What is a Business

Environment?

 The combination of internal and external

factors that influence a company's
operating situation.
 The business environment can include
factors such as: clients and suppliers; its
competition and owners; improvements
in technology; laws and government
activities; and market, social and
economic trends.
 Types of environment

Internal environment External

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

Micro Macro environment

environment (a) Government
(a) Human resources to
include jobs, hygiene, (b) Political factors
security (c) Social factors
(b) Company Board (d) Cultural factors
(c) Management structure (e) Demographic factors
(f) Economic factors
Environment Analysis
 Several popular frameworks exist to aid in identifying
environmental factors.
 They are frequently used together.
 Porter's Five Forces tool is a simple but powerful tool for
understanding where power lies in a business situation
 The PEST or PESTEL analysis, which looks at the political,
economic, social and technological factors affecting a business;
sometimes environmental and legal are included.
 SWOT analysis is used to look at the strengths, weaknesses,
opportunities and threats affecting a business, both internally
and externally
Porter’s Five Forces
 The Porter's Five Forces tool is a simple but powerful tool for
understanding where power lies in a business situation.

 This is useful, because it helps you understand both the

strength of your current competitive position, and the strength
of a position you're considering moving into.

 With a clear understanding of where power lies, you can take

fair advantage of a situation of strength, improve a situation of
weakness, and avoid taking wrong steps. This makes it an
important part of your planning toolkit.

 Conventionally, the tool is used to identify whether new

products, services or businesses have the potential to be
profitable. However it can be very illuminating when used to
understand the balance of power in other situations.
Porter’s Five Forces
Porter’s Five Forces
 Supplier Power: Here you assess
 how easy it is for suppliers to drive up prices. This is driven
by the 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, and so on.
 The fewer the supplier choices you have, and the more you
need suppliers' help, the more powerful your suppliers are.

 Buyer Power: Here you ask yourself

 how easy it is for buyers to drive prices down. Again, this is
driven by the number of buyers, the importance of each
individual buyer to your business, the cost to them of
switching from your products and services to those of
someone else, and so on.
 If you deal with few, powerful buyers, then they are often
able to dictate terms to you.
Porter’s Five Forces
 Competitive Rivalry: What is important here is
the number and capability of your competitors. If you have
many competitors, and they offer equally attractive products
and services, then you'll most likely have little power in the
situation, because suppliers and buyers will go elsewhere if
they don't get a good deal from you.
 On the other hand, if no-one else can do what you do, then
you can often have tremendous strength.

 Threat of Substitution: This is affected by

 the ability of your customers to find a different way of doing
what you do – for example, if you supply a unique software
product that automates an important process, people may
substitute by doing the process manually or by outsourcing it.
 If substitution is easy and substitution is viable, then this
weakens your power.
Porter’s Five Forces
 Threat of New Entry: Power is also affected by
 the ability of people to enter your market.
 If it costs little in time or money to enter your
market and compete effectively, if there are few
economies of scale in place, or if you have little
protection for your key technologies, then new
competitors can quickly enter your market and
weaken your position.
 If you have strong and durable barriers to entry,
then you can preserve a favorable position and take
fair advantage of it.
PESTLE
PESTLE
 PESTLE analysis is in effect an audit of an organization's environmental influences
with the purpose of using this information to guide strategic decision-making.

 The assumption is that if the organization is able to audit its current environment and
assess potential changes, it will be better placed than its competitors to respond to
changes.

 To help make decisions and to plan for future events, organizations need to
understand the wider ‘meso-economic’ and ‘macro-economic’ environments in which
they operate. (The meso-economic environment is the one in which we operate and
have limited influence or impact, the macro-environment includes all factors that
influence an organization but are out of its direct control).

 An organization on its own cannot affect these factors, nor can these factors directly
affect the profitability of an organization. But by understanding these environments, it
is possible to take the advantage to maximize the opportunities and minimize the
threats to the organization. Conducting a strategic analysis entails scanning these
economic environments to detect and understand the broad, long term trends.

 A PESTLE analysis is a useful tool for understanding the ‘big picture’ of the
environment in which an organization is operating.

 Specifically a PESTLE analysis is a useful tool for understanding risks associated with
market (the need for a product or service) growth or decline, and as such the position,
potential and direction for an individual business or organization.
PESTLE
 Political: These factors determine the extent to which a
government may influence the economy or a certain industry
environment (economic environment) to a great extent.. [For
example] a government may impose a new tax or duty due to
which entire revenue generating structures of organizations
might change. Political factors include
 Trading policies
 Government changes
 Shareholder and their demands
 Funding,
 Governmental leadership
 Lobbying
 Foreign pressures
 Conflicts in the political arena
PESTLE
 Economic: These factors are determinants of an economy’s
performance that directly impacts a company and have
resonating long term effects. [For example] a rise in the
inflation rate of any economy would affect the way companies’
price their products and services. Adding to that, it would affect
the purchasing power of a consumer and change
demand/supply models for that economy. 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: These factors scrutinize the social environment of
the market, and gauge determinants like cultural trends,
demographics, population analytics etc. An example for this
can be buying trends for Western countries like the US where
there is high demand during the Holiday season. Social
factors includes:

 Ethnic/religious factors o Consumer opinions and attitudes

 Advertising scenarios o Views of the media

 Ethical issues o Law changes affecting

 Consumer buying patterns social factors

o Change in Lifestyle
 Major world events
o Brand preferences
 Buying access
o Working attitude of people
 Shifts in population
o Education
 Demographics o Trends
 Health o History
PESTLE
 Technological: These 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: These 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. Legal analysis takes into account both of
these angles and then charts out the strategies in
light of these legislations. 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: These factors include all those that
influence or are determined by the surrounding environment.
This aspect of the PESTLE is crucial for certain industries
particularly for example tourism, farming, agriculture etc.
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 & Strategic Implications
STRENGTH WEAKNESS

OPPORTUNITIE SO WO
S

THREATS ST WT

SO: UTILIZE IT MORE

WO: WORK HARDER
ST: DEFEND YOUR STRENGTH
WT: GET RID OF THEM
How to Use SWOT Analysis
Strengths:
 What advantages does your organization have?
 What do you do better than anyone else?
 What unique or lowest-cost resources can you draw upon that others can't?
 What do people in your market see as your strengths?
 What factors mean that you "get the sale"?
 What is your organization's Unique Selling Proposition (USP)?
 Consider your strengths from both an internal perspective, and from the
point of view of your customers and people in your market.

Weaknesses:
 What could you improve?
 What should you avoid?
 What are people in your market likely to see as weaknesses?
 What factors lose you sales?
 Again, consider this from an internal and external basis: Do other people
seem to perceive weaknesses that you don't see? Are your competitors
doing any better than you?
How to Use SWOT Analysis
Opportunities:
 What good opportunities can you spot?
 What interesting trends are you aware of?
 Useful opportunities can come from such things as:

 Changes in technology and markets on both a broad and narrow scale.

 Changes in government policy related to your field.
 Changes in social patterns, population profiles, lifestyle changes, and so on.
 Local events.

Threats
 What obstacles do you face?
 What are your competitors doing?
 Are quality standards or specifications for your job, products or services
changing?
 Is changing technology threatening your position?
 Do you have bad debt or cash-flow problems?
 Could any of your weaknesses seriously threaten your business?
Stake Holders
Analysis
• Stakeholder Analysis is the technique used to identify the key people
who have to be won over. You then use Stakeholder Planning to build the
support that helps you succeed.

• The benefits of using a stakeholder-based approach are that:

• You can use the opinions of the most powerful stakeholders to shape
your projects at an early stage. Not only does this make it more likely
that they will support you, their input can also improve the quality of
your project

• Gaining support from powerful stakeholders can help you to win more
resources – this makes it more likely that your projects will be
successful

• By communicating with stakeholders early and frequently, you can

ensure that they fully understand what you are doing and understand
the benefits of your project – this means they can support you actively
when necessary

• You can anticipate what people's reaction to your project may be, and
build into your plan the actions that will win people's support.
Stake Holders Analysis
 Step 1 – Identify Your Stakeholders

Your boss Alliance partners The press

Shareholders Trades associations Your team Lenders

Government Your co-workers Interest groups

Senior executives Suppliers Customers Analysts

The public Prospective

customers
Stake Holders
Analysis
Step 2 – Prioritize Your Stakeholders