of key inputs of a

good or service, how unique these inputs are, and how
much it would cost a company to switch to another supplier
Supplier Power

If the businesses supplying the established firms are

powerful (e.g. because there are relatively few of them
so they know their customers need them) they may be
able to push up prices increasing their profits and
reducing the profits of the established businesses that
now have higher costs
Supplier Power

 The fewer suppliers to an industry, the more a company would

depend on a supplier. As a result, the supplier has more power and
can drive up input costs and push for other advantages in trade

 On the other hand, when there are many suppliers or low switching
costs between rival suppliers, a business can keep its input costs
lower and enhance its profits
Threat of Entry

 A company's power is also affected by the force of new entrants into its
market

 If it is relatively easy for new businesses to enter the industry and be an

effective competitor, this will typically decrease profits within the industry.
If established businesses earn high profits others will enter and this will
force them to bring their prices down, which reducing profits
Threat of Entry

An industry with strong barriers to entry is ideal

for existing companies within that industry
since the company would be able to charge
higher prices and negotiate better terms
Threat of Substitutes

 A substitute in Porter’s model is a product that performs the same function

as the one in the industry, e.g. if we are examining the aluminium can
industry then a glass bottle would be a substitute

 If there are a large amount of substitutes, this would lead to a more

competitive environment and that is likely to reduce profitability. When close
substitutes are available, customers will have the option to forgo buying a
company's product, and a company's power can be weakened
Threat of Substitutes

Companies that produce goods or services

for which there are no close substitutes will
have more power to increase prices
Video Example

https://www.youtube.com/watch?v=OWwSS6
nrfQM
Activity

Create a
Porter’s Five
Forces
analysis for
any business
of your choice