INSTITUTE OF

ACCOUNTANCY ARUSHA
MODULE NAME: PRINCIPLES OF ENTREPRENEURSHIP
SUBJECT NAME: PRINCIPLES OF ENTREPRENEURSHIP
MODULE CODE: AFT 06210
SUBJECT CODE: MSU 08303
LECTURER: BUNDALA
LECTURER: MR. MADABA, R
BBA, MBA-Corporate Mgt.
Mob: 0765956511
TOPIC 02

SITUATIONAL ANALYSIS
IN BUSINESS
Introduction

After going through this topic, students will be able to cover

following:
Situational Analysis and Business Environment
SWOT analysis for business opportunities
Micro environment using Porter’s Five Forces Model
PESTEL analysis for business opportunities
Sub-topic 01

Situational Analysis and

Business Environment
SITUATIONAL ANALYSIS
Situational
analysis refers to the collection of methods that
are used to analyze organization’s internal and external
environment.
It is the process of finding a fit between external
opportunities and internal strengths while working around
external threats and internal weaknesses.
BUSINESS ENVIRONMENT

Every business firm operates in a particular environment, and a

change in environment presents opportunity to some and
threats to other businesses.
The term “Environment” refers to anything which surrounds a
system. Thus, Business Environment means the surroundings
in which business exists.
Cont..

In other words, Business Environment is the sum total of all

external and internal factors that affect a business’
operations.
Or, business environment refers to the range of
forces/factors/elements/variables with which an entrepreneur
has to deal with to achieve firm’s objectives.
Categories of Business Environment

Business Environment exists in two major categories:

External environment
Comprises environmental conditions/factors outside organizational
boundaries.
Internal environment
Constitute environmental conditions/factors inside the organization.
Cont..

The External environment is further divided into:

General/macro environment
Task/micro/industry environment
MACRO ENVIRONMENT FACTORS

This environment is formed by forces outside the

organization which are beyond organization’s control, thus
the only viable alternative is to cope with them.
The macro environment is composed of several key factors,
namely Economic, Political, Technological, Demographic,
Legal, Social, Natural, etc.
 Political factors

These are governmental activities and political conditions

that may affect entrepreneur’s business.
Examples include laws, regulations, policies, tariffs and
other trade barriers, and social unrest.
For example, a change in a certain trade policy may
favorably or unfavorably affect businesses.
 Economic Factors

a) Macroeconomic factors i.e. factors that affect the entire

economy, not just an individual business. Macro economy
includes factors such as:
Interest rates,
Unemployment rates,
Cont..

Currency exchange rates,

Consumer savings rates,
Recessions, and
Depressions.
Cont..

b) Microeconomic factors
These are factors that can affect business, such as:
Market size,
Demand and Supply,
Suppliers
Competitors
Etc.
 Social factors

These are basically sociological factors (values, attitudes, ethics,

etc) related to general society and social relations that affect
business.
Social factors include; social movements (people move through
different life stages), as well as changes in fashion and consumer
preferences.
 Technological factors

These are technological innovations that can either benefit or hurt

the business.
Some technological innovations can increase productivity and
profit margins, such as computer software and automated
production.
Cont..

On the other hand, some technological innovations pose an

existential threat to a business, such as Internet streaming
challenging the DVD business.
Demographic Factors

Demography is the study of people’s vital statistics such as gender,

age, race, ethnicity, and location.
Demographics help companies define the markets for their
products.
Appropriate marketing approaches are required for different
generations by companies today.
Natural/Physical Factors

Natural factors include weather and climate change.

Weather changes can have an impact on many business
industries such as fishing, farming, tourism, etc.
Favorable natural environmental change may lead to
opportunities but unfavorable may lead to threats.
MICRO ENVIRONMENT FACTORS

Suppliers
The suppliers are the ones who provide inputs to business like
raw materials, parts, equipment etc.
A firm should create a good relation with suppliers because any
shortage or delays of supplies can cause damage to sales and
customer dissatisfaction.
Cont..

Competitors
Competitors are rivals who compete with the organization in the
market and resources as well.
A company needs to provide greater customer value and
satisfaction than its competitors, in order to be successful.
Cont..

The marketers must not only try to simply adapt to the needs and
demands of target customers, but also try to attain strategic
advantage against the competitors by positioning their products
strongly in the market.
Cont..

Customers
The most important actors in the company’s microenvironment
are its customers.
The whole of value delivery network aims to engage the target
customers and create strong relationships with them.
Cont..

There are five types of customer markets that companies might try
to target.
 These include consumer markets, business markets, government
markets, reseller markets, and the international markets.
Cont..

General Public
The public refers to the group of people who have an actual or
potential interest in company’s product or who can have an impact
on the organizations ability to achieve its objective.
Cont..

There are six types of publics identified in a company’s

marketing environment which includes financial publics, media
publics, government publics, internal publics, local publics and
general public.
Cont..

Marketing Intermediaries
They include those individuals or firms who help the company in
promotion, sales and distribution of its goods to the final buyers.
Cont..

Examples include: middlemen (agents) who help the company

find customers, physical distribution firms such as warehouses or
transportation firms that help the company in stocking and
moving goods from their origin to the destination and marketing
service agencies such as market research and advertising firms.
INTERNAL FACTORS

The internal business environment includes factors within the

organization that impact the approach and success of business
operations.
 Cont..

Organizational Culture (value system).

Itis the framework of values, vision, norms, and customs shared
by the members of an organization.
The business culture affects how the employees in the business
interact with each other, its customers, and other stakeholders.
Cont..

The value system and ethical standards are also among the
factors evaluated by many companies in the selection of the
suppliers, distributors, etc.
Cont..

Organizational Direction (company leadership).

The leadership style has an impact on
organizational culture.
The effectiveness of communication and value
of employees are some of the cultural
implications that result from leadership
approaches.
Cont..

Companies often provide formal structure or direction

with mission and vision statements.
These forward-looking statements provide the business
for company decisions and activities.
Cont..

Mission and Objectives

The mission and objectives of the company guide the
business domain of the company, and its priorities,
directions of development, business philosophy, business
policy etc.
Cont..

Structure of the Management

Structure is the hierarchical relationship in which the
tasks and sub-tasks of the organization are related.
The organizational structure, the composition of the
Board of Directors, professionalization of management
etc., are important factors influencing business decisions.
Cont..

The Board of Directors being the highest

decision making body which sets the direction
for the organization and which oversees the
performance of the organization, so the quality
of the board is very critical factor for the
development and performance of the
company.
Cont..

Human Resources
The characteristics of the human resource
such as skills, quality, morale, commitment,
attitude etc., could contribute to the strength
and weaknesses of an organization.
FEATURES OF BUSINESS ENVIRONMENT

Dynamic
Business environment is dynamic in nature because it
keeps on changing. i.e., business environment changes in
accordance with the changes in government policies,
technologies, customer preferences and etc.
Cont..

Difficult to predict
The changes in business environment are unpredictable. It
is very difficult to predict the exact nature of future
happenings and the changes in economic and social
environment.
Cont..

Uncertainty
Business environment is dynamic and it keeps
on changing, so that it is uncertain and very
difficult to predict the future.
Cont..

Inter-related
Business environment includes group of
elements and those elements are closely
related. Which means a change in any of the
elements in the business environment will
affects others also.
Cont..

Complex
Businessenvironment is the aggregate of different
dynamic forces like political, economical etc. So it
becomes difficult and complex to understand.
Cont..

Business Environment differs from place to place

Business Environment differs from place to
place, region to region and country to country.
Political conditions in Kenya differ from those
in Tanzania. Taste and values cherished by
people in Kenya and Tanzania vary
considerably.
ENVIRONMENTAL BUSINESS SCANNING

Environmental scanning refers to careful monitoring of

an organization's internal and external environments for
detecting early signs of opportunities and threats that
may influence its current and future plans.
When a firm undertakes the monitoring, assessing and
forecasting of business environment it is called as
environmental scanning of business.
Cont..

Environmental scanning is a process of gathering,

analyzing, and dispensing information for strategic
purposes.
The environmental scanning process entails obtaining
both factual and subjective information on the business
environments in which a company is operating or
consider entering.
Cont..

Chun Wei Choo, Faculty of Information Studies,

University of Toronto, Canada writes, “Environmental
scanning is the acquisition and use of information about
events, trends, and relationships in an organization's
external environment, the knowledge of which would
assist management in planning the organization's future
course of action”
IMPORTANCE OF SCANNING BUSINESS
ENVIRONMENT

Environmental scanning is necessary because there are

rapid changes taking place in the environment that has a
great impact on the working of the business firm.
Analysis of business environment helps to identify
strength, weakness, opportunities and threats.
Cont..

SWOT analysis is necessary for the survival

and growth of every business enterprise.
Thus, scanning business environment is
important due to the following reasons.
IMPORTANCE OF SCANNING BUSINESS ENVIRONMENT
 Identification of strength
 Identification of weakness
 Identification of opportunities
 Identification of opportunities
 Identification of threats
 Optimum use of resources
 Survival and growth
 To plan for business strategy
 Environmental scanning aids decision-making
Identification of strength

Strength of the business firm means capacity of the firm

to gain advantage over its competitors.
Analysis of internal business environment helps to
identify strength of the firm. After identifying the
strength, the firm must try to consolidate or maximize its
strength by further improvement in its existing plans,
policies and resources.
Identification of weakness

Weakness of the firm means limitations of the firm.

Monitoring internal environment also helps to identify the
weakness of the firm.
A firmmay be strong in certain areas but may be weak in
some other areas.
For further growth and expansion, the weakness should be
identified so as to correct them.
Identification of opportunities

Environmental analyses helps to identify the

opportunities in the market.
The firm should make every possible effort to grab the
opportunities as and when they come.
Identification of threat

Business is subject to threat from competitors

and various factors.
Environmental analyses help them to identify
threat from the external environment.
Early identification of threat is always
beneficial as it helps to diffuse off some threat.
Optimum use of resources

Proper environmental assessment helps to make optimum

utilization of scare resources.
Systematic analyses of business environment helps the
firm to reduce wastage and make optimum use of
available resources.
Without understanding the business environment
resources cannot be used in an effective manner.
Survival and growth

Systematic analyses of business environment

help the firm to maximize their strength,
minimize the weakness, grab the opportunities
and diffuse threats.
This enables the firm to survive and grow in
the competitive business world.
To plan for business strategy

A business organization has objectives.

Proper analyses of environmental factors help the firm to
frame strategies that could help in easy accomplishment
of those objectives.
Without undertaking environmental scanning, the firm
cannot develop a strategy for business success
Environmental scanning aids decision-making

Decision-making is a process of selecting the best

alternative from among various available alternatives.
Successof the firm depends upon the precise decision
making ability.
Environmental scanning enables the firm to select the
best option for the success and growth of the firm.
END