ANALYZING THE BUSINESS ENVIRONMENT :ANALYZING THE BUSINESS ENVIRONMENT By, Priyanka Sangolgi


Content :Content External Environment Industry Level Analysis Internal Analysis of the firm Learning Curve and Experience Curve Vulnerability Analysis Strategic Analysis Formulating Long-term Strategies Behavioral Considerations Affecting Strategic Choice


External Environment :External Environment PEST Analysis


What is PEST Analysis? :What is PEST Analysis? This analysis is essential for an organization before beginning its marketing process It is very important that an organization considers its environment before beginning the marketing process. In fact, environmental analysis should be continuous and feed all aspects of planning. The organization's marketing environment is made up of:


Slide 5:1. The internal environment e.g. staff (or internal customers), office technology, wages and finance, etc. 2. The micro-environment e.g. our external customers, agents and distributors, suppliers, our competitors, etc. 3. The macro-environment e.g. Political (and legal) forces, Economic forces, Socio cultural forces, and Technological forces. These are known as PEST factors.


Slide 6:Political Factors The political arena has a huge influence upon the regulation of businesses, and the spending power of consumers and other businesses. You must consider issues such as: 1.How stable is the political environment? 2.Will government policy influence laws that regulate or tax your business? 3.What is the government's position on marketing ethics? 4. What is the government's policy on the economy? 5. Does the government have a view on culture and religion? 6. Is the government involved in trading agreements such as EU, NAFTA, ASEAN, or others?


Slide 7:Economic Factors Marketers need to consider the state of a trading economy in the short and long-terms. This is especially true when planning for international marketing. You need to look at: 1. Interest rates. 2. The level of inflation Employment level per capita. 3. Long-term prospects for the economy Gross Domestic Product (GDP), and so on.


Slide 8:Socio cultural Factors Lifestyle trends Demographics Consumer attitudes and opinions Media views Law changes affecting social factors Brand, company, technology image Consumer buying patterns Fashion and role models Major events and influences Buying access and trends Ethnic/religious factors Advertising and publicity Ethical issues


Slide 9:The social and cultural influences on business vary from country to country. It is very important that such factors are considered. Factors include: 1.What is the dominant religion? 2.What are attitudes to foreign products and services? 3.Does language impact upon the diffusion of products onto markets? 4.How much time do consumers have for leisure? 5.What are the roles of men and women within society? 6.How long are the population living? Are the older generations wealthy? 7.Do the population have a strong/weak opinion on green issues?


Slide 10:Technological Factors Technology is vital for competitive advantage, and is a major driver of globalization. Consider the following points: 1. Does technology allow for products and services to be made more cheaply and to a better standard of quality? 2.Do the technologies offer consumers and businesses more innovative products and services such as Internet banking, new generation mobile telephones, etc? 3.How is distribution changed by new technologies e.g. books via the Internet, flight tickets, auctions, etc? 4.Does technology offer companies a new way to communicate with consumers e.g. banners, Customer Relationship Management (CRM), etc?


Role of PEST :Role of PEST Helps Assess the market including Competitors from the stand point of a Particular Business. PEST is relevant for any type of Business large, small & medium.


Industry Level Analysis :Industry Level Analysis


Slide 13:Threat of new entrants Economies of scale Product Differentiation Capital Requirement Cost disadvantages independent of size Access to distribution channels Government policy


Slide 14:Intensity of rivalry among existing competitors Rivalry in the industry is determined on the number of players. Less players More players Price wars Advertisements New product launch Customer service


Slide 15:Bargaining Power Of Buyers Many suppliers and few large buyers Purchases in large quantity Switching cost is low


Slide 16:Bargaining Power Of Suppliers Few suppliers and large number of buyers When firm depends on the single supplier Switching cost is high Threat of substitutes


Slide 17:Buyers Suppliers Substitute products Potential entrants Industry competitors Rivalry among existing firms Threat of new entrants Bargaining power of suppliers Bargaining power of buyers Threat of substitutes Buyers Suppliers Substitute products Potential entrants


Slide 18:Concept of complimentarily Company Suppliers Complementors Competitors Customers The value Net


Internal Analysis of the firm :Internal Analysis of the firm Analyzing Department and Functions Production/operations/technical Strategies for small business units Strategies for large business units Finance and Accounting Marketing Research and development


Learning Curve and Experience Curve :Learning Curve and Experience Curve x y Experience Curve Accumulated Output Unit costs


Strategic Analysis :Strategic Analysis BCG Growth-Share Matrix


Vulnerability Analysis :Vulnerability Analysis High High Low Low Company’s Ability to react Impact of Threat Vulnerability Matrix


Slide 23:The GE Nine-Cell Planning Grid Business Strength Mkt Attractiveness Strong Medium Weak Strong Medium Weak


Slide 24:SWOT Analysis SWOT Analysis is a strategic planning tool used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective Strengths: attributes of the organization that are helpful to achieving the objective. Weaknesses: attributes of the organization those are harmful to achieving the objective. Opportunities: external conditions those are helpful to achieving the objective. Threats: external conditions that is harmful to achieving the objective.


Slide 25:Strengths and weaknesses Resources: financial, intellectual, location Cost advantages from proprietary know-how and/or location Creativity (ability to develop new products) Valuable intangible assets: intellectual capital Competitive capabilities Effective recruitment of talented individuals


Slide 26:Opportunities and threats Expansion or down-sizing of competitors Market trends Economic conditions Expectations of stakeholders Technology Public expectations All other activities competitors Criticisms by outsiders Changes in markets All other environmental conditions


Slide 27:Diversification Market Development Market Penetration Product Development Present Products New Products Present Mission New Mission Product/ Mission Matrix of Ansoff


Slide 28:Game Theory Assessing another player’s likely behavior The game consists of the elements such as players, actions, information, strategies, outcomes, payoff and equilibrium. The players in the game are rival companies, hence the decision makers in the organization take on the roles of rival companies, Company A (own company) and Company B( competitor company).


Slide 29:Actions are the choices available to a decision maker. Strategies are guidelines that tell a decision maker which action to choose at each point of the game. Outcomes are the results of the game such as price wars. Payoffs are the potential benefits that each decision maker realizes for a particular outcome. Equilibrium is a stable result which need not always be beneficial. GAME THEORY AIMS TO HELP ORGANIZATIONS TO UNDERSTAND SITUATIONS IN WHICH THE DECISION MAKERS INTERACT.


Slide 30:Assessing another player’s likely behavior Fishbowl Red team/blue team Future mapping


Slide 31:Fishbowl In this every body brings in his or her independent views. Advocates of certain points stay in the center of the “fishbowl” in the room. And the executives accountable for the decision stay outside the “fishbowl” in the room. Advocates and other experts present their data and debate one another and, While the decision makers evaluate the quality of the facts at the hand, expos weak positions and analyze the strategic options.


Slide 32:Red team/blue team In this simulation of a classic war game, managers are put in charge of teams representing major competitors and they plan the strategies they would be use to beat the organization. This type of team work and research increases the organization’s competitive intelligence and quickness its reflexes by building competitive awareness into its reactions.


Slide 33:Future mapping This is a name for a way of looking at different scenarios for the future. In this method decision makers look at several alternative futures, or “ end states,” for the company business, assign a probability to each one, and identify the forces that will determine whether that scenario will actually unfold. The aim is to identify those actions with the biggest returns and the least risk, or both.


Formulating Long-term Strategies :Formulating Long-term Strategies Concentration Market Development Product Development Horizontal Integration Vertical Integration Quasi Integration Diversification


Behavioral Considerations Affecting Strategic Choice :Behavioral Considerations Affecting Strategic Choice Role of Past Strategy Attitude Towards Risk Competitive Reaction Degree of Firm’s external Dependence Suppliers Customers Government Competitors Unions Values and Preference