ANALYZING THE ANALYZING THE BUSINESS BUSINESS

ENVIRONMENTENVIRONMENT

By,By,Priyanka SangolgiPriyanka Sangolgi

ContentContent

External EnvironmentExternal EnvironmentIndustry Level AnalysisIndustry Level AnalysisInternal Analysis of the firmInternal Analysis of the firmLearning Curve and Experience CurveLearning Curve and Experience CurveVulnerability AnalysisVulnerability AnalysisStrategic AnalysisStrategic AnalysisFormulating Long-term StrategiesFormulating Long-term StrategiesBehavioral Considerations Affecting Behavioral Considerations Affecting Strategic ChoiceStrategic Choice

External EnvironmentExternal Environment

PEST AnalysisPEST Analysis

What is PEST Analysis?What is PEST Analysis?

This analysis is essential for an organization before This analysis is essential for an organization before

beginning its marketing process beginning its marketing process

It is very important that an organization considers its It is very important that an organization considers its

environment before beginning the marketing process. environment before beginning the marketing process.

In fact, environmental analysis should be continuous In fact, environmental analysis should be continuous

and feed all aspects of planning. The organization's and feed all aspects of planning. The organization's

marketing environment is made up of:marketing environment is made up of:

1. The internal environment e.g. staff (or internal 1. The internal environment e.g. staff (or internal

customers), office technology, wages and finance, etc.customers), office technology, wages and finance, etc.

2. The micro-environment e.g. our external customers, 2. The micro-environment e.g. our external customers,

agents and distributors, suppliers, our competitors, etc.agents and distributors, suppliers, our competitors, etc.

3. The macro-environment e.g. Political (and legal) forces, 3. The macro-environment e.g. Political (and legal) forces,

Economic forces, Socio cultural forces, and Technological Economic forces, Socio cultural forces, and Technological

forces. These are known as forces. These are known as PESTPEST factors. factors.

Political FactorsPolitical FactorsThe political arena has a huge influence upon the regulation of The political arena has a huge influence upon the regulation of

businesses, and the spending power of consumers and other businesses, and the spending power of consumers and other

businesses. You must consider issues such as:businesses. You must consider issues such as:

1.How stable is the political environment? 1.How stable is the political environment?

2.Will government policy influence laws that regulate or tax your 2.Will government policy influence laws that regulate or tax your

business?business?

3.What is the government's position on marketing ethics? 3.What is the government's position on marketing ethics?

4. What is the government's policy on the economy? 4. What is the government's policy on the economy?

5. Does the government have a view on culture and religion? 5. Does the government have a view on culture and religion?

6. Is the government involved in trading agreements such as EU, 6. Is the government involved in trading agreements such as EU,

NAFTA, ASEAN, or others?NAFTA, ASEAN, or others?

Economic FactorsEconomic Factors

Marketers need to consider the state of a trading Marketers need to consider the state of a trading

economy in the short and long-terms. This is economy in the short and long-terms. This is

especially true when planning for international especially true when planning for international

marketing. You need to look at:marketing. You need to look at:

1. Interest rates.1. Interest rates.

2. The level of inflation Employment level per capita. 2. The level of inflation Employment level per capita.

3. Long-term prospects for the economy Gross Domestic 3. Long-term prospects for the economy Gross Domestic

Product (GDP), and so on.Product (GDP), and so on.

Socio cultural FactorsSocio cultural Factors Lifestyle trends Lifestyle trends Demographics Demographics Consumer attitudes and opinions Consumer attitudes and opinions Media views Media views Law changes affecting social factors Law changes affecting social factors Brand, company, technology image Brand, company, technology image Consumer buying patterns Consumer buying patterns Fashion and role models Fashion and role models Major events and influences Major events and influences Buying access and trends Buying access and trends Ethnic/religious factors Ethnic/religious factors Advertising and publicity Advertising and publicity Ethical issues Ethical issues

The social and cultural influences on business vary from country to The social and cultural influences on business vary from country to

country. It is very important that such factors are considered. Factors country. It is very important that such factors are considered. Factors

include:include:

1.What is the dominant religion? 1.What is the dominant religion?

2.What are attitudes to foreign products and services? 2.What are attitudes to foreign products and services?

3.Does language impact upon the diffusion of products onto markets? 3.Does language impact upon the diffusion of products onto markets?

4.How much time do consumers have for leisure? 4.How much time do consumers have for leisure?

5.What are the roles of men and women within society? 5.What are the roles of men and women within society?

6.How long are the population living? Are the older generations 6.How long are the population living? Are the older generations

wealthy? wealthy?

7.Do the population have a strong/weak opinion on green issues? 7.Do the population have a strong/weak opinion on green issues?

Technological FactorsTechnological Factors

Technology is vital for competitive advantage, and is a major driver of Technology is vital for competitive advantage, and is a major driver of

globalization. Consider the following points: globalization. Consider the following points:

1. Does technology allow for products and services to be made more 1. Does technology allow for products and services to be made more

cheaply and to a better standard of quality? cheaply and to a better standard of quality?

2.Do the technologies offer consumers and businesses more 2.Do the technologies offer consumers and businesses more

innovative products and services such as Internet banking, new innovative products and services such as Internet banking, new

generation mobile telephones, etc?generation mobile telephones, etc?

3.How is distribution changed by new technologies e.g. books via 3.How is distribution changed by new technologies e.g. books via

the Internet, flight tickets, auctions, etc? the Internet, flight tickets, auctions, etc?

4.Does technology offer companies a new way to communicate with 4.Does technology offer companies a new way to communicate with

consumers e.g. banners, Customer Relationship Management consumers e.g. banners, Customer Relationship Management

(CRM), etc? (CRM), etc?

Role of PESTRole of PEST

Helps Assess the market including Competitors Helps Assess the market including Competitors

from the stand point of a Particular Business.from the stand point of a Particular Business.

PEST is relevant for any type of Business large, PEST is relevant for any type of Business large,

small & medium.small & medium.

Industry Level AnalysisIndustry Level Analysis

Threat of new entrantsThreat of new entrants Economies of scaleEconomies of scale Product DifferentiationProduct Differentiation Capital RequirementCapital Requirement Cost disadvantages independent of sizeCost disadvantages independent of size Access to distribution channelsAccess to distribution channels Government policyGovernment policy

Intensity of rivalry among existing Intensity of rivalry among existing competitorscompetitors Rivalry Rivalry in the industry is determined in the industry is determined

on the number of players.on the number of players. Less playersLess players More playersMore players

Price warsPrice wars AdvertisementsAdvertisements New product launchNew product launch Customer serviceCustomer service

Bargaining Power Of BuyersBargaining Power Of Buyers Many suppliers and few large buyersMany suppliers and few large buyers Purchases in large quantityPurchases in large quantity Switching cost is lowSwitching cost is low

Bargaining Power Of SuppliersBargaining Power Of Suppliers Few suppliers and large number of Few suppliers and large number of

buyersbuyers When firm depends on the single When firm depends on the single

suppliersupplier Switching cost is highSwitching cost is high

Threat of substitutesThreat of substitutes

BuyersSuppliers

Substituteproducts

Potentialentrants

Industry competitors

Rivalry amongexisting firms

Threat ofnew entrants

Bargaining powerof suppliers

Bargaining powerof buyers

Threat ofsubstitutes

BuyersSuppliers

Substituteproducts

Potentialentrants

Concept of complimentarily Concept of complimentarily

Company

Suppliers

ComplementorsCompetitors

Customers

The value Net

Internal Analysis of the firmInternal Analysis of the firm

Analyzing Department and FunctionsAnalyzing Department and Functions Production/operations/technical Production/operations/technical Strategies for small business unitsStrategies for small business units Strategies for large business unitsStrategies for large business units Finance and Accounting Finance and Accounting Marketing Marketing Research and developmentResearch and development

Learning Curve and Experience CurveLearning Curve and Experience Curve

x

y

Experience Curve

Accumulated

Output

Unit costs

Strategic AnalysisStrategic Analysis

BCG Growth-Share MatrixBCG Growth-Share Matrix

Vulnerability AnalysisVulnerability Analysis

Defenseless Defenseless Endangered Endangered

Vulnerable Vulnerable Prepared Prepared

High

High Low

Low Company’s Ability to react

Imp

act

of

Th

reat

Vulnerability Matrix

The GE Nine-Cell Planning GridThe GE Nine-Cell Planning Grid

Business Strength

Mkt

Att

ract

i ven

ess

Strong

Medium

Weak

StrongMedium

Weak

SWOT AnalysisSWOT Analysis SWOT Analysis is a strategic planning tool used to evaluate the Strengths, SWOT Analysis is a strategic planning tool used to evaluate the Strengths,

Weaknesses, Opportunities, and Threats involved in a project or in a Weaknesses, Opportunities, and Threats involved in a project or in a

business venture.business venture. It involves specifying the objective of the business venture or project and It involves specifying the objective of the business venture or project and

identifying the internal and external factors that are favorable and identifying the internal and external factors that are favorable and unfavorable to achieving that objectiveunfavorable to achieving that objective

StrengthsStrengths: attributes of the organization that are helpful to achieving the : attributes of the organization that are helpful to achieving the objective. objective.

WeaknessesWeaknesses: attributes of the organization those are harmful to : attributes of the organization those are harmful to achieving the objective. achieving the objective.

OpportunitiesOpportunities: external conditions those are helpful to achieving the : external conditions those are helpful to achieving the objective. objective.

ThreatsThreats: external conditions that is harmful to achieving the objective. : external conditions that is harmful to achieving the objective.

Strengths and weaknessesStrengths and weaknesses

Resources: financial, intellectual, location Resources: financial, intellectual, location

Cost advantages from proprietary know-how Cost advantages from proprietary know-how

and/or location and/or location

Creativity (ability to develop new products) Creativity (ability to develop new products)

Valuable intangible assets: intellectual capital Valuable intangible assets: intellectual capital

Competitive capabilities Competitive capabilities

Effective recruitment of talented individualsEffective recruitment of talented individuals

Opportunities and threats Opportunities and threats

Expansion or down-sizing of competitors Expansion or down-sizing of competitors Market trends Market trends Economic conditions Economic conditions Expectations of stakeholders Expectations of stakeholders Technology Technology Public expectations Public expectations All other activities competitors All other activities competitors Criticisms by outsiders Criticisms by outsiders Changes in markets Changes in markets All other environmental conditionsAll other environmental conditions

DiversificationDiversificationMarketDevelopment

MarketDevelopment

MarketPenetration

MarketPenetration

ProductDevelopment

ProductDevelopment

Present Products

NewProducts

Present Mission

NewMission

Product/ Mission Matrix of Ansoff

Game TheoryGame Theory

Assessing another player’s likely behaviorAssessing another player’s likely behavior

The game consists of the elements such as players, The game consists of the elements such as players,

actions, information, strategies, outcomes, payoff actions, information, strategies, outcomes, payoff

and equilibrium.and equilibrium.

The players in the game are rival companies, The players in the game are rival companies,

hence the decision makers in the organization take hence the decision makers in the organization take

on the roles of rival companies, Company A (own on the roles of rival companies, Company A (own

company) and Company B( competitor company).company) and Company B( competitor company).

ActionsActions are the choices available to a decision maker. are the choices available to a decision maker.

StrategiesStrategies are guidelines that tell a decision maker which are guidelines that tell a decision maker which

action to choose at each point of the game.action to choose at each point of the game.

OutcomesOutcomes are the results of the game such as price wars.are the results of the game such as price wars.

PayoffsPayoffs are the potential benefits that each decision are the potential benefits that each decision

maker realizes for a particular outcome.maker realizes for a particular outcome.

EquilibriumEquilibrium is a stable result which need not always be is a stable result which need not always be

beneficial.beneficial.

GAME THEORY AIMS TO HELP ORGANIZATIONS TO GAME THEORY AIMS TO HELP ORGANIZATIONS TO

UNDERSTAND SITUATIONS IN WHICH THE DECISION UNDERSTAND SITUATIONS IN WHICH THE DECISION

MAKERS INTERACT.MAKERS INTERACT.

Assessing another player’s likely behaviorAssessing another player’s likely behavior FishbowlFishbowl Red team/blue team Red team/blue team Future mappingFuture mapping

FishbowlFishbowl In this every body brings in his or her In this every body brings in his or her

independent views.independent views. Advocates of certain points stay in the center of Advocates of certain points stay in the center of

the “fishbowl” in the room.the “fishbowl” in the room. And the executives accountable for the decision And the executives accountable for the decision

stay outside the “fishbowl” in the room.stay outside the “fishbowl” in the room. Advocates and other experts present their data Advocates and other experts present their data

and debate one another and,and debate one another and, While the decision makers evaluate the quality While the decision makers evaluate the quality

of the facts at the hand, expos weak positions of the facts at the hand, expos weak positions and analyze the strategic options.and analyze the strategic options.

Red team/blue teamRed team/blue team

In this simulation of a classic war game, managers are In this simulation of a classic war game, managers are

put in charge of teams representing major competitors put in charge of teams representing major competitors

and they plan the strategies they would be use to beat and they plan the strategies they would be use to beat

the organization. the organization.

This type of team work and research increases the This type of team work and research increases the

organization’s competitive intelligence and quickness its organization’s competitive intelligence and quickness its

reflexes by building competitive awareness into its reflexes by building competitive awareness into its

reactions.reactions.

Future mappingFuture mapping This is a name for a way of looking at different This is a name for a way of looking at different

scenarios for the future. scenarios for the future.

In this method decision makers look at several In this method decision makers look at several

alternative futures, or “ end states,” for the alternative futures, or “ end states,” for the

company business, assign a probability to each company business, assign a probability to each

one, and identify the forces that will determine one, and identify the forces that will determine

whether that scenario will actually unfold. whether that scenario will actually unfold.

The aim is to identify those actions with the The aim is to identify those actions with the

biggest returns and the least risk, or both.biggest returns and the least risk, or both.

Formulating Long-term Formulating Long-term StrategiesStrategies

Concentration Concentration

Market DevelopmentMarket Development

Product DevelopmentProduct Development

Horizontal IntegrationHorizontal Integration

Vertical IntegrationVertical Integration

Quasi IntegrationQuasi Integration

Diversification Diversification

Behavioral Considerations Behavioral Considerations Affecting Strategic ChoiceAffecting Strategic Choice

Role of Past StrategyRole of Past Strategy

Attitude Towards RiskAttitude Towards Risk

Competitive ReactionCompetitive Reaction

Degree of Firm’s external DependenceDegree of Firm’s external Dependence SuppliersSuppliers Customers Customers Government Government Competitors Competitors Unions Unions

Values and PreferenceValues and Preference