BUSINESS ENVIRONMENT

• It is said that the business can not

live exist, survive in its isolation.
• It need support from different
aspects of its surrounding. That
surrounding factors around the
business is known as environment.
• It may be living or non - living but its
support, positive response is
essential for business smooth
functioning. Therefore we can
summarize environment as all those
factors or forces, residing besides the
business and affecting its functions
or various decisions of the business
• A business environment consists of two types of
environment known as internal environment and
external environment.
• Definition : According to Keith Davis “Environment
of the business means the aggregate of all
conditions, events and influences that surround
and affect it”.
• According to Arthur M. Weimer’s opinion,
“Business environment encompasses the climate
or set of conditions, economic, social, political or
institutional in which business operations are
conducted.
 COMPONENTS / PARTS OF
BUSINESS ENVIRONMENT
• There are two major parts of or
components of business environment
known as - i) Internal Environment ii)
External environment The external
environment is divided into two parts
known as i) Micro component of
environment and ii) Macro
component of environment
 SWOT
Analysis
!

S W O T
 What is SWOT Analysis?

Acronym for Strengths,

Strengths Weaknesses, Opportunities, and
Threats.
Technique is credited to Stanford
University in the 1960s and
1970s.

Planning tool used to understand

Oppurtunity
SWOT Weakness
Strengths, Weaknesses,
Opportunities, & Threats involved

Analysis in a project / business.

Used as framework for
organizing and using data and
information gained from
situation analysis of internal and
external environment.
Technique that enables a group /
Threats individual to move from everyday
problems / traditional strategies
to a fresh perspective.
What is SWOT Analysis?

STRENGTHS

Characteristics of the business or a team

that give it an advantage over others in the
industry.
Positive tangible and intangible
attributes, internal to an organization.

Beneficial aspects of the organization

or the capabilities of an organization,
which includes human competencies,
process capabilities, financial
resources, products and services,
customer goodwill and brand loyalty.

Examples - Abundant financial resources,

Well-known brand name, Economies of
scale, Lower costs [raw materials or
processes], Superior management talent,
Better marketing skills, Good distribution
skills, Committed employees.
What is SWOT Analysis?

OPPORTUNITIES
Chances to make greater profits in the
environment - External attractive factors
that represent the reason for an
organization to exist & develop.
Arise when an organization can take
benefit of conditions in its
environment to plan and execute
strategies that enable it to become
more profitable.
Organization should be careful and
recognize the opportunities and grasp
them whenever they arise. Opportunities
may arise from market, competition,
industry/government and technology.
Examples - Rapid market growth, Rival
firms are complacent, Changing customer
needs/tastes, New uses for product
discovered, Economic boom, Government
deregulation, Sales decline for a substitute
product .
What is SWOT Analysis?

WEAKNESSES

Characteristics that place the firm at a

disadvantage relative to others.

Detract the organization from its

ability to attain the core goal and
influence its growth.
Weaknesses are the factors which do
not meet the standards we feel they
should meet. However, weaknesses
are controllable. They must be
minimized and eliminated.

Examples - Limited financial resources,

Weak spending on R & D, Very narrow
product line, Limited distribution, Higher
costs, Out-of-date products / technology,
Weak market image, Poor marketing skills,
Limited management skills, Under-trained
employees.
 What
SWOT ANALYSISis SWOT
- THREAT Analysis?

THREATS

External elements in the environment that

!
could cause trouble for the business -
External factors, beyond an organization’s
control, which could place the
organization’s mission or operation at risk.
Arise when conditions in external
environment jeopardize the reliability
and profitability of the organization’s
business.
Compound the vulnerability when they
relate to the weaknesses. Threats are
uncontrollable. When a threat comes, the

!
stability and survival can be at stake.
Examples - Entry of foreign competitors,
Introduction of new substitute products,
Product life cycle in decline, Changing
customer needs/tastes, Rival firms adopt
new strategies, Increased government
regulation, Economic downturn.
Aim of SWOT Analysis?

HARMFUL
HELPFUL
To help decision makers
share and compare ideas.

To bring a clearer
common purpose and
understanding of factors

S W for success.
To organize the
important factors linked
to success and failure in
the business world.
To analyze issues that
have led to failure in the
past.

O T To provide linearity to
the decision making
process allowing complex
ideas to be presented
systematically.
Who needs SWOT Analysis?

• When the team has not met its

targets
2 • Customer service can be better
• Launching a new business unit
to
pursue a new business
• New team leader is appointed

Business Unit

Management Company
• When supervisor has issues with
• When revenue, cost & expense
targets are not being achieved
1 work output
• Assigned to a new job 3 • Market share is declining
• New financial year – fresh • Industry conditions are
targets unfavorable
• Job holder seeks to improve • Launching a new business
performance on the job venture
 Who needs SWOT Analysis?
SWOT Analysis is
also required for /
during... Effectiveness in Market
Product Launch

Decision Making

Personal Development Planning

Competitor Evaluation

Product Evaluation
Strategic Planning

Brainstorming Meetings

Goods & Services Evaluation

How to conduct SWOT
Analysis?

1. Analyze Internal & 2. Perform SWOT Analysis 3. Prepare Action Plans

External Environment & Document
How to conduct SWOT
Analysis?
1. Analyse Internal & External Environment
How to conduct SWOT
Analysis?
How to conduct SWOT
Analysis?

1. Analyse Internal & 2. Perform SWOT Analysis 3. Prepare Action Plans

External Environment & Document
 How to conduct SWOT
Analysis?

7
2. Perform SWOT Analysis & Document
Carry your findings forward - Make sure that the SWOT

6
analysis is used in subsequent planning. Revisit your
findings at suitable time intervals.

5
Evaluate listed ideas against Objectives -
With the lists compiled, sort and group
facts and ideas in relation to the

4
objectives.
List Strengths, Weaknesses,
Opportunities, & threats

3
Create a workshop environment -
Encourage an atmosphere conducive
to the free flow of information.

Select contributors -
Expert opinion may be
required for SWOT 2 Allocate research & information gathering tasks -
Background preparation can be carried out in two
stages – Exploratory and Detailed. Information on

1
Strengths & Weaknesses should focus on the
internal factors & information on Opportunities &
Threats should focus on the external factors.
Establish the objectives - Purpose of
conducting a SWOT may be wide / narrow,
general / specific.
How to conduct SWOT
Analysis?

1. Analyse Internal & 2. Perform SWOT Analysis 3. Prepare Action Plans

External Environment & Document
How to conduct SWOT
Analysis?
3. Prepare Action Plan

Once the SWOT analysis has been completed, mark each point with:

Things that MUST be addressed immediately

Things that can be handled now

Things that should be researched further

Things that should be planned for the future

 Benefits & Pitfalls of SWOT
Analysis
Benefits of SWOT Analysis

Benefits of
SWOT
Analysis

Knowing the Competion Forecasting

Reviews a company's competitors & Provides a variety of information
benchmarks against them to critical to forecasted variables.
configure strategies that will put Threats, for e.g., can impact a
the company in a competitive Decision Making Tool business's forecast. By
advantage. understanding the company's
Provides well-rounded
advantages & disadvantages,
information that prompt
forecasts will be more accurate.
well-informed decisions.
Benefits & Pitfalls of SWOT Analysis

Benefits of SWOT Analysis

Besides the broad benefits, here are few more benefits of conducting SWOT Analysis:

Helps in setting of objectives for strategic planning

Provides a framework for identifying & analyzing strengths, weaknesses,

opportunities & threats

Provides an impetus to analyze a situation & develop suitable strategies

and tactics

Basis for assessing core capabilities & competencies

Evidence for, and cultural key to, change

Provides a stimulus to participation in a group experience

Benefits & Pitfalls of SWOT
Analysis
Pitfalls of SWOT Analysis

Can be very subjective. Two people rarely come up with the same final
version of a SWOT. Use it as a guide and not as a prescription.

May cause organizations to view circumstances as very simple due to

which certain key strategic contact may be overlooked.

Categorizing aspects as strengths, weaknesses, opportunities & threats

might be very subjective as there is great degree of uncertainty in market.

To be effective, SWOT needs to be conducted regularly. The pace of

change makes it difficult to anticipate developments.

The data used in the analysis may be based on assumptions that

subsequently prove to be unfounded [good and bad].

It lacks detailed structure, so key elements may get missed.

Brainstorming & Prioritization in SWOT
Analysis

Brainstormin Prioritizatio
g n
Output from Brainstorming exercise is Prioritized

Begin brainstorming by asking the At the end of the Brainstorming exercise:

following questions: • Reduce the list of strengths & weaknesses to no
• What opportunities exist in our more than five distinctive competencies and
external environment? debilitating weaknesses
• What threats to the institution exist in • Strengths that are distinctive competencies
• Weaknesses that are debilitating
our external environment? • Reduce threats and opportunities to the five most
• What are the strengths of our
institution? critically important of each.
• What are the weaknesses of our
institution?
 Tips & Exercise
TIPS

Do’s Don’ts
 Be analytical and specific. х Try to disguise weaknesses.
 Record all thoughts and ideas. х Merely list errors and mistakes.
 Be selective in the final evaluation. х Lose sight of external influences and trends.
 Choose the right people for the exercise. х Allow the SWOT to become a blame-laying
 Choose a suitable SWOT leader or
facilitator. exercise.
 Think out of the box х Ignore the outcomes at later stages of the
 Be open to change planning process.
Tips & Exercise
TIPS

Introduce the
SWOT method
and its purpose Be willing to
When in your breakaway from
conducting a organization to traditional
SWOT gain methods.
analysis, acceptance.
designate a
leader or
group
facilitator. Discuss and
record the results.
While doing a Prepare a written
SWOT summary of the
analysis for SWOT analysis to
your job, give to
invite participants.
someone to
brainstorm
with you.
Tips & Exercise
EXERCISE

Assume that a car manufacturing company has recently

launched its products. Perform a SWOT analysis for the
same.
Tips & Exercise
EXERCISE
Helpful

STRENGTHS WEAKNESSES
• No Competition in the • High Price
EV • Low aesthetic appeal

Internal
Segment. • Small driving range [up to
• Environment friendly
• Economic to Drive [Rs. 80 KM]
0.4 • Competition from
per km] * gasoline
• Government subsidies vehicles
[8%
OPPORTUNITIES THREATS
excise duty] *
• Huge untapped EV • Government incentives
External

market to gasoline vehicles

• Growing demand of • Entry of competitors
green • Stringent safety
technologies requirements anticipated
• Rising fuel costs • Availability of hybrid
• Growing road vehicles
congestion
in urban cities
*Hypothetical figures Harmful
Tips & Exercise
EXAMPLE

Mc Donald’s SWOT Analysis

Tips & Exercise
Mc Donald’s
SWOT Analysis INTERNAL

STRENGTHS WEAKNESSES

• Ranks very high on the Fortune Magazine's • Failing pizza test market thus limiting the
most admired list ability to compete with pizza providers.
• Community oriented • High training costs due to high turnover.
• Global operations all over the world • Minimal concentration on organic foods.
• Cultural diversity in the foods • Not much variation in seasonal products .
• Excellent location • Quality concerns due to franchised operations.
• Assembly line operations. • Focus on burgers / fried foods not on healthier
• Use of top quality products options for their customers.

OPPORTUNITIES THREATS
• Opening more joint ventures. • Marketing strategies that entice people from
• Being more responsive to healthier options. small children to adults.
• Advertising wifi services in the branches. • Lawsuits for offering unhealthy foods.
• Expanding on the advertising on being • Contamination risks that include the threat of
more socially responsible e-coli containments.
• Expansions of business into newly developed • The vast amount of fast food restaurants that
parts of the world.
• Open products up to are open as competition.
allergen free options • Focus on healthier dieting by consumers.
such as peanut free. • Down turn in economy affecting the ability to
EXTERNAL
eat
that much.
Tips & Exercise
Points to Ponder

• Keep your SWOT short and simple, but remember to include important details. For
example, if you think your communication skills is your strength, include specific details,

such as verbal / written communication.

• When you finish your SWOT analysis, prioritize the results by listing them in order of the

most significant factors that affect you / your business to the least.

• Get multiple perspectives on you / your business for your SWOT analysis. Ask for input
from your employees, colleagues, friends, suppliers, customers and partners.

• Apply your SWOT analysis to a specific issue, such as a goal you would like to achieve or

a problem you need to solve. You can then conduct separate SWOT analyses on
individual
issues and combine them.
 What is a PESTEL Analysis?
• A PESTEL analysis is a framework or
tool used to analyse and monitor the
external environment factors which
have an impact on an organisation.
• The result of which is used to
identify threats and weaknesses,
strengths and opportunities which
can be considered or used in a SWOT
analysis.
 What does PESTEL mean?
• PESTEL is an acronym which stands
for the different factors used in
analysing the impact of the external
environment.
• It stands for: P – Political E –
Economic S – Social T – Technological
E – Environmental L – Legal
 Political Factors
• These are all about how and to what degree a government
intervenes in the economy.
• This can include – government policy, political stability or
instability in overseas markets, foreign trade policy, tax
policy, labour law, environmental law, trade restrictions and
so on.
• It is clear from the list above that political factors often
have an impact on organisations and how they do business.
• Organisations need to be able to respond to the current
and anticipated future legislation, and adjust their approach
and policy accordingly.
 Economic Factors
• Economic factors have a significant impact on how an
organisation does business and also how profitable they
are.
• Factors include – economic growth, interest rates,
exchange rates, inflation, disposable income of consumers
and businesses and so on.
• These factors can be further broken down into macro-
economic and micro-economic factors.
• Macro-economic factors deal with the management of
demand in any given economy. Governments use interest
rate control, taxation policy and government expenditure as
their main mechanisms they use for this. Micro-economic
factors are all about the way people spend their incomes.
 Social Factors
• Also known as socio-cultural factors,
they are the areas that involve the
shared belief and attitudes of the
population.
• These factors include – population
growth, age distribution, health
consciousness, career attitudes and
so on. These factors are of particular
interest as they have a direct effect
on how we understand customers
 Technological Factors
• We all know how fast the
technological landscape changes and
how this impacts the way we need to
do business.
• Technological factors affect the way
we do business in a number of ways,
including new ways of producing and
distributing goods and services and
communicating with target
audiences
 Environmental Factors
• These factors have only really come to the
forefront in the last fifteen years or so. They have
become important due to the increasing scarcity
of raw materials, pollution targets, doing business
as an ethical and sustainable company, carbon
footprint targets set by governments (this is a
good example were one factor could be classes
as political and environmental at the same time).
• These are just some of the issues business
leaders face within this factor. More and more
consumers are demanding that the products they
buy are sourced ethically and if possible from a
sustainable source.
 Legal Factors
• Legal factors include - health and safety,
equal opportunities, advertising standards,
consumer rights and laws, product
labelling and product safety.
• It is clear that companies need to know
what is and what is not legal in order to
trade successfully.
• If an organisation trades globally this
becomes a very tricky area to get right as
each country has its own set of rules and
regulations.
 Porter’s Five Forces
Model
• The five forces model is based on the theory of
determining the competitive intensity and
attractiveness of a market
• The key five forces involve:
• The ease of entry (dependent upon entry barriers),
• The power of buyers,
• Suppliers, whereby the bargaining power of each group
influences profitability, the availability of,
• Substitutes which could potentially include alternatives
for consumers, and the degree of,
• Rivalry among competitors.
Forces Driving Industry
Competition

4-44
 Threat of New Entrants
• Threat of new entrants
– new entrants to an industry bring new
capacity, a desire to gain market share
and substantial resources
• Entry barrier
– an obstruction that makes it difficult for
a company to enter an industry

4-45
 Barriers to Entry

Economies of scale
Product differentiation
Capital requirements
Switching costs
Access to distribution
channels
Cost disadvantages due to
size
Government policies
4-46
 Rivalry among Existing
Firms
• In most industries, corporations are
mutually dependent.
• A competitive move by one firm can
be expected to have a noticeable
effect on its competitors and thus
may cause retaliation.

4-47
 Rivalry among Existing
Firms
Number Product or
Rate of
of service
industry
competito characteri
growth stics
rs
Amount Height of
of fixed Capacity exit
costs barriers

Diversity
of rivals
4-48
 Threat of Substitute
Products or Services
• Substitute product
– a product that appears to be different
but can satisfy the same need as
another product
• The identification of possible substitute
products means searching for products
that can perform the same function,
even though they have a different
appearance.
4-49
 The Bargaining Power of
Buyers
• Bargaining power of buyers
– ability of buyers to force prices down,
bargain for higher quality and play
competitors against each other
– Large purchases, backward integration,
alternative suppliers, low cost to change
suppliers, product represents a high
percentage of buyer’s cost, buyer earns
low profits, product is unimportant to
buyer
4-50
 The Bargaining Power of
Suppliers
• Buyers affect an industry through
their ability to force down prices,
bargain for higher quality or more
services and play competitors
against each other.

4-51
 The Bargaining Power of
Suppliers
A buyer or a group of buyers is powerful if
some of the following factors hold true:
• Industry is dominated by a few companies
• Unique product or service
• Substitutes are not readily available
• Ability to forward integrate
• Unimportance of product or service to the
industry

4-52
 Environmental Scanning
• Environmental scanning
– the monitoring, evaluation, and
dissemination of information relevant to
the organizational development of
strategy

4-53
Scanning External
Environment

4-54
 Approaches to
Environmental Scanning:
• The experts have suggested three approaches,
which could be adopted for, sort out information
for environmental scanning.
1. Systematic Approach:Under this approach,
information for environmental scanning is
collected systematically. Information related to
markets and customers, changes in legislation
and regulations that have a direct impact on an
organization’s activities, government policy
statements pertaining the organization’s business
and industry, etc, could be collected continuous
updating such information is necessary not only
for strategic management but also for operational
activities.
2. Ad hoc Approach: Using this approach,
an organization may conduct special surveys
and studies to deal with specific
environmental issues from time to time.
Such studies may be conducted, for
instance, when organization has to
undertake special projects, evaluate existing
strategy or devise new strategies. Changes
and unforeseen developments may be
investigated with regard to their impact on
the organization.
3. Processed-form Approach: For
adopting this approach, the organization
uses information in a processed form
available from different sources both inside
and outside the organization. When an
organization uses information supplied by
government agencies or private institutions,
it uses secondary sources of data and the
information is available in processed form.
 Techniques of
environmental scanning
• As a corporate strategist, one has to
identify the impact of these
environmental forces on firm’s choice
of direction and action.
• Environmental analysis involves two
phases, viz; information gathering
and evaluation.
• Glueck and Jauch mention the
following sources for environmental
analysis:
1. Verbal and written information:
Verbal information is generally
obtained by direct talk with people, by
attending meetings, seminars etc, or
through media. Written or
documentary information includes
both published and unpublished
material.
2. Search and scanning: This involves
research for obtaining the required
information.
3. Spying: Although it may not be considered
ethical, spying to get information about
competitor’s business is not uncommon.
4. Forecasting: This involves estimating the
future trends and changes in the
environment. There are many techniques of
forecasting. It can be done by the corporate
planners or consultants.
• For the above purpose, firms use a
number of tools and techniques
depending on their specific
requirements in terms of quality,
relevance, cost etc. Some of the
techniques which are generally used
for carrying out environmental
analysis are:
1. PESTEL analysis 2. SWOT analysis 3.
ETOP 4. QUEST 5. EFE Matrix 6. CPM 7.
Forecasting techniques (a) Time series
analysis (b) Judgmental forecasting (c)
Expert opinion (d) Delphi’s technique
(e) Multiple scenario (f) Statistical
modeling (g) Cross-impact analysis (h)
Brainstorming (i) Demand/hazard
forecasting