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 Industry competitors Bargaining power

of suppliers of buyers
Suppliers Buyers
Rivalry among
existing firms

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
Impact of Defenseless Endangered

Vulnerable Prepared
Threat

Low
Low Company’s High
Ability to react

Vulnerability Matrix
The GE Nine-Cell Planning Grid

Weak Medium Strong

Attractiveness

Strong

Medium
Mkt

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 New
Products Products

Present Market Product

Market Product
Mission Penetration Development
Penetration Development

New Market
Market Diversification
Mission Development Diversification
Development
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).
 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 player’s 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 organization’s

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 Firm’s external Dependence

Suppliers

Customers

Government

Competitors
 Unions
Values and Preference