ANALYZING THE BUSINESS ENVIRONMENT

By, Priyanka Sangolgi

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 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:

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.

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?

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.

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

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?

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
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

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

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

Bargaining Power Of Buyers

Many suppliers and few large buyers Purchases in large quantity Switching cost is low

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

Potential entrants
Threat of new entrants Bargaining power of suppliers

Industry competitors Bargaining power

of buyers

Suppliers
Rivalry among existing firms

Buyers

Threat of substitutes

Substitute products

Concept of complimentarily
Customers

Competitors

Company

Complementors

Suppliers The value Net

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

Unit costs

x Accumulated Output

Experience Curve

Strategic Analysis
BCG Growth-Share Matrix

Vulnerability Analysis
High Defenseless Endangered

Impact of Threat

Vulnerable

Prepared

Low

Low

Companys Ability to react

High

Vulnerability Matrix

The GE Nine-Cell Planning Grid

Weak Medium Strong Strong

Mkt Attractiveness

Medium

Weak

Business Strength

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.

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

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

Product/ Mission Matrix of Ansoff

Present Products Present Mission Market Market Penetration Penetration

New Products Product Product Development Development

New Mission

Market Market Development Development

Diversification Diversification

Game Theory

Assessing another players 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).

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.

Assessing another players likely behavior Fishbowl Red team/blue team Future mapping

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.

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 organizations competitive intelligence and quickness its reflexes by building competitive awareness into its reactions.

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

Concentration Market Development Product Development Horizontal Integration Vertical Integration Quasi Integration Diversification

Behavioral Considerations Affecting Strategic Choice

Role of Past Strategy Attitude Towards Risk Competitive Reaction Degree of Firms external Dependence

Suppliers Customers Government Competitors Unions

Values and Preference